Brazil's Next President Is Looking to Shake Up Mercosur

 

·         Brazil's new government will try to spur economic growth by pressing the Common Market of the South (Mercosur) to lower its import tariffs and to do away with restrictions that prohibit bloc members from signing bilateral trade agreements.

·         A presidential election in Argentina means Mercosur has a narrow window of opportunity for altering the bloc's trade policy. A populist victory at the polls will add uncertainty to the negotiations.

·         If Argentina ends up delaying a charter charge, Brazil could threaten to leave the bloc as a pressure tactic.

 

Stratfor | Worldview

Nov 30, 2018

 

In 2019, Brazil will pressure its trade bloc partners to make the most significant policy shift in the organization's recent history. President-elect Jair Bolsonaro takes office in Brasilia on Jan. 1, and the new administration will negotiate with the three other full members of the Common Market of the South (Mercosur) to lift the restrictions that prevent member states from negotiating and signing bilateral free trade agreements. Brazil needs the unanimous consent of Uruguay, Paraguay and Argentina for the change. Though they appear willing to vote for it, Argentina remains the wild card in negotiations, mainly because of its October 2019 presidential election. A close race for President Mauricio Macri could make him reluctant to lend Bolsonaro a hand in amending the policy.

 

Trade and Protectionism

 

Mercosur was founded as a protectionist trade bloc and has a common import tariff of up to 35 percent on certain products to shield domestic manufacturing from foreign competition. This protectionism has allowed member states to create profitable manufacturing clusters for the automotive and aviation sectors in the face of stiff global competition, but it has hamstrung their ability to sign free trade agreements with other countries and blocs. Mercosur is an agricultural powerhouse — particularly in livestock and sugar — and that considerable production raises fears in trading partners protective of their farming sector and also leads to slow, complicated and cumbersome talks. And Mercosur's tendency to favor strongly protectionist measures for its manufacturers has complicated negotiations with countries and blocs seeking new markets for complex manufactured exports, such as automobiles and consumer electronic goods.

 

This problem became quite apparent in Mercosur's lengthy trade negotiations with the European Union. The South American bloc has sporadically negotiated with the union since 1999, and the most recent round of talks faltered during November. The two sides deadlocked on the time frame for phasing in greater automotive imports from the European Union and on European quotas for Mercosur sugar and beef.

 

Mercosur's charter also complicates foreign trade talks. In 2001, the organization adopted a clause prohibiting its members from individually negotiating and signing new outside trade deals. Mercosur states must collectively agree to such agreements, and removal of the restriction requires the unanimous consent of the four full members.

 

Pushing for Change ...

 

The Argentine Complication ...

 

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