On Wednesday, the EU Parliament narrowly voted in favor of having the Mercosur free trade agreement reviewed by the European Court of Justice. 334 MEPs voted in favor, 324 against and eleven abstained.

The splitting of the agreement into a partnership agreement and a separate trade agreement was criticized in particular. While the partnership agreement must be ratified by all national parliaments, the trade part only requires the approval of the European Parliament. Critics see this as a circumvention of national participation rights. They also fear a weakening of European consumer, environmental and animal welfare standards.

This means that the agreement between the EU and the Mercosur states of Argentina, Brazil, Paraguay and Uruguay is politically blocked for the time being and under legal scrutiny. It is currently impossible to estimate how much time the European Court of Justice will need for its assessment. There are no fixed deadlines for such opinions; in comparable proceedings, the review has recently extended over periods of 16 to 26 months. Should the ECJ come to the conclusion that the agreement is not in line with EU law, it would only be possible for it to enter into force after appropriate adjustments have been made.

Industry reacts with harsh criticism

Wolfgang Große Entrup, Managing Director of the VCI © VCI/Thomas Lohnes

The decision has met with massive resistance from industry. Wolfgang Große Entrup, Managing Director of the German Chemical Industry Association, speaks of a turning point in industrial policy - albeit in a negative direction. The decision is an "industrial policy revelation". While other regions of the world consistently asserted their interests, Europe opted for standstill and self-blockade. Those who block the agreement are weakening Europe's industry, endangering jobs and accepting a loss of prosperity. In times of escalating tariff conflicts, this is "political sabotage". Große Entrup is therefore calling for pragmatism - if necessary, the agreement must be provisionally put into force while it is being examined.

VDMA Managing Director Thilo Brodtmann © VDMA

The mechanical and plant engineering industry also sees considerable risks. VDMA Managing Director Thilo Brodtmann warns of considerable delays. In view of Europe's economic and geopolitical situation, the involvement of the Court of Justice is "completely incomprehensible" and would massively complicate the process. An expert opinion could take up to two years - as was the case with the free trade agreement with Singapore. However, a swift entry into force is essential for the mechanical engineering industry: the current Mercosur tariffs of eleven percent on average make European exports considerably more expensive and are a burden for many companies. After more than 25 years of debate, further delays are unacceptable. Europe is hindering itself - especially at the expense of export-oriented industrial SMEs.

Competitiveness and resilience under pressure

There is also clear criticism from the electrical and digital industry. ZVEI Chairman of the Board Wolfgang Weber describes the decision as a "bitter setback for Europe". The agreement will be delayed indefinitely, or at least for months. For the industry, a market with a volume of around 90 billion euros will continue to be blocked by customs duties, regulatory hurdles and a lack of planning security. While other economic areas are systematically expanding their presence in South America, Europe is losing out on specific market opportunities. This weakens the international competitiveness of European companies.

Wolfgang Weber, Chairman of the ZVEI Management Board © ZVEI/Melanie Bauer

The delay is also problematic with regard to the European strategy for the diversification and resilience of supply chains. In geopolitically uncertain times, Europe needs more reliable trading partners - not fewer. This also applies to access to strategic raw materials, which will be significantly more difficult without a stable institutional framework. Europe risks losing further credibility in terms of economic and trade policy.

Signal effect beyond the industry

The automotive industry is making similarly clear statements. Hildegard Müller, President of the German Association of the Automotive Industry, speaks of a "devastating sign". The judicial review could considerably delay the entry into force of the agreement, possibly even by years. There is a risk that the Mercosur states will lose patience with the EU and that the agreement as a whole will fail. Despite the parliamentary resolution, provisional application by the EU Commission is possible and necessary. The Commission must provide clarity quickly.

Hildegard Müller, President of the VDA © VDA

Europe is thus weakening itself - at a time when geopolitical stability and reliable international partnerships are particularly in demand. Instead of sending a signal for free trade and a rules-based world order, the parliament is creating uncertainty. The benefits of the agreement are clear from the industry's perspective: additional demand from the Mercosur region would not only strengthen the German automotive industry, but also stimulate value creation, trade and employment throughout Europe.

Industry calls for political determination

There is a lot at stake for business and industry. The core of the agreement is the reduction of customs duties and other trade barriers - particularly for industrial products, vehicles, agricultural products and raw materials. According to EU calculations, European companies could save billions in customs duties every year. The South American market is considered strategically important for export-oriented industries and German SMEs in particular, also with regard to more resilient and diversified supply chains.

The industry's message is clear: in times of increasing protectionism, Europe needs determination instead of delaying tactics. Further blockades on the EU-Mercosur agreement are seen by the associations as short-sighted in terms of economic policy - with potentially long-term consequences for competitiveness, investment and industrial value creation in Europe.