Economic Security Update: EU-Mercosur at 100 Days - where Trade Policy meets Economic Security

Since 1 May 2026, the EU-Mercosur Interim Trade Agreement (iTA) has provided an operational framework for preferential trade between the EU and Argentina, Brazil, Paraguay and Uruguay. One hundred days of provisional application offers a timely occasion to examine the agreement through a lens that was far less prominent when negotiations began more than two decades ago: economic security.

The December 2025 Joint Communication on Strengthening EU Economic Security (the 2025 Joint Communication) calls for more strategic use of the EU’s economic security toolbox to reduce exposure to economic risks, prevent its de-risking objectives from being undermined and expand opportunities for diversification through EU trade agreements.[1] Within that toolbox trade agreements have a particular role: (1) they diversify markets and sources of supply, (2) they reduce risk dependencies and (3) they  build more resilient economic relationships with trusted international partners.

Trade agreements remain instruments of openness, but openness is increasingly being deployed strategically.[2] Alongside protective, autonomous instruments, such as FDI screening, export controls and the Anti-Coercion Instrument, trade agreements emerge in the sphere of economic security, reducing vulnerability by widening the range of markets, suppliers and locations available to the EU economy.

This update considers the iTA as a case study of that development. It focuses on three areas, tariffs and rules of origin, critical raw materials and government procurement. It assesses how the iTA may facilitate diversification, strengthen supply-chain resilience and improve access to strategic inputs.

Trade agreements in the EU’s economic security toolbox

The 2025 Joint Communication includes trade agreements among the instruments in the “Trade and competition” pillar of the EU economic security toolbox. The 2025 Joint Communication acknowledges that most of the tools in that toolbox were not originally developed with economic security in mind.[3] They are now to be used more strategically, proactively and efficiently, in coordination with one another.[4]

Trade agreements occupy a different position from many of the EU’s autonomous economic security instruments. Export controls, investment screening and anti-coercion measures are autonomous or unilateral instruments designed primarily to protect the EU against identified economic security risks. Trade agreements operate differently, through negotiated and reciprocal commitments: they create rights of access, remove barriers and establish more predictable conditions for economic exchange.

Reducing risk exposure through diversification, making the EU economy more resilient[5]

Trade agreements are tools to reduce the EU’s exposure risk, including by facilitating access to alternative suppliers and markets. They lower EU dependence on single-country sources of critical inputs and prevent third countries from undermining the EU’s derisking efforts.[6]

Where the European Commission identifies such high-risk dependencies, trade agreements serve as a mechanism to open up second and third supply sources. The use of trade agreements therefore answers to the risk that third countries weaponise such high-risk dependencies.

Supply chain building with trusted partners

The 2025 Joint Communication envisages building on existing trade agreements, alongside other bilateral and plurilateral forms of cooperation.[7] Trade agreements can provide a stable and legally binding framework for these economic relationships by reducing barriers, establishing predictable trading conditions and creating institutional mechanisms for cooperation.

Hosting production of critical goods in partner countries

The Joint Communication also refers to the possibility of locating production of certain critical products in candidate countries and other partner countries, including in the Middle East and North Africa.[8] Trade agreements can support that objective by establishing the conditions in which alternative production of critical goods outside the EU but within trusted jurisdictions becomes commercially viable. This goes further than market access – it is about anchoring supply chains for critical goods in countries the EU works with closely and creating more geographically diversified supply chains.

Role of EU-Mercosur Agreement for the EU’s economic security

The EU-Mercosur iTA provides a practical example of how a trade agreement, originally negotiated principally as a market-opening instrument, can acquire a broader economic security relevance. Its contribution lies in providing EU businesses with alternatives, such as alternative export markets, sourcing routes, raw material supply, and procurement opportunities.

Several chapters in the iTA are particularly relevant in this respect, including  but not limited to tariff liberalisation and rules of origin, improved access to critical raw materials and public procurement.

