Pakistan-Mercosur Preferential Trade Agreement

The free trade agreement would be an opportunity to close the trade gap with Mercosur countries, the secretary stressed, calling Argentina and Brazil lucrative markets, but Pakistan focused mainly on textile exports. “The PTA with Mercosur will allow Pakistan to diversify its exports of products and markets and improve its trade with Latin American countries in order to introduce new products in the fields of pharmaceutical technologies, information and communication, auto parts and light construction,” he said. At the end of April, Argentina announced to its Mercosur partners, Brazil, Paraguay and Uruguay, that they would withdraw from trade negotiations already concluded with the European Union and the European Free Trade Association. This unilateral decision caused shockwaves on the part of Mercosur, as it implied a possible dissolution of the trading bloc. However, Argentina`s decision was later overturned and Mercosur`s partners are now considering how they can make progress despite each country`s competing priorities. Although Brazil, Uruguay and Paraguay are interested in new trade agreements with other countries such as Canada, South Korea and Singapore, the von Fernandez government has reversed Argentina`s liberal stance and does not support the idea of new trade agreements. “As Pakistan`s request is echoed by mercosur`s Foreign Relations Group, the Ministry of Commerce has stepped up its trade diplomacy by including the brazilian and Argentine embassies in Islamabad,” he added. When Mauricio Macri was elected president in 2015, there was a glimmer of hope for Mercosur to finally open up. Macri has been at the forefront of reviving external negotiations, which were concluded with an agreement between Mercosur and the European Union after more than 20 years of stalled negotiations. This hope grew with the strong attitude of the Brazilian Minister of Finance, Paulo Guedes, under President Bolsonaro. However, Argentina`s decision, led by President Fernandez, to withdraw from negotiations with Mercosur – even if it returned later – raised a question mark over how Mercosur will continue to operate.

Recent political instability in Brazil has further dampened expectations. The report, “Potential for a Pakistan-Mercosur Free Trade Agreement,” is part of the PBC`s 2020 Market Access Series. The Mercosur bloc, composed of Argentina, Brazil, Paraguay and Uruguay, was established in 1991 to promote economic, political and strategic integration. In 2006, Pakistan signed a framework agreement on trade with the Mercosur bloc with the ultimate goal of signing an EPA with the bloc, but no significant progress has been made to date. The Ministry of Commerce is working to resume negotiations for preferential and free trade agreements with Mercosur, a trading bloc composed of Argentina, Brazil, Paraguay, Uruguay and Venezuela. This is why Mercosur`s External Relations Group will resume Pakistan`s request for reconsideration in early 2019. This was announced during a meeting between Trade Minister Younus Dagha and a delegation led by Argentine Ambassador Ivanevich. Both of these situations would be a disaster for the Argentine economy.

One of the cornerstones of industrial production that is still inefficient is the ability to sell to Brazil at zero tariffs, while competitors have to pay for THE ECTs. If Brazil signs many trade agreements, Argentine companies will be subject to stiff global competition in the Brazilian market, without having the advantage of accessing new markets opened by trade agreements for Brazilian companies. A constructive outcome to this solution – although unlikely given the Argentine government`s anti-trade stance – would be to transform Mercosur into a free trade agreement rather than a customs union. A free trade agreement can maintain the current zero tariff for domestic trade, while providing members with flexibility in negotiating their own trade agreements with other countries.

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