Argentina officially invited to join BRICS: are international economic relations moving south? –

by MMC
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On August 24, 2023, during the 15th BRICS Summit, it was publicly announced that the Argentine Republic was invited to join the BRICS from 1st January 2024. The current President of Argentina, Mr. Alberto Ángel Fernández, said that BRICS membership should open new markets, facilitate investment flows and increase the state’s exports.

Background: What are BRICS and what is their economic relevance?

“BRICS” stands for the initials of its current members: Brazil, Russia, India, China and South Africa. It is an economic and political association whose main stated objective is to strengthen cooperation between its members and with third parties.

The history of BRICS dates back to its first informal meeting in 2006 between its original members Brazil, Russia, India and China. At the end of 2010, South Africa was officially invited to join the association. The scope of BRICS is anything but negligible. It encompasses 42% of the world’s population and approximately 27% of the world’s land surface. In economic terms, the BRICS represent approximately 25% of global GDP and 18% of global exports.

BRICS does not have an international legal personality, secretariat, headquarters or clearly defined rules. However, BRICS created two economic instruments: the Contingent Reserve Arrangement (CRA) and the New Development Bank (NDB).

On the one hand, the CRA was established in accordance with the Treaty for the Establishment of a BRICS Contingent Reserves Agreement of 2014 among BRICS members, which aims to provide support and protection against global liquidity pressures . On the other hand, the NDB is managed by BRICS members, headquartered in Shanghai, and its loans mainly focus on infrastructure and sustainable development projects. The NDB is seen as an alternative to the International Monetary Fund (IMF), particularly for emerging markets and developing states.

According to the United Nations Conference on Trade and Development (UNCTAD), the share of BRICS members in the global flow of foreign direct investment (FDI) is around 21%. BRICS members have 246 investment treaties in force. China tops the list with 128 investment treaties in force and a recent emphasis on comprehensive free trade agreements covering other types of economic cooperation.

Interestingly, BRICS members have only signed four bilateral investment treaties among themselves (Brazil-India, China-Russia, South Africa-Russia, and China-South Africa).

New economic policies for Argentina

Perhaps the most attractive benefit Argentina seeks with this new membership is access to NDB credit lines, which represent an alternative to existing loans provided by the IMF. It was only earlier this year that Argentina and the IMF renegotiated loan repayment terms to prevent Argentina from defaulting. This comes on top of growing financial market tensions that have led the Argentine Central Bank to implement new exchange controls in May 2023. One would then expect Argentina to view the NDB as a source of additional funding to alleviate these problems.

On the policy side, BRICS members aim to coordinate their economic policies internationally and have adopted several initiatives with a view to promoting intra-BRICS investment and sustainable development, for example: Outlines for BRICS Investment Facilitation (2017) , the BRICS MoU for Promotion of Trade and Investment (2019), the BRICS Economic Partnership Strategy 2025 (2020), Intra-BRICS Cooperation for Continuity, Consolidation and Consensus (2021) and the Initiative on Trade and Investment for Sustainable Development (2022).

It is important to note that Argentina will not be the only new member of BRICS from January 1, 2024. The President of South Africa, Mr. Cyril Ramaphosa, announced the decision of BRICS to invite the Saudi Arabia, Iran, Ethiopia, Egypt and the United Arab Emirates with them. with Argentina. This is an unprecedented expansion of this association since its inception, which is expected to change the dynamics of foreign investments in the years to come. For example, the United Arab Emirates has been the most active state in recent years, concluding more than 50 new bilateral investment treaties over the past eight years, including the investment treaty between Argentina and the United Arab Emirates in 2018.

Reactions in Argentina to BRICS membership

The invitation to join BRICS comes at a politically heated moment, with the next presidential elections scheduled for October 2023. Two of the leading presidential candidates, Javier Milei and Patricia Bullrich, have expressed concerns about joining Argentina to the BRICS and affirmed their intention not to join the BRICS. follow through with BRICS members if they win the October elections. They particularly condemned the conclusion of agreements with Russia, China and Iran. It appears that only if the ruling party’s candidate, Sergio Massa, wins the elections will Argentina likely move forward with BRICS.

Supporters of Argentina’s membership in the BRICS group have stated that the strong trade relations between Argentina and Brazil alone provide justification for Argentina’s membership in BRICS. Similarly, BRICS is believed to provide an opportunity to trade energy resources, minerals and food on more favorable financing terms offered by the NDB. In addition, President Fernández considered the crisis in the multilateral economic system, the slowdown in the global economy, soaring inflation, unsustainable foreign debt and the deepening North-South divide as additional reasons justifying Argentina’s membership in BRICS.

Still, some experts have warned that there would be no immediate or direct economic benefit for Argentina from joining BRICS. Indeed, BRICS is only a political association; it does not constitute a free trade zone and does not grant any tariff advantages to its members. Thus, BRICS membership does not in itself modify economic relations between its members.

Regional implications for Argentina’s membership in BRICS

Wider implications in Latin America are not envisaged at this time. However, one may wonder whether Argentina’s accession to BRICS will not yet constitute a stumbling block for the conclusion of the EU-Mercosur free trade agreement.

Mercosur was created in 1991 and includes Argentina, Brazil, Paraguay and Uruguay. In 2019, the EU and Mercosur reached an agreement in principle for a comprehensive free trade agreement. The objectives of this agreement are: (i) increase bilateral trade and investments and reduce tariff and non-tariff trade barriers, particularly for small and medium-sized enterprises; (ii) create more stable and predictable rules for trade and investment through better and stricter rules, for example in the area of ​​intellectual property rights (including geographical indications), food safety standards , competition and good regulatory practices; and (iii) promote common values ​​such as sustainable development, by strengthening workers’ rights, combating climate change, increasing environmental protection, encouraging businesses to act responsibly and respecting high food safety standards.

Negotiations between the EU and Mercosur have stalled over EU concerns over Amazon deforestation. In March 2023, the European Commission proposed an addendum on deforestation and sustainability and is awaiting a response from Mercosur. In this regard, the President of the European Commission, Ms Ursula von der Leyen, declared: “we want our investments to comply with the highest environmental and social standardsHowever, the EU proposal has been criticized by the Mercosur bloc, particularly Brazil, as they see it as making agricultural production in Brazil unfeasible. A counter-proposal was communicated to the EU on September 14, 2023.

If Argentina accepts the invitation to join BRICS, Mercosur will have two BRIC members (Brazil and Argentina). Thus, strengthening ties with BRICS members while trying to preserve them with Western countries and blocs such as the EU could prove difficult, and it remains to be seen how these negotiations for a free trade agreement will evolve. EU-Mercosur.

Overall, Argentina’s accession to BRICS could mark the beginning of a new landscape for foreign investment and international trade. Yet Argentina’s BRICS membership still appears to be subject to October’s presidential elections, with the winning candidate expected to decide quickly whether or not to accept the BRICS group’s invitation.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your specific situation.

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