Brazil is determined that Mercosur's Common External Tariff, TEC, be reduced by 20% in two rounds of unilateral cuts, 10% immediately, and the other 10% in December. This is the official strategy and position of Brazil for the extraordinary meeting in June of the four founding members of the group, in Buenos Aires, underlined Lucas Ferraz, foreign trade secretary of the Brazilian Ministry of the economy.
According to Mercosur rules all decisions must be adopted by consensus, which means that the TEC has become a contentious issue between the two main partners Brazil, and Argentina, which is reluctant to advance so fast or take such bold steps.
When the region was ruled by left leaning governments, Mercosur, and its industrialists, were happy with a high TEC, since ideological solidarity was more important than common sense economics. Maybe the only dissident members was grumpy Uruguay which for years had been requesting a caveat so it could negotiate further trade deals with third countries.
However since the advent of president Bolsonaro and his orthodox, Chicago school, pro business minister Paulo Guedes, Brazil, wants to open the country's economy and a flexible Mercosur for a greater integration of the country to the global economy.
In an interview with the main financial newspaper in Brazil, Ferraz said we don't want to choose winners and losers, we want to negotiate. He added there are some 10,300 nomenclature products, and Brazil wants the reduction to apply to all but the Argentine government is only prepared to eliminate rates on only 4,000, Brazil is not ready to accept that proposal.
According to Ferraz, the focus is mainly intermediate or manufactured goods that Argentina does not manufacture. Many already have TEC of only 2% that would be reduced to zero. Given these characteristics, Ferraz believes this would result in little real effort to open up the economy.
Mercosur’s tariffs are relatively high by world standards: 35% for automobiles, buses, textiles, and clothing; 32% for footwear; 27% for wines; up to 16% for machines and equipment; 12% for electrical appliances.
Argentina basically agrees on a new TEC, but they must ”adjust to the current productive characteristics“ and in turn, ”promote the development of regional capacities.“ In other words the Argentine government is fearful of what the TEC could mean in jobs, in the midst of the pandemic and a strong recession.
And in an apparent message to Uruguay, which stands next to Brazil in supporting a more flexible Mercosur, Argentina argues that the block is beneficial for smaller countries, because given how countries associate at a global level, ”It is very difficult to advance successfully with individualistic strategies.“