Juan Carlos Sanchez Arnau
Hoy 10:37
After an extensive statistical study of the evolution of trade between the four member countries since the creation of the Mercosur Up to the present (1990-2022), we have reached the following conclusions:
– Mercosur has not been an important trade generation factor for member countries. Intra-Mercosur exchanges have grown slightly above the total trade of its members: they represented 10.63% of the total trade of the four countries in 1990 and today they reach 11.25%. There was a strong increase in trade in the first eight years of the agreement, with intra-trade representing 23.23% of the total, only to suffer a strong subsequent decline that was accentuated from 2010. Let us remember that in 1998 there was the financial crisis in Brazil and the devaluation of the real that later affected the rest of the member countries and that in 2010 the financial crisis was global and considerably affected the progress of international trade.
– This lack of dynamism of the Mercosur occurred in a context of global tariff reduction, in parallel with the
implementation of the Marrakech agreements (the average mfn tariffs applied by Argentina at the beginning of the years
ninety were of the order of 33%, while currently reaching 12.29%) and despite the expansion of the margins
preferential rates among member countries, which were close to 7% and today do not exceed 0.3%.
– Contrary to the theses based on the theories of regional integration under a general equilibrium regime, the
case of Mercosur has shown once again, thanks to empirical analysis of trade flows, that, like all trade liberalization, it has tended to “fix” the “revealed trade advantages”. Thus previous relative advantages have become more apparent.
– The result has been that trade in primary products and technology-based manufacturing have increased
average, to the detriment of goods based on natural resources and manufacturing based on low technology, which
they have lost share in total trade. While those manufactures based on high technology also seem to be losing relevance in intra-Mercosur trade.
– The great factor behind this result is the Common External Tariff (TEC), which reserves a market for the most dynamic sectors of Brazil and it is neutral for products coming from the rest, whose export products are strongly linked to the world market (their transactions are generally not affected by preferential margins).
– Another factor that has been relevant in this process is the evolution of the real exchange rate. In the case of Argentina we have observed a strong link between the evolution of its exports and imports to Mercosur and the previous evolution of the Bilateral Exchange Rate with Brazil. We observe the same phenomenon in relation to Argentina’s total exports and imports (that is, to all markets) and the evolution of the Multilateral Exchange Rate Index: the strong devaluation of 2001/2002 generated a strong increase in exports and total imports in the following years (almost a decade), which fell again as the currency appreciated. The increase in the index between 2015 and 2019, also explains to some extent the recovery of trade from 2020. While the revaluation that we observe from 2019, perhaps it is heralding a new drop in trade in 2023/2024.
– Made the equipment more expensive delayed technological development.
– It favored the denationalization of key sectors of the economy (Argentine assets were very cheap and Brazilian companies bought large companies (Acindar, Alpargatas, Loma Negra, Quilmes and several refrigerators) at sometimes derisory prices and without any State intervention to avoid the creation of sectoral monopolistic situations or that important sectors of the economy remain in the hands of our competitors.
That the participation of exports to Mercosur in the country’s total exports reached a maximum of 35.65% in 1998, which fell sharply until 2003 (as a result of the crisis of those years and despite the devaluation) to recover in the following years, until reaching a new maximum in 2013 (25.17%) and from then on falling to the current minimum of 17.41%. In other words, today Mercosur is much less important for Argentine exports than it was at the beginning of its existence.
In the case of imports, the path is similar in the first stage: from a 22.87% participation in total imports in 1995, it reaches a maximum of 38.03% in 2005, to attend from there on more than one slow decline and reach the current minimum of 23.59% (less than one point more than it was at the start of the Agreement).
As a result of this evolution of exports and imports, Argentina has experienced 15 years of trade deficit with its Mercosur partners in the 28 years computed. Accumulating in that period deficits for just over 26 billion dollars (against a surplus of more than 182 billion in trade with the whole world).
Argentina’s trade from 2002 to 2022 has always been in deficit with Brazilexcept in 2022 and 2019.
