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Mercosur and its dilemmas


The divergences that have been undermining the common action of the countries of the Mercosur became even more evident in the meetings of heads of state, ministers of the economic area, presidents of Central Banks and foreign ministers, which took place throughout this week. The Brazilian President, Jair Bolsonarodid not travel to the Paraguayan city of Luque, participating in this Thursday’s summit by videoconference – the other presidents, the Argentine Alberto Fernandezthe Uruguayan Luis Lacalle Pou and the Paraguayan Mario Abdo Benitez, attended in person. Furthermore, there was no consensus so that the Ukrainian president, Volodymyr Zelenskysend a message to the presidents.

But it is in the matter of commercial insertion that the differences deepen. As much as the block has announced the conclusion of a free trade agreement with Singaporefacilitating the entry of South American products into Southeast Asia, and having finally agreed on a 10% reduction in the Common External Tariff (something that Brazil had already done unilaterally), the good news ended there. It is the prospects of another agreement, which is being worked out between Uruguay and China, that dominate the concerns of the member countries. Mercosur rules require treaties to be negotiated by the bloc, not in isolation, but a year ago the Uruguay had already warned the other partners that it would act alone even without the approval of the other three Mercosur countries, intention that Lacalle Pou reaffirmed this Thursday. Argentina and Paraguay have already declared themselves emphatically against any agreement between China and Uruguay, while Brazil, a defender of flexibilization of negotiation rules, has avoided taking sides.

Mercosur countries can hardly speak the same language in economic terms

“We would be weaker without Mercosur,” said Argentine Foreign Minister Santiago Cafiero; his Paraguayan counterpart, Julio César Arriola, added that the bloc has “greater negotiating capacity and strength”. Now, if there is a country that knows this very well, it is Uruguay. A country of 3.5 million people and a GDP of US$ 50 billion has much less firepower at a negotiating table than a giant of 270 million people and a GDP of around US$ 2 trillion. The question is not that, but what to do when the desire for greater international insertion of a country is held back by the bloc partners – however, the discussion of the problem in theory still leaves aside some more practical questions, which become crucial when on the other side are Chinese products.

If the Uruguayans actually sign a free trade agreement with China, and remain in Mercosur, the Asian country would have opened the doors to its products within the entire bloc without paying tariffs, if they only arrived through Uruguay, throwing the pendulum to the other side: if today there is a good dose of protectionism within the bloc, it would move to a situation of almost unfair competition. Himself Paulo Guedes, a defender of trade liberalization, acknowledged this situation at an event organized by the Senate in April 2021, celebrating 30 years of Mercosur. “We always told our industrialists that we were not going to suddenly open the Brazilian economy, considering that Brazilian industrialists have an iron ball in their right leg, which were double-digit interest rates; an iron ball in the left leg, which were precisely the excessive taxes; and a plan in the accounts, which are the labor charges. You can’t suddenly open it and say: ‘Run and the Chinese will get you’”, said the Minister of Economy at the time. The situation reveals the internal differences within the bloc, since, while Uruguay is in 34th place in the Economic freedom of the Heritage Foundation, considered a “free economy” (and whose businesses, theoretically, would be better able to compete with the Chinese product), Brazil ranks 133rd and Argentina, 144th, both in the group of “mostly non-free” countries – Paraguay ranks 73rd among the “moderately free” economies.

Mercosur countries, therefore, can hardly speak the same language in economic terms. There are those who, already having a well developed economy, would like to advance further in international trade insertion; those who understand the value of trade liberalization, but are unable to carry out reforms that make domestic producers competitive and allow this opening to occur without any bumps; and those who shamelessly embrace protectionism. It is essential that Mercosur continues to seek to increase foreign trade with other countries and blocs – which will even serve as a push for reforms that increase the competitiveness of the national product – at a speed that is acceptable to all.

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