On July 3, 2025, the Argentine capital Buenos Aires hosted the 66th summit of the Southern Common Market (Mercosur), which includes five member states—four of which are founding members: Argentina, Brazil, Paraguay, and Uruguay. Bolivia became a full member in July 2024. Mercosur also includes Chile, Colombia, Ecuador, Guyana, Peru, and Suriname as associate members. During the summit, Argentina’s President Javier Milei, whose country assumed the rotating presidency of the bloc at the beginning of the year, pushed for greater regulatory flexibility within Mercosur. This would allow member states to unilaterally sign free trade agreements with third parties, as Argentina seeks to sign a free trade agreement with the United States—highlighting questions about the future of the trade bloc and its viability.
Guiding Contexts
The semi-annual Mercosur summit convened amid rising U.S. trade protectionism and came at a decisive moment for the bloc, which was established in 1991 and is now facing increasing demands for structural and operational reforms, as highlighted below:
1. Intensification of Global Trade Wars:
The summit took place amid global economic uncertainty due to U.S. protectionist measures and tariffs that affected Mercosur countries. This has driven member states to seek broader external partnerships to achieve greater integration and more room for maneuver. During his speech, Brazilian President Luiz Inácio Lula da Silva urged Mercosur countries to strengthen ties with Asian nations, calling them the “dynamic center” of the global economy. Lula stated: “Our participation in global value chains will benefit from deepening relations with Japan, China, South Korea, India, Vietnam, and Indonesia.”
2. Slowing Economic Growth in Some Member States:
Argentina and Paraguay lead the bloc in 2025 economic growth forecasts, at 4.3% and 3.9% respectively. In contrast, other members face severe economic crises—chief among them Bolivia, which suffers from overreliance on the U.S. dollar, depleted international reserves, rising debt, and a failure in natural gas production, once a key source of national revenue. Bolivia’s growth is projected at a modest 2.1% for 2025.
Brazil also has relatively modest forecasts, with GDP growth expected to reach 2.2% in 2025 and only 1.6% in 2026, after averaging 3.6% growth annually over the past four years. Uruguay’s economy is expected to slow to 2.5% in 2025, down from 3.1% in 2024. These conditions are motivating members to strengthen trade partnerships to stimulate economic growth.
3. Increasing Political Divisions Among Member States:
Mercosur was founded in 1991 through the Treaty of Asunción, driven by diplomatic and economic cooperation between Argentina and Brazil in the 1980s. However, current relations between the two nations are tense due to ideological differences between Brazil’s Lula da Silva and Argentina’s Javier Milei. During his election campaign, Milei made disparaging remarks about Lula, calling him a “communist” and “corrupt.” The strain was evident as the two presidents avoided holding a bilateral meeting during the summit, even as Lula visited former Argentine president Cristina Fernández de Kirchner, a major rival of Milei.
The two presidents also have divergent views on Mercosur’s future and its external partnerships. Milei is calling for “pro-free trade reforms,” while Lula emphasized Brazil’s goal of promoting energy transition as part of combating climate change—an issue Milei denies. Lula favors free trade deals between Mercosur and Asia and the EU, while Milei focuses on an agreement with the U.S. Meanwhile, Paraguay’s Santiago Peña and Uruguay’s Yamandú Orsi expressed support for Mercosur’s joint negotiation strategy.
4. Rise of Calls to Reform Mercosur:
Mercosur functions as a customs union and free trade area, aspiring to become a common market like the EU. However, more than 30 years after its founding, it still struggles to realize that vision. The bloc has faced declining intra-bloc trade and political disputes hindering progress and trade liberalization. However, intra-bloc trade among the four founding members peaked in 2023, reaching about $98 billion. Still, there are growing calls—led by Milei—for reforms and for allowing member states greater autonomy to negotiate trade agreements with non-member partners. In his summit speech, Milei urged Mercosur to abandon “destructive stagnation” and reaffirmed his government’s commitment to the “path of liberty,” warning that they will pursue it “with or without companions.” He argued that Mercosur has become less than a common market and needs more autonomy for each member to leverage its comparative advantages.
Determinants of the Bloc’s Future
Several factors are likely to shape the future of Mercosur, including:
1. Mercosur’s Relative Economic Strength:
Mercosur is one of the world’s leading economic blocs, collectively forming the fifth-largest economy globally. The bloc includes over 285 million people and a combined GDP nearing $3 trillion. This economic heft has attracted countries and other trade blocs to deepen ties with Mercosur, resulting in multiple free trade and preferential trade agreements—including with Chile, Colombia, Peru, Israel, Egypt, and the Southern African Customs Union. A free trade agreement with the European Union was finalized in December 2024 but still requires ratification by member states to take effect.
During the summit, Mercosur also announced the conclusion of negotiations on a free trade agreement with the European Free Trade Association (EFTA), which includes Iceland, Liechtenstein, Norway, and Switzerland. The deal would create a free trade area covering nearly 300 million people and a GDP of over $4.3 trillion. Both sides will benefit from increased investment and market access for more than 97% of their exports. The agreement, to be signed in the second half of 2025, covers trade in goods and services, investment, intellectual property rights, and other areas.
2. Member States’ Belief in Economic Integration Benefits:
Strengthening trade cooperation depends on each country’s belief in Mercosur’s benefits for their own economies. Some countries, including not only smaller ones like Uruguay and Paraguay but also Argentina, have voiced concerns that Mercosur benefits some members—particularly Brazil—more than others.
Nevertheless, there are strong indicators that these countries recognize the bloc’s importance in facing external economic pressures, as well as the value of acting as a unified negotiating force in trade talks with other countries and blocs. Despite internal differences, the summit’s final statement emphasized common interests, such as enhancing cooperation to “combat transnational criminal organizations” involved in drug trafficking and the illicit trade of migrants and firearms. The transfer of Mercosur’s rotating presidency from Argentina to Brazil also proceeded smoothly and according to established protocols.
3. Member States’ Ability to Overcome Internal Disputes:
A key factor in Mercosur’s success and sustainability is its members’ ability to take concrete steps to bridge gaps in vision regarding the bloc’s functioning. In this light, the summit saw an agreement to increase the number of imported goods that each member can exempt from the bloc’s unified external tariff. Until December 2028, the five member states can now apply their own tariffs on up to 150 items—up from the previous 100. This gives member states greater flexibility to manage their external trade policies, including through narrowly tailored, tariff-free agreements with external partners without breaching Mercosur rules.
4. Success of Brazil’s Presidency of the Bloc:
In his speech accepting the rotating presidency, Lula outlined Brazil’s goals for the next six months, including advancing climate change policies, promoting energy transition, enhancing regional technological development, and combating transnational organized crime. He also committed to studying Milei’s proposal to establish an agency dedicated to fighting transnational crime. One of Lula’s main priorities is to finalize and sign the free trade agreement with the European Union by the end of the year—despite resistance from countries like France. Lula also expressed intentions to pursue similar agreements with Canada, the UAE, Panama, and the Dominican Republic. He called on Mercosur to adopt a “local currency payment system that facilitates digital transactions.” If successful, Brazil’s presidency could mark a turning point in Mercosur’s trajectory.
Conclusion
The recent Mercosur summit in Argentina demonstrated the member states’ conviction in the value and importance of economic integration. Despite political disagreements between the presidents of Brazil and Argentina, pragmatism prevailed in the summit proceedings and final statement—reflecting a shared understanding of the need to maintain Mercosur’s unity and cohesion in the face of global economic turbulence. This prompted member states to adopt a more flexible approach to external tariffs and push forward with trade agreements with external partners such as EFTA.
