Mercosur’s Birthday Celebration Reveals a Path towards Irrelevancy

Mercosur’s Birthday Celebration Reveals a Path towards Irrelevancy

The risk of Mercosur becoming another failed attempt of regional integration in Latin America has been rising steadily in the last two decades and is likely to increase even more in the current scenario. The tension between leaders on Mercosur’s last summit demonstrates a lack of internal cohesion that will lead the bloc towards failure and irrelevancy.

An Ever-Changing Past and a Paralyzed Present

Mercosur was created under the premises of open regionalism on March 26 of 1991 with the signature of the Asuncion Treaty. Its creation marked the end of decades of political tension between Argentina and Brazil. Moreover, the 1990’s manifested rapid integration and economic growth for the four countries, which agreed on keeping an open market economy.  Furthermore, in 1995 the area became a customs union. Nowadays, the aggregated annual GDP of the bloc is $2,118,488 million and the balance is $5,427,16 million.

However, since 2000 the South American bloc has been in an ongoing crisis that keeps getting worse. The 1999 Brazilian devaluation and the 2001 Argentine crisis shook the process, with political leaders choosing protectionism over economic liberalization.

There have been numerous attempts to get Mercosur on the integration track. For example, leaders have focused on reaching trade agreements with other South American countries, they have initiated talks with Asian countries, and signed the (still pending ratification) EU-Mercosur agreement. They also established the free circulation of people in 2010. Nevertheless, its failures outweigh its victories. Thirty years after its creation, macroeconomic instability is still the norm, and tensions and differences between countries meant that Mercosur never achieved the intended integration.

The Summit

On March 26, 2021, Mercosur’s leaders reunited virtually to celebrate the bloc’s 30th birthday. However, this celebration turned into a tense discussion, as member states raised their complaints about the bloc.

In the first place, Uruguay’s president Luis LaCalle Pou, has called for the flexibilization of the bloc. Flexibilization means turning it into a free trade area, which would allow individual states to negotiate free trade agreements without needing authorization from the rest of the members. Lacalle Pou argued that Mercosur has become a corset and a burden that prevents his country’s commercial progress.

In agreement with Uruguay, Brazilian leader Jair Bolsonaro wants to adapt and modernize the bloc, claiming that it is a necessary step to expand trade networks. Bolsonaro argued for the reduction of the common external tariff, which varies from 0% to 35%, depending on the product’s added value. His proporsal is to reduce the tariff by 50%, claiming that Brazil needs to show openess to the world.  

Yet, Argentina’s president Alberto Fernandez has taken a protectionist stand. He asserted that flexibilization and tariff reduction would be a mistake in this context of uncertainty. He stressed that Argentina wants to protect the national industry, which has been severely hit by the country’s economic crisis. Lastly, he stated that, whoever felt that the bloc was a burden, should “take another boat”.

Internal Cohesion, an Eternal Problem

Internal cohesion is critical for the bloc’s survival, yet, the bloc’s internal matters have been overlooked since 1995. Due to the 1994 international economic crisis and the posterior macroeconomic imbalances, regional integration stopped being a central objective for Mercosur’s leaders. Even if opportunities for macroeconomic convergence were presented, the member-states chose to preserve their sovereignty and follow their own strategies. Furthermore, the idea of turning Mercosur into a common market was never acted upon.

Internal cohesion is a vital condition for the bloc to gain external credibility and the self-confidence necessary to carry out trade deals with other regions. Nevertheless, the discussion that took place at Mercosur’s last summit shows that there isn’t a minimum consensus inside it. With each leader having different conceptions about what economic integration entails, the survival of the bloc has been questioned. Without internal solidity and an inner agreement on Mercosur’s fate, a full-on institutional paralysis of the bloc is now more tangible than ever.

Alternative Scenarios

Achieving the intended deep economic integration would relegitimize Mercosur inside the bloc and outside of it. However, this scenario is now more unlikely than ever. Firstly, Uruguay, Paraguay, and Brazil are lobbying for the mentioned flexibilization, which would give them more opportunities to reach for trade agreements with third parties. Secondly, Argentina’s government has taken a more protectionist approach towards the bloc. These two internal factors make economic integration, which would mean perfecting the customs union (which would entail including the many exempt sectors), a very unlikely scenario.

The ratification of the EU-Mercosur agreement is another improbable scenario. Alberto Fernandez has criticized the Agreement, claiming that it would damage the Argentinian industry. On the other hand, Jair Bolsonaro is an obstacle. The deforestation of the Amazon has received criticism from all over the world, but mainly from European governments, who are now threatening to reject the agreement. Moreover, many countries, such as Ireland and Austria have already voted against it, even the European Parliament has opposed it. The ratification of the treaty would legitimize Mercosur’s efforts; however, it would not solve its deepening internal problems.

Final Remarks

Political tensions between Mercosur’s member-states are deepening and this is resulting in an extending paralysis of the regional bloc. Although it started as a strong strategy for economic integration, it has been falling since the beginning of the 21st century with more letdowns than victories. The leader’s unwillingness to discuss the bloc’s future and the ongoing economic instability have resulted in Mercosur becoming more irrelevant with every passing decade.

Unless there’s an agreement to discuss topics on the internal agenda to achieve the needed cohesion, Mercosur will continue its road towards irrelevancy and will most likely become another failed attempt to achieve regional integration in the region.

Categories: Economics, Latin America

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