Brazil’s lesson – customs unions are too big and fail

Jonathan Lindsell, 19 August 2013

Brazil is in the news a lot at the moment. Today their embassy is outraged because a Brazilian citizen, David Miranda, was controversially held at Heathrow on anti-terrorism laws for nine hours.His partner Glenn Greenwald, who broke the Edward Snowden surveillance revelations, has accused the UK of abusing its own law – a charge not addressed by Foreign Secretary William Hague on Radio 4 this morning.

Brazil has been a talking point all week, if not all month. As one of the ‘BRIC’ countries, fast-growing economies, it’s never far from the spotlight. It’s the host of the next Olympics and next World Cup, the world over is worried at the scale of protests and riots in Rio de Janeiro.  Brazil’s even received a visit from the new pope.

Brazil’s protests were a result of the prohibitively high price of public transport – evidence that the ‘BRIC’ economy isn’t growing fast enough to solve chronic social inequality. One long-touted solution was a grand free trade agreement (FTA) between the European Union and Mercosur (‘Southern Common market’), a customs union with Argentina, Paraguay, Uruguay, Venezuela and Bolivia.

In tune with evaluation of free trade negotiations between the EU and America, a deal the magnitude of an EU-Mercosur agreement is simply too unwieldy to work.  Compromises must be made for all 28 EU member states, for Mercosur’s six (plus seven associate members). The talks predictably stalled, and ground to a total halt this summer. There are further delays concerning Paraguay’s suspension for breaking democratic requirements.

Brazil has recognised the need to ditch the customs union and act alone. Foreign Minister Antonio Patriota and President Dilma Rousseff are tacitly distancing themselves from the protectionism and hostility of Cristina Fernandez’ Argentina. This raises the possibility of a two-speed Mercosur – possibly even three speeds, since Uruguay is also keen to trade, but less able. According to the Financial Times, they may be movement by the end of 2013.

Brazil’s dynamism thus presents a model for British Eurosceptics, keen to maintain positive relations with their own continent, but to move at different speeds regarding the Euro and international free trade. As has been noted before, if tiny Iceland can get an FTA with China, Britain certainly can.

So what’s the problem? Unlike Mercosur, the EU’s structure does not allow Britain to make trade deals alone, or even with a group of like-minded member states. This is just the kind of inflexibility David Cameron mentioned when he announced his renegotiation plans – and just the kind of impediment ‘Brexit’ supporters would rather escape.