Tuesday, May 28, 2024

South America Can Still Save Its Trading Bloc – CoffeeTalk


The Mercosur-European Union trade agreement, which began in 1991, is back in the deep freeze due to concerns over environmental standards in Brazil and Argentina’s outgoing President Alberto Fernandez’s reservations about its impact on domestic industries. This setback may end the 32-year-old South American customs union itself, leaving the region out in the cold as the world divides into regional trading blocs. Mercosur’s purpose is to promote and shape trade and economic growth for those in the club, but as a customs union, they must maintain a common external tariff. This means that they cannot have different levies or trade policies, which is why most of Mercosur’s neighbors, including Chile, Colombia, Ecuador, Guyana, Peru, and Suriname, never wanted to be more than associates.

Uruguay is already eager to bail out by negotiating bilateral trade agreements with China and Turkey and has put itself on the list to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). If any of these deals come to fruition, Uruguay would be out of Mercosur. Mercosur’s end would leave its members even less able to compete in the global economy. Losing the preferred access and economies of scale that the customs union affords, even with its weaknesses, would undercut South America’s industries.

The rest of the world is forging more of the market- and trade-based bonds that South America is allowing to languish. Fifteen Southeast and East Asian nations have expanded their market access through the Regional Comprehensive Economic Partnership (RCEP), 54 African nations have signed onto the African Continental Free Trade Area (AfCFTA), and 11 economies and counting are part of the CPTPP. These clubs provide their members preferred rules and fees, economies of scale and scope, and common standards and rules of origin that unlock new customers and attract foreign and domestic capital.

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South America’s nations can’t grow and prosper without hooking into global supply chains and trade. To make regional supply chains viable, these nations need to stand up more border crossings, connecting roads and rails, and ensure more regional flights and container ship ports of call. Streamlining customs paperwork and reducing bureaucratic red tape through automation and digitization could lower the time and cost of doing business between South America’s economies as well.

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