MERCOSUR in crisis! Talks on PTA expansion with India on hold

July 10, 2021 1:36 PM

Mercosur is, actually, an imperfect common market because the full liberalization of tariffs among the members have not been achieved after 30 years.

The current events show the political weaknesses of the bloc.

By Paola Andrea Baroni

Mercosur is in a commercial stalemate and experiencing a crisis in the last 20 years. There are power and structural asymmetries among the members, and this is shown in the different opinions they have regarding what is needed to be done; there is no convergence on their interests. For Brazil, joining the Mercosur responded to a strategic aim in international negotiations more than to commercial reasons. In the case of Argentina and Uruguay, the interest was commercial: to access the market of the South American giant. The fact is that this asymmetry implies that Brazil should take a leading role in the bloc -but it is not willing to pay the costs that this leadership entails-, and that Argentina should accept it and play a counterbalanced role. This has not happened.

Mercosur is, actually, an imperfect common market because the full liberalization of tariffs among the members have not been achieved after 30 years. In this sense, the lists of exceptions are still in practice. The disagreement among the members is also seen on the Common External Tariff: Brazil and Uruguay want to diminish it, and Argentina uses it to protect its weakened domestic industry. So there is a delicate balance between liberalization –for agricultural sectors- and protectionism, comfortable for some members. Besides, Argentina announced last year that it was not going to participate in the negotiations of extra-regional trade agreements. Therefore the bloc is not complying with its founding objective of creating a great common market in South America. Here we can observe the pronounced influence in the development of the bloc of the domestic politics of Brazil and Argentina, of the interests of the national industries of the members, as well as the macroeconomic crisis faced.

The continuous crisis and stalemate led to an expectation of frustration by smaller countries such as Uruguay. In a context of globalization, geography has been surpassed by a global market. In the case of Uruguay, the main export possibilities are outside the Mercosur; for this country the intraregional trade has lost relevance. Uruguay is the most affected by the consequences of the stalemate and the power dispute inside the bloc. In the short term, the impact of Uruguay’s idea of looking for third partners (this is not the first time it does this) is more political than economic; it is aimed to pressure Argentina to sit down and negotiate the changes that it considers –along with Brazil- necessaries to move forward in the integration process. Neither Uruguay nor Brazil find today enough material incentives to deepen the relations within the Mercosur. Finally, we need to add the ideological differences among the members, which do not contribute to ease the tensions.

Consequently we can observe an erosion of the common objectives and a loss of vision about the project, having as a result an inadequate setting of priorities (usually domestic ones). The current events show the political weaknesses of the bloc. The solution? To adapt the Mercosur to the new realities of the world, analysing costs and benefits for all the members. This may include to explore different potentialities and restructuring the industrial sectors, something difficult to see soon.

What about Mercosur and India PTA expansion talks?

Member countries including Argentina, Paraguay and Uruguay and Brazil (MERCOSUR) have been in talks with India, for the expansion of existing PTA.

There is a stalemate in the negotiations regarding the deepening of the agreement of 2004 due to the fact that both actors apply protectionist policies to the goods they export and both have signed few trade agreements.

The pressure of the industrial sectors of Argentina and Brazil and the agricultural sector in India, has been important in this delay. Despite this, there are potentialities in sectors relevant for both like energy, agriculture and its technology, complementarities in the pharmaceutical sector, IT and creative industries. I think that while the differences inside the Mercosur continue –as well as the pandemic- there will be little improvement in this negotiation.

(The author is an International Relations specialist – Researcher at Universidad Siglo 21 (Córdoba, Argentina). Views expressed are personal and do not reflect the official position or policy of Financial Express Online.)

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