Vice President Naidu’s Paraguay visit: Mercosur-India trade relations ready for the next step?

Published: February 19, 2019 6:37:33 PM

An investment agreement that seeks an appropriate balance between protection and investment promotion between India and Paraguay could become a new kick to a true strategic partnership between Mercosur and India.

While there are still no clear definitions regarding the future steps of the main economy of Latin America, India should reaffirm its intentions to deepen cooperation with the other Mercosur members.

By Gustavo Rojas

India and the South American Common Market (Mercosur) seem to be relaunching their partnership in 2019. This week, the President of Argentina Mauricio Macri is in an official visit to New Delhi. In March the Vice President of India Venkaiah Naidu will visit another Mercosur member, Paraguay. After the recent presidential elections in Paraguay and Brazil, the authorities of the Common Market of the South (Mercosur) and India began to resume the trade talks in order to extend the tariff preferences agreement, in force since 2009.

Trade flows between Mercosur and India grew 252% since 2008, reaching a record level of US$ 14 billion in 2017. The expansion of trade has been balanced, with no chronic trade deficits for any of the partners. Indian exports to Mercosur are concentrated in the chemical, plastic, pharmaceutical, steel, automotive, textile and apparel sectors, while India imports from Mercosur soybean oil, oil, sugar, mining and steel products.

While India and Mercosur have great potential for productive complementarity, both partners have to overcome several obstacles. Currently, the trade preferences agreement is very limited, granting preferences of no more than 20% of their value to 527 products in the Indian market and 461 products in the Mercosur market. Both trading partners aim to expand mutual market concessions to around 2,500 products, alongside with a higher level of liberalization of preferences. This objective is an important initiative when world trade is losing its dynamism.

The Mercosur countries share with India the condition of having a limited number of trade agreements concerning only trade in goods. In many cases the rules of origin of these trade agreements no longer respond to the dynamic reality of global value chains. Global value chains require comprehensive rules that regulate trade in goods, services and investments at the same time. A new agreement should take into account this new reality.
At the same time, the potential future agreement should establish preventive measures, such as agricultural or industrial safeguards. Agricultural safeguards are an essential issue for India, as was clear during the WTO Doha negotiations. Understandings around these issues can produce dynamic effects on other strategic economic negotiations such as India’s and Mercosur’s advanced negotiations with the European Union, or their talks in the WTO’s G-20.

Regarding to infrastructure, the BRICS´s New Development Bank and the Asian Infrastructure Investment Bank (AIIB) are boosting the cooperation between Mercosur and India. Indian support for the future accession of Argentina, Uruguay and Paraguay to the New Development Bank would increase the bank’s investments in sustainable infrastructures for interregional integration.

In trade terms, BRICS can be seen as a ‘spoke and hub’ structure where Brazil and India are spokes and China is the hub. The strengthening of Indo-Atlantic trade understandings can be a strategic response to China’s growing prominence. The liberalization of trade flows between Mercosur and India is fundamental for strengthening the complementarities between two large democracies and markets in the developing world.
Brazil holds the BRICS Temporary Presidency during 2019, when anti-globalists, liberals and the army must calibrate Bolsonaro’s new international equilibrium in Brazil. While there are still no clear definitions regarding the future steps of the main economy of Latin America, India should reaffirm its intentions to deepen cooperation with the other Mercosur members.

Vice President Naidu’s visit to Paraguay can be an opportunity to diversify India’s ties with Mercosur. Following the recent conclusion of the bilateral investment agreement between Brazil and India, Paraguay is the only Mercosur country not to maintain a bilateral investment agreement with India. Paraguay is a small landlocked economy, but it has been the most dynamic of Mercosur over the last decade. It´s the only Mercosur country that does not maintain official relations with China. Indian companies are associated with Paraguayan companies in joint ventures in the plastic and pharmaceutical sectors. India’s Vemarcorp is the first steelmaker to produce recycled steel in Paraguay and one of the companies that consumes the most economical and sustainable electricity from the Itaipú hydroelectric plant.

The future conclusion of an automotive agreement between Paraguay and Brazil can transform Paraguay into a strategic and flexible point for strengthening the presence of Indian automakers in Mercosur. There is a broad frontier for agroindustrial and energy cooperation between both countries. An investment agreement that seeks an appropriate balance between protection and investment promotion between India and Paraguay could become a new kick to a true strategic partnership between Mercosur and India.

(Views expressed are Author’s own. Author is Researcher of the Center of Analysis and Dissemination of the Paraguayan Economy – CADEP)

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