MERCOSUR: is the economic alliance at risk?

Brazil and Argentina would be the most affected countries if the treaty were to fall appart

MERCOSUR: is the economic alliance at risk?

MERCOSUR, the Common Market of South America, was formed by Brazil, Paraguay, Argentina, and Uruguay in 1991. It is recognized as the fifth largest economy in the world, has the Guaraní Aquifer, which is considered one of the most important freshwater reserves of the planet. The main objective of MERCOSUR is to unify the region and generate economic growth to its members. However it has been affected by the political, economic and social circumstances of the countries involved.

Venezuela was part of MERCOSUR, but it is no longer participating in the alliance because it does not comply with Article 5 of the Ushuaia Treaty, which states that if a State violates Article 4 by not having a democratic government, the other States that are part of MERCOSUR will intervene and will be able to suspend the privileges of the country in question. This will be done after consulting with each other and consulting with the country that is incurring in the violation, having that in consideration, the other countries decided to suspend Venezuela´s privileges and be subject to review in MERCOSUR.

Bolivia is in the process of becoming a member because it is currently an associate of MERCOSUR but not a member. Other countries that are associates are Peru, Guyana, Suriname, Colombia, Ecuador, and Chile. The associated countries have tariff privileges but they do not have rights over the decisions made by the members and they do not have open trade. Initially it was considered that MERCOSUR had been created with a protectionist tendency for the economy of Argentina and Brazil, and to avoid that other economics external to the region would become strong competitors, therefore Argentina and Brazil could have control over the region.

Read Also: Mercosur and Canada hold talks for a possible trade agreement

The countries that have more influence over the decisions at MERCOSUR are Argentina and Brazil, and due to their economic situations the rest of the members have been affected. At the end of 2016 the GDP of Brazil presented a substancial decrease of the 3.6% and the inflation rate was at 8.7%; the devaluation of the Brazilian currency started in 1999. On the other hand the economic crisis of Argentina started in 2001 and by the end of 2016 Argentina´s GDP presented a decrease of 2.3% and the inflation rate was of 42%. Therefore both countries have not achieved the economic growth expected and the rest of the members of MERCOSUR and associates have been affected by this situation, if this situation continues there is a chance that the economic block of MERCOSUR will disintegrate so there wont be a direct repercussion over the rest of the countries economies and they will be able to create an opportunity for other economies with higher economic power to proliferate free trade in the region.

Nevertheless there hasn´t been an official proposal on the disintegration of the MERCOSUR, on the contrary the member countries met in July of this year with the members of the European Union to make an alliance and be able to generate trade for both regions, they put themselves as a deadline the end of this year to finalize a commercial agreement.

Read Also: EU trade deal with Mercosur might start by year's end

In the event of a separation from MERCOSUR, the two most affected countries would be Brazil and Argentina, since the treaty protects the industries of both countries from external competition, and it has helped both countries improve their commercial relationship. 

 

Latin American Post | María de Jesús Eunices Reveles Conejo

Copy edited  by Laura Rocha Rueda

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