Brazil’s president, Jair Bolsonaro, has announced the country could abandon Mercosur in the event that Argentina pivots to the left after presidential elections in October. Although leaving the trade bloc comprised of Brazil, Argentina, Paraguay and Uruguay may not be as politically toxic as the United Kingdom exiting the European Union, it appears almost as costly and complex.
The move would be a major setback for the customs union, particularly as it just reached a trade deal with the EU after 20 long years of negotiation.
Paulo Guedes, Brazil’s Economy Minister, also said the country could pull out of Mercosur if Argentina’s center-left opposition wins presidential elections. This is due to Brazilian authorities anticipating opposition candidate Alberto Fernandez would likely close Argentina’s economy with protectionist policies.
Fernandez received almost 48 percent support as opposed to Mauricio Macri —Bolsonaro’s far-right ally— who just obtained 32 percent of the vote in Argentina’s primary elections.
What Is Brazil’s Actual Proposal?
Following the left-wing opposition candidate’s victory in last month’s primary elections, Fernandez is now on course to defeating President Mauricio Macri in the Argentine presidential elections.
Bolsonaro has openly endorsed Macri and declared he expects a wave of Argentine citizens migrating to Brazil in the event Fernandez wins. Furthermore, Brazil’s president also expressed his doubts regarding Argentina’s opposition candidate wanting to abide by the principles of freedom and democracy.
How Would Brazil Leaving Mercosur Impact Tourism?
Should Brazil finally abandon Mercosur, the country would not only have to renounce the common external tariffs it shares with the other bloc countries but also put an end to the visa and passport-free travel its citizens currently enjoy in the region.
Aloysio Nunes Ferreira, former Foreign Minister under President Michel Temer, who worked to strengthen the customs union, declared “It would be a sign of a lack of seriousness and would affect Brazil’s relationship with the rest of the world”.
How Would Pulling out of Mercosur Affect Brazil’s Economy?
Should Bolsonaro go through with this measure, severe commercial, bureaucratic and political obstacles would complicate Brazil’s exit from the bloc. The pulling out process would be far from simple, since Congress would have to approve a bill to revoke the free-trade agreement.
Although Argentina is the second-largest economy in the trade bloc, Guedes questioned how financially dependent Brazil was on its Southern neighbor. Guedes’ declarations come as a surprise knowing Argentina is one of the few countries that purchases Brazil’s value-added products whilst others limit their commercial relations to just commodities.
Guedes’ words are even more unexpected considering Argentina comes in second, only after the US in its acquisition of Brazilian shoes. In addition, roughly 50 percent of Brazilian exports to Argentina can be attributed to the automobile business or manufactured products.
Furthermore, the Brazilian economy relies heavily on Argentine wheat, with about 50 percent of the grain consumed in Brazil being imported from its southern neighbor, without incurring in duties nor export taxes.
Therefore, it is reasonable to expect that Argentina’s financial crisis directly impact upon other Mercosur countries, including Brazil. So much so, that the current economic troubles Argentina is facing may cause Brazil to lose up to 0.5 percent of its financial growth this year.
Additionally, Mercosur is responsible for over 30 thousand jobs for roughly every 220 million euros in exports, according to a survey by the National Confederation of Industry.
How Feasible Is It for Brazil to Exit Mercosur?
Rather than completely pulling out of Mercosur, authorities are discussing the option of rendering the current trade bloc more flexible, given the complexities of Brazil’s full exit. The proposed relaxing of current norms would imply allowing all member nations to make their own bilateral tariff agreements, so long as Mercosur member countries reached an agreement in this regard.
Brazil’s Ministry of Industry and Commerce’s Former Foreign Secretary, Welber Barral, seems to agree that reforming the union would have more advantages than completely abandoning it. Barral added that “We would have the same problem the United Kingdom has with Brexit today,” and further clarified that “We would lose trade deals.”