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Since May 1, 2026, the provisional application of the Interim Trade Agreement (ITA) between the European Union and Mercosur has been in force for Argentina, Brazil, Uruguay, and Paraguay. This isn't an announcement or a future promise — it's a treaty already moving real tariffs between the two blocs. Against that backdrop, Germany, the EU's largest economy, told the latest Mercosur summit it wants to be the first European country to ratify the deal in full.
What's in Force, and What's Still Pending
Mercosur is the trade bloc made up of Argentina, Brazil, Paraguay, and Uruguay. The agreement it has negotiated with the European Union for more than two decades actually consists of two separate parts. The first, the Interim Trade Agreement (ITA), covers tariff liberalization: the Council of the EU authorized its signature and provisional application on January 9, 2026, effective since May 1. The second, the Association Agreement (EMPA) — broader in scope, with political and institutional cooperation chapters — remains pending: on January 21, 2026, the European Parliament voted 334 to 324 to refer it to the Court of Justice of the European Union, which must decide whether splitting the agreement into two instruments was legally sound. Rulings of that kind typically take more than a year. What is already running, with concrete trade impact, is the ITA.
Germany Aims to Be the First to Ratify
On June 30, 2026, at the Mercosur summit held in Luque — a city in the Asunción metropolitan area — German Foreign Minister Johann Wadephul urged ratification and implementation of the agreement, and said Germany wants to be the first European country to do so. Ratification depends on each EU member state and isn't moving at the same pace everywhere; as the bloc's largest economy, Germany carries real weight to speed that up.
What the Deal Changes for Paraguay
The ITA removes tariffs on more than 90% of trade lines between the two blocs. For Paraguay, an estimated 95% of exports will gain zero-tariff or preferential access to the European market: an exclusive quota of 10,000 metric tons a year of organic sugar at a zero tariff, expanded quotas for beef and pork, and preferential access for biofuels. These are specific sector benefits, not a blanket opening.
Where the Trade Relationship With Germany Stands Today
According to 2025 figures from the Auswärtiges Amt — Germany's Federal Foreign Office — bilateral trade between the two countries totaled 332.9 million euros: 273.2 million euros in German exports to Paraguay and 59.7 million euros the other way. Germany sells Paraguay chemicals, automobiles, machinery, and electrical goods; Paraguay exports oilseeds — mainly soybeans and sesame — chilled beef, charcoal, citrus peel, and leather. It's a lopsided relationship in volume, typical of trade between an industrial economy and an agro-export one, and the ITA targets the categories where Paraguay stands to gain most: food, meat, and biofuels at reduced tariffs.
A German Community That's Already Part of the Country
The relationship isn't measured in tariffs alone. The same Auswärtiges Amt survey counts roughly 30,000 German citizens and about 150,000 people of German descent living in Paraguay, a figure that includes the Mennonite communities of the Chaco — the semi-arid region in western Paraguay, home to agricultural colonies founded by European immigrants. The Paraguayan-German Chamber of Commerce (AHK Paraguay) has operated since 1956, counts more than 300 members — a binational chamber's membership, worth noting, not a count of German companies operating in the country, a number with no published official source — and belongs to a worldwide network of 140 AHK offices. Alongside it sit the Paraguayan-German Cultural Institute (ICPA), the Paraguayan-German University (UPA), and the Concordia School.
High-Level Visits, Before and After the Deal
The interest isn't new. German Federal President Frank-Walter Steinmeier visited Paraguay on March 2-3, 2025, with an economic delegation. Former President Christian Wulff visited the country on August 3, 2026: he met with President Santiago Peña and toured the Concordia School, the Paraguayan-German University, the Chamber of Commerce, the ICPA, and Colonia Neuland in the Chaco, where he visited dual-education programs — the system combining classroom study with hands-on training at a company, a German tradition.
Green Hydrogen: Real Interest, Execution Still Elsewhere
One of the sectors generating the most enthusiasm is green hydrogen, a fuel produced by splitting water into hydrogen and oxygen using electricity from renewable sources, with no carbon emissions in the process. The economic delegation that accompanied Steinmeier in 2025 explored cooperation in that field in the Paraguayan Chaco, which combines available land with wind and solar potential. But today, no German green hydrogen project is under construction in Paraguay. The sector's most advanced project belongs to a British company, Atome, which is building the world's first green fertilizer plant in Villeta, about 30 kilometers south of Asunción, with a USD 365 million investment, followed by a Swiss project (USD 150 million) and a Dutch one (over USD 100 million). German interest is genuine; execution, for now, belongs to other countries.
What Germany Is Watching: Maquila and Investment Grade
Among the sectors drawing German interest is also maquila, the industrial regime that lets a plant be set up in Paraguay to assemble or process goods using imported inputs tariff-free, then export the result to third countries. It's governed by Law 1064/97, which sets a single 1% tax on value added within national territory — or on the parent company's invoice value, whichever is greater — on top of exempting imported inputs and capital goods from tariffs. Stacking a reduced ITA tariff on maquila's 1% tax reshapes the cost equation for a company already exporting to the EU.
Then there's investment grade, the rating credit agencies assign to a country when they judge its ability to repay debt to be solid, which in practice lowers the cost of external financing. Moody's granted it to Paraguay in 2024 and reaffirmed it with a stable outlook in July 2026 (Baa3); S&P followed in December 2025. Fitch still keeps it one notch below, at BB+, with a positive outlook since October 2025, amid sustained economic expansion: 6.6% growth in 2025, projected around 4.5% for 2026. Europe as a whole invested USD 12.624 billion in the country between 2020 and 2024, 31% of all foreign direct investment it received in 2024 (USD 2.899 billion that year).
The German Ambassador's Read on the Relationship
Gordon Kricke, Germany's ambassador to Paraguay since presenting his credentials on August 13, 2024, summed up the tone of the bilateral relationship in an interview with La Nación: "I see great potential for German investment going forward as well," he said, adding that "there's more interest, more attention in Germany — Paraguay is better known now." On the country's position: "Paraguay is in the middle of the continent, in a strategically important global position," and: "Paraguay has an earned reputation as a politically and economically stable country." He named green hydrogen, maquila, agribusiness, organic sugar, and beef as sectors of interest — the same categories where the ITA and Paraguay's incentive regime already offer concrete advantages.
What It Means for Investors
For an investor looking at Paraguay from abroad, the signal isn't an isolated diplomatic statement — it's a trade agreement already partly in force, investment grade from two of the three major agencies, a maquila regime that's been operating for nearly three decades, and an established German community that lowers the barrier to entry. Anyone weighing import and export operations, or wanting to understand the tax implications of relocating as a German national, can check the guide on German residency in Paraguay. For a concrete assessment of opportunities, the ViaParaguay team is available through contact.