The Mercosur Trading Bloc and its Benefits

Three trillion dollars is a large number. A figure of that magnitude is difficult to visualize, but it represents the Gross Domestic Product (GDP) of the South American trading bloc and customs union known as Mercosur. With its massive GDP and a population of roughly 295 million inhabitants, Mercosur is the fifth largest economy in the world.

As it turns out, Canada is negotiating a free trade agreement (FTA) with the Mercosur trading bloc that will provide numerous economic benefits to B.C. businesses. Mercosur, the Spanish abbreviation for Southern Common Market, includes four partner countries: Argentina, Brazil, Paraguay, and Uruguay.

An agreement with Mercosur would reduce tariffs on Canadian goods being exported to those markets. In essence, B.C. goods could become more competitive in South America, creating opportunities for B.C. companies to expand their businesses on an international scale. For example, as of now the Mercosur trading bloc has set external tariffs up to 35 percent on goods such as forestry products, fish and seafood, automobiles, plastics, machinery, and telecommunications technology. With the Mercosur-Canada Free Trade Agreement, these tariffs could be reduced or eliminated. Before we explore further benefits of a potential trade agreement between Canada and Mercosur, let’s look at the trading bloc’s history to understand how we got to where we are today.

Mercosur’s history
Mercosur is a trading bloc, but what exactly does this mean? Mercosur’s main goal is to enhance economic and social development by integrating the national economies of its partner countries for international trade and investment purposes. In its essence, this is the overall objective of any trading bloc.

Mercosur is a regional intergovernmental agreement concluded in 1991 that aims to facilitate the free flow of goods, services, capital, and people between its member states. The agreement established a customs union with a common external tariff for non-partner countries, a common trade policy and eliminated customs duties and fees between its members states. With these ambitious goals, the Mercosur trading bloc has also created various agreements with external countries, granting them trade preferences and beneficial investment opportunities with the trading bloc’s members. Canada and Mercosur are currently undergoing negotiations to establish one of these agreements.

Why trade with Mercosur matters, and the potential Canada-Mercosur Free Trade Agreement
Canada and Mercosur began official negotiations for the creation of an FTA in 2018. Canada is seeking to create an agreement that improves market access for its goods and services in the fast-growing markets and promotes an inclusive approach to trade that allows all businesses, including small and medium-sized enterprises (SMEs) as well as women and Indigenous-owned businesses, to benefit from the opportunities offered in a rules-based trading system. Additionally, Canada has made it a priority to ensure that environmental protection and international trade under the Canada-Mercosur FTA are supportive of one another. With these thoughts in mind, an FTA governing Canada and the Mercosur would provide tremendous benefits to B.C. businesses.

Additionally, an FTA with a massive emerging market like Mercosur would provide heightened market access for all B.C. businesses. FTAs are generally seen as tools that reduce trade barriers – this is true, but the scope usually goes beyond exports and imports. An FTA with Mercosur would potentially provide additional access for service providers, covering areas such as procurement, temporary business entry and investment. Check out this resource to learn more about the areas that may be covered in the Canada-Mercosur Free Trade Agreement.

To submit comments and suggestions on the current Mercosur negotiations, please reach out to [email protected].

The agreement would provide numerous benefits to Canadian and B.C. businesses, but how would certain sectors benefit from trade with Mercosur member states?

Sector and country opportunities
Some of Mercosur’s largest imports include transport equipment, machinery, chemicals, and pharmaceutical products. Although these areas represent a large value of Mercosur’s imports, the size of Mercosur’s trading bloc presents opportunities to practically all B.C. business sectors.
For example, in 2017 Canada exported $111.5 million worth of forestry products to the Mercosur trading bloc. These figures illustrate a large demand for goods in the forestry industry, one of B.C.’s largest sectors. On the other hand, B.C. businesses in the life sciences sector could also benefit from trade with Mercosur countries. Mercosur member countries imported over $8 million in medical and scientific technology from B.C. in 2020, showing that there is demand for some of B.C.’s largest industries. These examples show that virtually any B.C. business could benefit from trade with Mercosur.

It is important to note that an FTA between Canada and Mercosur would only enhance these opportunities. Check out this resource to learn more about how an FTA with Mercosur could benefit different B.C. business sectors, or use the lookup tool at the bottom of this page to search for opportunities by country and sector.

From manufacturing plants to orchards, Mercosur presents B.C. businesses with an abundance of opportunity. If you have questions about Mercosur, information can be found on the Government of Canada website or contact us directly at [email protected].

Visit our countries and sectors page to learn more about which countries your business could benefit from under FTAs. Follow Trade and Invest B.C. on Twitter and LinkedIn to stay up to date with the latest news on B.C.’s international business opportunities.