Free Zone Focus: why Mercosur need not miss out

The World Trade Organization (WTO), which recently celebrated its 25-year anniversary, has promoted 'global value chains' (GVCs) that allow raw materials to jump from one country to another to progressively transform into final products through a concept referred to as 'made in the world'.

These production chains require the creation of industrial and logistics spaces free of taxes and procedures so as to allow for the accumulation of value – in other words, free zones.

Since the creation of the WTO, the GVC participation rate in international trade has increased, reaching a global average of 55%, with this rising to about 80% in countries such as Hong Kong and Singapore.

Paradoxically, at the same time as the WTO’s creation, Mercosur – the trade bloc between Brazil, Argentina, Uruguay and Paraguay – approved Resolution 8 in August 1984, which introduced a prohibition preventing products manufactured in free zones from being granted preferential tariffs within the bloc, as it considered free zones to be territories outside the Mercosur bloc altogether (it was later amended for logistics processes by Resolution 33/2015).

What has been the impact of Resolution 8 on the export of industrial goods from Mercosur countries?

Today, Mercosur’s per capita industrial exports stand at $1085. This is only half the world’s average, largely because the capacity of its companies to enter GVCs through free zones is limited by Resolution 8. The GVC participation rate of the Mercosur bloc is only 39%, against the aforementioned global average of 55%. Besides, intra-Mercosur trade has decreased in recent years. Brazil only trades 9% of its exported goods with its neighbours, while Argentina and Uruguay send 75% of their exports to trade partners outside of the Mercosur bloc.

The modification of Resolution 8 is urgent to transform Mercosur's free zones of the past into modern and inclusive 21st century entities. This not-so-subtle change in their regulation can unlock $250m of new exports for Mercosur countries, by simply enabling them to close the gap with the rest of the world in terms of per capita industrial exports, especially with the new opportunities created by the China-US trade war.

Martín Ibarra Pardo is the chairman of Araújo Ibarra & Asociados, a law firm based in Bogotá. He also serves as vice-president of the World Free Zones Organisation.