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LATIN AMERICA | 09-07-2021 02:58

Mercosur’s glitch-plagued summit puts spotlight on trade divide

Luis Lacalle Pou's new trade strategy unable to win broad support among bloc's members. Parallel initiative backed by Brazil and Uruguay to reduce Mercosur's common external tariff also fails to advance.

Deep divisions in Mercosur's trade policy were exposed during a summit of the South American customs union on Thursday, as Uruguay insisted on a plan to pursue its own trade agreements, in defiance of the bloc's negotiating strategy advocated by Argentina and Paraguay.

"We believe that the way is to comply with the Treaty of Asunción: negotiate together with third countries or blocs and respect the figure of consensus as the basis for decision-making," responded President Alberto Fernández, during Thursday's summit. “In our integration process, no-one is saved alone ”.

Uruguay will remain in Mercosur and its decision to sign bilateral trade agreements complies with the bloc's rules, said President Luis Lacalle Pou, whose father was a founding leader of the customs union in 1991.

"That does not mean breaking or breaking the consensus rule," he said. “Uruguay wants to advance with Mercosur. We have more strength, more dimension and negotiating power with the world together."

Technical failures clouded the summit that departed from the traditional format in which the host country broadcasts all presidential speeches, leaving each country to find its own solution. Consequently, Lacalle Pou's speech lacked audio and that of President Mario Abdo Benítez of Paraguay was not even broadcast live to the public.

New strategy

Lacalle Pou's new trade strategy upset three decades of Mercosur consensus after Uruguay's proposal to allow members to negotiate agreements, individually or in groups, did not garner broad support. A parallel initiative backed by Brazil and Uruguay to reduce Mercosur's common external tariff also failed during this week's summit in which Argentina handed over the bloc's six-month pro-tempore presidency to Brazil.

"We cannot allow Mercosur to continue to be seen as synonymous with inefficiency, wasted opportunities and trade restrictions," said Brazilian President Jair Bolsonaro, who did not endorse Lacalle Pou's plan.

Fernández is resisting exposing Argentina's fragile economy, hit by three years of recession and double-digit inflation, to increased foreign competition. Tensions between Mercosur reformers and defenders of the status quo triggered an awkward moment back in March when the Peronist leader suggested that Uruguay should leave Mercosur if it was not happy.

Furthermore, it is Brazil's lax protection of the Amazon rainforest, not the protectionist instincts in Buenos Aires, that is holding back the historic free-trade agreement that Mercosur and the European Union closed two years ago. The EU is refusing to sign, let alone ratify, the agreement until Mercosur addresses its environmental concerns.

Uruguay, for its part, is eager to gain new markets for staples such as soybeans, beef, dairy, and forest products that make up the bulk of its exports. Local newspaper Busqueda reported Thursday, citing unidentified government sources, that the administration is seeking a free-trade agreement with China.

"We are going to have trade relations with China as much as possible," Lacalle Pou said during the Latin America Freedom Forum last month.

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by Ken Parks, Jorgelina do Rosario & Simone Preissler Iglesias, Bloomberg

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