Mercosur at a crossroad

On March 26, 1991, Brazil, Argentina, Paraguay and Uruguay signed the Treaty of Asuncion, which effectively represented the creation of the Southern Common Market, Mercosur.

Mercosur was born at a historic moment when negotiations for the creation of the European Union were finalized, and when NAFTA was also taking its first steps. Thirty years later, the union established that day in Asuncion continues to represent great relevance for the countries of the Southern Cone – even though controversies are taking place more frequently these days.

Over these three decades, the bloc has been successful in opening up important opportunities for the competitive insertion of member countries’ economies into globalization, but it has never managed to become a de facto free circulation area, as provided for in the original treaty. 

A point of customs union was reached, that is, determination of a common external tariff, a stage prior to that originally envisioned by the plan. Nevertheless, institutional advances were achieved in the relationship between the countries, in which a policy of cooperation and integration in the region was paved.

After 20 years of negotiations between the European Union and Mercosur, on June 28th, one of the biggest trade agreements in history was finally signed. Together these countries move 25% of the world’s GDP.

But there are important controversies. After decades of postponing its consolidation in the common market, under Mercosur there are two big points to be resolved.

The Common External Tariff

The countries that make up Mercosur agreed to adopt the same import tariff rates on products from other countries that are not part of the bloc. That’s what makes the bloc a customs union.

The TEC was adopted in Mercosur in 1995. For industrial products, the average is around 14%, but there are some products that are subject to a rate of up to 35%. In practice, there are several products that are exceptions — for example, the rates that Brazil applies to computer goods are different from those in Argentina. Brazil wants a 20% cut in all rates, which would happen in two steps: 10% immediately, another 10% in a few months.

The proposal has not yet been fully accepted by the other members. Argentina, in particular, proposes only a partial revision of the differentiated rates.

Trading with third parties

Today, the four Mercosur countries can only negotiate free trade agreements with third parties as a bloc. Uruguay recently took the initiative to propose changes to this principle, a point that is also facing resistance from Argentina.

The future of the bloc depends on the solutions to be negotiated for these controversies. In any case, it is important to highlight the substantial gains that the four original members have registered in the last decades.

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