A China-Mercosur trade deal?

O Estado de São Paulo is reporting that Chinese prime minister Wen Jiabao wants to explore the possibility of a free trade deal between China and Mercosur (trade bloc of Argentina, Brazil, Paraguay and Uruguay, with Venezuela awaiting approved membership). A quick look at the trade numbers suggests that there is some sense to this idea. The Estadão article points to 2011 trade of US$48.4 billion in Chinese exports to Mercosur and imports of US$51 billion from the South American bloc.

The timing of the announcement is curious because it comes just days after Paraguay was suspended from participation in Mercosur governance activities due to the rather rapid constitutional ousting of Fernando Lugo from the presidency. This might matter because Paraguay has always been a convenient block to considering a deal with China. Paraguay recognizes Taiwan and has received considerable economic assistance from that country. The past Chinese practice has been to marginalize countries that recognize Taiwan, although the aggressiveness of this approach appears to have eased a bit in recent years. Either China has decided that Paraguayan diplomatic relations are merely an irritant that can be ignored, which in itself could be a precedent for other parts of the world, or an opportunity has been seized to try and push shifts in regional relations to the detriment of Taiwan’s links to Asuncion.

Another interesting thing to watch will be the reaction from industrial manufacturing sectors in Brazil and Argentina, both of which have been hammered by lower cost imports from China. Meanwhile, agroindustry and mineral sectors will likely push hard for a deal. It also fits into a foreign policy context where Brazilian president Dilma Rousseff is talking about the need to work with China to manage global challenges. The topic of a China Mercosur trade deal could well be discussed at the upcoming Mendoza Mercosur summit.

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