Economy

Why hasn’t Mercosur taken off?

mercosur temer macri
Mercosur has become all about Brazil and Argentina. Photo: PR

The date was January 31, 1998.

Around 2,000 world leaders were congregated in the Swiss ski resort of Davos for the World Economic Forum. The list included German Chancellor Helmut Kohl, United Nations Secretary-General Kofi Annan, and the United States’ First Lady Hillary Clinton.

It was when then-Argentinian president Carlos Menem introduced an ambitious idea: a common currency for Mercosur.

“We’re following the European Union’s steps,” said Menem. “But, what took [Europe] almost 50 years, it would take us a tenth of that time.” Going by the expressions of the Brazilian officials and other South American representatives in the audience, the statement came as a surprise. It would take another four years for the euro to start circulating. Twenty years later, Mercosur could not be any further from having a common currency.

Menem’s speech, nonetheless, symbolizes the hope and illusion that characterized the bloc’s first decade of existence.

Mercosur, the Common Market of the South, was officially founded as a free trade zone in March 1991 when Menem and neighboring presidents Fernando Collor (Brazil), Andrés Rodríguez (Paraguay), and Luis Alberto Lacalle (Uruguay) signed the Treaty of Asunción.

In December 1994, the bloc went from “being in a relationship to getting married,” says Nicolás Albertoni, an Uruguayan researcher at the University of Southern California, describing the signing of the Protocol of Ouro Preto. Mercosur had officially become a customs union.

But despite various efforts during the 27 years that followed, Mercosur is far from being a perfect marriage. Some argue that divorce looks like the only viable solution. The bloc never truly became a common market, as its name suggests. It is not even a fully-functioning customs union: the incapacity to reach free trade deals with major economies evidences that. So, why hasn’t Mercosur taken off?

Mercosur: “An elephant, a mouse, and two ants”

When analyzing Mercosur’s lackluster performance, the main focus is on the economy and politics. Many argue that the bloc drifted away from its original commerce orientation and became instead some sort of ideological club. Others attribute the partial failure to the lack of adherence of the four countries to its own rules. A more structural problem, however, has been mostly neglected: the deep imbalances within the member states.

The bloc is currently formed by four countries: Argentina, Brazil, Paraguay, and Uruguay. Venezuela has been suspended, and Bolivia is in the process of adherence. “An elephant, a mouse, and two ants,” is how Guillermo Valles Galmés, an Uruguayan delegate to the World Trade Organization and former deputy Minister of Foreign Affairs, describes the member countries.

Brazil’s GDP is 65 times larger than Paraguay’s. It also outnumbers Uruguay’s on a ratio of 34 to 1. Argentina is the only country in the bloc minimally capable of rivaling the continental neighbor in economic terms. Still, Argentina’s GDP amounts to just one-third of that of its counterpart.

mercosur member countries brazil argentina paraguay uruguay

The comparison illustrates why most of the intra-bloc commerce is limited to the relations between Brasília and Buenos Aires. “The consequence is that Mercosur has been basically downgraded to a bilateral relation between its two largest states,” notes Júlio Miragaya, former president of the Brazilian Federal Economic Council.

The claim is backed by numbers. When it comes to intra-bloc commerce, Brazil and Argentina’s trade balances basically mirror each other. When one exports, the other imports. When one celebrates relevant surpluses, the other most likely drowns in deficits. On top of that, Uruguay’s trade balance remained below zero. Brazil, instead, built up positive results – either big or small – at...

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