Brazilian President Luiz Inácio Lula da Silva proposed the creation of a trilateral free trade agreement (FTA) between India, South Africa, and the nations of Mercosur at a reunion in Pretoria, South Africa on Wednesday Oct.17th.

The proposed treaty would create the world’s largest free trade area and has been billed as a way to reduce these countries’ dependence on developed nations. It would also create a strong political and economic block that would use its influence to push for greater UN reforms and more concessions from developed countries in international economic forums like the World Trade Organization (WTO).

The announcement came as a surprise in South America where several regional FTAs are currently dying of neglect. Mercosur itself has been unable to agree on common trade issues within its own borders or with its proverbial neighbor the Andean Community (CAN) next door. A total free trade area between CAN and Mercosur was supposed to have occurred by 2002, tops, but worries about sensitive national markets resulted in an 80 percent FTA with the remaining protections to be phased out by 2014.

With Brazil’s support though, it may not matter whether the rest of Mercosur goes along with the proposed FTA or not. Brazil’s population and economy dwarfs that of Argentina’s, the second largest country in the block (Brazil’s 2006 GDP was over US$1, 067 billion compared to Argentina’s GDP of US$214.3 billion). If Mercosur is unable to agree on treaty conditions as a block, Brazil could decide to go it alone, making the participation of the rest of Mercosur an added bonus, but not a necessary condition for success.

Another option would be for Brazil and Chile to move forward on an agreement together, considering that Chile is currently negotiating a full FTA with India and could benefit from the added weight of Brazil in its negotiations.

South African President Thabo Mbeki is also expected to invite the nations of the South African Customs Union (SACU) Botswana, Lesotho, Swaziland, and Namibia to join the group as well. Whether or not Lula and Mbeki are able to convince their neighbors, the customs union will still have an enormous impact on global trade.

The treaty is not all about economics though. Brazilian President Lula and Indian Prime Minister Manmohan Singh both commented on the political potential of the group to spur deep UN reforms, including the addition of their nations as permanent members of the UN Security Council.

“Let us join our voices to support UN reform,” said President Lula, “The issue has been debated long enough; the time has come to make decisions.” Lula warned that without structural reforms the UN risks losing global credibility.

The leaders also discussed the potential for India, Brazil and South Africa (IBSA as the group is known) to become a voice for other developing nations of the “South” against the industrialized nations of the “north.”

“These cooperation agreements have an impact on the populations of the world’s poorest countries,” said Lula, “this will not only benefit our countries, it will benefit all of humanity.”
However, what the announcement means for the Union of South American Nations (Unasur) is unclear. It could be that Brazil is growing impatient with the slow progress of the new union. The issues discussed Wednesday in South Africa are the same as those discussed at the Brazilian sponsored South American Reunion of Presidents in 2000.

Brazil’s focus on changing developed nation’s agricultural subsidies and the international political status quo has driven its interests within South America over the last decade, however with little or no progress on the regional front, Brazil seems to be seeking out more serious partners abroad.

The announcement also complicates ongoing negotiations within the region by adding complexity to an already difficult issue. CAN member countries like Ecuador, Bolivia, and Peru are hesitant about FTAs with the larger Mercosur countries. Opening up the group to emerging global powers like India and South Africa could set the regional process back.

Whatever the case, the proposed treaty is yet another example of the changing global landscape. With just a little imagination one can picture a future world where current economic powers like the U.S. and the E.U. are forced to make tough concessions on national subsidies if they want to continue tapping the reserves of developing nations. Without a doubt, the great age of global decentralization has arrived.

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