NOSSO NORTE É O SUL Brazil’s Membership in Mercosul and Strategies for Institutional Reform

Abstract

Mercosul (Mercado Comum do Sul, Common Market of the South) has reached a critical juncture. Brazil’s participation in Mercosul initially provided it with enhanced trade benefits, industrial revenue growth in key development areas, improved relations with its neighbors, and a mechanism for combating extra-regional influence in the Southern Cone. However, over the past five years, protectionism, enforcement issues, trade disputes, and regional political upheavals have made Brazil’s membership in Mercosul contentious. Opponents have advocated for greater economic ties to the European Union and China so that Brazil can achieve a stronger position in the global value chain. This thesis seeks to be the first serious analysis of Mercosul’s costs and benefits from the Brazilian perspective. In view of Brazil’s much-improved economic status over the past two decades, it is unlikely that today it would join Mercosul as it was designed in 1991. Through the Pink Tide movement in the early 2000s, Mercosul helped to harmonize economic and foreign policies among its Member States, but structural and enforcement problems have recently emerged. Despite these issues, the economic, political, and foreign policy costs of leaving Mercosul outweigh the potential benefits of Brazil exiting the organization. The result is “a valley of support:” there is insufficient political capital either to defend the status quo or call for Brazil’s exit from the organization. If Brazil takes no action to reform Mercosul, these problems will worsen over time. However, Brazilian elites do not agree on a solution to reform the organization. Private sector interests desire a reduction in infrastructural asymmetry between Member States, an increase in enforcement and arbitration capacity of Mercosul’s internal organs, and an increase in Brazilian leadership in Mercosul decision-making processes. In contrast, public sector representatives, particularly the Ministry of External Relations (MRE) and President Dilma Rousseff’s Foreign Policy Council, want to pursue a policy of enlargement that would include more Member States in Mercosul. A comparative analysis of potential strategies reveals that enlarging Mercosul before implementing structural reforms would be detrimental to the organization and to Brazil’s interests. Structural and enforcement reform, followed by subsequent enlargement, will best benefit both Mercosul and Brazil.