With Argentina's president skipping Mercosur, the future of the trade alliance looks doubtful

ASUNCIÓN, Paraguay -- The most notable thing about the Mercosur trade bloc's meetings on Sunday in Paraguay was an absence — that of Argentine President Javier Milei.

With the Argentine populist skipping the summit to star at a right-wing rally in Brazil, South America's biggest trade bloc — politically divided, notoriously slow-moving and beset by backsliding — faces an uncertain future. Milei has advocated for pulling Argentina, a leader of the alliance, out of the agreement altogether.

Overseeing preparations for the presidential summit kicking off Monday after initial meetings, President Santiago Peña of Paraguay — the bloc's rotating chair — set low expectations for what would be accomplished.

“I hope that this summit we are going to hold on Monday will be an opportunity to reflect, at a time when Mercosur is clearly not going through its best moment,” Peña told journalists from Paraguay's capital of Asunción, where 33 years ago the presidents of Argentina, Brazil, Paraguay and Uruguay signed the revolutionary free-trade treaty that soon became Mercosur.

In 1991, as countries across Latin America were shaking off military dictatorships and opening up to free-market ideas, the formation of Mercosur, a customs union of once-estranged neighbors, signaled a regional breakthrough that sent capital surging across borders.

But over recent decades, experts say, protectionism and political volatility have scuppered high hopes. The bloc has put up more barriers than it has broken down. The group's common external tariff is riddled with exceptions. Outside South America, the bloc has struck just two free trade deals, with Egypt and Israel.

The fact that the countries produce similar goods, mostly agricultural, hasn't helped matters. Trade within the bloc remains low, hovering around some 15% of its members' total commerce.

“These countries could be 5,000 miles apart and still do the trade that they’re doing at the moment,” said Christopher Ecclestone, a strategist with investment bank Hallgarten & Company. “It’s not the best idea for a free trade area if you’re all producing the same things at the same prices.”

Politically powerful industries in Brazil and Argentina, the continent’s two biggest economies, long have dominated deal-making in the bloc, stirring consternation among their smaller partners that increasingly feel shunted to the sidelines.

In 2021, the bloc hit a new low point when Uruguay announced that it would seek a deal with China outside the bloc. Mercosur's founding treaty forbade such bilateral agreements — extra sales for Uruguay would come at the expense of producers in Brazil and Argentina.

Uruguay’s president, Luis Lacalle Pou, who has staked his economic legacy on opening up to China, said Mercosur has held his country “hostage.”

Incensed over the breach of solidarity, Brazil announced it would pursue a broader trade deal with China on behalf of the bloc. But diplomats on Sunday reported no progress in those negotiations. Paraguay's strained ties with Beijing over its recognition of Taiwan complicates matters.

For the last 20 years, the bloc has also sought to finalize a free-trade agreement with the European Union to no avail. Argentines have criticized the draft deal as unfairly favoring Brazil. European countries, particularly France, have also opposed it.

“I’ll tell you, honestly, I don’t see the conditions for it,” President Peña said of a prospective deal.

Although there was some optimistic chatter in the conference room Sunday about future deals with the United Arab Emirates, South Korea and Japan, experts have warned that the bloc's reputation for torturous yearslong negotiations could throw cold water on things.

Now, President Milei’s shocking decision to skip the annual summit — and a critical chance to thaw relations with his ideological foe, left-wing Brazilian President Luiz Inácio Lula da Silva — has exacerbated internal discord. The last time an Argentine president bailed on a Mercosur meeting was in 2001, when then-President Fernando de la Rúa had the excuse of an unprecedented financial disaster.

Although libertarian President Milei advocates free trade, he has bashed Mercosur as “defective," a challenge to his free-market overhaul of Argentina’s spiraling economy.

Under his left-leaning Peronist predecessors — as left-wing political parties dominated other Latin American countries — Mercosur took on a political dimension, a sort of rival project to Washington's free trade agenda.

With Milei shattering that consensus, it remains unclear whether other countries will follow Argentina’s example. Uruguay holds presidential elections in October.

“This kind of attitude, previously from Brazil (under hard-right former President Jair Bolsonaro) and now from Argentina, weakens Mercosur as a whole,” said Juan Gabriel Tokatlian, professor of international relations at the University Torcuato Di Tella in Buenos Aires.

Of Milei's absence, he added: “This is a serious problem.”

Argentina's top diplomat on Sunday chimed in during meetings with thinly veiled criticism, going so far as to raise the possibility of the bloc breaking apart.

“Argentina is promoting a new foreign economic policy, strategically focused on freedom,” Argentine Foreign Minister Diana Mondino told her counterparts in Paraguay. “If it's not possible to advance as Mercosur, let’s think about the possibility of having bilateral agreements."

Brazilian Foreign Minister Mauro Vieira shot back that he still places stock in regional cooperation to achieve prosperity. “We must work constantly and constructively to strengthen and not to diminish Mercosur's institutions," he said.

Even as critics call Mercosur a relic of the past, the bloc is growing for the first time in years. During Monday's summit, presidents will ratify Bolivia as the fifth full member of the alliance.

“It means being part of an important space for regional integration,” said socialist President Luis Arce of Bolivia ahead of his Paraguay visit, his first foreign trip since Bolivia’s alleged military coup attempt.

Claims by Milei that President Arce himself orchestrated the coup — which he repeated onstage before a cheering crowd in southern Brazil Sunday — have sparked a political firestorm.

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Associated Press writers Isabel DeBre in Buenos Aires, Argentina, and Gabriela Sá Pessoa in Sao Paulo, Brazil, contributed to this report.