Economic characteristics

Mercosur (Southern Common Market) is a trade organization of the South American region.

In short words, it’s considered the 1^st trade bloc in South America, the 4^th in the world (after NAFTA; the EU and Japan) and the greatest food producer; furthermore, it has established economic agreements and treaties of free trade with many countries from around the world. 

The creation of Mercosur was a process of economic integration, as a strategy to strengthen the economic development within the region by integrating in a common space or market geographically close countries which complemented their respective economies. That’s to say, this process of regionalism combines multilateral forces which modify the member’s economy and make them able to obtain a greater political and economic profit than if they developed their activities isolated from the rest. To exemplify this, since the creation of the organization until today, Mercosur’s members have experienced a growth in their economies: GDP percentage, negotiation power, international investment and so on.

The countries wealth: GDP

Between Mercosur’s members there isn’t an economic equality: two of them (Argentina and Brazil, the founding countries) have always had a heavier weight than the others. For instance, a couple of years after the Mercosur’s foundation, the two bigger partners concentrated the 97% of the organization’s GDP.

Nowadays, these still exist economic inequalities within the region. As the graphic below shows, Uruguay has the highest GDP per capita, PPP (in constant 2011 international $): 20,552; followed by Argentina with a value of 18,934; Brazil and Paraguay, with 14,103 and 8,827 respectively. In whole, they account for a 3.44% of the world total GDP.

Source: The World Bank | Data (2017)

However, these inequalities between members are expected to change with the introduction of the Fund for the Structural Convergence of Mercosur, a funding mechanism with which the asymmetry of the bloc should reduce by means of a proportioned distribution of the monetary resources.

Exchanges within the region

The evolution of the trade between the countries has followed an increasing tendency, both in the intra-bloc trade and in the outer-bloc one (in its beginning, the Mercosur’s members barely had an economic interdependency, fact which has radically changed over the years).

In the following paragraph an analysis of the exportations and importations (by sections of products) between the four members is made:

First of all, Argentina mainly exports cereals, such as rice or wheat, vegetables and legumes (primary products); dairy and livestock products (farming manufactures); automobiles and other industrial manufactures; and finally, energetic fuels.

Besides, Brazil’s biggest exportations are automobiles, mechanic machinery, plastic manufactures and cocoa.

On the contrary, Paraguay’s and Uruguay’s main exports are primary products (unmanufactured), like coffee, tea, spices, wood and coal or synthetic fibres, mineral oils and chemical products.

Treaties of free trade

The creation of the organization was the beginning of an emergent market, appealing to Europe and the United States, fact which has motivated the signature of economic agreements and treaties and free trade with some of the world’s most powerful zones. Amongst these zones we find, for instance:

A treaty with Israel, signed in 2007 after two years of negotiations, which was especially important because it was the first agreement with an outer South American country; a treaty with Egypt, signed in 2010 by all the members except Argentina (who finally approved it in 2017); an agreement with Cuba, signed in 2006 (which had been solicited by this country three years earlier) and an agreement with the Andean Community (Bolivia, Colombia, Ecuador and Peru), with which they started their negotiations back in the 1998. Due to the fact that this treaty made reference to two regions integrated by several countries, the negotiations took place between each country. In other words, every country had to negotiate the agreements separately and each of them became effective on different dates (varying from 2000 to 2005).

In general, these treaties of free trade establish that the signatory parts (the four Mercosur members and the corresponding country or countries) remove the taxes or restrictions regarding the exchange of products in order to motivate their commercial exchanges.

With reference to the EU, the situation is more complicated due to their significant differences in fields like industry or agriculture: no treaty has been signed yet, even though the two regions have been negotiating for over 15 years an agreement based on 3 foundations: free trade, institutional cooperation and political dialogue.

Referring to trade, for the EU, Mercosur accounts for a 2.8% of its extra communitarian trade, being its 6^th market of exports. Within the organization, Brazil has a significant importance for the European organization, as it concentrates the 70% of the commercial exchanges, becoming EU’s 10^th trade partner. This data shows us, however, that the exchange rates are low, partly because both regions have directed their trade to other countries or emergent blocs, such as China.

The following table shows the exchange of goods between the EU and Mercosur (2004-2014):

Source: Cienfuegos Mateo, M. (2016). La anhelada asociación euromercosureña tras quince años de negociaciones. Revista CIDOB D' Afers Internacionals, (112), 225-253. doi: 10.24241/rcai.2016.112.1.225 

On the contrary, the cooperation relations (more economical and financial rather than development related) are nowadays fluid and based on mutual interests. Generally, all of Mercosur’s countries have access to EU’s financial programmes. One example is the Multiannual Indicative Regional Programme for Latin America (925 million Euros for the 2014-2020 period), destined for activities concerning security, social equity, sustainable growth of economic development, environment sustainability and post-secondary education, among others.

To conclude, regarding political dialogue, both organizations have the will to debate topics of reciprocal interest, such as peace, political stability, conflict prevention, security, human rights protection, democracy, sustainable development, renewable energy, fight against drug trafficking and so on. To do so, they expect to hold regular meetings between the heads of State from the Mercosur organization and the maximum authorities of the EU.