Twenty-five years after discussions began regarding the creation of a free trade area between South America and Europe, the Mercosur and Associated States Summit, taking place in the city of Foz do Iguaçu in Paraná state, is expected to see the signing of the agreement on Saturday, December 20th.

But the Mercosur-European Union agreement alone is not enough to unlock the Brazilian government's trade agenda. While there is a real need to diversify trade between the blocs and reduce dependence on China in terms of exports, Brazil needs to do its part domestically to ensure all the advances of the agreement are realized.

According to diplomat Marcos Troyjo, former president of the BRICS Bank and one of those responsible for concluding an agreement between the trade blocs in Brussels in 2019 – which ultimately did not move forward – there are ten fundamental points that need to be addressed by the Brazilian government so that the country can, in fact, fully benefit from the treaty with the countries of the European Union.

“What will be signed on Saturday is essentially what we signed back then, with minor changes. One of the changes was Brazil's withdrawal of the possibility of government procurement with other countries, which, in my opinion, is a mistake because it reduces the level of transparency,” says Troyjo, in an interview with NeoFeed .

“We are underutilizing Europe, which, as a whole, is the second largest economy in the world. It is smaller than the United States, but larger than China's. The European Union has a third of China's population, but a GDP per capita three times higher. We could be taking much more advantage of this,” he adds.

According to the former Secretary of Foreign Trade and International Affairs at the Ministry of Economy during Jair Bolsonaro's administration, Lula's government is attempting to put its own stamp on a plan that the administration made no effort to advance over the years.

In any case, the former president of the BRICS Bank – a position now held by Dilma Rousseff – believes that the signing and effective implementation of the agreement has great potential to reduce the risks generated by the enormous participation of the Asian market in the Brazilian trade balance.

“It’s a very important agreement for the Europeans, who are sandwiched between this mega-competition between the United States and China, but it’s also very significant for us. Brazil, which uses this discourse of protecting national companies, needs more diversification of international trade,” he states.

"Of every US$100 that Brazil exports, US$33 go to China. Of every US$2 exported, US$1 goes to Asia. Today, Brazil exports more to Singapore, for example, than to Germany; more to Thailand than to France," he adds.

This volume, however, is not the problem; rather, it's the failure to put "eggs" in other baskets, such as those of European countries. In general, these agreements serve as a great incentive for cross-border investments. And Europe can greatly contribute to this.

“In an international agreement, one of the main benefits is that it serves as a catalyst for internal reforms. But that depends on the government's willingness. And I don't see that in Brazil,” he says.

Below are the 10 points listed by Troyjo to NeoFeed that need to be addressed by the Presidential Palace for this trade agreement to have the expected result:

FISCAL ADJUSTMENT
 "Brazil will necessarily have to make fiscal adjustments and structural reforms. And what I see is the country paying little attention to fiscal issues, public spending, and the need to ensure greater competitiveness for Brazilian companies. There is a great risk that we will not be able to do our part after signing the agreement."

HIGH TAX BURDEN
 The economist and diplomat points to the discrepancy between Brazil's spending volume compared to other major emerging countries, which affects the country's economic growth.

"If you take countries like Mexico, Turkey, and India, they have an average tax burden of 18% to 22% of their Gross Domestic Product (GDP). Brazil's is 33%. The Brazilian state is very expensive."

Government intervention in company boards
 "The government needs to adopt a meritocracy model in mixed-economy companies, where it holds a relevant position and participates on boards. We can't continue with the model this administration has been using of appointing people to these positions."

ECONOMIC PRODUCTIVITY IS FALLING
 Under the agreement, there is a possibility that companies will move beyond selling only to Argentina, Uruguay, and Paraguay and expand into countries within the European Union, and vice versa. "All of this will directly and positively affect agriculture, the industrial sector, and the service sector," he says.

According to him, with productivity declining, the treaty has the potential to help change this situation. "The country needs to modernize internally. There's no other way out; Brazil will have to do it. This is a dimension that people don't pay attention to."

According to Troyjo's assessment, this includes attracting more investment to facilitate the flow of production, such as logistics and storage.

EFFICIENCY OF STATE-OWNED COMPANIES
 In a context where state-owned companies are experiencing declining revenue and exhibiting significant inefficiencies, such as the postal service, which is negotiating a loan of up to R$ 12 billion, with the Treasury as guarantor, to cover the deficit in its accounts, Troyjo states that real changes are needed to address this.

"It's very clear how much worse things have gotten. And we're not seeing anything to change this scenario. No concrete action," he says.

INVESTMENTS IN RESEARCH AND DEVELOPMENT
 “Companies need to increase their investments in research, development, and innovation. However, when they go to market, they have to compete with the voracious appetite of the economy's biggest borrower, the government, which ends up increasing the price of money. Without reforms, there are fewer resources available for investment in innovation.”

NUMBER OF COMPANIES LISTED ON THE STOCK EXCHANGE DECREASES
 “We have seen a huge number of companies announcing their departure from the stock exchange. The improvement of the capital market in Brazil has not increased. This is a very objective criterion of how the government operates.”

At least 32 companies have left the B3 stock exchange since 2023, according to data from the consulting firm Elos Ayta. Between January and October 2025, nine companies went private, including Santos Brasil, Carrefour, and BRF.

Debt-to-GDP Ratio
 “This relationship has worsened considerably under this administration. And this is a very strong characteristic of President Lula's administration.” Data from the Central Bank shows that the consolidated public sector debt rose by one percentage point in September, reaching 77.6% of GDP. By IMF standards, this percentage reaches 90%.

Savings rate as a percentage of GDP
 “This is a very objective criterion that reflects the current government's economic management. It's not an opinion. These are numbers. Without these actions, the benefit from the agreement is very limited.”

INCREASE IN EXPORT PROMOTION ACTIVITIES
 “It is essential that the Brazilian government invest more in initiatives that guarantee a stronger international presence, in terms of image, for the Brazilian market. In this sense, the Brazilian Trade and Investment Promotion Agency (Apex) plays a very important role.”