Mercosur’s Future: Whither Economics?

By Tom Long

Mercosur’s December 6 meeting in Brasilia might seem to be a watershed. The organization formally integrated Venezuela and signed adhesion agreements with Bolivia. Ecuadorean President Rafael Correa was in attendance, too, along with officials from other South American countries. The bloc was established starting in 1991, with goals of removing internal tariffs, setting a common external tariff, coordinating commercial policies, and harmonizing regulations. An unwritten objective was to spur industrialization and decrease dependence on foreign manufactures. Yet more than twenty years on, Mercosur appears to be further than ever from establishing a common market. The Inter-American Development Bank notes that Brazil and Argentina have traded protectionist measures, and that “Buy Brazil” provisions in government procurement have been a bilateral irritant.

Mercosur

Expanding breadth masks decreasing depth. While both Mercosur’s total trade and trade among its members have grown greatly over the past decade, the former has outpaced the later.  WTO data show that intra-regional trade as a percentage of total trade has declined from 31 percent in 2000 to 25 percent in 2011. Instead of being driven by integration, MERCOSUR’s trade patterns are propelled by skyrocketing trade with Asia, led by Argentine and Brazilian commodity exports. In this light, the failure of late October meetings between Mercosur and the European Union suggest that China has taken the place of Europe.

Evaluated from a strictly economic perspective, Mercosur’s recent expansion represents a step backwards. The inclusion of Bolivia will not add much economic heft to the pact, and with the addition of each new member, reaching consensus will become even more difficult. The full membership of Venezuela increases the bloc’s size, but also its dependence on natural-resource exports. Neither newcomer—nor the two original heavyweights—appear committed to the original common market mission. Is the bloc’s raison d’etre shifting from the economic to the political? If so, what will be Mercosur’s relation to ALBA and UNASUR? Whereas Brazil was never fully comfortable with the Bolivarian Alliance—in part because of the anti-U.S. tone—it has now brought ALBA’s two most committed members to its own table. Inside Mercosur, Brazil has a greater voice than it does in UNASUR, but the hijacking of a potentially important trade alliance masks a lack of economic leadership for South America.

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