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?
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?