Southern Common Market Reloaded

MERCOSUR member states’ activity increased

MERCOSUR (Southern Common Market), founded in 1991 by Argentina, Brazil, Uruguay, Paraguay, has been developing for the last 26 years, gradually moving to the stated objectives of the Association – to promote free trade, flexible movement of goods, people, and currency. However, since the end of last year has been recorded a surge of activity of MERCOSUR member states, which is shown in a number of multilateral activities of the Alliance and discussions of the future development in the format of bilateral meetings at different levels. This is due to a number of global and regional reasons.

According to analysts of the Guimaraes Foundation (a think tank of the Brazilian Democratic Movement Party), the key factors that contributed to the activity growth of MERCOSUR member states were the outcome of the US presidential election and the intention of a new White House head to reconsider the trade unions with Washington. It is obvious that the United States is one of MERCOSUR key trading partners. That is why D. Trump’s withdraw from the Trans-Pacific Partnership and ambiguous position in relation to NAFTA forced the MERCOSUR leadership to pay attention to the search for alternative unions at both the regional and transregional levels.

First of all it concerns the free trade agreement between MERCOSUR and the EU. Talks on establishing closer ties between the two associations was conducted with varying success for decades and was virtually stopped in 2012. Disagreements on issues such as support of national agricultural producers and intellectual property did not allow the parties to sign a full free trade agreement. However, in recent years, especially given the Trump Factor and the government change in Argentina and Brazil, the situation has changed radically. So, during the 17th round of negotiations MERCOSUR - EU the parties have shown the strong intention to move towards the elimination of existing differences and signing so-called “preliminary agreement”. According to the Minister of Foreign Affairs of Argentina S. Malcorra, it should be a solid basis for the conclusion of the basic contract in 2018.

Another vector of “foreign expansion” of MERCOSUR is the Pacific Alliance (Chile, Colombia, Mexico, and Peru). According to Brazilian experts, in case of successful implementation of this integration project, a new political and economic center of power able to exert a significant influence on global processes will be created.

The desire of the parties for integration was reaffirmed in the joint Ministerial MERCOSUR Summit and the Pacific Alliance in early April 2017. Thus, according to the Ministry of Foreign Affairs of Brazil, it will be possible to create a virtual free trade zone in South America by 2019 because of the already existing agreements between the member states of these alliances.

Position of Mexico and Argentina becomes an additional incentive for regional integration. Official Mexico is currently seeking to find an alternative to the North American Free Trade Area (NAFTA) which future after Trump’s election is very indefinite. In its turn, Buenos Aires strives to give a new impetus to the Union of South American Nations (USAN), which includes 12 countries in South America. According to Minister of Foreign Affairs of Argentina S. Malcorra, return to the original idea of the organization – integration of infrastructure to increase trade and direct cross-border investment, is fully corresponding with the intention of forming a regional economic pole and the practical implementation of the UNASUR statutes.

Another reason for the increasing activity of the Southern Common Market representatives were the factors related to the political and economic situation in some member states. So, Brazil faced with the largest in its history political crisis that culminated in the impeachment of President D. Rousseff and economic recession. The current President Michel Temer, in fact, must demonstrate the ability to bring Brazil out of its crisis. To overcome the crisis, the President intends to increase state export earnings through the intensification of trade relations with traditional partners. That is why the Ministry of Foreign Affairs of Brazil is actively lobbying for the resumption of the previously interrupted negotiation process MERCOSUR – EU, MERCOSUR – Andean community, MERCOSUR and the Pacific Alliance.

Argentina also considers the Southern Common Market through the prism of the necessity of normalization of the domestic economic situation, by increasing the export component of the trade.

According to Brazilian experts, the desire of MERCOSUR member states to diversify trade cooperation can have a positive impact on negotiations not only with Russia but also with the Eurasian Economic Union, as it clearly fits into a new concept of retail expansion of the Southern Common Market.

The negative moment in MERCOSUR is strengthening the human rights rhetoric of its key members, particularly Brazil and Argentina. In particular, it concerns their attempts to apply the so-called “democratic” article of the Charter against Venezuela and to suspend its membership in the organization. This trend could affect not only the potential exception of Caracas from the Alliance, but relations with Cuba in terms of increasing political pressure on Havana.

Brazil MERCOSUR economics