Venezuela's autocratic President Hugo Chavez was officially welcomed into the MERCOSUR trade bloc on Tuesday (July 31), dramatically enhancing the region's agricultural and energy powerhouses.
Unfortunately, the fact that Venezuela has some of the largest oil reserves in the world, will give MERCOSUR added clout in the region, coupled with the fact that one of the trade bloc's most protectionist nations in the world, Argentina, is also a member.
COMMENT: To make matters worse, MERCOSUR has also politicized itself by siding with Argentina against the UK in the ongoing riff between London and Buenos Aires over the Falkland Islands, known in Argentina as Las Malvinas.
This sad turn of events is by no means good news for exporters who are not members of MERCOSUR.
Not only has Argentine President Christina Fernández made big regional news by recently nationalizing Spain's energy company, Respol YPF, but Bolivia, an associate member of MERCOSUR, also recently nationalized another Spanish energy firm, Red Electric Corp.
While the nationalization of both Spanish companies will no doubt be fought rigorously by Madrid, the reality is that with Chavez' cozy connections with both Cuba and Iran, Paraguay, the only MERCOSUR member that objected to Venezuela's admittance into the trade bloc, was ousted from voting within the bloc because its president was removed by the Paraguayan Congress.
Needless to say, with Paraguay out of the way over a technicality, Venezuela's admittance was a shoe-in.
A final thought. What impact does this have on exporters who are not a part of MERCOSUR? In a word, HUGE. What it really means is that members of MERCOSUR will be able to expand into Venezuela's markets at the expense of non-MERCOSUR nations.
Also, on the day that Venezuela was admitted to the trade bloc, June 29, MERCOSUR agreed to double to 200 the number of goods that each country can subject to the maximum common external tariff. Coming alongside Argentina’s increasingly protectionist stance, MERCOSUR countries are clearly backing away from their stated aim of a tariff-free economic trade bloc.