Bolivia’s Ministry of Foreign Affairs announced this week the country’s inclusion in MERCOSUR, South America’s largest trade agreement. While Bolivia has been affiliated with the group since 1996, this move will give them leverage to negotiate with major partners, hoping to increase industrial exports and turn around its trade deficit.
The Common Market of the South (MERCOSUR), including Argentina, Brazil, Paraguay, Uruguay and Venezuela (suspended), has allowed adding Bolivia as a member.
The move has been in the works since 2015, and following the acceptance of Brazil, Bolivia has been included. Though there have been concerns about the economic consequences of the move, the government is hopeful this will improve Bolivia’s economic position.
Bolivia hopes to be able to increase its exports from this deal, focusing on its industrial development. While Bolivia has been mainly an exporter of primary resources, the country wishes to diversify its exports by providing manufactured goods to MERCOSUR countries. This includes automobile parts, mechanical parts and carpentry products.
Four years of negotiations
Though MERCOSUR has several economic and financial provisions for its members, it is a comprehensive integration agreement. To be a member of MERCOSUR, countries must pass a threshold of human rights and democracy provisions. Venezuela’s failure to meet these stipulations led to its suspension in 2017.
Bolivia has said they will incorporate the stipulations of MERCOSUR over the next four years, at the end of which they will be integrated into the group. The government also said they will negotiate many of these stipulations, so as to receive the best possible conditions for them.
One of the main stipulations of MERCOSUR is the common external tariff. All MERCOSUR nations share the same tariff for trading with other countries, while trading amongst the members is tariff-free.
Bolivia already benefited from the lack of tariffs as an affiliated member since 1996, however, they lacked the ability to negotiate on the tariffs of certain products. The result was that they hardly exported goods besides gas (an agreement with Argentina is coming to an end), and their public deficit only increased since 1996.
According to Benjamín Blanco, vice-chancellor of Bolivia, Bolivia signed an agreement that guarantees them the “best treatment” from other members. Blanco said Bolivia will work to negotiate conditions that allow them to increase their exports, akin to Paraguay’s negotiations.
Paraguay managed to reach an agreement with MERCOSUR that allowed them to export textiles using only 40% of local products, while the official stipulation is a minimum of 60%.
From primary to industrial exports
Vice-chancellor Blanco added that being part of MERCOSUR will allow them to be a part of the production chain of products. For instance, cars that are exported and sold by Brazil have their parts supplied by several MERCOSUR countries. The car is considered a product made in MERCOSUR.
Concerns surrounding Bolivia’s move are in regards to the results that Bolivia’s last approach of MERCOSUR had in 1996. Though the move in theory gave greater trade potential, it resulted in a trade deficit overall. Concerns also surround Bolivia’s deforestation practices, which may hamper negotiations with the European Union.
Brazil and Germany have been in talks to finalize a deal between the EU and MERCOSUR, since before Bolivia’s inclusion. However, the recent election of Javier Milei in Argentina, who opposes MERCOSUR, may have thrown a wrench into the deal altogether.
One of the perceived upsides of the move is Bolivia’s renewed central trading position in South America, between the MERCOSUR and Andean Community trading blocks. With Bolivia’s inclusion in MERCOSUR, the country is the only entity to be part of both trading blocks. The Andean Community includes Colombia, Ecuador, Chile and Bolivia.
Bolivia’s integration into the Andean Community increased the country’s exports of manufactured products, particularly meat products and soy oil. Blanco said that this was due to successful negotiations with the member countries, and that he hopes the country can achieve the same success with MERCOSUR, though exporting industrial products instead.
