Does Mercosur Have a Future?

article from September 19, 2011

By Jamie Douglas

Since 1991 Argentina, Brazil, Paraguay and Uruguay have been charter members of what was to become a Southern Cone common market, with a goal of eliminating punitive tariffs and allowing the free flow of commerce and people across international borders. Now, Venezuela has been approved to be a member as well, and all but Paraguay have ratified the motion to allow that Bolivarian nation to join. Excepting the Guyanas and Suriname, the remaining nations of South America – Bolivia, Chile, Colombia, Ecuador and Peru – have associate-member status.

In theory, this was to be an emulation of the European Union’s effort to eliminate borders and tariffs between member nations. But as is usual in the Southern Hemisphere, petty disputes still exist among these nations. The Uruguayan pulp mill dispute, which led to the closure of the southernmost border crossing between Argentina and Uruguay for years, is but one example.

Paraguay and Uruguay, of course, are the two dwarfs squeezed between the giants of Brazil and Argentina, both of them being exploited by their bigger neighbors at every turn and with virtually no recourse. With the worsening economy, inflation, and the Brazilian real having become overvalued to the point of its becoming a major hindrance to exports, Brazil’s leaders suddenly decided that protectionist measures were in order to reduce the importation of vehicles from Argentina and, to a much lesser extent, Uruguay.

On September 15, 2011, Brazilian Finance Minister Guido Mantega unilaterally lifted the industrial product tax by 30% to force domestic automakers to build key components such as engines and transmissions, as well as doing the stamping and painting. In order to stay competitive, Brazil is urging carmakers to locate their production in Brazil. This is particularly hard on Argentina, which has a booming business exporting the various vehicles it assembles, mostly with foreign engines, transmissions, etc.

The new rules went into effect Sept 16 and will stay in force until at least the end of 2012.

Meanwhile, Argentina’s national statistics agency, INDEC, has announced that the nation’s economy expanded by 9.1% in the second quarter compared to a year earlier. But when comparing that to the actual inflation of about 25%, one could easily surmise that, in reality, the economy contracted substantially. What is really driving the economy is the robust sale of durable consumer goods. Argentineans, long weary of saving their money or trusting banks, have taken to buying “stuff” in lieu of keeping money under their mattresses. While the currency is devaluing, the value of their goods is constant, and the easy interest-free payments that are offered by most establishments make that an ever-more attractive way to preserve the value of their money.

Undoubtedly, Argentina is the biggest bully in the Mercosur alliance, starting with Christina Fernández’ snubbing of the summit in June for mysterious medical reasons. Argentina has taken on an air of arrogance that resembles that of its northern brother, the United States of America. The brunt of Argentina’s quasi-imperialistic behavior is being born by the two small members of Mercosur.

On September 14, Uruguayan President José Mujica very carefully had to explain to his country’s manufacturers and farmers that Mercosur is not really working, even though relations between the countries were good, as Uruguayan exporters were facing increasingly difficult conditions to access markets across the Río de la Plata. While the Eastern Nation of Uruguay has been in compliance with the charter and intent of the Mercosur agreements, it has effectively been excluded from entering the Argentinean markets unhindered. As a result of being compliant, today’s Uruguay saw the transfer of control of several important industries, such as rice, soy, cattle and meat processing to Argentinean and Brazilian multinationals.

So does the Mercosur really have a viable future? I give it no more than a 50:50 chance over the long term. While it may continue to exist in the foreseeable future as an institution, its effectiveness depends on the full implementation of the spirit of the treaty, which is to better the lives of all the citizens in the zone by lowering the cost of goods and services provided across international orders.

Jamie Douglas

San Rafael, Mendoza

Where fortunately that Fine Malbec Wine grows right here!

[Image of Mercosur Headquarters in Montevideo, Uruguay via Wikipedia]

I encourage you to write me at cruzansailor [at] gmail [dot] com with any questions or suggestions you may have. Disclaimer: I am not in any travel-related business. My advice is based on my own experiences and is free of charge (Donations welcome). It is always my pleasure to act as a beneficial counselor to those who are seekers of the next adventure.