2024-11-03 03:05:00
From Argentina, Brazil, Paraguay and Uruguay, a growing number of voices are calling for changes to Mercosur, some of which are coming. The Group of 20 will meet in Rio de Janeiro on November 18-19 and could finalize a free trade agreement with the European Union (EU), setting the course for a goal that has been demanded for some time: the Confederation of the South, the U.S. bloc to open up new markets .
At the same time, China’s entry into the Southern Common Market automobile industry with two companies, BYD and GAC, will pose a severe challenge to the competitiveness of traditional brands. The first spent $1.1 billion to take over the former Ford plant in Bahia. The second company announced an investment of another $1 billion over the next five years to build factories, development centers and its own dealer network.
These were some of the topics discussed at the TecX 2024 Summit in Córdoba, under the theme “Innovation and Expansion: Prospects and Strategies for Development in Brazil”, organized last Thursday by the Córdoba Foreign Trade Chamber (Cacec), In the framework of its 60th anniversary, it brings together businessmen and global trade experts with extensive experience in Mercosur.
Argentina and Brazil are at different times. As of August, the country’s economic activity had declined by 3.1%, while Brazil grew by 2.9% during the same period.
Argentina’s recession has helped to balance the trade balance between the two countries. As of September, the cumulative deficit was only $203 million, while the deficit in the first nine months of 2023 has reached $4.904 billion. This was the result of a nearly 29% decrease in imports ($10.058 billion) and a 10% increase in exports ($9.825 billion), thanks to the agricultural sector.
Eduardo Rastrelli, Coordinator of the Foreign Trade Committee of the Argentine-Brazilian Chamber of Commerce, Industry and Services (Cambras) and Ana Basco, former Director of the Institute of Latin American and Caribbean Integration Basco) (Intal) is a current consultant at the Inter-American Development Bank and his opportunity is to overcome the trade phase within Mercosur, add added value based on knowledge and go out as a whole to seek new markets.
Beyond the numbers and percentages, there are some signs of change. Until last year, Brazil and Argentina had a protectionist stance. This will have to change if the EU wants to start increasing exports to other markets.
“Mercosur has a recognition that it must go global as a bloc. Intra-Mercosur trade is not enough. Uruguay and Paraguay have been raising this issue for some time, and Argentina also needs it,” Rastrelli said .
In this regard, Basco added: “Mercosur must move towards greater resilience. Presidents Lula da Silva and Javier Milley agreed on this. For example, one of the things that must be reviewed One is a common external tariff, although progress has been slow, but I think we are moving in that direction.
China, opportunity or threat
In this framework, Basco invites us to consider China an ally, just like the United States or Europe. “In the context of global political fragmentation, the need to establish safe market trade programs has become increasingly apparent. Mexico, Vietnam or Morocco have the experience, and in recent years they have been inserted into the middle of the global chains of the United States and China, avoiding direct links between them .
As Chinese companies start producing in Mercosur, the Asian giant must be included in the regional trade map. In fact, the automotive market is analyzing how much local content their vehicles will have and what interest they have in developing local and regional suppliers.
“The two governments must also support this issue so that the localization process is not just an assembly,” Rastrelli said.
What ends up happening is that Chinese industry will force a review of the competitiveness of regional production, including the job, tax and customs conditions they have to compete with Asian products.
Technology investor and former Accenture CEO Sergio Kaufman, an expert on Asian economies, warned at the event: “Mercosur still needs to be tested in terms of its effectiveness. It depends on the conditions of the agreement, but, a priori“Chinese companies have completely different economies of scale than their Mercosur counterparts, so competition will be difficult.”
Cordoba businessman Marcelo Bechara (TecX Group and Evoltis) introduced technology investor and former Accenture CEO Sergio Kaufman. (Courtesy of Kasek)
Challenging times for the knowledge economy
TecX is one of Cacec’s consortiums of Córdoba companies committed to the knowledge economy, through which it aims to strengthen its internationalization plans.
