SIA NYUAD
Published in

SIA NYUAD

The Mercosur -Are Economic Trade Blocs Good?

By Emma Chiu

Source: Council on Foreign Relations

One of Mercosur’s central goals — of achieving a common market to benefit all — came with a variety of obstacles. The two biggest economies out of the four — Argentina and Brazil — underwent drastic economic crises. With the devaluation of the Brazilian real in 1999 and the Argentine economic meltdown in 2001, the next decade witnessed a large variety of different trade disputes regarding tariff barriers and development projects that further divided the bloc.

The wavering economies of the larger economies in the Mercosur were not the only unstable components of the bloc. Further division of Mercosur is also illustrated by the volatile nature of the smaller countries’ membership statuses. For example, Paraguay’s membership status was suspended in 2012 due to its presidential impeachment, which was qualified by the rest of Mercosur’s members as a coup d’etat. Following this event, Venezuela was admitted into the bloc, since Paraguay — the only country that refused Venezuela’s entry into the Mercosur — was temporarily suspended and unable to take part in binding decisions. However, Venezuela’s position as part of this economic bloc was extremely short-lived, as it was later stripped of its membership rights in 2016.

From these events, it seems that although Mercosur has played an important role in regional economic integration in the 1990s for its member countries, the bloc has run into destabilizing political crises and disagreements in the 2010s — problems that have stunted progress and trade liberalization.
The core of the problems in Mercosur arises in many other cases of political alliances since the member countries are compelled to align their interests in a common goal. When countries’ individual interests do not align with the group’s interest, there is a loss in individual benefit, which can be detrimental during times of economic instability. Even under normal circumstances, the smaller members of the bloc — Paraguay and Uruguay — complain of restricted access to markets in Argentina and Brazil. However, the reason that these bigger countries restrict access is to protect their local economy from being flooded with foreign products — since they are already standing in competition with products coming from outside of Latin America.

Not only is the coordination of economic policies a significant obstacle faced by Mercosur, but critics have also accused Mercosur of becoming politicized and moving away from its original goal of focusing on free-trade. The politicization of the union has compelled countries to stand alongside each other in their political goals, which can at times stand in opposition to other countries’ economic benefits.

For instance, the political goals of certain countries in the bloc — especially Uruguay — give them a reason to pressure the rest of the members of the Mercosur to engage in trade relations with China. Moreover, an economic and political alliance with China has the potential to yield substantial economic benefits to South America, due to the vast size of the Chinese market. However, an economic agreement would also entail that Chinese products — manufactured with a significantly lower budget — would be allowed to flood the local markets of these same countries that are seeking profit. A flooded local market would again prompt local governments to maintain economic restrictions from competing products, which goes against the spirit of the Mercosur itself, ending in a vicious cycle.

This result calls into question whether or not economic trade blocs really end up generating revenue in the long run for their member states. The difficulties of coordinating countries’ political and economic preferences become especially salient in times of economic crises or political turmoil, which further complicates the issue. Therefore, analyses of a country’s individual economic benefit should be carefully made before ascribing to an idealized notion of a sociopolitical alliance, despite the benefits and opportunities that it seemingly produces at first sight.

--

--

A multidisciplinary platform featuring news and commentaries on global issues run by the Society of International Affairs at NYUAD

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store