What is Mercosur?

Mercosur is the Spanish acronym for “Mercado Común del Sur” and stands for the South American Common Market. This Customs Union includes Brazil, Argentina, Uruguay and Paraguay, with Bolivia joining as an official member as of July 2024; however, Bolivia is not yet part of the trade agreement with the EU.

Founded in 1991 on the model of the European Union, Mercosur’s main objective is to accelerate economic integration and development in South America. The Union applies a common commodity classification system (NCM) and a common external customs tariff. This tariff, known as “Arancel Externo Común” (AEC) or in Portuguese as “Tarifa Externa Comum” (TEC), establishes a common trade policy among the countries of the union, while granting limited exceptions to the members.

9 On January 9, 2026, representatives of the 27 member states of the European Union secured the necessary political majority for the free trade agreement between the EU and the Mercosur countries of Argentina, Brazil, Paraguay and Uruguay. The process now awaits approval by the European Parliament.

Increasing competition from China, protectionist trade policies of the United States and Europe’s declining global influence have significantly increased the pressure to realize a free trade area 25 years after negotiations began. While full implementation of the agreement will take 15 years of transition, the predictability, elimination of tariffs and harmonization of standards are strategic gains for both sides.

Machinery and machinery parts account for the largest share of EU exports to Mercosur countries. According to Eurostat data, these products accounted for 21.5 percent of total EU exports to the region in 2024. This makes Europe the most important supplier of machinery to South America today. However, China’s rapid entry into these markets indicates that this advantage for Europe is not permanent. Similarly for Türkiye, the machinery sector is in a critical position in trade with Mercosur. Mercosur countries currently impose customs duties ranging from 0% to 14% on machinery imported from Türkiye. On the other hand, when Mercosur’s free trade agreement with the EU enters into force, machinery imports from these countries to Türkiye will become tax-free due to the Customs Union; however, Türkiye’s machinery exports to Mercosur will continue to be subject to existing taxes unless a separate FTA is signed between Türkiye and these countries. This would create a market opening to the detriment of Türkiye, structurally distorting the competitive balance.

For this reason, the European Commission aims to bring the agreement signed with Mercosur into force as soon as possible. However, the real critical issue is when the agreement will actually start to be implemented and what transition periods are envisaged for the sectors.

The effects of this free trade agreement on the Turkish economy, and particularly on the machinery sector, must be analyzed without delay and in a comprehensive manner, and any elements that negatively affect free competition must be discussed with Mercosur countries immediately.

New Opportunities with the Removal of Customs Duties and Harmonization of Standards

The EU–Mercosur agreement will significantly increase the competitiveness of European machinery manufacturers. Under the agreement, customs duties applied to a large proportion of machinery will be phased out. Furthermore, harmonization of standards is also critical, as even minor technical differences can effectively create trade barriers and delay the entry of products into the market.

Among the main product groups exported by the EU to Mercosur, machinery accounts for 22%, chemicals for 14%, pharmaceuticals for 12%, and motor vehicles and spare parts for 9%.

Due to the relatively high barriers to entry in South American markets, more than 100 machine manufacturers from Germany alone, mostly in Brazil’s São Paulo state, have established their own production facilities in the region. The fact that VDMA has opened a representative office in the Mercosur region also clearly demonstrates the strategic importance that European industry attaches to this market.

The significance of the agreement for the machinery sector

Brazil is by far the largest buyer of German goods in the Mercosur region. In 2024, 82% of Germany’s exports to Latin America were destined for this country, with Argentina ranking second with a 14% share. Uruguay and Paraguay each account for approximately 2% of the total.

According to VDMA data, the agreement envisages the elimination of customs duties on 95% of all mechanical engineering products. However, this elimination period extends to 10 years for most products and up to 15 years for some. Therefore, the full impact on export figures will only be felt in the medium to long term.

The number of products for which customs duties are directly reduced to zero in the first year following the entry into force of the agreement is quite limited; the main products covered are as follows:

  • Metalworking lathes,
  • Machinery for the textile industry
  • Machinery for the confectionery industry

In contrast, no customs duty reduction is envisaged for milking machines, hay and feed presses, food processing machines, or pumps with measuring devices.

From Türkiye’s perspective, the machinery trade has already reached a significant size. In 2024, Türkiye’s machinery exports to Mercosur countries increased by 16.4% to $195 million, while imports of the same product group from these countries decreased by 20% to $139 million. This picture shows that Türkiye has increased its competitive strength in the machinery sector against Mercosur and has begun to turn the balance of trade in its favor in this particular chapter. However, the FTA to be concluded with the EU will mean that machinery worth $139 million originating in Mercosur will enter the Turkish market with zero customs duties.

The agreement provides greater predictability compared to existing concessions

Until now, customs duties ranging from 12% to 20% were applied to machinery imports in Mercosur countries. In Brazil, however, thanks to a special regime called “Ex-Tarifário,” a 2% or even 0% tax could be applied to capital goods that were not produced in the country or were not competitive. However, this regime is temporary, and companies must reapply to the Brazilian Chamber of Foreign Trade (CAMEX) every one to two years. Moreover, the recent unexpected rejection of many applications has demonstrated how fragile this system is. The program itself is also time-limited and was last extended in July 2025 until the end of 2028.

The advantages provided by the Free Trade Agreement with South America

Donald Trump’s customs policies are seriously undermining the rules-based global trade order. In response, the European Commission wants to quickly implement a free trade agreement with Mercosur. Although this agreement is far from compensating for the losses incurred in trade with the US, it will create a massive free trade area covering more than 715 million people and approximately a quarter of global economic output between the two continents.

Why is South America so important?

Germany played a decisive role in this process. Despite objections from France, Italy, and Poland, particularly on agriculture and subsidies, a qualified majority was achieved when Italy changed its position. The main reason for this is that the agreement will provide Germany’s export-oriented industry with advantages that are much greater than those offered to other EU countries.

From Germany’s perspective, the main arguments in favor of ratifying the agreement and deepening economic relations with Mercosur are as follows:

1) German companies will gain much more effective access to rapidly growing markets with a population of approximately 260 million. Although Brazil and Argentina have largely kept their markets closed with protectionist policies to date, China’s influence in the region is growing rapidly. Thanks to the free trade agreement, European products will gain a clear competitive advantage over competitors who do not benefit from similar trade facilities.

2) Mercosur countries are democratic states governed by the rule of law, traditionally close to Europe and accessible via relatively short and secure trade routes. There is strong interest in multilateral trade and cooperation with the EU. The fact that many German companies are integrated into the industry through local subsidiaries in the region makes Mercosur a reliable center for risk reduction strategies. This importance is increasing day by day due to uncertainties in other markets.

3) Although there is a shortage of skilled labor in South America, German companies have succeeded in transforming highly motivated local workers into long-term human resources by training and developing them within their own organizations.

4) The partnership established with Mercosur provides an important foundation for supporting the European Union’s decarbonization goals. South American countries are both rich in critical raw materials and world leaders in the field of renewable energy.

Ahmet Yılmaz  

Machinery Exporters’ Association Germany Advisor