New way to integrate the South American trading market

The outgoing year marked a new stage in the development of the process of Latin American integration. On December 17, on the sidelines of the summit in Uruguay, the Eurasian Economic Commission (EEC) and the South American Common Market (MERCOSUR) concluded a memorandum on trade and economic cooperation. What promises a new deal for Latin America? What will characterize the new round of cooperation between the two influential trade associations of the planet?

The MERCOSUR (in Spanish – Mercado Común del Cono Sur) is a subregional economic and trade union, which includes Argentina, Brazil, Paraguay and Uruguay. Associate members are Bolivia and Chile. In recent years, the foreign press has increasingly “slipped” the view that the once-large-scale regional integration process comes to a “stalemate”. However, the signing of the memorandum of understanding with the EAEU – the common market with more than 180 million people (which includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia) forced the skeptics to “shut up”.

Such an event demonstrated to the entire world community that the South American Common Market (MERCOSUR) is embarking on a new way of trade integration. The signing of such document was the result of painstaking five years of work, during which a high degree of economic complementarity was established between the two associations, as noted by representatives of the MERCOSUR. According to official data, the total GDP of the two associations: the MERCOSUR and the EurAsEC is 6.5% of the world total.

By the way, as international observers emphasize, rapprochement with the EurAsEC has become one of the main priorities of the rolling presidency of Uruguay in the MERCOSUR, which in the coming days will go to Argentina. In turn, the Argentinean government promises to focus on speeding up the signing of a protracted similar cooperation agreement with the EU and the specification of other agreements that are in the final stages of preparation. In a recent address, the President Mauricio Macri stated that he hoped that in the first half of 2019 agreements with Singapore and Canada would be signed.

However, until today it is not known when the final trade agreement with the EU will be signed. However, both associations have not yet made the final political decision: in Europe they want to understand what position Jair Bolsonaro will take in this alignment of forces when he assumes the presidency of Brazil early next year. The German Chancellor Angela Merkel recently said that specifying the main points of the agreement would be “complicated” with the arrival of the ultra-right leader.

On December 18, the Director of the Latin American Department of the Ministry of Foreign Affairs of Russia Alexander Shchetinin noted that the Russian side is interested in promoting cooperation with Latin American partners through the Eurasian Economic Union. Recently, on this background, very significant steps have been taken forward. The memorandums of dialogue cooperation were signed with Chile, Peru, Ecuador, Cuba, the Andean community and with integration such as the Latin American economic system. In Brussels this week, consultations were held between Russian diplomats and representatives of the European Foreign Service on issues of the Latin American region.

As for the crisis of the South American trade bloc observed in recent years, it is worth noting that the four partners of this organization (Brazil, Argentina, Paraguay and Uruguay), who alternately acted as chairmen in the union, pursued one common goal in stages: that determined the main goal of the MERCOSUR – the principles of free market and democracy. According to the leaders of the participants of the trade bloc, they were seriously focused on concrete results, so they tried to completely correct the main directions of the bloc.

As recent events show, the MERCOSUR seemed to be on a new track of economic modernization. During this four-year period, two important agreements were concluded. The first is in the field of regional investments, which increases the level of legal security and creates more favorable conditions for entrepreneurs. The second is in the public procurement sector, which has expanded the range of opportunities for Brazilian companies in neighboring countries and increased competition for government orders in Brazil, while reducing government spending. Many trade barriers were eliminated, and significant consumer rights agreements were reached.

Not less progress is observed in the relations of the trade bloc with other regions. As a result of the negotiation process, the first meeting of the heads of state of the MERCOSUR and the Pacific Alliance was successfully held. As part of this long-awaited meeting, a roadmap was agreed to bring together on a number of issues: trade facilitation, regulatory cooperation and digital economy.

In the past few years, leading economic experts have noted that Latin American markets have long been of particular interest to Eurasia. Initially, a free trade agreement with the South American Trade and Economic Union (MERCOSUR) tried to conclude the European Union, however, now the EAEU has embarked on the same path. The Memorandum on Trade and Economic Cooperation assumes that the authorities will conduct a very wide-format dialogue in the areas of trade, customs administration, technical regulation and standardization, digitalization of the economy, as well as in other areas of mutual interest. In turn, the heads of state of the EAEU emphasize that the Latin American states were able to demonstrate their intention to adhere to the market principles of the economy, advocate for open economies, without protectionism, for strengthening international cooperation on trade and economic issues.

At the moment, the possibilities that the agreement between the MERCOSUR and the EAEU will bring are very obvious. First of all, we are talking about facilitating trade without unnecessary bureaucracy and reducing customs duties. However, at the same time, the upcoming challenges are clearly outlined. The most important of these is that the two blocks will need closer cooperation between the companies.

Most likely, two fundamental factors will interfere with the full-scale economic cooperation between the EAEU and the MERCOSUR in the near future. The first of these is related to the remaining internal problems of the MERCOSUR. According to political observers, certain political and economic actors in Argentina and Brazil will continue to look for a “reset” and “reorganization” of this integration process, which they consider to be useless in terms of responding to the challenges facing the Latin American region in the 21st century. This trend will be reinforced by the new administration of Brazil, which, from the beginning of next year, will be headed by Jair Bolsonaro. It is worth remembering his repeated statements that the MERCOSUR will not be on the list of priorities of his government. The acute situation in Venezuela will also have an impact, given the economic crisis and the lack of political support for the members of the MERCOSUR. Thus, it is rather obvious that this integration association will have its own internal problems that need to be solved. The second aspect will be connected with geopolitical concerns, which in many ways have recently determined the foreign policy of the countries of the region.