EU Commission President Ursula von der Leyen hailed the choosing of "free trade over tariffs" before signing the deal with South America's Mercosur nations that has been 25 years in the making.
The accord will create the world's largest free trade area, with over 700 million consumers and a total trade volume of over €111 billion in 2024.
"This agreement sends a very strong message to the world. It reflects a clear and deliberate choice. We choose fair trade over tariffs. We choose a productive, long-term partnership over isolation," she said at the ceremony in Asuncion, Paraguay.
The agreement, designed to lower tariffs and boost trade between the two regions, must now gain the consent of the European Parliament and be ratified by legislatures of Mercosur members Argentina, Brazil, Paraguay and Uruguay.
Paraguay's President Santiago Pena also praised the treaty as "a clear signal in favor of international trade" in "a global scenario marked by tensions".
European Council head Antonio Costa said the deal sent "a message of defense of free trade, based on rules, of multilateralism and international law as the basis for relations between countries and regions".
He said it stood in contrast to "the use of trade as a geopolitical weapon".
The long-awaited agreement comes amid the sweeping use of tariffs and trade threats by US President Donald Trump's administration, which has sent countries scrambling for new partnerships.
The deal between the EU and Mercosur nations was agreed in Brussels last week despite fierce opposition from European farmers.
They fear the deal will lead to an influx of cheaper South American products due to production standards considered less stringent.
Thousands had been protesting in Ireland, France, Poland and Belgium in recent days.
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Together, the EU and Mercosur account for 30% of global GDP.
The treaty will eliminate tariffs on more than 90% of bilateral trade.
This will favour European exports of cars, wine, and cheese, while making it easier for South American beef, poultry, sugar, rice, honey, and soybeans to enter Europe.
Uruguay's president Yamandu Orsi attended the signing but Brazil's President Luiz Inacio Lula da Silva did not attend.
Mr Lula met Ms Von der Leyen yesterday in Rio de Janeiro, where he hailed the deal as key for prosperity and multilateralism.
