The Mercursor Trading Bloc

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David Cameron, whilst on a recent trade visit to Brazil, chose to comment on a potential referendum on British membership of the EU. [1] Whilst this is a subject dear to many Conservatives, one might struggle to see the relevance to the UK’s links with the leading South American economy. However, whilst some in the UK seek to leave the EU in order to pursue closer ties with countries such as Brazil, Brazil has for many years been a member of a body much like the EU. This group of South American nations is known as Mercosur. [2]

Mercosur ((Mercado Común del Sur/ Mercado Comum do Sul)) is a trading bloc consisting of a number of South American nations. The full members are Brazil, Argentina, Uruguay, Paraguay and Venezuela, with other nations being involved as associate members. Whilst this is significantly fewer member states than the EU, it still forms the 5th largest economic bloc in the world. [3]

Despite its size, Mercosur attracts relatively little attention in the British media. What may surprise many is that its aims and functions will sound remarkably familiar to those of the much-derided EU. Established by the Treaty of Asunción in 1991 [4] they include: the free movement of goods, services, people and capital; and the establishing of common external tariffs with non-member states. Agreements between the member states and legislative acts have succeeded in turning Mercosur into a full customs union, with no internal tariffs and a common external trade policy.

There is also, as of 2004, a Mercosur parliament with members beginning to be directly elected after the 2008 Paraguayan general elections. [5] Whilst this parliament is currently only advisory, its decisions are considered to carry significant weight in the Mercosur legislative process. Mercosur also promotes democracy within the Member States, with Paraguay’s membership recently being suspended due to concerns about the ousting of the country’s president. [6] Another goal of Mercosur is integration of the member states, and of their most ambitious projects is Bancosur (Banco del Sur/Banco do Sul), a monetary fund and lending organisation established in September 2009 by the Mercosur member states, as well as Bolivia and Ecuador.

All of these goals, and the measures taken to further them, echo the formative development of the European Union, and as the member states of the EU became more integrated over time, the centralised body itself became more significant in global trade negotiations. With the central body having greater powers with regards to the economies of the member states, and the countries’ economies being a more unified bloc, it made increasing sense for other countries to negotiate a deal with the whole of the EU, as this was the quickest way to the largest economic gain.

The same can now be said of Mercosur. Now, rather than seeking to deal with individual member states, large economic powers conduct negotiations with Mercosur directly. Since a summit in Madrid in 2010, further attempts are being made by the two organisations to finalise a much more comprehensive free-trade agreement between the two bodies than the trade rules guaranteed by WTO membership. [7] China has also proposed the creation of a free-trade zone between China and Mercosur rather than between individual states. [8]

As countries with the economic strength of Brazil (whose economy recently became larger than that of the UK [9]) become more integrated with others in order to match the powerful negotiating positions of the EU and China, the main line of discussion in the UK is far too often one of how we can extricate ourselves from neighbouring EU countries. One of the more prevalent arguments for doing so claims that this would free up the UK to negotiate its own free-trade agreements with more economically prosperous countries such as Brazil. However, the most logical option for both Brazil, and Mercosur as a whole, would be to prioritise their negotiations with the EU, a much larger economic bloc, as opposed to the much smaller declining economy of the UK. Given this situation, the best option for the UK would clearly be to stake its claim as an integral part of the largest economic bloc in the world, [10] to ensure a strong position in any free-trade negotiations with other large economic powers such as Mercosur, rather than isolating ourselves and hoping for the best.

Article by Calum Young. Edited by Ben Mackay.

Further Reading

[1] http://www.bbc.co.uk/news/uk-politics-19761017

[2] http://news.bbc.co.uk/1/hi/world/americas/5195834.stm

[3] http://www.cfr.org/trade/mercosur-south-americas-fractious-trade-bloc/p12762

[4] http://www.worldtradelaw.net/fta/agreements/mercosurfta.pdf

[5] http://www.internationaldemocracywatch.org/index.php/mercosur-parliament

[6] http://www.bbc.co.uk/news/world-latin-america-18636201

[7] http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/regions/mercosur/

[8] http://www.reuters.com/article/2012/06/29/us-mercosur-idUSBRE85S01Z20120629

[9] http://www.bbc.co.uk/news/business-17272716

[10] http://www.imf.org/external/index.htm