Zoe Dauth* says Australia should not ignore the opportunities to trade more with Latin America following the historic trade agreement between the European Union and Mercosur.
With the ongoing trade war between the United States and China showing no signs of abatement, it’s easy to ignore the brighter spots on the horizon.
Not least the historic agreement reached between the European Union and the four founding members of the Common Market of the South (Mercosur) — Argentina, Brazil, Paraguay and Uruguay — after 20 years of intermittent negotiations.
Australia should capitalise on South America’s increased openness to trade by consolidating its close political, economic and cultural ties with the region.
If there is one thing that rising global tensions between the United States and China has brought into clearer focus, it’s the need for regional blocs to continue their integration based on international trade.
In this regard the announcement of the political agreement between the EU and Mercosur for a Free Trade Agreement (FTA) is a piece of good news.
If ratified, it will be an incentive for Mercosur countries to modernise their economies, internationalise their companies, and become more competitive as trade partners on the global stage.
South America’s shift to open markets is playing out against a backdrop of a growing middle class, increased manufacturing heft and services capabilities in the region.
These developments have shifted the terms of trade between the blocs, and present fresh opportunities to develop a mutually beneficial relationship across key sectors.
This could include energy, agribusiness, infrastructure, tourism, education, financial services and technology.
Efforts to strengthen Southern Hemispheric trade linkages fit well within the potential agreement between the Australia New Zealand Closer Economic Relations (CER) trade agreement and Mercosur.
Since 1996, senior leaders from member States have participated in talks to deepen trade and investment ties within the framework of the CER-Mercosur dialogue.
If the EU-Mercosur Agreement comes into force, it should pave the way for Mercosur’s agreement with CER.
The Mercosur agreement is a game-changer. It will generate massive market opportunities for Argentina, Brazil, Uruguay and Paraguay.
Their economies will open in a gradual and predictable way, offering Governments and private sector allies a clear reform roadmap and decreasing the political risk of investing.
Companies will have more exposure to advanced standards, a force that will drive competitiveness and bring long-term benefits to the workforce and consumers.
The agreement with the EU will force Mercosur into a fast track towards adopting higher standards to meet the EU’s requirements across social, labour, environmental and health sectors.
Furthermore, Mercosur companies will now be competing in a global market with higher standards in public infrastructure and years of investment in developing a workforce equipped to meet the demands of developed nations’ trading rules.
This will improve the attractiveness of South America as a place to do business for risk-averse Australian investors.
The physical distance of the Pacific Ocean separating Australia and Latin America is no longer a barrier for business engagement.
Trade and economic relations between the two giants have grown significantly over the last decade.
From 2016 to 2017 Australia’s imports from Latin America totalled $6,349 million, and exports to Latin America totalled $4,752 million.
Australia’s top export markets in the region include Brazil, Chile, Colombia, Mexico and Argentina.
With more than 300 Australian companies calling Latin America home and 40,000 Latin American students choosing to study in Australia each year, Australia has the competitive advantage of strong people-to-people links with the region.
It offers Australia a chance to diversify its trading partners beyond the Asia Pacific.
The pact with the EU is an important signal that this once-protectionist bloc is ready to adopt a more market friendly approach to trade relations.
While the announcement bodes well, some political horse-trading remains before ratification of the EU-Mercosur agreement.
A series of complicating factors may threaten its eventual passage, including political uncertainty in Argentina following President Mauricio Macri’s defeat to his populist left-wing rival, Alberto Fernández in a primary vote.
Concerns are growing in Brazil over President Jair Bolsonaro’s lax environmental policies which environmentalists blame for the accelerated deforestation of the Amazon rainforest.
European consumers, Governments and companies favour strict standards across agricultural supply chains and efforts to combat climate change.
Unless Brazil adopts measures to combat illegal logging and related trade, European ratification of the agreement is not a done deal.
Nevertheless, the agreement holds significant geopolitical importance and demonstrates political will to counter the rise of protectionism and unilateralism.
Not only do the Mercosur countries benefit from enhanced market access to the EU, the agreement will also give the countries momentum to move forward with other trade negotiations.
They will now be looking for potential new partners in addition to stimulating their own internal integration.
The Australian Government has actively pursued trade agreements in the region through the signing of FTAs with Peru and earlier with Chile.
These are testament to the possibility of mutually beneficial diversification within the mining and agricultural sectors, but even so Australia has historically overlooked Latin America in favour of Asia
Now developments are showing why it’s time for Australian policymakers to pay more attention to their friends on the other side of the Pacific.
With its close ties to Asia, Australia can also serve as a launch pad for Latin America’s expansion beyond its key markets in the north.
*Zoe Dauth is a senior manager at the Council of the Americas in Washington DC. She was formerly director for the Australia-Brazil Chamber of Commerce (2013-2015).
This article first appeared on the Australian Institute of International Affairs website.
