Continued prospects for Mercosur at 25 years

Continued prospects for Mercosur at 25 years

With some its members living in times of turbulence, a long period of few advances in trade negotiations, and with ideological shifts, what can be said about the future of Mercosur?

Not long ago, few would have expected Mercosur’s 25-year anniversary to take place in such a turbulent year. Its three biggest economies will see their GDPs contract. Brazil is currently under a provisional administration, Argentina’s taking a turn to the right, and Venezuela’ suffering from an acute political crisis.

In the past, members States have failed to agree on further trade liberalization. This has seen the original purpose of the organization turned into a political forum of relatively like-minded governments. But even that was lost.

At the moment, the organization may not be of much help in creating conditions for a solution for Venezuela. Nor it is currently able to create proper conditions for trade liberalization, either within the bloc itself, or in relation to other actors. However, in the next few years the organization may be able to regain traction as its two main economies re-set their preferences and rethink the role of the organization.

Dealing with Venezuela

Paraguay has called for a meeting to discuss the political upheaval in Venezuela. This action could ultimately trigger the democratic clause of the organization, which was created in 1998, and lead to the suspension of its northern member. The request has yet to be accepted by Uruguay, which currently holds the presidency of Mercosur and is responsible for calling such meetings. But adding urgency to the matter is the fact that Venezuela itself is next in line to take the presidency .

In normal times, Venezuela would simply assume the post during the next head-of-state summit slated for next month. However, allowing the country to chair the organization can be potentially harmful. It is for this reason that leads other members, notably Brazil and Paraguay, to reconsider viability of this scenario. Two options to prevent a Venezuelan presidency are currently on the table.

The first option would be to approve Venezuela’s suspension. Paraguay, which was suspended in 2012 following the swift ouster of president Fernando Lugo, seems prone to support this. Brazil, whose new administration adopted a more confrontational stance towards Caracas, could also support this option. However, Uruguay and Argentina, are both exerting diplomatic influence in order to mediate a compromise between Maduro and the opposition. This will constrain members from taking punitive measures, unless the situation in Venezuela worsens to intolerable levels. This raises the prospects of the second option: delaying the next summit and leave Uruguay as president, while putting the organization on hold.

A suspension would most probably be received with great disdain by president Nicolás Maduro, who could even use the sanction to reinforce his narrative of foreign intervention and boost support among loyal sectors. Among other things, Venezuela still doesn’t recognize the Brazilian provisional government as legitimate. Considering this, chances for Mercosur to play any relevant part in solving this crisis are severely undermined.

Mercosur-EU deal

With little advancement in liberalizing intra-bloc trade, attention soon turned to negotiations with the European Union, as the two blocs were to exchange their proposals last month for the first time in 12 years. The representative of the EU delegation in Brazil hinted that a deal could be in place by mid-2017. However, the EU proposal, doesn’t include liberalization for meat and ethanol. Because these two sectors are very important markets for the South Americans, a deal is highly unlikely.

Brussels is currently concentrating more on efforts to negotiate the Transatlantic Trade and Investment Partnership (TTIP). Although the Mercosur-EU negotiations preceded the TTIP negotiations, the latter has surely been moved to the forefront and will remain the main focus of EU trade negotiations unless something goes terribly wrong to derail talks.

In addition, France and other main European agricultural producers will continue to fight fiercely in trying to secure a deal. A finalized deal which neutralizes their lack of competitiveness in this sector in relation to the Mercosur countries is supported by an active part of their constituencies. Even if a deal is to be struck, there is great risk that other non-tariff barriers may be put into place to protect European farmers.

From Mercosur’s standpoint, there is still much disagreement among members regarding the extent and time frame of liberalization. If the impasse persists, pressure may grow for members to revoke the organization’s decision that obliges them to negotiate as a bloc. This could provide more room for individual states to fast-track negotiations with the EU. However, major difficulties would still persist in relation to agricultural products and governmental procurement. Ultimately, Mercosur has lately been unable to promote both internal and external liberalization.

A turn to the right and a new chance?

Significant advances in this regional arrangement have always relied on the convergence of Brazil and Argentina. At its genesis, Mercosur itself was a product of the construction of stronger ties between these two countries.  Afterward, they decided to include the two other original members–Paraguay and Uruguay– in the project. After the bloc descended into crisis in 1999 until 2002, it was up to Brasília and Buenos Aires to re-launch the project. Similarly, it is a potential convergence of interests and ideological affinities between the new leaders of these countries which may provide the best opportunity for Mercosur to unlock more of its remaining potential.

It surely won’t be a swift process. Both countries still have a long way to go to in recovering from their own crises, and it’s still to soon to assess how sucessful new diplomatic dynamics will actually be. But as the Temer and Macri administrations ride forth to establish market-friendly policies, and as Brazilian and Argentinian exporting sectors regain traction, it is reasonable to assume that the responsibility to provide the next push for meaningful institutional reforms will potentially rely on these two actors.

Categories: Economics, Latin America

About Author

Darli Magioni

Darlí Magioni focuses on Latin America. He has worked for the Brazilian Ministry of External Relations and AKE Group. He holds a bachelor’s degree in International Relations from the University of Brasilia and is currently enrolled in King’s College London’s MA in International Peace and Security.