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article imageTrade deal with EU huge boost for South American bloc

By AFP     Jun 28, 2019 in Business

The historic trade agreement signed Friday in Brussels is a massive shot in the arm for the four-nation South American bloc known as Mercosur.

The trade alliance grouping Argentina, Brazil, Paraguay and Uruguay has struggled for momentum since it was set up in 1991.

Though the agreement eliminates tariffs against the EU in key sectors, the bloc still has to get its own house in order, according to analyst Nicolas Albertoni of the University of Southern California.

"Nearly 30 years after its creation the idea of a customs union within Mercosur hasn't been achieved," said Albertoni.

"Mercosur hasn't consolidated either its customs union or its common market," according to Ignacio Bartesaghi of Montevideo's Catholic University.

Mercosur operates a Common External Tariff within the zone, but members struggle with rules they see as too restrictive, holding back progress in bilateral agreements because they need the consent of other members.

"It has a precarious free trade zone, since it has exceptions, for example, as regards the auto industry and sugar," said Bartesaghi.

"It still has a very high level of non-tariff barriers that affect the growth of intra-regional trade," he said.

Mercosur, headquartered near a popular city beach in Montevideo, has a population of 264 million with a GDP equivalent to almost one-eighth that of the EU.

The main figures for the EU and Mercosur
The main figures for the EU and Mercosur
Patricio ARANA, AFP

The agreement sealed Friday creates a market of 780 million people with the EU.

Bartesaghi said that after 20 years of negotiations, both sides were coming out "winners -- one more in the agricultural sphere and the other for industrial products and services."

Beyond trade, experts point to the benefits of a deal of such magnitude at a time when protectionism is gaining ground, particularly given the trade war between China and the United States.

The EU-Mercosur agreement "will help improve Mercosur's cohesion, support its modernization and make it a more attractive market for Japan, South Korea and even the United States," said Bartesaghi.

"The dynamic effects of this type of agreement have to be taken into account: the progress that can bring to Mercosur in terms of competitiveness, efficiency, institutional quality and attracting investment," he said.

Added Albertoni: "Beyond access to markets, this agreement can become a huge signal for global trade, today anchored in a protectionist rhetoric."

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