The European Commission and South American trade bloc Mercosur inked a groundbreaking trade agreement on December 6, creating the world's largest free trade area amid fierce opposition from France and several other EU member states.

The deal, which covers 780mn people and promises to save EU companies €4bn in annual export duties, was announced by European Commission President Ursula von der Leyen during talks with Mercosur leaders in Montevideo, including Brazilian President Lula and Argentinian President Milei.

"This is a win-win agreement, which will bring meaningful benefits to consumers and businesses, on both sides," von der Leyen said. She emphasised that European health and food standards would remain "untouchable" and Mercosur exporters would need to comply strictly with these standards to access EU markets.

To secure final approval, the agreement must win support from at least 15 of the 27 EU member states representing 65% of the EU population, along with a simple majority in the European Parliament. Mercosur negotiators have expressed confidence that France will be unable to build a sufficient coalition to block the deal.

The agreement has sparked a clear divide among EU members. France leads the opposition, fearing an influx of cheap South American agricultural products would threaten its farming sector. Poland has officially joined the anti-Mercosur coalition, which already includes Austria and Ireland.

Italy's position remains vague, but will prove crucial. Prime Minister Giorgia Meloni's office stated that signing can only proceed with "adequate safeguards and compensation in case of imbalances for the agricultural sector." As a large EU country, Italy's vote could potentially derail the agreement.

The deal includes significant environmental commitments, making the Paris Agreement an essential element of the EU-Mercosur relationship and establishing concrete commitments to halt deforestation. The EU has also pledged €1.8bn in support of facilitating green and digital transition in Mercosur countries under its Global Gateway initiative.

EU Trade Commissioner Maroš Šefčovič highlighted the agreement's strategic importance: "This landmark agreement paves the way to new export opportunities for EU companies, including our SMEs and agri-food exporters, while developing resilient value chains in strategic sectors."

The timing has proven particularly sensitive for Paris, coming just hours after the collapse of Prime Minister Michel Barnier's government. Paraguayan President Santiago Peña announced plans to visit France next week in an attempt to win over President Emmanuel Macron's support.

Before final implementation, the agreement must undergo legal review and translation into all official EU languages before being submitted to the EU Council and Parliament for approval. The process is expected to face significant political hurdles as opposing member states work to build a blocking minority.

The South American bloc, inaugurated in 1991, recently welcomed Bolivia as a full member and readies to add Panama. It now encompasses 73 per cent of South America's territory and represents approximately 65 per cent of the region's population.  According to Brazilian diplomatic sources, intra-Mercosur trade has reached $32.5bn this year, with manufactured goods accounting for 82 per cent of exports.

The deal sealed with Brussels encompasses both trade and political cooperation, protecting more than 350 European geographical food and drink indications while establishing new commitments on sustainable development, labour rights, and forest conservation.