MERCOSUR and EFTA States sign comprehensive Free Trade Agreement with Investment Promotion Chapter

On 16 September 2025,  the states of the European Free Trade Association (EFTA) – Iceland, Liechtenstein, Norway, and Switzerland – signed a Free Trade Agreement (FTA) with four states of  the Mercado Común del Sur (Southern Common Market or MERCOSUR) – Argentina, Brazil, Paraguay, and Uruguay.

The new FTA consists of 16 chapters and addresses a broad range of trade-related matters, including trade in goods and services, intellectual property rights, government procurement, competition policy, and dispute settlement. The FTA also incorporates a sustainable development chapter, which contains provisions on the FTA parties' right to regulate, labour standards, climate change, biological diversity, forest management, fisheries, and protection of aquaculture.

In addition, the new FTA includes an Investment Chapter aimed at promoting cross-border investment between the MERCOSUR and EFTA states. 

This article provides an overview of the economic context underpinning the FTA, discusses the Investment Chapter, including its scope and objectives, and addresses the relationship between the Investment Chapter and existing bilateral investment treaties (BITs) concluded between Switzerland and the four MERCOSUR states.

Background

MERCOSUR is a regional trade bloc established in 1991, aimed at promoting free trade and free movement of goods, services, capital, and people among its members. It includes Argentina, Brazil, Paraguay, and Uruguay, with Venezuela's membership currently suspended. MERCOSUR functions through supranational institutions and agreements designed to harmonise economic policies, reduce tariffs, and foster economic integration within South America. It also coordinates external trade policies and negotiates trade agreements with other countries and trade blocs, thereby enhancing regional economic development and political cooperation.

Negotiations for the MERCOSUR-EFTA FTA commenced in 2017. According to EFTA, the FTA will establish a cross-continental free trade area encompassing a combined GDP exceeding USD 4.3 trillion. Both parties are expected to benefit from enhanced market access for over 97% of their exports. In 2024, bilateral trade in goods amounted to EUR 8.3 billion, with EFTA exports totaling EUR 5.26 billion and MERCOSUR exports EUR 3.07 billion. MERCOSUR is regarded as a significant trading partner for EFTA. Under the new FTA, EFTA-based companies will gain privileged access to a MERCOSUR market comprising more than 270 million consumers.

Investment Promotion Chapter

Similar to other recent EFTA trade agreements with Malaysia, Ukraine, and Thailand (see our articles here, here, and here), Article 9.1 of the Investment Chapter applies to legal entities, whether privately owned or government-owned, or natural persons of an EFTA state that have a commercial presence in a MERCOSUR party, and vice versa. 

Regarding substantive guarantees, Article 9.3 of the MERCOSUR-EFTA FTA establishes a "national treatment (NT) rule" for foreign investors. Subject to an Annex XV to the FTA, the NT rule states that foreign investors and their commercial presence must be treated no less favourably than domestic investors and their commercial presence in similar circumstances.

As another standard in international investment law, Article 9.11 of the FTA includes an obligation regarding "payments and transfers". Under this provision, subject only to certain public policy reservations, no party to the FTA can apply restrictions on international transfers and payments for current transactions relating to commercial presence activities.

Finally, pursuant to Article 9.7 of the FTA, consistent with current practices in international investment law, the Investment Chapter reaffirms the contracting states' commitment to protecting public health, safety, and the environment. The FTA states also agree not to waive or derogate from measures addressing health, safety, or environmental concerns to attract foreign investment.

Relationship with Switzerland's Bilateral Investment Treaties

Article 9.3 of the new FTA clarifies that the Investment Chapter "shall be without prejudice to the interpretation or application of other international agreements relating to investment or taxation to which one or several EFTA States and one or several MERCOSUR States are parties."

This provision is particularly relevant to Switzerland, which has concluded BITs with Argentina, Brazil, Paraguay, and Uruguay, although the investment treaty with Brazil has not entered into force. The BITs with Argentina, Paraguay, and Uruguay provide that Swiss individuals or companies investing in these countries are entitled to the investment protection standards of international investment law. These protections include safeguards against "unlawful expropriation", "national treatment", "most-favoured-nation treatment", the "free transfer of funds", and an obligation for the host state to accord Swiss investors "fair and equitable treatment".

These Swiss BITs also contain arbitration clauses that grant Swiss investors the right to initiate investor-state arbitration proceedings against Argentina, Paraguay, and Uruguay if the investment protection standards in these treaties are breached.

None of the other three EFTA member states have concluded BITs with the four MERCOSUR states that are parties to the FTA.

Comment

The entry into force of the MERCOSUR-EFTA FTA remains pending. This new FTA forms part of EFTA's broader strategy to deepen its global trade and investment ties. In 2025 alone, EFTA concluded three additional free trade agreements with Thailand (see our articles here), Ukraine (here), and Malaysia (here). Additionally, Switzerland entered into a BIT with Chile (here). 

The MERCOSUR–EFTA FTA is a timely development, particularly given the EU's ongoing efforts for a comprehensive FTA with the same four MERCOSUR countries, and amid a growing global backlash against international trade relations. If concluded, the EU-MERCOSUR FTA stands to reshape the region's economic and regulatory landscape, underscoring the strategic importance of EFTA's engagement with MERCOSUR.

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