IBRE's researcher makes an analysis of Mercosur-China trade

Institutional
05 July 2012

During the video conference on June 25, the Prime Minister of China, Wen Jiabao, announced the ?global strategic alliance? among three countries that comprise the Mercosur ? Brazil, Argentina and Uruguay. According to Jiabao, this agreement can lad to the establishment of a free trade zone among the member countries. President Dilma Rousseff agrees and assesses the partnership as strategic to ?build a productive relationship with China?. However, analysts ask themselves what Brazil can achieve by further providing incentives to the entry of Chinese products into the country, which makes the domestic market weaker.  Lia Valls, researcher of IBRE's Applied Economics area and expert in foreign trade, reminds that such strategy of building a relationship with the Asian country had already been announced during former president Lula's mandate. ?The topic discussed was ?strategic partnership?. Those are vague words, but indicate that Brazil intends to find out a way so as the relationship with China brings economic benefits, whether by means of new investments and/or profit from Brazilian exports?.  Today, China occupies the position of other countries in the list of the largest Brazilian importers, and it is the main trade partner of the Brazilian government. According to her, it is not the volume of Chinese products imports that are decreasing our competitiveness, but the factors that push the industry productivity. ?It is obvious that the debate on ?China's unfair competition through its exchange rate manipulation and possible dumping practices? exists. Nonetheless, we can't say that all such increase in the imports from China are due to these two matters. The problem is in the low competitive Brazilian supply, due to factors that make it difficult to increase the Brazilian industry productivity?, says Lia. It is worth reminding that Brazilian exports to China reached a total of US$ 44.3 billion, while the import of Chinese products reached US$ 32.8 billion.  About the opening of Mercosur markets to China, the researcher believes it is difficult to have a free trade agreement with that country. ?It would be a total turn of the recent Brazilian trade policy that has been focusing on the use of some protection measures as a defense for the industrial sector?. She adds that some industries, such as textile, apparel, electro-electronic and automotive must ask for long terms to reduce the trade fees. Paraguay ? The countries that comprise the Mercosur rejected the participation of the new Paraguayan president, Federico Franco ? successor of Fernando Lugo after the impeachment process ?, since he is deemed as not legitimate by the governments of Brazil, Argentina and Uruguay. Coincidently, Paraguay is the only one in the block that recognizes Taiwan as the representative of China, and not Beijing, as determined by the Chinese. Thus, without being agreed upon by its members, the Mercosur could not negotiate with the Asian government. In Lias' opinion, the recognition of Beijing as the only one and legitimate is a priority in the country's agenda. ?If there is a genuine interest by Argentina, Brazil and Uruguay to sign the agreement, they will push Paraguay towards that decision?, she completes. 

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