Why mercosur failed

Thirty years after its creation, macroeconomic instability is still the norm, and tensions and differences between countries meant that Mercosur never achieved the intended integration. However, this celebration turned into a tense discussion, as member states raised their complaints about the bloc. Flexibilization means turning it into a free trade area, which would allow individual states to negotiate free trade agreements without needing authorization from the rest of the members.

In agreement with Uruguay, Brazilian leader Jair Bolsonaro wants to adapt and modernize the bloc, claiming that it is a necessary step to expand trade networks. He asserted that flexibilization and tariff reduction would be a mistake in this context of uncertainty.

Even if opportunities for macroeconomic convergence were presented, the member-states chose to preserve their sovereignty and follow their own strategies. Furthermore, the idea of turning Mercosur into a common market was never acted upon. Internal cohesion is a vital condition for the bloc to gain external credibility and the self-confidence necessary to carry out trade deals with other regions. With each leader having different conceptions about what economic integration entails, the survival of the bloc has been questioned.

Achieving the intended deep economic integration would relegitimize Mercosur inside the bloc and outside of it. However, this scenario is now more unlikely than ever.

Firstly, Uruguay, Paraguay, and Brazil are lobbying for the mentioned flexibilization, which would give them more opportunities to reach for trade agreements with third parties. Partnering with Mercosur would enable the EU to reinforce the projection of its soft power across the region. For example, Mercosur has often looked towards Brussels when introducing new policies and used existing EU legislation as a template for its own. When countries adopt standards based on EU regulation, it gives the EU a competitive edge.

Moreover, the integration of supply chains multiplies opportunities for regulatory convergence, further greasing the wheels of bilateral trade. Exact provisions have evolved, which is one reason why the von der Leyen Commission has pivoted towards enforcing pre-existing deals.

However, this pivot could also become a self-fulfilling prophecy, with new trade deals perceived as being too much effort, at a cost to competitiveness and influence. Nonetheless, if one of the primary purposes of EU trade policy is to enforce sustainability standards and guarantee a level playing field, a trade deal is a good starting point.

Enforcing environmental and social commitments is complicated. When it comes to embedded deforestation in imported products, the more integrated supply chains are, the more opportunities to certify inputs and use innovative technologies to track compliance. The EU-Mercosur Agreement would help support this trend further, but it is doubtful whether it would have a strong impact on deforestation rates per se, the drivers of which are often more related to land speculation than international trade.

Combatting illegal deforestation and tackling embedded deforestation in international supply chains require their own policy instruments. Can a trade deal alone curb deforestation? Probably not. Can a trade deal provide an incentive for both trading partners to sit down and work on solutions?

And for the EU, trade deals have long been the strongest form of diplomacy. Until now the EU has been able to use the Agreement in principle as leverage to assert its political and regulatory influence — but if the Agreement came crashing down, it would lead to a deterioration in bilateral relations and would leave more space for China to secure a long-term dominant position in Latin America.

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