In Defense of Mercosur

Created 30 years ago, Mercosur, formed by Brazil, Argentina, Paraguay, Uruguay, and Venezuela (currently suspended), is the result of the democratization of its member countries and was conceived with the intention of strengthening the economy and the well-being of the populations. The idea was to create a free trade area, even with imperfections, generating a large common market, with bloc products being able to circulate freely, resulting in cost reductions and increased consumption through the establishment of a common external tariff (CET).

However, difficulties in the global economy ended up affecting the countries in the region, and today there is a discussion about the reformulation of the agreements that led to the creation of Mercosur and the prospect of alliances outside the bloc, such as the European Union.

According to data from the Ministry of Foreign Affairs, between 2011 and 2020, Brazil exported $54.9 billion more than it imported from the other bloc countries, with a portfolio dominated by industrialized products and food. It is worth noting that during this period, the trade surplus was second only to China, a country to which Brazil exported $158.3 billion more than it imported, with sales to the Asian country concentrated in a few products, especially related to agribusiness and extractive industries, which provide limited added value.

The gross domestic product (GDP) of Mercosur reached $4.4 trillion in 2019, making it the fifth-largest economy in the world. That is no small feat. Therefore, it is important for this bloc to remain united to enable the economic recovery of its member countries. However, these nations have different profiles, both in terms of economic policy and fiscal health, as well as ideological orientation, which hinders their development.

The Brazilian government, as well as the Uruguayan government, for example, advocates modernization measures with rule changes to unlock bilateral agreements, in other words, giving member countries more negotiation freedom with other blocs or countries. Among the measures proposed by the Brazilian Minister of Economy are the reduction of Mercosur’s CET and the end of the rule requiring unanimity for decision-making. In this case, the Argentine government is totally opposed.

The best way out, however, would be to think collectively, providing greater unity to the bloc. The unilateral reduction of tariffs would likely reinforce an already existing unequal competition due to chronic competitiveness issues.

According to estimates from the Ministry of Economy, an agreement between Mercosur and the European Union could represent an increase in GDP of $87.5 billion to $125 billion over 15 years, by ensuring access to high-tech inputs at lower prices for domestic products. The reduction of barriers, greater legal certainty, and transparency of rules will also facilitate Brazil’s presence in global supply chains, generating more investment, jobs, and income.

However, the agreement is currently stalled, waiting for an annex with environmental agendas and commitments that have not even been negotiated. What is known is that part of the agreement was signed in June 2019, after 20 years of negotiations, and today the text is going through revisions and translations, awaiting ratification by European parliamentarians, who have already indicated that it will not be ratified as it stands.

Among these demands, for example, is the guarantee that the production chains of products destined for export are clean, without any origin of deforestation or environmental destruction. However, we must not confuse Brazil with its current president. He will pass, but the agreement will remain.

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(*) Liana Lourenço Martinelli, lawyer, postgraduate in Business Management and International Trade, is the manager of institutional relations for the Fiorde Group, composed of Fiorde International Logistics, FTA Transport and Warehouses, and Barter International Trade. Email: fiorde@fiorde.com.br. Website: www.fiorde.com.br

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