EU–Mercosur deal: a subtle tradeoff in growth, emissions and global cooperation

Negotiations on the trade agreement between the EU and Mercosur were concluded in 2024, though ratification is still pending. Some EU countries remain opposed to the agreement, primarily due to agricultural and environmental concerns. Using Oxford Economics’ Global Economic Model (GEM), we simulate the impact of a general trade shock resembling the agreement's estimated outcome. Our results show the impact on trade, GDP, inflation, employment and greenhouse gas emissions in the EU-27, Austria and the three largest Mercosur countries after the agreement’s implementation in the post-adjustment phase in 2040. The EU and Mercosur would both see rising trade, though Mercosur's increase would be ten times larger in relative terms. Similarly, after 15 years, annual GDP gains are expected to be modest in the EU (0.02%) and slightly stronger in Mercosur (0.06%). The environmental impact is projected to be relatively more pronounced: greenhouse gas emissions in 2040 could increase by 0.1% in the EU and by 0.8% in Mercosur. While these findings are within the range of (but somewhat lower than) those of prior studies, they should be interpreted with caution, given the model’s limitations. Despite environmental concerns, the agreement could signal a commitment to global cooperation and ensure the EU’s access to essential raw materials for the green transition. In return, Mercosur countries would receive financial support for their green and digital transformations, strengthening sustainability standards and efforts against deforestation.