MERCOSUR

What is MERCOSUR?

MERCOSUR means “southern common market” in Spanish. It is a regional trade bloc in South America. It was founded in the 90’s. It aims to promote free trade and the fluid movements of goods, people, and currency among its member countries. It also deals with economic and trade policies among members.

Its permanent members are Argentina, Brazil, Paraguay, and Uruguay. Venezuela used to be part of the list. But it has been suspended due to political and human rights issues.

Other countries take part in trade agreements but are not members of the MERCOSUR. These include:

• Bolivia (in accession process),

• Chile,

• Peru,

• Colombia,

• Ecuador,

• Guyana,

• Suriname.

MERCOSUR negotiates trade deals as a bloc. It implements a common external tariff for imports from non-member countries. This tariff ranges from 0 to 35%.

Most internal tariffs have been eliminated. Customs procedures have also been streamlined. But some barriers still exist such as:

• Import licensing,

• Health and safety regulations,

• Currency controls,

• Exceptions to free trade in sensitive sectors.

Plus, political instability often leads to temporary re-imposition of trade barriers. This is often the case for Argentina.

Challenges

Oppositions between members often slow decision-making. On one side there are the goals of deeper integration. On the other side there is the protection of national industries. This involves mostly sectors like agriculture, energy, and manufacturing. Argentina passed policies with high tariffs, import quotas, and currency controls. As a result, this undermines trades within the bloc which remains quite low compared to the EU.

There are also critics over the slow progress in ratifying trade deals. MERCOSUR work as a bloc. This makes the processes slower and more complex. Decision-making is made through consensus. Plus, there are no enforcement mechanism to ensure compliance with rules or resolve disputes.  

There are also other issues that MERCOSUR must tackle. These include:

• Deforestation,

• Indigenous rights,

• Climate change.

Resources

MERCOSUR controls large resources reserves. These include:

• The Amazon Rainforest,

• Lithium,

• Oil and gas,

• Crops (soy, beef, corn).

This is attractive for countries seeking energy and food security. But also, for green transition materials.

Key trade partners

MERCOSUR main exports include:

• Soybeans and soy products,

• Beef and poultry,

• Iron ore and steel,

• Crude oil and biofuels,

• Lithium and other minerals.

Its main imports are mainly:

• Electronics,

• Industrial machinery,

• Vehicles and parts,

• Medical and chemical products,

• High-tech components.

China is MERCOSUR’s number one trade partner. In two decades, trades between them have been multiplied by 40. MERCOSUR sells soy, beef, lithium, and iron ore. It buys electronics and machinery from China.  There are also deals on infrastructure, energy, and agriculture investments. But there are no free trade agreements.

The EU is MERCOSUR’s second largest trade partner. It is also its biggest foreign investor. It represents one-fourth of the bloc’s total trade in services.  Last year, it exported to the EU €57 billion-worth of goods. MERCOSUR exports agriculture products and minerals. It imports pharma and vehicles. A free trade deal is about to be ratified.

MERCOSUR has no free trade agreement with the U.S. But its countries maintain bilateral ties. The U.S. has lost relative trade ground to China in recent years. This might further deepen during Trump’s second mandate and his trade tariffs.

India and MERCOSUR want to expand their ties. Trades are growing in certain sectors such as pharma, auto-parts, and agriculture. India buys soy, oil, and beef from MERCOSUR.

Africa is not a big market for now. But MERCOSUR’s exports in machinery, food, and chemicals are growing. The bloc sees Africa as future growth market.

Trades in South America focuses on energy, food, and manufacturing. But it is still very low compared to global trade volume.

Focus : EU-MERCOSUR Partnership Agreement (EMPA)

If ratified, the deal will lead to one of the world’s largest free-trade areas. The goal is to increase bilateral trades and investments. It is also to lower tariff and non-tariff trade barriers. This is mostly for small and medium sized companies.

The deal should also promote shared values. These involve:

• Workers’ rights,

• Tackling climate change,

• Environment protection,

• Ethical business conduct.

MERCOSUR countries will remove import duties on 91% of EU goods. These include:

• Vehicles and parts,

• Chemicals,

• Wine,

• Chocolate.

In return, countries will be able to sell meat, sugar, honey, soybeans, and other products with fewer limits. This led to protests from EU farmers and political parties. Opponents feared that EU farmers would be undercut by cheaper products.

The terms on this aspect of the deal have been reinforced in consequence. There will be tougher control measures in imports from the MERCOSUR. This concerns products such as:

• Beef,

• Poultry,

• Sugar,

• Ethanol.

These measures give the possibility to suspend imports in specific cases. Without the need of consensus, one state can take that action if:

- imports from MERCOSUR increase more than 10%,

- EU products prices decrease more than 10%.

There will also be more controls on sanitary norms for GMOs, pesticides, veterinary drugs, pollutants.

These conditions still must be confirmed by the MERCOSUR. The EU Commission recently approved the terms of the EMPA. But to be fully adopted, the text must be approved by at least 15 of the 27 EU nations and by the EU Parliament.

 Decoding geopolitics isn’t a job. It’s survival.

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