On 26 March 1991, Argentina, Brazil, Paraguay, and Uruguay signed the Treaty of Asunción, and in so doing established MERCOSUR, a regional trade bloc promoting a common market among its South American member states. 

The signatory countries to Mercosur acknowledged that establishing a common market would be a great opportunity to grow and strengthen the domestic markets of each respective country. In coming together to forge this agreement, the signatories acknowledged that they could not be left behind in the face of increasing globalization, and with this treaty intended to make a first step toward  comprehensive international market integration for the region. This sentiment is reflected in the very first article of the agreement, which states that the establishment of this common market involves “coordination of macroeconomic and sectoral policies” between the member states. In this scenario, signatories believed the best instrument to achieve this purpose would be a regional bloc for promoting free trade.

When discussing the lofty goals of the Mercosur, it is necessary to explain the motivation of one of the key actors – Argentina.  Argentina, years before the signing of the Treaty of Asunción, had weathered a few chaotic years: as hyperinflation grew by 3,079% in 1989 and the percentage of people living below the poverty line reached 47%, Argentina entered a recession,  which in turn prompted a six-month premature handover of command from President Alfonsín towards President Menem in 1989.

Argentina’s promotion of the agreement was not only in the interest of regional integration, but also in the interest of political expression, used as a tool for implementing future planned economic policies. In April 1991,  Argentina would begin forging a different path than it had previously trodden: instead of continuing with its protectionist economy, it quickly transformed itself into a free-market economy. Argentina’s economic transformation – which unfolded as the country privatized deficient companies, eliminated taxes and other regulations, and introduced the Convertibility Act – brought about immediate results. By the end of the year, Argentina had increased its GDP by +9.13% from the previous period, and would see further growth of +7.94% by the end of 1992. With these changes, Argentina opened up its goods and services to the world. 

As Argentina opened itself up to trade, it also opened itself to international law; in 1994, Argentina introduced a Constitutional amendment that provided certain ratified human rights treaties with equal status to the Constitution as the supreme law of the land. 

Argentina’s drive to create Mercosur was not a coincidence. It was a political decision to show the world that the country had changed its economic course. 

The Trouble with the Mercosur-EU Deal 

Fast forward thirty years to June 2019 when – after 20 years of negotiations – Mercosur finally reached a trade agreement with the European Union which promised to be the most important treaty in its history.  This treaty would cover 780 million people, and save companies over €4 billion in duties per year, creating possibilities for both parties. The European Commission stated that the agreement “represents a win-win for both the EU and Mercosur, creating opportunities for growth, jobs and sustainable development on both sides”[emphasis added].

The objective of this treaty, many on both sides have agreed, is to increase bilateral trade and investment by creating more stable rules for the two regions to promote joint values (especially in the instance of global threats like climate change). 

To provide a snapshot of the potential importance of this agreement, it is notable that the EU has become Mercosur’s number one trade and investment partner, accounting for 17.1% of the bloc’s total trade in 2019. While Mercosur exports largely agricultural products, the EU exports primarily machinery, transport equipment, and pharmaceuticals to the southern bloc. 

The agreement covers imported goods in each region, and boosts investment by lowering tariffs. To this end, the EU will reduce more than 99% of its tariffs on agricultural products from Mercosur, in addition to eliminating import taxes for 81.7% of all agricultural products and offering quotas or preferences for the remaining 17.7%. In addition, Mercosur will open its markets more readily to EU exports, including cars and machinery.

But this agreement, as historic as it is, has yet to be ratified. To be enforced, the agreement must be ratified by the 28 signatory states, but the current Argentinian government has yet to officially approve its passage.

At the time  the agreement was announced, Argentina was amid its presidential election campaign. Then-President Macri, long a supporter of the agreement, sang its praises. But then-candidate Alberto Fernández voiced his disfavor for the agreement, stating that “there is nothing to celebrate with this Agreement” and arguing that “the benefits are not clear, but the damages are. Such an agreement generates nothing to celebrate but many reasons to worry.” He urged that the trade deal would result in Argentina surrendering its industrial sector to powerful EU competitors, forcing Argentina into further agrarianism.  As the election heated up, Brazil’s President Bolsonaro stated that Mercosur would benefit from a continuation of Macri’s trade policies through any new administration, hinting at potential future strife for the entire bloc if a new president were to disapprove of the long-awaited accord.

Much to the chagrin of the accord’s strongest supporters, Fernández won the election with 48% against President Macri’s 41% in October, and took over as president in December 2019. Upon taking office, the Fernández administration rejected the deal. Soon afterward, in April 2020, the new administration changed its mind: it wanted to move forward with the Mercosur-EU agreement. 

Then in September – only five months later -, the Argentine ambassador to the EU called into question the ratification by the Argentine Congress of the trade agreement, a formal requirement for the accord to enter into force. The ambassador noted that the government still had to conduct a “cost-benefits analysis” to ensure its ratification would be beneficial to Argentina. In October 2020, the Fernandez administration updated its stance by noting that it would not block – but perhaps had no plans to resoundingly support – the long-awaited EU trade deal.

