Deal or No Deal: The Case for a CARICOM-MERCOSUR Preferential Trade Agreement

Amidst a resilient global economy characterized by shifting trade patterns and the introduction of new Preferential Trade Agreements (namely EU-MERCOSUR), the strategic importance of the Southern Common Market, which is also known as MERCOSUR (Mercado Común del Sur in Spanish) presents a captivating case for deepening the relationship with the Caribbean Community (CARICOM). Established in 1991, MERCOSUR was created with the aim of ensuring free movement of goods, services, and people among its member states. By the beginning of 2026, the Union had full membership of Argentina, Brazil, Paraguay, Uruguay, and Bolivia. and seven associate members (Chile, Colombia, Ecuador, Guyana, Peru, and Suriname). As one of the major players in the world economy, MERCOSUR comprises a market of around 300 million people and has been a leading exporter of beef, soybeans and lithium. Therefore, for CARICOM, an alliance with the bloc may offer important opportunities to diversify trade and access a larger market, increasing south-south trade.

MERCOSUR – CARICOM’s Free Trade Agreement
In 2005 CARICOM trade ministers held a meeting (The Council for Trade and Economic Development (COTED)) in Port-of-Spain, Trinidad and Tobago, to negotiate the possible Free Trade Agreement (FTA) between the MERCOSUR and CARICOM. A news release by CARICOM (2005) noted that although both blocs were keen to swap tariff information and move the talks forward, a bloc-to-bloc Free Trade Agreement (FTA) never materialized. The master plan was to boost trade and investments between the two regions, while offering special and asymmetrical treatment to support the various countries involved. However, the high economic asymmetry and sensitivity may have been the main reason for a hiatus in deepening trade relationships between the two blocs. The smaller economies in CARICOM, especially the least developed countries (LDCs), were rightly concerned that they would be overpowered by the large agricultural companies in Brazil. The underdeveloped manufacturing industries of CARICOM were also concerned that with a zero-tariff policy, the bloc would be deindustrialized in the face of Brazilian competition.

Additionally, in Argentina, a major debt restructuring occurred in 2005, and the country remained protective of local industries to encourage recovery. This internal orientation, along with the fluctuations in the Argentine market, made a new accord with CARICOM a very low-priority affair.

An Analysis of MERCOSUR – CARICOM’s Trade Asymmetry
To adequately illustrate the economic asymmetry between the two blocs, it is necessary to examine their total trade values with the world. In 2024, MERCOSUR’s total trade value was estimated at US$820.2bn, significantly overshadowing CARICOM’s total trade value of US$75.7bn. Within MERCOSUR countries, Brazil and Argentina outshine regional counterparts as the bloc’s major traders, with total trade estimated as US$599.9bn and US$140.5bn. Even Bolivia, the smallest bloc trader, trading the least at US$19.0bn, remains comparable in scale when compared to CARICOM’s smaller economies like Guyana (US$’29.6bn), Trinidad and Tobago (US$’15.6bn), and Jamaica (US$’8.1bn). To further demonstrate the magnitude of the Brazilian economic presence, the country had US$276bn in imports and US354bn in exports in the year under review. In 2024, Bahamas was reported as the most prolific total importer of CARICOM, with US$8.8bn in goods being imported from Brazil as a top three supplier. On the export front to the rest of the world, Guyana led the bloc with US$24.9bn in 2024, of which were: crude petroleum (US$22bn). Notably, Guyana’s exports create a statistical outlier of the traditional CARICOM trade profile.

Furthermore, the trade between the two blocs is very concentrated. The five major imports of CARICOM from MERCOSUR are led by Brazil, which were iron ore (US$218 mil), crude petroleum (US$’190 mil), refined petroleum (US$’168 mil), valves (US$156 mil), and poultry meat (US$78 mil). In 2024, the shipments of poultry meat were registered amongst the members of CARICOM to Argentina, worth US$’95.3k. According to ITC Trademap, trade between CARICOM’s and MERCOSUR bloc was led by Trinidad and Tobago, recording imports at US$501 mil and Guyana, with exports totaling US$639 mil. Despite the vest economies of scale, inter-bloc trade is increasingly significant, accounting for 3.3% of total CARICOM imports (US$1.51 bn), and 3.5% of total CARICOM exports (US$1.45) in 2024. (https://oec.world/en/profile/international_organization/caricom?selector199id=importOption).

The Possible “Backdoor” to CARICOM
Since Guyana shares a border with Brazil, the central concern is whether Guyana’s improved road connectivity with Brazil will allow cheaper goods from MERCOSUR to jump CARICOM’s fence. In 2025, Guyana signed an International Road Transport Agreement (IRTA) with Brazil. This agreement will create greater connectivity between the countries, providing faster transshipment. Therefore, will merchandise, like beef, imported from Brazil benefit from duty-free access to other CARICOM countries under the Revised Treaty of Chaguaramas?
This issue is not only about what CARICOM sends to the south; it is also about Brazil’s massive export engine. Therefore, to understand this, we must look at Rules of Origin, which the World Trade Organisation (WTO) defines as the “criteria necessary to determine the national source of a product”. Essentially, these rules act as a “passport” for goods, determining which products are eligible for duty-free access, security and record-keeping purposes. Within the region, CARICOM allows goods produced by member states duty-free access, creating a protected zone for both Less Developed Countries (LDCs) and More Developed Countries (MDCs) alike. However, goods originating from outside of the region are required to pay a Common External Tariff (CET) and must pass a rigorous test. If not “Wholly produced” in a member state, the goods are required to pass the “Substantial Transformation” test, meaning that enough manufacturing happens in a CARICOM country (e.g. change in tariff heading).

The importance for these rules becomes clear when examining the sheer scale of Brazilian livestock industry. Brazil, touted as the world’s #1 beef exporter, produces roughly 10 mil metric tonnes. Though Brazilian beef production experienced a consistent decline since 2023 due to higher prices as farmers increased the number of heifers slaughtered, reducing calf turnover. In contrast, Guyana’s livestock industry, while a pillar of local food security, produces roughly 2,900 metric tons per year. In essence, Brazil produces more beef in a single day than Guyana in any given year. Due to their massive economies of scale, the cost for Brazilian beef will remain significantly cheaper even after tariffs are paid.

However, while Brazil should see its trade infrastructure bolstered by the land bridge between Lethem and Guyana, facilitating the “backdoor” route, increasing its capacity to export to “near-neighbours” in CARICOM, such as Guyana, it will not gain free pass to the wider CARICOM market without satisfying the Rules of Origin requirements. Since MERCOSUR goods entering non-participating CARICOM countries are subject to non-preferential trade, CARICOM’s Common External Tariff (CET) is applied. Therefore, even if Brazil’s beef crosses Guyana’s border, it cannot be re-exported to Jamaica duty-free unless it was further processed in Guyana.

The Final Verdict
A full-scale Free Trade Agreement is currently not in the best interest of CARICOM, due to the risk of deindustrialisation and the asymmetry of the economies involved. However, one can make the case for a Partial Scope Agreement, with protectionist measures for small scale producers. CARICOM should seek to have product-based trade preferences that helps in diversifying the South-South markets, for example, a niche poultry export to Argentina, without abolishing the Common External Tariff to protect its most vulnerable industries. This proposed arrangement would not entail the full removal of barriers, but create a strategic partnership that allows for controlled trade expansion; resulting in a semi-deal.

Chryssanti Braithwaite is an MITP Alumna of the Shridath Ramphal Centre for International Trade, Law, Policy & Services, University of the West Indies, Cave Hill Campus.