Mercosur
Mercosur is South America's customs union of Brazil, Argentina, Uruguay, and Paraguay (Venezuela suspended since 2017). Despite being a 'customs union,' the Common External Tariff can be charged twice on goods transiting through member states, and members maintain thousands of national exceptions.
Mercosur demonstrates arrested metamorphosis: stuck between free trade area (tadpole) and customs union (frog), unable to complete transformation. The consensus requirement + asymmetric power (Brazil 72% GDP but Uruguay/Paraguay have equal veto) creates permanent gridlock.
Mercosur's 'Common External Tariff' charges TWICE: any good imported into landlocked Paraguay via another Mercosur country must pay the CET twice—once entering the first country, again crossing into Paraguay. This persists because Mercosur lacks the distribution mechanism for tariff revenues that real customs unions have. The consensus rule is both absolute and violable: in 2012, Mercosur suspended Paraguay for the Lugo impeachment, then immediately used Paraguay's absence to admit Venezuela—which Paraguay had blocked for 6 YEARS. 'Consensus' means 'consensus of whoever isn't suspended.'
Key Facts
Power Dynamics
Common Market Council makes decisions by consensus with all states present. CET ranges 0-35% (averaging 11.5%). Members cannot negotiate independent trade deals. Democratic Clause (Ushuaia Protocol 1998) allows suspension for democratic rupture
Brazil and Argentina control 94% of GDP (Brazil 72%, Argentina 22%). Yet consensus means Uruguay (3%) and Paraguay (3%) have equal veto power—creating gridlock. Argentina has historically blocked EU trade deals; Paraguay blocked Venezuela for 6 years. The consensus rule was violated exactly once (2012) when Paraguay was suspended and Venezuela immediately admitted. This revealed actual power: Brazil and Argentina can suspend small members when convenient, but cannot override each other
- Any member blocks any decision (consensus)
- Exception: Democratic Clause suspension removes veto
- Argentina blocks EU deals to protect domestic industries
- Paraguay blocked Venezuela 6 years until suspended
- Uruguay threatened China FTA (2022-23) but Brazil lobbied China to refuse
- Brazil-Argentina rivalry (competitors now joined but mistrustful)
- Uruguay frustration (feels trapped in 'fifth-most protectionist region')
- Venezuela (admitted 2012 during Paraguay suspension, suspended 2017 indefinitely)
- EU (25+ years negotiating trade deal, still not ratified)
Revenue Structure
Mercosur Revenue Sources
- FOCEM member contributions 100%
~$300M annually; Brazil 70%, Argentina 27%, Uruguay 2%, Paraguay 1%
Entirely dependent on member contributions with no enforcement mechanism. If Brazil or Argentina withholds, system collapses. FOCEM's $300M is tiny vs combined GDP ($3+ trillion). No independent revenue source, no tariff revenue distribution system, no enforcement for member contributions
Between ASEAN (~$20M, minimal institutionalization) and EU (~$180B, supranational authority) but closer to ASEAN. Only 16% intra-bloc trade (vs EU 60%, ASEAN 25%)—functions more as trade shield for Brazilian/Argentine industries than common market
Decision Dynamics at Mercosur
Venezuela admission (2012): One month after Paraguay's suspension (June 29), Venezuela admitted (July 31). Controversial 'political decision' to bypass Paraguay's veto
EU-Mercosur trade agreement (1999-present): 25+ YEARS. Negotiations began 1999, 'agreement in principle' June 2019, STILL not ratified as of December 2024. French farmers, Amazon deforestation, protectionism all block. One of longest trade negotiations in history
Consensus requirement is primary—any single member blocks. Secondary: Argentina's protectionism, Brazil-Argentina coordination failures, incomplete customs union (CET has 100+ exceptions per major member, 649 for Paraguay), no supranational authority
Failure Modes of Mercosur
- Venezuela crisis (2012-2017): admitted during Paraguay suspension (violating consensus), failed trade obligations, suspended 2016, indefinitely suspended 2017—membership was political, not economic
- EU trade deal paralysis (1999-present): 25+ years, Argentina blocked until Macri (2015), now France blocks, Amazon concerns add veto points
- Incomplete customs union: CET exists on paper but has thousands of exceptions; 'more myth' than reality; 70% implementation
- Argentina's unilateral protectionism: 'non-automatic licensing' (can delay imports 60+ days); 'chronic violator of letter and spirit of Mercosur'
- Consensus paralysis: bloc moves at speed of slowest/most protectionist member
- No supranational authority: purely intergovernmental; created weak tribunals and powerless parliament
- Asymmetric power with symmetric veto: Brazil (72% GDP) vs Uruguay/Paraguay (3% each) with equal blocking power
- Capture by protectionism: 'less about opening up, actually about protecting Brazilian and Argentine industries'
If Uruguay negotiates with China independently (threatened 2022-23), it shatters customs union principle—others follow, Mercosur dissolves. If Brazil decides Mercosur costs more than benefits (increasingly doing unilateral tariff cuts), bloc becomes irrelevant. If EU deal never ratifies after 25+ years, signals Mercosur cannot function as negotiating bloc
Biological Parallel
Mercosur attempted to metamorphose from free trade area (Treaty of Asunción 1991) into customs union (CET adopted 1995) but transformation was never completed. Like an amphibian stuck mid-metamorphosis with both gills and lungs but neither fully functional: members maintain thousands of CET exceptions, negotiate independently despite rules (Uruguay-China), impose unilateral barriers (Argentina's licensing). Adult organs incomplete: CET charges twice on internal trade (no revenue distribution), no common customs code enforcement, no supranational institutions with real power. Cannot return to simple FTA (too much institutional investment) nor complete transformation (consensus + no supranational authority). Remains frozen in dysfunctional middle state.
Key Agencies
Highest authority; meets twice yearly; all decisions by consensus
Structural Convergence Fund: ~$300M annually; Brazil pays 70%, Argentina 27%
Advisory parliament; no legislative power; 'more institutions on paper did not enhance performance'