Mercosur momentum for EU deal

Macri brings hope to world’s fifth largest trade bloc

Mercosur, Latin-America’s subregional trade bloc, held its latest summit last week in Mendoza, the wine capital of Argentina. The body language of heads of state was strong, as were the words in the final communiqué. The assembly signalled a fundamental shift, from politics to trade, which this under-achieving bloc has needed for years.

Arguments over how best to handle the repressive regime of Venezuelan President Nicolás Maduro continue to dominate the regional headlines. But behind the scenes, the lead players focused debate and decision-making on seeking new alliances to allow Mercosur to fulfil its potential in the global economy.

Reaching a trade agreement with the European Union, a well-worn issue stalled since the millennium, is again a priority. Meaningful debate on the issue fell victim to past protectionism-touting governments in Argentina and Brazil. Farming lobbies in the EU that feared competition from Mercosur’s large meat producers hindered proceedings as well.

‘We have prepared here for the final integration process with the EU, and the plan is that we will celebrate a free trade agreement by the end of this year,’ said Jorge Faurie, Argentina’s foreign minister and chair of the working sessions.

‘The EU believes it can double its exports to us within five years, and we know the same can be true for us if we make this deal,’ remarked Aloysio Nunes, Brazil’s foreign minister, revealing that both sides recognise compromises must be made. ‘What is not to like if it means growing business for both sides?’

Settling a trade pact between Mercosur’s central quartet (Argentina, Brazil, Uruguay and Paraguay) and the Pacific Alliance is equally important. The latter coalition incorporates Mercosur’s associate members such as Colombia, Chile and Peru, as well as Mercosur observer-nation Mexico.

‘My province of Mendoza does more business with Pacific Alliance countries than internally with Mercosur,’ declared Alfredo Cornejo, the region’s governor and host of the summit. ‘It’s time for all of us, inside and outside Mercosur, to take down trade barriers and recognise that we grow together, not apart.’ Argentine President Mauricio Macri and his Brazilian counterpart Michel Temer, who assumes the bloc’s presidency for the second half of 2017, will serve as the chief advocates of change.

‘Mercosur has languished for years, one of the most closed trading blocs in the world,’ according to one of Macri’s lead advisers, who argues total GDP as a group could make it the world’s fifth largest economy. ‘That’s a hugely powerful trading platform with great potential in the world economy.’

EU negotiators believe Macri’s leadership, and Temer’s listening ear, offers the best chance in years of concluding a deal. ‘Their approach is reasonable, realistic, and always open-minded, such a contrast to their predecessors,’ according to one EU insider in Latin America for the next round of talks.

But action needs to be taken quickly. Macri wants a deal with the EU completed before the World Trade Organisation comes to Buenos Aires for its 11th ministerial conference in December. Temer, who said he is ‘seriously optimistic’ about the EU and Pacific Alliance negotiations, needs a foreign policy success as he contends with corruption allegations. All the players are acutely aware, too, of impending elections over the next 12 months in Chile, Colombia, Brazil and Mexico.

‘The initiative is with us, as is the momentum,’ according to Macri’s adviser. ‘Let’s hope our friends, in the EU especially, see what we see – the imperative in the age of Trump, and Brexit, to seek new alliances and ward off the threat of old-style protectionism.’

David Smith is a Member of the OMFIF Advisory Board and represented the United Nations Secretary-General in the Americas between 2004-14.

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