Two Reasons Why the United States Should Pay Closer Attention to MERCOSUR

By

Martina Farías Bouvier

It’s no secret that Latin America has been relinquished to the bottom of the U.S. policy agenda for more than a decade now. The region poses no military or terrorist threat and, as for trade, Americans have focused on other opportunities throughout Asia.

But as Obama leaves office with an unresolved trade deficit, and in light of China’s economic slowdown, it may be time to revisit the unfulfilled “new chapter of engagement” that was promised to the U.S.’ continental neighbors not so long ago. The U.S. needs to realize that South America and MERCOSUR, the South American trade bloc, have a significant amount of consumers with the buying power to access American goods and services. And it needs to do it fast.

Part Of A Globe With Map Of South America by digidreamgrafix

What is MERCOSUR?

The Southern Common Market is a trade bloc between Argentina, Brazil, Uruguay, Paraguay, Bolivia and Venezuela. Its goal is to promote commercial and investment opportunities for its member states. With an area three times as big as the EU, a total population of more than 300 million people, and a collective GDP of $3.5 trillion (2013), MERCOSUR is the world’s fourth largest trading bloc. Although aggregate GDP in the region is expected to contract in 2016 (mostly due to Brazil’s recession), most MERCOSUR members will show positive growth this year.

Despite its huge potential, MERCOSUR has failed to deliver on most of its promises. Decreasing inter-bloc trade, protectionist governments and intra-member conflicts such as Paraguay’s temporary suspension, or Argentina’s dispute with Uruguay over a pulp mill, have stagnated the common market’s consolidation and long-term goals – turning what was supposed to be an economic union into a political one.

Winds of change in economic policy rhetoric

By the end of 2015, elections in Argentina and Venezuela revealed a shift towards what we expect will be the return of free trade and market-oriented policies.

The opposition’s coalition (MUD) victory in Venezuela’s legislative elections showed that the country will slowly abandon the late Hugo Chavez’s and Venezuelan President Nicolas Maduro’s populism and government mismanagement, which resulted in the nationalization of a great number of industries and supply shortages of basic goods. As for Argentina, since Mauricio Macri came into power, there has been a renewed confidence in the country’s future. At the WEF held in Davos, President Macri secured investment pledges worth billions of dollars from global investors and multinational companies such as Coca Cola, Shell and Dow Chemical Co.

MERCOSUR’s potential growth greatly depends on these political changes, as some of its members make their way back into the international trade arena. Shortly after election results had been announced in Argentina, Brazilian President Dilma Rousseff and Macri agreed that the common market had been delayed long enough and that it is now time to reclaim its vitality and active functioning.

Losing game against China and the EU

The EU and China have been the bloc’s largest trading partners for a while now. And it appears that, unless the U.S. realizes the trade potential of its South American counterparts, this will remain unchanged.

While China recently promised to increase annual trade with the Southern Common Market by $200 billion this year, the U.S.’ merchandise trade with MERCOSUR barely reached the $90 billions in 2014. And there have also been talks about a possible Chinese-MERCOSUR free trade zone. Recent discussions between the bloc’s two biggest economies, Argentina and Brazil, have included MERCOSUR’s long overdue trade negotiations with the EU, which have been on hold for the past 15 years.

Trade agreements between MERCOSUR and the EU and MERCOSUR and China would definitely alter the world trade scenario and put the U.S.’ continental power in check. Furthermore, the EU is now willing to address agricultural subsidies’ matters through bilateral negotiations –abandoning its traditional and shared position with the U.S. of delaying discussions until future WTO rounds.

Looking ahead: Could a stronger MERCOSUR mean a new trade balance of power?

The TPP, a $2.1 trillion trade agreement, has been a top priority in U.S. trade policy. But, although MERCOSUR countries have showed slower growth rates than their Pacific counterparts, the bloc’s combined GDP, changing political conditions, and ongoing negotiations with other major economic players, bring about new opportunities that the next U.S. President can’t ignore.

It’s true that MERCOSUR won’t get back on track overnight. Brazil’s political and economic crisis and existing commercial barriers between its members and with the rest of the world are matters that need to be addressed urgently. And it will take time.

Yes. MERCOSUR members were the ones that blocked the Free Trade Area of the Americas (FTAA), a trade bloc that was supposed to consist of all of the Western Hemispheric countries except for Cuba. But the U.S. should recognize the Southern Cone’s potential and, as the region gains push from the TPP, it’s time to start looking at them as equals, before it’s too late.

 

Martina Farías Bouvier is a member of the project support team at the Global Research Institute of International Trade. She has a Bachelor´s degree in International Relations from the Argentine Catholic University and is currently enrolled in the International Trade and Commerce Certificate at UCLA, with a concentration in Global Business Management. Martina is passionate about economic development and democratic governance issues in Latin American countries.

 

The opinions expressed by guest bloggers do not automatically reflect the views of International Trade Examiner.

Image courtesy of digidreamgrafix at FreeDigitalPhotos.net

Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

About Dr. Sarita D. Jackson

is the President and CEO of the Global Research Institute of International Trade, a think-tank/consulting firm that examines trade policies and their impact on domestic businesses. Prior to heading GRIIT, Dr. Jackson was a tenured associate professor of political science in North Carolina and worked as a trade policy consultant for an Arlington-based consulting firm. She has participated in trade policy projects and conducted research on free trade negotiations in Botswana, Antigua and Barbuda, Dominica, Dominican Republic, Mexico and Panama. Dr. Jackson has also traveled to Chile and Argentina to study their political systems and economic integration policies.
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