The Venezuelan President's Mercosur Tour
On a tour of the region, Venezuelan President Nicolas Maduro is in Brazil May 9 after stops in Uruguay and Argentina earlier this week. Maduro still faces a political crisis at home and is looking to strengthen his legitimacy by visiting international allies. Opposition members refuse to acknowledge his presidency at home, and the country faces a serious set of challenges in addressing economic imbalances and crumbling infrastructure. At the same time, Venezuela is in the process of integrating into Mercosur. As president of Mercosur's newest member country, Maduro will assume the presidency of the trade bloc in June. And though there will be economic benefits to joining, Mercosur remains far more important as a political grouping than it does as an economic community.
Venezuela's entry to Mercosur in 2012 was a highly contentious issue. Deeply opposed by Paraguay, Venezuela's entry was only possible after Paraguay was suspended from the bloc last year. Despite Paraguay's opposition on political and ideological grounds, Argentina and Brazil were both very interested in Venezuela joining the group. With an economy dominated by the national oil industry, Venezuela is a significant regional importer of consumables, including agricultural products and manufactured goods. Venezuela's 30-40 billion dollars worth of annual imports represented an opportunity to add market share to Mercosur, which is struggling in a depressed global economic environment.
Mercosur was initially designed as an analogue to the European Union. It has a common external tariff and lowered tariff and non-tariff barriers to countries within the grouping. Though Mercosur never achieved goals like the creation of a common currency, it has been successful at creating a common labor market that allows relatively easy flow of people across borders. Unlike the EU, however, Mercosur does permit barriers to intra-bloc trade in order to protect domestic industries.
Though two of Latin America's largest economies are members of the group, the bloc still faces limitations that have historically plagued Latin American trade groupings. The consumer market in Mercosur is relatively small, which makes it a poor tool for export-led growth. After a decade of relatively strong growth, both Brazil and Argentina are faced with slowdowns. Both countries are looking to expand their export market share, and Venezuela isn’t the only country joining. Bolivia has formally submitted its petition to join the bloc, and Ecuador is prepared to follow suit.
From an economic perspective these are only marginal expansions to the trade grouping. The dominant export markets for Mercosur will remain the European Union, China and the United States. Furthermore, despite Maduro’s invitations to Argentine investors to develop Venezuelan agriculture, capital is scarce in Mercosur and domestic investment priorities dominate the agenda. So U.S., European and Asian investors remain the primary source of direct investment.
As we have previously discussed, Mercosur does serve a geopolitical purpose for Brazil. At the same time that it allows Brazil to protect its domestic industry, it is also a tool for exerting influence throughout South America. With pro-free trade countries grouping into the Pacific Alliance, the expansion of Mercosur may be more important as a symbol of regional ideological divergence than a representation of true economic shifts.