Brazil Expecting the World from Venezuela

Venezuela has joined Mercosur, a free trade zone commonly known as the Southern Common Market. The entry of the world’s fifth largest oil exporter to Mercosur will add South America’s sixth largest economy to the group originally comprised of Argentina, Brazil, Paraguay and Uruguay.

Venezuela will be an ordinary member, technically defined as "Estado Parte," meaning that, for now, it will have a voice but no vote.

Apparently, the Venezuelan president Hugo Chavez’s main objective is to politically and economically unite a significant part of South America.

However, many analysts expect that his plans will end up aggravating Mercosur’s internal divisions and will do little to help Mercosur become a more powerful force or increase trade among member nations.

Although Mercosur’s members have formed a common front on issues like opposition to the subsidies rich nations give their farmers, critics say the most flagrant failure of the trade pact has been its inability to fully integrate the economies of the participating nations. Instead, frequent trade battles have occurred between Mercosur’s members mostly between Brazil and Argentina.

Venezuela will increase the total population of Mercosur nations to 252 million, almost 70% of South America’s 362 million people. And after adding Venezuela’s US$ 78 billion in annual gross domestic product, Mercosur’s GDP of US$ 803 billion would be a whopping 89% of the continent’s US$ 906 billion in goods and services produced each year.

The new entrant arrives at a crucial time, as high oil prices make Venezuela’s promise of lower-cost energy all the more attractive. With the new member, South America’s biggest trade bloc will become the biggest source of energy in the American Continent.

Some experts say that Venezuela’s exports to Mercosur nations are not estimated to rise any faster than normal once it becomes a member. It is also not expected to gain more diversity in the trade within Mercosur. The country’s biggest exports by far are oil and petrochemical products, and Venezuela has little more to offer its new partners.

Mercosur’s members have set a one-year waiting period before Venezuela is fully integrated into Mercosur. This process could be accelerated, though. During this period, Venezuela will have voice but not vote, and it is supposed to meet certain prerequisites, such as signing the Treaty of Asuncion and other protocols.

Mercosur was founded by Argentina, Brazil, Uruguay and Paraguay in 1991. Since then, Venezuela – along with Peru, Bolivia and Chile – has held associate member status. This blocked it from participating in many important Mercosur tariff agreements. From now on, as a full member, Venezuela will have to adopt Mercosur’s common external tariff.

Brazil and Argentina

Venezuelan citizens, especially farmers, complain about Brazil, South America’s largest economy, and Argentina, South America’s second largest economy. These countries could steamroll the Venezuelan economy via cheap imports of everything from beef to beans.

Venezuela is a huge importer of food, cars, and industrialized products, which would theoretically help Brazil and Argentina’s economies. Both nations are heavily industrialized, and have already staked out international reputations as agricultural superpowers in products such as soybeans.

According to Forbes, Chavez is already using Venezuela’s entry into Mercosur to increase opposition to the Free Trade Zone of the Americas, saying that South America’s "destiny is Mercosur, and that’s anti-FTAA." Apart from that, it’s almost certain that Chavez, who led the anti-FTAA crusade in Mar del Plata (Argentina), has political interests to get through Mercosur.

Industrial Information Resources (IIR) – www.industrialinfo.com

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