Argentina Gives Mercosur an Ultimatum It Can’t Ignore

Marcos Falcone

In Argentina, talk of leaving or at least bypassing Mercosur—the South American trade bloc that also includes Brazil, Paraguay, and Uruguay—is ramping up as the Javier Milei administration seeks to open the country’s economy. On August 20, Minister of Foreign Affairs Pablo Quirno said that “we have no time to lose” in finding new trade partners. “We want to do it with Mercosur, but if the bloc doesn’t keep pace with what we need, we’ll move forward bilaterally,” he added. 

On August 21, Deputy Minister of Economy José Luis Daza posted on X that “Mercosur has condemned its people to worse technology, worse goods, and much higher prices.… It’s time to seize all the opportunities the global economy has to offer and abandon protectionism.”

When Milei became president, Argentina ranked among the five most closed economies in the world. Since then, he has made progress towards free trade. Export and import tariffs have been reduced or eliminated, multiple exchange rates for exporters and importers are no longer in place, non-automatic import licenses have been scrapped, and expired antidumping measures have not been renewed. But Mercosur’s common external tariff, which averages at 11.5 percent, means Argentina cannot unilaterally cut its own tariffs beyond the limit set by that trade accord. In practice, this represents about ten times the rates of Chile and Peru.

Progress towards opening up Mercosur has been meager. Until 2026, the bloc had only signed free-trade agreements (FTAs) with Israel and Egypt. After three decades of negotiations, an FTA between the bloc and the European Union also came into force this year. But as I wrote in January, its impact will be severely limited by its conservative provisions, and the agreement itself could be suspended at any time, since the European Parliament has asked the European Court of Justice to review it. FTAs with Singapore and the European Free Trade Association—composed of Iceland, Liechtenstein, Norway, and Switzerland—are also set to take effect soon, but the small size of these economies is unlikely to have much impact within Mercosur.

Argentina started testing the bloc’s boundaries when it signed a bilateral agreement with the United States in February that eliminated tariffs and secured access to Argentine beef, among other measures. Back then, Brazil questioned whether the deal complied with Mercosur’s rules, and it is unclear whether there will be consequences in the future. Uruguay faced a similar issue in 2022, when the bloc’s members threatened the country with unspecified “legal and commercial measures” if it signed an FTA with China, which seemed likely at the time.

Mercosur has indeed consistently acted as a protectionist bloc. This has mostly been in Brazil’s interest, which has an economy three times the size of the rest of the bloc and whose industrial sector has traditionally—and successfully—lobbied for protectionism. Thus, while only 7.5 percent of Brazil’s total exports go to Mercosur partners, 22 percent of manufacturing exports do. A full 60 percent of Brazil’s car exports go, in fact, to Argentina, where cars remain significantly more expensive than in neighboring Chile.

Yet complaints about Mercosur are now also coming from Brazil itself, with Flávio Bolsonaro, the main opposition candidate for the upcoming presidential election in October, saying the country should “free itself” from the bloc and sign bilateral agreements on its own. Coupled with Argentina’s actions and the 2022 Uruguayan experience, these growing cracks suggest that the concept of Mercosur as a rigid, all-or-nothing customs union may be coming to an end, and it might happen sooner than most expected. 

With both an urgent need to integrate into the global economy and a declared willingness to do so, Argentina has no reason to stay in Mercosur if its members cannot turn the bloc into a straightforward free trade area—without a common external tariff or a veto over bilateral deals. In the 1970s, Chile faced a similar scenario within the protectionist Andean Pact, and its answer was simple: It left and quickly became the most open economy in South America. Fifty years later, if Argentina wants to lead the world in free trade, Quirno’s ultimatum may have to be taken literally.