Explainer: What Is Mercosur?

Born out of a series of economic cooperation agreements between Argentina and Brazil after their diplomatic rapprochement in the 1980s, Mercosur was founded in 1991 with the signing of the Treaty of Asunción. That accord brought Argentina, Brazil, Paraguay, and Uruguay into a customs union with the ultimate goal of a common market. Though it began with just four countries, members hoped the organization could lay the groundwork for the integration of all of South America. As envisioned at its founding, Mercosur would gradually achieve the steps to form a common market in the image of the EU. Plans called for the creation of a common external tariff (CET) and the free movement of goods, services, currency, and people between members. In reality, however, the bloc’s reach has often fallen short of some goals, and the group has not yet formed a common market as planned.

After an initial period of success—with inter-bloc trade growing fivefold from $4 billion in 1990 to $20 billion in 1997—the bloc floundered amid crises wrought by the devaluation of the Brazilian Real in 1999 and the Argentine economic meltdown of 2001. While trade between members rose to $41 billion in 2010, “it represents a much smaller share of each member’s total exports than at its peak in 1997,” said The Economist in 2012.

Membership in Mercosur is dependent on meeting and maintaining a number of political and economic criteria.

Mercosur members agree to the free movement of goods and services between member countries. Any change to Mercosur economic policy requires the consensus of the other members, but countries can ask that certain products be exempt to protect local industries. Mercosur members adhere to a number of agreements guiding currency exchange, investment, tax issues, and educational exchanges.

The group also subscribes to the CET, which dictates the tariff members apply to trade with non-member or associate countries. The CET is subject to change and is set by consensus, but has been a source of contention. Argentina and Brazil often favor higher duties to protect local industry, while Paraguay and Uruguay favor lower tariffs. The CET averages between 10 and 12 percent, but often fluctuates.

In 2002, Mercosur member countries, joined by associate members Bolivia (now a full member) and Chile, agreed to form a “free residence area,” which permits citizens of those countries to obtain residence and the right to work in the participating countries without a visa. Mercosur member countries also carry the organization’s emblem on their respective national passports.

Associate members are not members of the customs union and do not have voting power in Mercosur’s political bodies, though they do have preferential trade access to the market. Mercosur’s observer countries are Mexico and New Zealand.

Mercosur’s founding documents set up three decision-making bodies:

1. The Common Market Council is the highest decision-making body and its presidency rotates between the four countries every six months. This group consists of foreign and finance ministers who meet once a year at minimum, to discuss policy and membership integration processes.
2. The Common Market Group coordinates macroeconomic policy between members and negotiates trade with non-member countries. This group also oversees the implementation of decisions made by the Common Market Council.
3. Lastly, the Trade Commission deals with everyday trade policy and can make proposals to the other two groups. It consists of four members and four alternates from each country who meet monthly. They evaluate the common external tariff and other Mercosur guidelines.

Additional elements of Mercosur are its Parliament and the Structural Convergence Fund of Mercosur (FOCEM). As of 2010, FOCEM seeks to develop regional infrastructure projects to increase integration. Its 2024 budget was $300 million. Paraguay receives the largest amount of funding from FOCEM, followed by Uruguay. This is line with the Fund’s stated goal of “reducing asymmetries” between the bloc’s smallest and largest economies. As it joined in 2024, Bolivia was not allocated funds in the budget. 

Mercosur’s Parliament, known as Parlasur, currently has 150 members. Representatives are elected from each country, with seats allotted according to population size. Parlasur has no enforcement powers, but serves to advise Mercosur’s decision-making bodies.

Negotiations for an FTA with the EU began in 1999. After 25 years of negotiations, the two blocs announced the successful conclusion of talks toward the FTA at a Mercosur Summit in December 2024. If ratified, the agreement will span a market of more than 700 million people, accounting for nearly 25 percent of global GDP. Estimates suggest that businesses will save more than $4 billion in duties annually. 

However, the FTA must progress through several steps before it can be implemented. Among the Mercosur states, each national legislature has to approve the deal. In Europe, the agreement has to meet the approval of the majority of representatives in the European Parliament and get the green light from the Council of the European Union. There, it needs to be ratified by 55 percent of the member countries (i.e. 15 of 27), representing at least 65 percent of the EU’s population. It can be blocked by a minimum of four countries that represent at least 35 percent of the bloc’s population. 

Analysts expect the Council to be the biggest hurdle to the ratification of the agreement, with France said to be leading the opposition to the deal. The European agriculture and livestock industry, especially in France, has long protested that cheaper South American products, particularly meat, could flood the European market, representing “unfair competition.”

European leaders in support of the FTA with Mercosur have argued that it would help stem the influence of China in South America. China has sought raw materials—namely grains and oil—from South America’s markets. Beijing announced its plan to increase bilateral trade with the region to $500 billion by 2025. Its trade with Mercosur was roughly $190 billion in 2023, about 18 times the 2003 total.

The potential for Mercosur to deepen its trade relationship with China through an FTA is hampered by Paraguay’s diplomatic ties to Taiwan. Paraguay’s President Santiago Peña has, however, expressed willingness to explore trade agreements with China through Mercosur.

This political roadblock led Uruguay, under the administration of outgoing President Luis Lacalle Pou, to pursue its own trade deal with China. Other Mercosur leaders criticized the move, pointing out that such an agreement would contravene the bloc’s rules. Uruguay’s incoming president, Yamandú Orsi, has expressed support for the group’s joint negotiation mechanism and is expected to adopt a more integrationist stance in line with Lula, his Brazilian counterpart.

Like Lacalle Pou, President Javier Milei of Argentina has expressed skepticism about how the bloc functions, advocating for increased flexibility. At a December 2024 summit where he assumed Mercosur’s rotating six-month presidency, Milei referred to the bloc as “a prison that doesn’t allow its member countries to take advantage of their comparative advantages or export potential.” The libertarian president is reportedly considering an FTA with the United States outside of the Mercosur framework.

After having joined in 2012, Venezuela was ejected in 2016 after alleged human rights abuses and transgressions of the bloc’s trade rules.

Upon entry into Mercosur, Venezuelan ex-President Hugo Chávez said he would give the group a “political Viagra” and “decontaminate it of neoliberalism.” Trouble with Venezuela’s membership began immediately—the country was slow to implement Mercosur trade policies, and it suffered from an economic crisis, especially after oil prices dropped in 2015. Politicians, such as former Argentine President Mauricio Macri voiced concern over the human rights and economic situation in Venezuela, and called on Venezuelan President Nicolás Maduro to release political prisoners.

Venezuela was warned that it would be ousted from the organization unless Maduro restored human rights and press freedoms, but Maduro denied any violations.

In July 2016, Venezuela was set to assume the rotating Mercosur presidency. Argentina, Brazil, and Paraguay announced that they would block the move and put the presidency under a joint leadership of the other four members. In September 2016, Mercosur called upon Venezuela to fully comply with the trade bloc’s policies and when it didn’t, the bloc suspended the country in December. In early August 2017, Venezuela was suspended indefinitely, in part as a response to accusations of fraud in the 2017 Constituent Assembly elections.

Despite Venezuela no longer being a part of Mercosur, the country can rejoin if it follows membership requirements.