Instead, was superavitary with Paraguayexcept in 2007 and 2008 and up to 2018, from then on, it has again been in deficit.
with Uruguay it was always surplus.
Behind these results is the composition of trade. Unfortunately we only have an adequate breakdown of intra-Mercosur trade by product group for the period 2002/2014, but the results are revealing:
With Paraguay, in said period we accumulated a deficit in “commodities” (food, beverages, agricultural raw materials, minerals and metals and fuels), of almost 2,000 million dollars and a surplus of 5.2 billion in manufactures.
With Uruguay, the surplus was in both sectors: 4.7 and 5.8 billion dollars in favor.
On the other hand, with Brazil, we accumulated a surplus of 43 billion in “commodities” and a deficit of 64.6 billion in manufacturing.
– Uruguay is in deficit compared to the other three members
– Paraguay was also in deficit until 2015 (it only had a surplus against Uruguay) but from that year on it continued to be in deficit with Brazil and started to have the already mentioned surplus with Argentina (in which the supply of grains from soybeans to grind in Argentine plants).
– Argentina has a surplus against Uruguay and we have already seen the evolution with Paraguay and it has a deficit against Brazil
– Brazil has a surplus compared to the other three
Mercosur has become a “corset” for trade policyWe do not have preferential trade agreements with whom we are interested and Mercosur obliges us, via the Agreement and the TEC, to remain within a scheme with objectives that are today divergent from ours. Uruguay (the country most affected by this scheme), on the other hand, is trying to get out of this situation by proposing to go ahead with independent agreements with China, Turkey and the Pacific Agreement. Some bilateral agreements could bring strong growth to our exports but we cannot materialize them because we are tied to Mercosur’s trade policy decisions. The example of Chile is a clear example in the matter. The draft Mercosur-European Union Agreement could have been a way out of this “bottleneck”, but the recent positions of France and Brazil on it make it difficult to imagine that it could materialize in the near future.
Regardless of these strictly commercial considerations, we also we must look at Mercosur as an instrument for “disciplining” our relations with Brazil. It gave an institutional framework to a complex relationship, full of contradictory interests and some possibilities of coincidences and important common construction. In any case, reality always prevails: Mercosur has different interests for its members and those issues that for some sectors in Argentina seem central, in Brazil are no more than a topic, if not marginal, at least not so important. It is a transcript of how we see each other but within a conventional framework.
Obviously, Argentina’s problems go beyond Mercosur: above all, we suffer from the absence of insertion policies in the world consistent with our interests (trade policy is the best example) and we are affected by fundamentally wrong macroeconomic policies. The best proof of this is that Argentina’s exports have grown less in the last decade than those of any other South American country.
It is not necessary to “kill” Mercosur, but it must be rethought. Beyond the political framework, it will serve us as a free trade agreement, never as a common market (which on the other hand has not managed to be) in a framework of understanding (not easy due to differences in natural objectives) with Brazil. And keep it as a possibility for the commercial expansion of SMEs and medium-sized companies that do not have the capacity to enter other markets.
In any case, Argentina’s relationship with Brazil is not limited to Mercosur. There are other major issues of the bilateral relationship of great importance. Some find us at odds, particularly those of a political nature and some geopolitical. Looking ahead, however, we have a new opportunity today. It includes some new elements. First, the possibility of generating common commercial policies that put us at the margin of the United States-China competition. It is possible that the interests of Argentina and Brazil are converging in more than one area vis-à-vis the two great powers. Will we be able to articulate common policies and take the other members of Mercosur with us? Second, Argentina’s new gas resources could be an important source of supply for Brazil given the decline in Bolivia’s gas supply and the high cost of “presalt” brazilian. This can only be achieved within the framework of a long-term agreement that would compromise our country as a reliable supplier and Brazil as a solvent buyer.
*Juan C. Sánchez Arnau (with the collaboration of Tadeo Quintela): “Argentina and Mercosur. Balance of Thirty Years of Trade”, in forty tables and statistical graphs on the trade of its members and intra-regional trade. Federal Meeting Foundation, June 2022.