He Southern Common Market (MERCOSUR) is a trade agreement between Argentina, Brazil, Uruguay and Paraguay. It provides for the free circulation of goods, services and people, that is, there are no tariffs or bureaucratic barriers for foreign trade between member countries and the joint negotiation of trade agreements with the rest of the world. It was signed on December 31, 1994, meaning it will soon be 30 years old. Its presidency rotates every 6 months. The current president of MERCOSUR is Luis Lacalle Poupresident of Uruguay, and in the next rotation it is the turn of the president of Argentina.
President Milei has been making public statements very critical of MERCOSUR, including the alternative of abandoning the agreement. Surely this is influenced by political differences with the partners – the new president of Uruguay belongs to the Frente Amplio, a center-left party that joins the president. Lula of Brazil from the Workers’ Party – and a more general vision that emphatically proposes free trade with all countries without having to agree on strategies with other partners of the agreement.
The question to ask is how relevant MERCOSUR is for Argentina. According to the Ministry of Economy, Argentine exports to the rest of the countries that make up MERCOSUR show the following behavior:
– Between 1995 and 2004 They represented 29% of total Argentine exports.
– Between 2005 and 2014 sales to the rest of the MERCOSUR partners explain 26% of total exports.
– Between 2015 and 2024 They represent 20% of Argentine exports
These data show that in the 30 years of existence of MERCOSUR, Argentine exports to the countries of the common zone show a clear decline in their participation. Thus, only 1 of every 5 dollars exported is destined for one of the partners of the agreement. This is a very suggestive fact regarding the poor functioning of the agreement, since while exports within MERCOSUR are – in theory – free of tariffs and obstacles, sales to other countries pay tariffs and suffer entry barriers.
In its original conception, MERCOSUR was conceived as an instrument to dismantle the protectionist barriers of the countries that formed it. The strategy was not only to eliminate barriers between the partners but, more importantly, to use the agreement to jointly integrate into the world. In practice, the opposite happened. It was used to enhance protectionism. The starting point was, as a general rule, a zero tariff between member countries and a variable tariff – with an average of 14% – for non-zone countries, that is, a fairly high level of protection compared to the rest of the world. Later, due to the lack of coordination of macroeconomic policies, para-tariff barriers were and continue to be applied very frequently between member countries in order to protect themselves from macroeconomic swings. The high macroeconomic instability ended up legitimizing protectionism even among the partners.
The most conducive path is to return to the initial spirit that motivated MERCOSUR. This implies using it as a tool for integration into the world. The starting point is to guarantee the macroeconomic stability of the region. To this we must add the harmonization of other policies, for example, tax and labor policies. In this sense, Brazil has already made progress in a labor reform whose axis is to prioritize individual and company-level agreements over collective agreements and in the tax reform it is unifying federal VAT with state sales taxes (provincial for Argentina) and municipal. Argentina should follow the same steps as Brazil to strengthen MERCOSUR in order to once again take advantage of the opportunities of a common market with neighboring countries.
With donald trump As president of the United States, a more hostile environment for international trade will surely emerge. This does not imply that foreign trade ceases to be a source of economic growth and social development. Faced with this new scenario, MERCOSUR is the tool to reestablish active and vibrant trade between its partners and, most importantly, jointly address integration with the rest of the world.
by Jorge Colina
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