Peter Rashish on Trade Pact between Mercosur and EU in Argentina’s Perfil
Una perspectiva estratégica: Los benficios de un modelo alternativo basado en normas consensuadas y bien establecidas was published in Argentina’s Perfil newspaper on August 29, 2019. An English translation is below.
A Strategic Perspective: The benefits of an alternative model based on consensual and well-established norms
Rubén M. Perina and Peter Rashish
After 20 years of negotiations, a new trade pact between Mercosur and the European Union (EU) was announced last June. Although the pact does not appear to have generated much enthusiasm, it is important to note that it promotes a liberal vision of an integrated global economy via bilateral and inter-regional agreements based on well-established and consensual rules. It is an alternative model to agreements pushed by China’s state capitalism or by current power-based U.S trade policies, marked by protectionism, nationalism, and the use of tariffs to pressure its trading partners.
The urgency of the pact. Negotiators concluded the agreement in the past six months, during Argentina’s pro-tempore presidency of Mercosur, with surprising speed. Several factors triggered the apparent urgency in finalizing the accord:
- The uncertainty of President Macri’s re-election at the end of October. A win by the Fernández-Fernández de Kirchner duo (the latter has already questioned the pact) would break the present regional consensus on free markets and free trade. Macri insisted on concluding the pact to break Argentina’s past isolation and protectionism and consolidate its reinsertion into the world. He had the support of President Bolsonaro of Brazil.
- Brexit and a new EU Commission are around the corner. Both could have delayed the negotiations. The new moderate, centrist majority in the European Parliament gave the European negotiators confidence that the pact would be ratified.
- Growing Chinese penetration and influence in the Mercosur countries. China is its principal commercial partner; the EU is second. Rumors of negotiations between the United States and Mercosur on a possible free trade agreement could have motivated the negotiators to conclude the pact quickly.
- Insecurity surrounding the global economy. President Trump’s unpredictability and preference for unilateralism and bilateral agreements, his breaking off of negotiations on the Transatlantic Trade and Investment Partnership (TTIP), his withdrawal from the Trans-Pacific Partnership (TPP), and the turbulent trade negotiations with China do not augur well for a growing world economy. The IMF has predicted it will slow down.
Winners and losers. In both regions the winners will be consumers, who will have access to a greater and better supply of goods and services, without inflationary pressure. The new integrated market will have about 800 million consumers, with a gross domestic product of almost $24 trillion. In the short term, the winners in European countries will be the automobile, aviation, machinery, chemical, and pharmaceutical industries. EU companies will be able to participate in public tenders for government contracts, a huge market. However, to be competitive they will have to transfer some production to Mercosur countries, which will benefit from the new technology and knowledge linked to their investments and the creation of new jobs. Mercosur countries will have access to a market of 28 countries with an approximate per capita income of $30,000 a year; they will be able to sell their agricultural, livestock, and associated food industry products free of tariffs.
In both regions the agreement has elicited opposition. In Europe, farmers and cattle breeders in France, Ireland, and Poland see it as a threat to their interests. In addition, Mercosur exports will have to overcome concerns from environmentalists and comply with demanding sanitary/phytosanitary and labor standards. An unexpected obstacle to the ratification of the agreement has arisen as a result of the environmental tragedy in the Amazon and a subsequent diplomatic altercation between President Bolsonaro and President Macron, who has withdrawn his support for the agreement. In Mercosur, opposition to the accord—at least in Argentina—has been expressed by protectionist businessmen, anachronistic labor union leaders, and populist politicians.
The strategic implications. Although the pact has its detractors, it is important to underline that it is based not only on economic/commercial interests, but also a strong political and cultural affinity resulting from the great European migrations that populated and developed the four Mercosur countries in the 19th and 20th centuries. This historical tie has helped to overcome distance to form a strategic alliance that promotes prosperity for both regions. The pact, based on high-level norms and standards, also has broader global implications. It constitutes a victory for cooperation between two democratic blocs, with the potential to become an important strategic alliance for the defense and promotion of free trade and democracy. This is particularly important in a multipolar and increasingly turbulent world, marked by the rise of anti-democratic, revisionist China and Russia, and characterized by the struggle for power and its balance in the economic, military, cyber, and space realms. This new scenario has been facilitated by an isolated and self-absorbed U.S. administration, which seems to ignore its responsibility for and interdependence with the liberal international order that it has benefited from and that its own leaders built after World War II.
Rubén M. Perina, an ex-OAS official, teaches at George Washington University; Peter Rashish directs a program on geoeconomics at Johns Hopkins University.