The economic challenge of the Mercosur-EU agreement

The bridge that Mercosur and the European Union (EU) have just drawn to liberalize trade in goods and services between the markets of the two blocs will take almost as long to be crossed smoothly – in both directions – at the same time. like the 20 years who asked for his negotiation.

In the case of Argentina, this period has been different for all governments, from Carlos Menem, including the 12 years of Néstor and Cristina Kirchner, until Mauricio Macri can announce it on the sidelines of his mandate. For this reason, it was unusual that before knowing the details, Kirchnerism and its allies were eager to reject it and suspend its ideological labels. From "nothing to celebrate" (Alberto Fernández) to "a tragedy" (Axel Kicillof), pbading by the usual "production delivery and sovereignty" (Pino Solanas). As if the agreement had entered into force this week and should not be the subject of parliamentary approval in each of the Mercosur and EU member countries.

In the best case, this process would take no less than two years; that is, we would talk about 2021/2022. To this must be added convergence periods for the zero tariff, ranging from 4 to 10 years for a dozen sectors of Mercosur and 15 for automobiles. On the other side of the Atlantic, the French government has already said it is not ready to ratify it, under the pressure of its subsidized agricultural producers.

On the other hand, the Macri government has presented the agreement – in the 15-page document it has handed to fifty chambers of commerce – as "a transcendent milestone in the international integration of the United States." Argentina: it will promote investment, increase exports of regional economies will strengthen the participation of our companies in global value chains, accelerate the process of technology transfer and increase the competitiveness of the economy. " In other words, the ruling party and Kirchnerism see two diametrically opposite endings for the same film. The political fissure never ceases to appear; and much less during the election campaign.

In the documents, the "strategic agreement" between Mercosur and the European Union represents a challenge for the future of Argentina's stagnant economy. It creates a market of nearly 800 million consumers (of which 500 million are European) and, as reciprocal tariff reductions – immediate or progressive – begin to apply, access to Mercosur's products will be with that of competing countries. which for years have signed preferential agreements with the EU. In addition to these conditions, it will ensure the stability of trade rules in order to avoid the risk of discriminatory measures, while the replacement of the European system of tariff preferences, which excluded Argentina in 2003, will allow for the recovery of exports from one country. $ 600 million (agricultural products and primary products). For more data, the EU accounts for 20% of the global economy, exceeds 30% of global investments and, with 2 billion euros, imports 17% of the total goods and services traded worldwide.

Of course, to take advantage of the window of opportunity offered by a broader market, Argentine companies must be willing and able to compete. Not only with the European industry and services, but also with Brazil, Mercosur's main partner. For 30 years, this block was integrated "inside", because it was protected by high external tariffs vis-à-vis third countries, remembers the specialist Marcelo Elizondo, researcher at the ITBA and head of the consulting firm DNI.

For its part, economist Carlos Leyba warned that the zeroing of the 3.5% tariff that the EU will apply to 92% of Mercosur 's goods exports will not dislocate. boosted Argentina's external sales volume, considering it low compared to the 91% reduction in European exports, whose average tariff is 12% (with extremes of up to 35%) and will be incentive proportionally much higher. Especially, given the fact that the EU is much more productive and competitive than Argentina, where it already exports 86% of industrial products.

This is where the competitiveness issues raised by Argentina appear. Leyba maintains in a job that the problem is inside, not in the outer barriers. "We arrived 12 years ago with a GDP per capita that was growing and a stagnant economy, without investment, because of the absence of development program," he said. As an example, he cites that production paid 35% of income tax and that, even if this year, it would benefit from a reduction, some companies even pay a real rate of 50% or more on income taxes. real profits, which represents an adjustment for) inflation. On the other hand, the EU has no inflation, indexation is redundant, wage rates do not reach 30% and some countries, like Poland and the United Kingdom, pay 19%. Domestic credit, where it exists, is short-term and at a real interest rate higher than 20% per annum, whereas it barely reaches 2% in the European Union . "All governments, with the exception of brief interruptions", have deferred the exchange rate against inflation, and now, in addition, they have imposed withholding on industrial exports. How to export the industry in these conditions There is no law on tax and / or financial promotion for investment in reproduction, there is no long-term flexible financing and total credits private sector does not exceed 14% of GDP, not to mention the basic infrastructure needed for competition (transport, railways, education and training). Despite criticism of the agreement, it is embarrbading to hear Alberto Fernandez or Axel Kicillof oppose the signing of what they have promoted or allowed to do, which is the same thing, "he said. There the solutions come from the outside.

On the other hand, the consultant Gustavo Segré believes that, at the macroeconomic level, Brazil has several lengths ahead of Argentina. Of these, he mentions low inflation, less than 4% per year, the wide availability of business credit (at an annual rate of 15%), the absence of withholding taxes and the non-export of taxes. He also points out that the dollar at 3.97 Reais today has the same par value as in October 2002 and that Brazil exports four times more than 17 years ago because the change is not the only foreign trade variable. And that the powerful industry of São Paulo already considers opening with the EU as an irreversible path.

Many of these ongoing problems and reforms (taxation, labor taxation) are often covered by the ideological debate – and the interests – between protectionism and economic openness, with no recoverable history at both extremes for decades. The policies of "living with ours", coupled with incentives for consumption and the protection of external competition, have not prevented recurrent balance-of-payments crises. And the abrupt opening processes, combined with the weak dollar (Martínez de Hoz, Cavallo), have not only made a lot of business flow, but have also led to max-evaluations that have left a poor people.

This debate only concerns the "forum" if it does not include coherent proposals on how to solve the chronic problems of competitiveness and productivity of the economy. Their protagonists tend to be spokespersons for protected sectors that demand "smart insertion" in the world, a euphemism that has been left behind for decades. Or defend the internal market, without specifying that tariffs are a tax for consumers. Also those who plead for an unlimited opening, without correspondence with the investments and the creation of jobs. Or they enjoy tax benefits tailored to the detriment of other sectors. Both seek to be the influencers of the voters who, in October, will define the economic course of the next years.

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