Is Mercosur the anchor that will sink Brazil?

The Southern Common Market or MERCOSUR as it is popularly known was established in 1991 by the Treaty of Asunción. Mercosur´s main purpose was to create a FREE TRADE ZONE among its member states, originally Brazil, Argentina, Uruguay and Paraguay, advocating the free movement of goods and services between member states and trading as a common market with other countries and other economic groups. Well, after this brief introduction I ask you, is trading between these countries free? Ask any Brazilian businessman who exports to Argentina and you will have the answer, NO!

Currently living the worst political and economical crisis after its redemocratization, Argentina of Cristina Kirchner has been imposing trade barriers to Brazilian products for years. After her reelection President Kirchner announced that she will continue to impose TRADE BARRIERS to imported goods, including those from Mercosur member states, until the end of her presidency and that Argentine businessmen will have until 2015 to become more competitive. I can understand that the Argentine government is trying to protect its market, nothing wrong with that, but what I can not understand is why the Brazilian government accepts to stay in this so called common market!

Because of Mercosur, Brazil is forbidden to negotiate bilateral agreements with other countries and common markets and for that reason we lose more and more ground in the international trading market. Right now the United States and the European Union are negotiating the creation of a mega common market and Brazil´s incapability of negotiating directly with the rest of the world will eventually cause our economy to plunge into a very turbulent crisis. So I will ask again, is Mercosur an anchor to Brazil?

List of Mercosur Trade Agreements

Here is some data to help you answer my last question. Mercosur has signed only 10 trade agreements with other countries or common markets since its establishment in 1991 with only 2 irrelevant FTAs. In the same period, 543 bilateral agreements were signed at the World Trade Organization (WTO). Have you noticed the weight of the anchor yet? Another important fact is that in 2013 the international trade surplus was the worst in 13 years, US$ 2.53 billion. The first 7 months of 2013 were the worst since the beginning of the series. The Brazilian trade balance accumulated a deficit of US$ 4.98 billion according to the Ministry of Development, Industry and Foreign Trade (MDIC). We just closed the year with a surplus due to a maneuver where we "exported" oil rigs that actually never left Brazil. That's right, we sold oil rigs for foreign companies to be leased back to Brazilian subsidiaries but these oil rigs never physically left the Brazilian territory. Without this operation of US$ 7.73 billion the 2013 trade balance would have a deficit of over US$ 5 billion.

Argentina and the newest member of Mercosur, Venezuela, face a serious economic crisis with hyperinflation, stiff currency devaluation and enormous discredit in the international market. Argentina freezes prices, restricts the purchase of dollars and creates its own inflation rate, something around 1/3 of the estimated market rate. Venezuela´s government controls the market with an iron fist and nationalized dozens of foreign companies. Argentina was responsible for the largest default in history, or in technical terms, moratorium, the unbelievable amount of US$ 81 billion, a masterpiece of another Kirchner, the deceased Néstor. With a severe crisis of confidence our fellow common market members see their currencies devalue at an alarming rate. Argentine peso has lost 3.47 % in one day (01/22/2014) and 18.4 % since November 2013 against the U.S. dollar. In Venezuela the government attempts to control the currency rates with two rates, one for basic commodities such as food and the other for not essential products like airline tickets. The difference between the official and non-official rates are gigantic, one dollar is worth 6.30 bolivars for commodities and 11.30 for not essential products officially and 77 bolivars in parallel market.

You may be wondering... what does Brazil have to do with all this? Everything! Since Argentina is the third largest trading partner of Brazil behind only China and the United States. The risk is huge with serious impacts on the Brazilian economy mainly when it come to controlling inflation, foreign investment and economic growth. The rest of it we already know, high unemployment, real estate bubble, recession, violence, all that follows an economic crisis that Brazil already faced in several other crises like the cruel 90s crisis that led to the confiscation of the savings accounts of every Brazilian worker.

So what is the solution? Well, I'm no expert, but the solution seems pretty obvious. Force Mercosur´s Council to allow its member states to negotiate directly with countries outside the common market threatening to leave Mercosur which would essentially cease to exist without Brazil. After all we have the seventh largest nominal GDP in the world and it's time we use our strength to get what is best for Brazil.  


When the first regional agreement that preceded Mercosur, the Declaration of Iguaçu, was signed in 1985 a regional pact was needed because both countries, Brazil and Argentina, had just come out of dictatorial regimes and did not have international credit. A lot has changed since then, in fact EVERYTHING has changed since then and Brazil needs to adapt to these new market rules. The Economist published an article “Has Brazil Blown It?" in September 2013 almost apologizing for saying four years earlier that Brazil was the country of the future in the article "Brazil Takes Off". This articles shows our incompetence exploiting business opportunities that have been presented to us in the past years and whose main reason was the attachment to Mercosur. 

So one last question prevails, UNTIL WHEN?