Making TEC more flexible is saving Mercosur – 06/08/2021 – Helio Beltrão

In a joint statement on Saturday (5), FHC and Lula declared support for the president of Argentina, Alberto Fernández, who has used his veto power to impede the modernization of Mercosur, frustrating
the improvement of Brazilian international competitiveness.

The FHC/Lula/Fernández camaraderie of the “socialist of the world, unite” style is not surprising, but it is scandalous that two former Brazilian presidents defend the interest of the Argentine government to the detriment of the Brazilian people.

Mercosur is that elaborate piece of fiction that provided for at its foundation, in 1991 (Article 1 of the Treaty of Asuncion), that by 1995 a common market would be established between the four founders (Brazil, Argentina, Paraguay and Uruguay), with:

a) total freedom, without tariffs, for the circulation of goods and services; b) coordination and harmonization of macroeconomic, industrial, sectorial, fiscal, monetary and exchange policies; and c) the establishment of a common external tariff (CET), as well as the obligation to negotiate jointly and by consensus of agreements with third countries.

Item (a) entered the list of fiction literature, through the establishment of several special regimes, such as the automotive (which raises import tariffs to 35%), and through the long lists of exceptions, which circumvent the TEC and impose even higher tariffs on peaches, toys, milk, grated coconut, and many others.

The generalized non-compliance with item (b) had a positive side, as the disastrous Argentine macroeconomic indicators illustrate what Brazil would have been if we had harmonized our macroeconomic policies with those of the Peronist governments.

Only the TEC and the negotiating rigidity took hold. Due to the immobility of the treaty, of the 400 agreements registered with the WTO in the last 30 years, Brazil only signed Mercosur. In this way, autarchic Brazil was created, like an extensive medieval castle, isolated and doomed to lack of international competitiveness.

The Brazilian manufactured product adds only 10% of imported content, compared to an international average of 30% to 35%. In short, everything is produced in-house, at higher costs, with no chance of competing in the international market against products whose components are purchased all over the world, wherever it is better and cheaper, with virtually no fees.

Brazil practices 17th century mercantilism. Around here, the forces of backwardness argue that exporting basic products is bad, as they should benefit here; that import substitution reduces costs and attracts jobs; that commercial balance is synonymous with strength; that import tariffs generate social welfare; that opening up the economy and reducing costs for domestic industry without reciprocity from third countries is naive. All these fallacies have been duly refuted by Adam Smith in “The Wealth of Nations” (1776).

Trade opening is the mother of all reforms: when it occurs, it will lead to Brazil’s leap into the 21st century.

During their administrations, FHC and Lula abused the exception lists to increase favoritism to sectors with powerful lobbies. They did nothing to modernize Mercosur.

The demand of the foreign trade team at the Ministry of Economy, led by Roberto Fendt and Lucas Ferraz, is to reduce the TEC by 20%, linearly, that is, a reduction in all tariffs without favoring sectors.

Paraguay and Uruguay agree, but Argentina (with the help of FHC/Lula) resists. Brazil and Uruguay also demand that they have the freedom to implement bilateral agreements. The TEC would remain in effect where there were no agreements. Fernández does not want to grant this freedom to Brazil; you prefer us to be a captive market for your products.

The impasse has been reached. The quickest way to end Mercosur is to change nothing.

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