India and Brazil to Expand Trade Pact with Mercosur

Syllabus: GS2/International Relation

Context

• Recently, India and Brazil agreed to expand the scope of the existing Preferential Trade Agreement (PTA) under MERCOSUR bloc, aiming to include more sectors and products.

India and MERCOSUR Relations: Historical Background

• India signed a Framework Agreement with MERCOSUR in 2003, followed by a Preferential Trade Agreement (PTA) in 2004, which came into effect in 2009.
  • The PTA covers 450 product lines, offering mutual tariff concessions on items like pharmaceuticals, chemicals, textiles, and leather goods.
  • It marked India’s first formal trade pact with a Latin American bloc, laying the groundwork for deeper economic integration.
• The India-Mercosur PTA currently provides tariff concessions on around 450–452 tariff lines, with reductions ranging from 10% to 100%.

Goals of the Expanded Pact

• Increase product coverage beyond the current 450 items.
• Facilitate investment flows in critical sectors like renewable energy, pharmaceuticals, and digital infrastructure.
• Promote sustainable development through technology transfer and green innovation.
• Strengthen regional supply chains between South Asia and Latin America.

Emerging Sectors of Cooperation

• The two sides identified several high-potential sectors for future cooperation, including automotive and aerospace Industries; information technology and digital innovation; renewables and clean energy; healthcare and biotechnology; agriculture and food processing; semiconductors and advanced manufacturing etc.
• Brazil proposed the launch of a Brazil–India Digital Partnership, focusing on artificial intelligence, high-performance computing, and technology start-ups.
  • It aims to promote green growth, innovation, and job creation in both countries.

Strategic Significance

• Economic Diversification: MERCOSUR offers India access to a market of over 300 million people, helping reduce reliance on traditional Western partners.
• South-South Cooperation: The partnership aligns with India’s foreign policy vision of equitable global development.
• Supply Chain Resilience: Strengthening ties with Latin America supports India’s goal of building robust and diversified supply chains.

Challenges and Way Ahead

• Limited Product Coverage and Trade Volume: India’s trade with Brazil, its largest MERCOSUR partner, remains far below Brazil’s trade with China, the US, and Argentina.
  • There’s a need to diversify trade baskets and include high-value sectors like pharmaceuticals, digital technology, and critical minerals.
• Tariff and Non-Tariff Barriers: Both sides face regulatory hurdles, including complex customs procedures and inconsistent standards.
  • MERCOSUR’s common external tariff structure can limit India’s flexibility in negotiating bilateral terms.
  • Indian exporters have raised concerns about market access restrictions in sectors like agriculture and auto components.
• Geopolitical and Strategic Misalignment: India needs to navigate its strategic autonomy in a multipolar world, balancing ties with the US, China, and Russia.
  • MERCOSUR countries, especially Brazil, have their own geopolitical priorities, which may not always align with India’s trade and security interests.
• External Pressures and Trade Wars: Trade tensions with the U.S. have pushed India and Brazil to seek alternative markets, but this reactive approach may lack long-term strategy.
  • There’s concern that external shocks, like tariff hikes or global supply chain disruptions, could derail progress.

Source: TH