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Mercosur Invitation Places Bolivia on a Knife-Edge

By: Contributor - Dec 5, 2014, 10:06 am

EspañolIt may have passed largely under the radar of commentators, but the course of Bolivia’s economic future could take a significant turn on December 15 in Entre Ríos, Argentina.

This is when, in all likelihood, Bolivia will become a full member of the Southern Common Market (Mercosur).

Bolivia, an associate member of the regional trade bloc since 2012, has since been gathering the approval of the organization’s existing members. But its impending full participation raises two questions: What does Mercosur actually do? And what, if anything, will Bolivia get out of joining this regional bloc?

¿Es beneficios para Bolivia ingresar a un agrupación que promueve el proteccionismo regional en vez de derribar las barreras arancelarias?
The commercial bloc created in 1991 neither promotes free trade nor democracy. (Wikimedia)

To answer the first question we should take a look at who the current members of Mercosur are: Brazil, Argentina, Paraguay, Uruguay, and Venezuela.

The group was formed in 1991 through the Treaty of Asuncion, in an effort to promote subregional economic integration. The initiative was to create a free-trade zone, a Common External Tariff (AEC), and promote human rights, democracy, and sustainable development.

In theory, so far, so good. However, in reality, things have not gone quite so smoothly. Instead of becoming a free-trade zone, each country has erected some of the most absurd barriers to transnational commerce in history. If you think Mercosur facilitates free trade across borders, I invite you to attempt to export sugar to Brazil, or vegetable oil to Argentina.

Member states have also abandoned the same principles they once professed to adhere to: they allowed Venezuela to join Mercosur in 2012, despite being well aware of the country’s human-rights violations and Hugo Chávez’s tyrannical behavior.

Selling Bolivia Down the River

To address the second question — exactly what’s in it for Bolivia by joining this prestigious club — we must compare Bolivian exports to its fellow member countries of the Andean Community of Nations (CAN) with its current sales to Mercosur nations.

According to the latest figures from the Bolivian National Institute of Statistics, as of September, Bolivian exports (excluding mining and gas products) to CAN countries (Ecuador, Colombia, and Peru) have totaled almost US$1.1 billion. Meanwhile, exports to Mercosur countries totaled US$137 million, meaning only 2.76 percent of Bolivia’s exports, other than the above-mentioned sectors, are sent to Mercosur.

This disparity is due to the fact that Bolivian production complements the exports of CAN countries, while the exact opposite is true with Mercosur. Bolivia and Mercosur produce and export very similar products.

From a market-based point of view, there would be little benefit to further integration with Bolivia’s neighbors to the East, as there would be no resulting improvements to sectors of the Bolivian economy other than mining and gas. By contrast, membership of CAN promotes the healthy development of a range of areas of economic activity.

Exportaciones de Bolivia a Mercosur y Comunidad Andina de Naciones, según datos del Instituto Nacional de Estadísticas de Bolivia.
Bolivian exports to Mercosur and Andean Community Nations, according to figures from the National Institute of Statistics of Bolivia. (Roberto Ortiz)

An Unfree Market

Now that this comparison has been made, we can delve into a second aspect that also does not favor Bolivia’s membership in Mercosur: the Common External Tariff (AEC). The AEC is essentially a sizable tax levied on imports that come from outside the trade bloc, including investment of capital, high-tech goods, and other imports that businesses of all kinds need to develop. In the name of promoting regional products, the AEC only serves to stifle entrepreneurial growth.

In sum, closer ties to Mercosur will do very little to benefit Bolivia, since the organization isn’t a truly integrated economic bloc. As a member of Mercosur, Bolivian production will be hampered, denied the benefits of genuine liberalization, and overwhelmed by the preferential position enjoyed by Brazil and Argentina.

What, then, is the true reasoning behind the keen desire of President Evo Morales to associate with Mercosur? It represents nothing less than part of a wider political strategy to cement the ideological hegemony of socialism in the Southern Cone.

We shouldn’t disregard the fact that it will also provide another opportunity for Morales to grandstand on the regional stage, accumulating frequent-flyer miles funded by his citizens — and prioritizing his personal vanity over the economic well-being of the Bolivian people.

Translated by Alex Clark-Youngblood.