Tariffs and rules of origin

The tariff reductions are substantial, lowering the tariffs on cars (previously up to 35%), machinery (previously 14-20%), and pharmaceuticals (previously up to 14%).[9] The European Commission estimated the agreement will save EU firms more than €4 billion each year in customs duties.[10]

Rules-of-origin determine which products benefit from those preferences, Where EU products incorporate non-EU inputs, preferential treatment depends on compliance with the origin requirements in Chapter 3 and the product-specific rules in Annex 3-B. Those rules therefore also influence which supply chain can effectively benefit from the agreement.

Critical Raw Materials

Critical raw materials provide perhaps the clearest connection between the iTA and economic security. The EU remains dependent on external sources for a number of materials that are important to its industrial and strategic capabilities. Concentration of those supplies can create vulnerabilities where exporting countries impose restrictions, licensing requirements or other limitations.

The EU-Mercosur contributes to diversification in several ways. First, it reduces tariffs affecting critical raw materials and derived products, reducing the costs for EU manufacturers. Second, it limits export restrictions, such as export duties, export monopolies, and non-automatic import licensing requirements.[11] Brazil retains limited exceptions, but the agreement provides preferential treatment for EU operators in relevant circumstances.[12]

Finally, the EU-Mercosur agreement can facilitate EU investment in production and processing activities in Mercosur. From an economic-security perspective, this can help diversify the geographical base of supply and reduce reliance on a small number of production locations. The iTA does not, however, contain a conventional investment-protection chapter. Its contribution lies principally in improving market access and conditions for establishment rather than providing comprehensive post-establishment investment protection.

Procurement

Public procurement provides another route through which the iTA may contribute to economic security. The agreement does not open every public contract. It applies only to “covered procurement”, which requires checking the procuring entity, contract value, type of goods or services, applicable thresholds, relevant country schedule and any exclusions. This can broaden access to public markets that shape infrastructure, industrial capacity and long-term supply relationships.

For procurement covered by the iTA, Mercosur suppliers occupy a different legal position from suppliers from third countries for which the EU has undertaken no comparable procurement commitment. That distinction remains subject to the scope of Chapter 12 and the applicable coverage schedules.

Concluding remarks

The EU-Mercosur iTA significance for economic security lies in the alternatives it creates. By lowering barriers to an additional market, facilitating access to strategic inputs and establishing reciprocal procurement rights, the agreement can contribute to diversification and resilience. Whether those legal opportunities ultimately translate into less concentrated trade and supply relationships will depend on how they are used in practice.

The EU-Mercosur iTA therefore illustrates a broader shift in EU trade policy: trade agreements remain instruments of openness, but openness itself is increasingly being assessed – and deployed – through an economic security lens.

[1] European Commission, “Joint Communication to the European Parliament and the Council. Strengthening EU Economic security” (3 December 2025) JOIN(2025)977 final, page 2.

[2] Ignacio García Bercero, Petros C. Mavroidis, André Sapir, “Updated assessment: Memo to the commissioner responsible for trade” (30 January 2025) Bruegel, available at: https://www.bruegel.org/first-glance/updated-assessment-memo-commissioner-responsible-trade.

[3] European Commission, “Joint Communication to the European Parliament and the Council. Strengthening EU Economic security” (3 December 2025) JOIN(2025)977 final, page 2.

[4] Ibid.

[5] Federico Steinberg, Guntram Wolff, “Dealing with Europe’s economic (in-)security” (18 October 2023) 15 Global Policy 1, available at: https://doi.org/10.1111%2F1758-5899.13303c.

[6] European Commission, “Joint Communication to the European Parliament and the Council. Strengthening EU Economic security” (3 December 2025) JOIN(2025)977 final, page 3.

[7] Ibid., pages 6 – 7.

[8] Ibid.

[9] European Commission, “The EU-Mercosur trade agreement”, accessed on 7 August 2026, available at: https://commission.europa.eu/topics/trade/eu-mercosur-trade-agreement_en.

[10] Ibid.

[11] EU-Mercosur iTA, Chapter 2, Articles 2.9,  2.7.

[12] EU-Mercosur iTA, Annex 2-B, Section D.