Brazil And Argentina, It's Time For A Single Market
Amid rising global tensions, Brazil and Argentina must form a strategic economic alliance that will help them interact with the world's chief powers.
Argentine President Fernandez and Brazilian President Bolsonaro at the 2022 Summit of the Americas
-OpEd-
BUENOS AIRES — Humanity is facing some exceptional challenges and propositions that would have seemed implausible years ago. Every day we see a slight reconfiguration or axial shift in global power relations, specifically in the political, military, technological and socio-economic realms.
As a result, regionalism is replacing globalization, which, after decades of ascendancy, has being first threatened by a global pandemic and now with the Russian invasion of Ukraine.
In this context, it is imperative to rethink inter-state relations in South America, especially between the region's two biggest states, Brazil and Argentina. Both countries need each other in order to face today's global challenges.
Most definitely, our larger neighbor cannot play a leading role without Argentina's contribution to any process of regional integration.
How is trade between Argentina and Brazil?
The scale of the challenge is such that it requires leadership, in order to overcome prejudices and generate enough synergies to help the two countries go through the coming decades. Because of the speed and intensity of the changes to come, the future looks more alarming.
In response to the state of the world, Argentina and Brazil must undertake a new, positive agenda in five broad areas: trade, finance, infrastructures, science and technology, and insertion in regional and global value chains.
First, they must sweep aside trading restrictions and barriers to create a level playing field in bilateral exchanges. For that, we need to move toward a standardization of technical and sanitary norms.
Brazil was principally affected by Argentina's trade barriers. While 30% of all our imports came from Brazil in 2011, the proportion had dropped to 19.1% in the first half of 2022. We have partly supplanted Brazilian products with imports from China, which became the chief source of our imported products in 2021. But we sell twice as many products to Brazil, which remains our first customer and the first market for our manufactured and industrial products.
The Asia question
We also need a payment system to ensure the fluidity of bilateral trade. We should favor a peso-real exchange market to assure the financing of the two-way trade under the guidance of the two central banks. This would be a credit agreement between the two monetary institutions, allowing the pre-financing of foreign trade in the two local currencies.
Thirdly, we must undertake public works projects for the infrastructures that are necessary for this single trading space. Building bridges, ports and roads will make our countries competitive and give them an effective outlet for products destined for other regions. A crucial step here would be to achieve inter-connectedness energy through a closed circuit of cross-border gas lines. This is an essential input for growth.
Problems have paralyzed the Mercosur trading bloc.
Fourthly, Argentina and Brazil must activate external trade negotiations and collaborate on opening new markets and promoting the insertion of firms from both countries in global value chains.
Fifth, this can become the procedure for any trade talks with countries like China, India, Vietnam or Indonesia, whose productive profiles complement our own. We need to define a joint working strategy that stresses three factors: physical integration, financial integration and productive integration. This would ensure our favorable insertion in regional and global markets.
A strategic alliance
Even if we find ourselves in a murky period, it has not, in any case, prevented our strong collaboration to go on. This collaboration actually began in 1985, in various sectors from scientific and technical cooperation to security or the control and defense of vast and strategic zones like the South Atlantic. This natural dynamic that exists between our two countries will help us to move forward, toward greater and better integration and beyond bureaucratic sluggishness.
Over decades, problems have dogged and even paralyzed the Mercosur trading bloc — consisting of Argentina, Brazil, Paraguay and Uruguay. This may have confused us into equating our bilateral ties with the complications of that regional project.
So we must absolutely move toward an integrated, strategic alliance. To find a constructive place in an increasingly dangerous and challenging world, Brazil and Argentina must revive a strategic alliance able to create a relevant geopolitical bloc. That will be our platform for interacting with the world's chief actors.
*Redrado is a former head of the Argentine central bank, and Corach a former Argentine interior minister.
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