In sum, within almost a year, the same administration changed its position on the agreement several times, delaying the passage of the deal and creating further uncertainty about the stability of the Mercosur bloc. 

Mercosur’s Limited Achievements

On March 26, Mercosur celebrated its Thirtieth Anniversary. Now, we should ask ourselves: what significant trade agreements has it yet achieved?

Not many, at least not on the scale one might expect: to date there have been only seven partial scope agreements on economic complementation, two preferential trade agreements, and two Free Trade Agreements (with Israel and Egypt) in the trade bloc’s three decades of existence.

The main cause of this limited impact is due, in large part, to instability in long-term public policymaking in Latin America. 

Take Argentina as an example, where 10 years of pro-market policies put forward under President Menem’s Administration were followed by 12 years spent dismantling these policies, as Presidents Kirchner and Fernandez de Kirchner worked to return to a closed economy.

As a result, counterparties in trade agreements lack confidence that future administrations will adhere to the terms of their deals. Why would any country or bloc choose to spend time and effort crafting an agreement with Mercosur  when this level of uncertainty persists?

Country-specific instability across the region has placed a strain on the tenuous ties that bind Mercosur together – a strain that became obvious at the virtual summit hosted to celebrate the bloc’s thirtieth anniversary.

In the meeting, Uruguayan president Lacalle Pou – whose father was one of the presidents who signed the Treaty of Asuncion – proposed a flexibilization of Mercosur, maintaining that the bloc was created for the prosperity of the state parties and was not meant to represent a burden on its members.

At the closing of the event, President Fernández responded to President Pou’s comment with vitriol, stating, “If we are a burden, take another boat.”  Despite the tension, President Pou announced in the following days that he would send a flexibility bill to Mercosur’s members. Thus on April 26, at the meeting of Mercosur’s foreign ministers, the Uruguayan minister proposed its new flexibility project – which received Brazil’s full support.  Argentina, by contrast, did not hop on board.

Currently,  Mercosur’s states parties can only negotiate treaties with third parties as a bloc, not as individual countries. But as Uruguay continued to have its flexibility project blocked, it announced on July 8 that it would begin to negotiate agreements outside of Mercosur, arguing the Mercosur clause that would prohibit its solo negotiation “is not in force.”  

On the morning of September 8, Uruguay’s Pou administration took the first step toward making good on its warning by calling an urgent meeting of the country’s political representatives and opposition officials and announcing to them that Uruguay has decided to move forward – as an individual actor, without Mercosur – with negotiating a trade agreement with China. At the same time, the Pou administration quickly gave notice of its decision to all Mercosur member states. 

The announcement took many by surprise – including Argentina. Officials within the Fernández administration told the media soon after the announcement, “[This decision] is delusional! What is Uruguay doing in negotiations with China?” The Argentine government may not have previously believed Uruguay would break ties with the Mercosur bloc to begin solo negotiations, but this recent move indicates that Argentina may have miscalculated the risks associated with blocking Uruguay’s repeated attempts to amend Mercosur clauses. 

Thus tensions between the Mercosur member states continue to rise – and it seems that this time, with Uruguay already starting to negotiate deals on its own terms, the trade block may well be fatally wounded. 

Conclusion

While it would not be fair to attribute entire responsibility for Mercosur’s disappointment to Argentina’s recent actions, it is not an exaggeration to say that Argentina´s unstable and erratic policies have unfortunately contributed to Mercosur’s recent setbacks. The obvious lack of support for a pivotal agreement from a founding state party has discouraged trust of the trade bloc within diplomatic, political, and economic spheres. 

All things considered, Mercosur is failing.  Part of this anticipated failure may be attributed to a lack of fulfillment of the bloc agreement’s main articles, while another major cause of its downfall includes an inability of Mercosur’s state parties to prioritize the long-term benefits of the agreement, instead practicing short-sighted politics.

It may simply not be worth retaining the Mercosur model agreement as it currently stands – and would likely be to the benefit of all parties to comply with Uruguay’s plan to make amendments to it.

Several amendments could be introduced to help better the current state of affairs. One new amendment could anticipate cases of political instability (as in Argentina’s case) to reduce the likelihood of member states’ political uncertainty changing the course of negotiations and resulting in disapproval of new treaties (like the EU agreement). A second amendment could provide each country member with the freedom to negotiate individually in cases where the bloc is not interested in creating new treaties. This second amendment is especially important because, if a treaty intended to promote free trade somehow manages to prohibit trade at the same time, it is – at the very least – contradictory.

With these amendments, perhaps we could see the Mercosur bloc not only saved, but flourishing in the not-too-distant future.

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Marco Primo is an Argentinean third-year law student at the Universidad de Buenos Aires, Facultad de Derecho. He is deeply involved and interested in government affairs, politics, and the public sector where he hopes to pursue a career.