The TecX 2024 Summit in Córdoba is dedicated to Brazil from a knowledge economy perspective. The sector is traditionally associated with manufacturing softwarethe goal now is to apply knowledge to add value to the regional economy. In Córdoba alone, the industry is home to some 1,500 companies and creates 35,000 jobs.
Basco said the knowledge economy is one of the areas with the greatest growth potential for Mercosur because it brings talent and innovation to production.
The development of technology and knowledge is closely related to the investment field. By 2022, there will be a huge influx of money around the world and into Argentina for financing Start-up company (tech-based businesses), reaching record numbers. Today, they are at historic lows as U.S. interest rates rise.
“Technology has phases of investment and purification, in which the most successful survive, while others reinvent themselves or must be absorbed by other players. Currently, we are in the second phase, and nothing is unseen. Both In three years we will see another investment cycle.
The former Accenture CEO warns that current interest from technology investors, of which he is one, is focused on artificial intelligence, data management and video games. But they have higher requirements for products Start-up company.
In this regard, he clarified: “When there was a lot of money in the past, there was a good story, start up is capitalized. When the investment environment becomes more acidic, that’s not enough; you have to have a concrete and proven business case that works. This forces entrepreneurs to go beyond PowerPoint and demonstrate through experience that their ideas work.
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**Interview with Eduardo Rastrelli, Coordinator of the Foreign Trade Committee of the Argentine-Brazilian Chamber of Commerce, Industry and Services (Cambras)**
**Interviewer:** Thank you for joining us today, Eduardo. With the upcoming G20 meeting in Rio de Janeiro, there’s a lot of talk about potential changes in Mercosur. How do you see the future of this bloc in terms of international trade agreements?
**Eduardo Rastrelli:** Thank you for having me. Indeed, the G20 meeting presents a crucial opportunity for Mercosur. There’s a growing realization that we need to broaden our trade focus beyond intra-Mercosur commerce. The agreement with the EU and discussions around it could be pivotal for our competitiveness and market access globally.
**Interviewer:** You mentioned the need for Mercosur to globalize as a bloc. What are the key challenges you’re seeing right now in achieving this?
**Eduardo Rastrelli:** One significant challenge has been our historically protectionist stance. To be competitive, we must reconsider our common external tariff policies and move towards more open trade solutions. Countries like Uruguay and Paraguay have been vocal on this issue, and Argentina needs to align with these ideas; otherwise, we risk stagnation.
**Interviewer:** There has been considerable discussion about the entry of Chinese companies in the Southern Common Market, particularly in the automotive sector. Do you see this as an opportunity or a threat for Mercosur industries?
**Eduardo Rastrelli:** It’s a complex situation. On one hand, Chinese investments bring capital and innovation, which can enhance our local industries. On the other hand, they present a daunting challenge to our competitiveness, given their economies of scale. However, if we can leverage this situation properly, it could be beneficial, especially if we push for more localization of production and develop our regional suppliers.
**Interviewer:** Ana Basco mentioned the idea of viewing China as an ally in this context. Do you agree with her perspective?
**Eduardo Rastrelli:** Yes, I think it’s essential to shift our perspective on global trade dynamics. In this fragmented world, we need to establish safe trade relationships, not just with traditional partners like the US and Europe, but also with China. We must learn from the experiences of other countries that have navigated similar challenges effectively.
**Interviewer:** as the economic landscapes of Argentina and Brazil diverge—Brazil experiencing growth while Argentina grapples with recession—how do you envision the future relationship between these two countries within Mercosur?
**Eduardo Rastrelli:** Our economic fates are interconnected. We need to support each other in enhancing our trade dynamics. Argentina’s recession has temporarily improved our trade balance, but for long-term sustainability, we must work together to elevate our economic cooperation and competitiveness. The potential fluctuations in economic performance should not derail our collaborative efforts; if anything, they should strengthen our resolve to innovate and adapt.
**Interviewer:** Thank you, Eduardo, for sharing these insights. It sounds like a transformative period for Mercosur lies ahead.
**Eduardo Rastrelli:** Thank you for having me. I’m optimistic about the future; change is challenging but necessary for our evolution as a trading bloc.
