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Argentina exits Mercosur negotiations, upending trade deals

and . Apr 25, 2020
Argentina exits Mercosur negotiations, upending trade deals President Alberto Fernández. Photo: Casa Rosada

The world won’t stop spinning for Covid-19. From Donald Trump’s threats to “destroy” Iranian ships harassing U.S. ships, to China using the pandemic as a cover to enhance its territorial claims in the South China Sea, several major geopolitical actors believe this is the perfect moment to carry out otherwise controversial moves — with the world distracted by the worst pandemic in a century, negative reactions will be limited. In South America, that is precisely what Argentina has done, with President Alberto Fernández announcing that the country is suspending its participation in all negotiations within Mercosur — the trade bloc formed by Brazil, Argentina, Paraguay, and Uruguay.

</p> <p>The decision affects only ongoing talks — deals previously approved, such as last year&#8217;s <a href="https://brazilian.report/newsletters/brazil-weekly/2019/07/20/closer-look-mercosur-eu-trade-deal/">Mercosur free trade agreement with the European Union</a> will be preserved. However, it upends the trade deals currently under construction with South Korea, Lebanon, Canada, and India —&nbsp;as the bloc&#8217;s rules require unanimous agreement on trade issues.</p> <div id="buzzsprout-player-1363123"></div> <script src="https://www.buzzsprout.com/299876/1363123-67-the-mercosur-eu-trade-deal-explained.js?container_id=buzzsprout-player-1363123&amp;player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <p>Reactions so far have been mild —&nbsp;or non-existent. Paraguay, which holds the bloc&#8217;s rotating presidency, issued a moderate statement, calling it a &#8220;sovereign decision&#8221; of the Argentinian Republic. Uruguayan President Luis Lacalle Pou said he hopes the neighboring country will reconsider its decision, claiming that &#8220;together, [the Southern Cone nations] are stronger.&#8221; And as for Brazil, by far the largest economy of the bloc, it has yet to make a single statement on the issue&nbsp;—&nbsp;as President Jair Bolsonaro among other things grapples with the <a href="https://brazilian.report/power/2020/04/24/could-sergio-moro-bring-down-second-president/">loss of his most popular cabinet member</a>.</p> <p>&#8220;It is not that surprising of a move,&#8221; says political scientist Maurício Santoro, an international relations professor at the State University of Rio de Janeiro, and a columnist at <strong>The Brazilian Report</strong>. &#8220;The Alberto Fernández administration had voiced its intentions for a more protectionist economic policy, and the pandemic gives him the best opportunity to justify his stance”. The arguments presented by Mr. Fernández to sit out of the Mercosur negotiation table are similar to the ones he used last year when criticizing the Mercosur-EU deal. He declared that now is time for Argentina to protect its small companies and focus on its internal affairs.</p> <p>The government&#8217;s actions have been legitimized so far by the relative success of the administration&#8217;s approach to Covid-19. Argentina adopted swift, <a href="https://brazilian.report/coronavirus-brazil-live-blog/2020/04/13/buenos-aires-argentina-makes-facemasks-mandatory/">harsh restrictive measures</a> — being one of the first countries in Latin America to shut down its borders, close schools, and even start monitoring beaches with drones against citizens who didn&#8217;t comply with social isolation rules. When the country shut down on March 15, it had counted only 45 cases and two deaths. More than a month later, it has registered 3,607 and 179 deaths, according to the <a href="https://coronavirus.jhu.edu/map.html">Center for Systems Science and Engineering</a> (CSSE) at Johns Hopkins University.</p> <p>The neighboring state of Chile in comparison, with a population less than half of Argentina&#8217;s, has registered over 12,300 Covid-19 cases and 174 deaths since the start of the pandemic.</p> <h2>What will happen to Mercosur?</h2> <p>“An elephant, a mouse, and two ants”, is how Guillermo Valles Galmés, an Uruguayan delegate to the World Trade Organization and the country&#8217;s former Deputy Foreign Minister, describes Mercosur member countries. Brazil’s GDP is 65 times larger than Paraguay’s. It also dwarfs Uruguay’s by a ratio of 34 to 1.&nbsp;</p> <p>Argentina is the only country in the bloc minimally capable of rivaling its giant neighbor in economic terms. Still, Argentina’s GDP still amounts to just one-third of that of its counterpart.</p> <p>The comparison illustrates why most of intra-bloc commerce is limited to the relations between Brasília and Buenos Aires. And that&#8217;s why Argentina&#8217;s decision to look inwards puts Mercosur in one of its toughest positions to date.&nbsp;</p> <p>&#8220;While Argentina is not focusing on common trade right now, we don&#8217;t know which direction Brazil is going to take. At the moment, we see a struggle between the <a href="https://brazilian.report/business/2018/10/31/agenda-paulo-guedes-brazil-future-economy/">libertarian Economy Ministry Paulo Guedes</a> and the more developmentalist new Chief of Staff to the president, Army General Walter Braga Netto. We don&#8217;t know who is really in charge of Brazil&#8217;s economic policy at the moment — and how that affects our foreign trade policy,&#8221; says Mr. Santoro.</p> <p>Mercosur remains the number one destination for Brazil&#8217;s industrialized goods, and if trading with the bloc is narrowed, it will certainly have negative effects on producers —&nbsp;especially in the auto industry. But if there was a time for that to happen, it is now, as Asia becomes more and more crucial to Brazilian exporters. &#8220;Forty-one percent of Brazilian exports in 2019 went to Asia, a rate that jumped to 45 percent over Q1 2020. Soon, the continent will gobble the majority of our sales abroad,&#8221; explains Mr. Santoro.</p> <p>If there is light at the end of the tunnel, it is knowing that major Asian powers like China and India will keep growing — albeit at a slower pace —&nbsp;while the U.S. and Europe look set to face a <a href="https://brazilian.report/newsletters/brazil-daily/2020/03/19/latin-america-sliding-deep-recession-say-banks/">lengthy economic slowdown and possibly even depression</a> which could create an opportunity for Brazil to expand its market horizons.

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Lucas Berti

Lucas Berti covers international affairs — specialized in Latin American politics and markets. He has been published by Opera Mundi, Revista VIP, and The Intercept Brasil, among others.

Gustavo Ribeiro

An award-winning journalist, Gustavo has extensive experience covering Brazilian politics and international affairs. He has been featured across Brazilian and French media outlets and founded The Brazilian Report in 2017. He holds a master’s degree in Political Science and Latin American studies from Panthéon-Sorbonne University in Paris.

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