The need for Argentina to promote the Mercosur-EU Agreement

Lic. in Business Administration. Master in Applied Economics of the UCA. PhD in Economics from the UCA.

The economists Ivan Cachanosky and Eugenio Marí launched the work “Mercosur-EU: a step towards an Argentina more integrated to the world” with the aim of promoting the adoption of structural reforms that promote Argentine growth

In the last week the national government has made a series of announcements whose main objective is to achieve export growth that increases the supply of dollars and reassures the exchange markets. The measures included a reduction in export duties for the industry, and a temporary drop, of just 3 percentage points, in export duties for the soy complex.

“These measures are not only insufficient, but also prevent bold and in-depth advance on the competitiveness problems faced by exporters. Rather, they confirm the continuation of the strategy of using patches instead of undertaking substantive reforms, ”commented Ivan Cachanosky, chief economist at Libertad y Progreso.

The dynamics of exports in the last decade allows us to see the results of this short-term strategy. Taking the forecasts made by the government, in 2020 Argentine exports would return to the levels they had in 2007. However, this is not the result only of the current crisis, but of more than a decade of measures that have affected export competitiveness.

Argentine exports In millions of US $. 2004-2020

Source: Libertad y Progreso based on Ministry of Economy

Our exports are not only low in level, but are also concentrated in a few markets, largely explained by few products and only 1.6% of registered companies manage to export, around 10,000 in 2019.

The number of Argentine exporting companies In quantity. 1994-2019

“Argentina has been turning its back on trade as a generator of growth opportunities and this has not been free. Less growth, less employment and greater poverty are just some of the consequences of having advanced on this agenda for so long, ”Cachanosky highlighted.

However, in June 2019 Argentina and Mercosur took an important step to change this trend by closing a Strategic Association Agreement with the European Union.

“This agreement includes the elimination of tariffs and barriers to trade between the blocs, as well as various disciplines related to bi-regional exchange, such as services, public contracts, intellectual property, sustainable development, rules of origin, and SMEs, among others” , said the economist Eugenio Marí.

With the aim of supporting this structural change in Argentine economic policy, the Fundación Libertad y Progreso has launched the work “MERCOSUR-EUROPEAN UNION: A STEP TOWARDS AN ARGENTINA MORE INTEGRATED TO THE WORLD”. It carries out an in-depth diagnosis of the country’s international insertion, of the contents of the Mercosur-EU bi-regional Agreement, and of the opportunities and improvements that it would imply for Argentine development.

To help break the vicious cycle of economic stagnation in which Argentina is, the Agreement is based on 3 main pillars:

Greater export opportunities to the EU. The Agreement eliminates tariffs and provides better export opportunities in one of the largest international markets. The EU is the 2nd largest global economy, grouping together 27 countries and 450 million high-income people.
Boost to European FDI in Argentina. In addition, by improving the conditions for trading between the two blocks, it also encourages the attraction of European FDI to Argentina. This is a crucial point to recover, since Argentina years ago knew how to lead the destination of the FDI that arrived in the region and then noticeably lose ground. It must be remembered that a large part of international investment flows are closely linked to the development of regional value chains.
Gradual commercial opening in line with Argentine production challenges. The Agreement provides for a gradual opening of up to 15 years, allowing companies to progressively adapt to greater European competition and to carry out reforms to improve competitiveness. In this way, a balance is achieved in line with the Argentine productive reality, balancing the generation of new export opportunities and the necessary reciprocal trade opening.
“Nor should we lose sight of the geopolitical value of the Agreement. It means revalidating and invigorating Mercosur as Argentina’s integration platform, while allowing Argentina to abandon the growing US-China international bipolarity and strengthen its alliance with a strategic partner such as the European Union ”added Eugenio Marí.

The Mercosur-EU Agreement is therefore an instrument that will allow Argentina to advance in three major needs that Argentina has today: (i) recover and diversify exports, (ii) provide a better framework for attracting FDI, and (iii) achieve a better international positioning in an uncertain world.

We are facing a historic opportunity to change the economic and institutional course of the country. The question that remains to be answered is whether Argentina will push to put this Agreement into force or if, on the contrary, we will repeat the policies that have brought us such poor results.