In the 21st century, the green economy— emanating from climate responsibility and green transition — is predominantly dependent on lithium for its consumption in batteries used in power grids and electronic vehicles. Nature has bestowed South America with vast deposits of such minerals, making the continent a pivot for great powers.

South America, endowed with vast lithium reserves, has become a pivot for great powers in the global green economy.

South America, the fourth-largest continent extending from the Gulf of Darien in the northwest to the Tierra del Fuego archipelago in the south, is home to 12 sovereign states with a combined GDP of over $4 trillion.ⁱ

The continent has immense potential with 400 million people, having an average per capita income of $12,000.ⁱⁱ Within South America, Argentina and Brazil enjoy G20 membership and aspire to materialize progressive policies in global trade.ⁱⁱⁱ Additionally, vast oil and natural gas deposits in Venezuela, make it one of the largest oil producers. Besides, Brazil has one–fifth of the world’s iron ore reserves, and one-quarter of the world’s known copper reserves are in Chile and Peru.

The South American countries also forged regional and preferential trade agreements in their economic quest. Mercosur (Southern Common Market) — the largest South American preferential trade group — was established in 1991, creating a common market through a converging trade policy and standardized tariffs. Within this group, the trade balance tilts towards Brazil, the second-largest American economy, accounting for 62.1% of exports and 57% of imports of the southern market.^iv In 2018, Mercosur’s exports reached $318.1 billion, primarily consisting of agricultural goods, while, imports amounted to $269 billion, including vehicles, electrical machinery, and petroleum products.

South America has experienced turbulence in its political and economic landscape since 2000 owing to external challenges. Still, new development strategies for regional cooperation pushed US aspirations to foster better ties with its former backyard, but Washington’s interventionist policies have already left some indelible marks in the memory of people in South America. This disillusionment allowed China to increase its influence across the region.

Pakistan’s trade with Mercosur represents less than 1% of its global trade, highlighting significant untapped potential.

The investment by Xi’s China in South America reached $315 billion in 2020 from $12 billion in 2000.^v Therefore, China has imprinted its shadow, mainly over lithium reserves, in the region previously claimed by the United States as its backyard. ^vi In the South-South bond, depicting South American and South Asian exchange, Pakistan enjoys bilateral relations with South American countries, particularly Brazil and Argentina.

According to the Ministry of Foreign Affairs (MOFA), lack of geographical divergence no longer restrains trade ties. South America and Pakistan are developing linkages with significant trade blocs in the region. Pakistan remained engaged with Mercosur and it attained observer status at the Pacific Alliance in 2021.

Pakistan’s missions in South American capitals opened with the establishment of diplomatic ties with Brazil in 1948. It is also accredited to Venezuela, Guyana, Colombia and Suriname. Moreover, bilateral consultation on political matters is a regular practice between Islamabad and Brasilia. In 2021, a Bilateral Political Consideration (BPC) round was held virtually between the two countries. Both countries established a 2+2 (Political-cum-Military) Structured Dialogued Mechanism in July 2019 for regular discussions on International, regional, and bilateral matters.

Depicting a bleak economic reality, trade between Mercosur and Pakistan is limited. It represents less than 1.0% of the country’s global trade, as it mainly imports agricultural goods from Mercosur and exports textiles. Still, Pakistan has a comparative advantage in top 25 exports to Mercosur due to their abundance, low production costs, and specialization.

Pakistan’s export potential of top-ranking products totaled at $2.6 billion, while Mercosur’s actual imports amounted to $30.0 million in 2018. Therefore, a well-negotiated trade agreement can considerably increase Pakistan’s exports to Mercosur.

Meanwhile, the bilateral trade volume between Pakistan and Brazil stood at $156 million in FY 2022-23. The MOFA maintains that Pakistan and Brazil are collaborating by signing MoUs in education, agriculture, science, and technology. As far as diaspora is concerned, approximately 1,000 Pakistanis live in Brasilia and Sao Paulo, engaging mainly in small businesses.

On the other hand, Pakistan and Argentina have established diplomatic relations since 1951. The two nations established a Joint Trade Commission in 2021, and held 5th Round of Bilateral Political Consultations (BPC) in December 2022. Pakistan and Argentina recorded their bilateral trade in FY 2022-23 at $187 million. They are collaborating in pharmaceuticals, surgical instruments, sports, defense, science and technology.

Mercosur’s exports reached $318.1 billion in 2018, largely driven by agricultural goods.

There are many unexplored trade opportunities for Pakistan and South American countries. Pakistan has a high potential to export textiles and vegetable products to Mercosur. Although, bilateral trade has been in favor of the Mercosur bloc from 2014 to 2018, its imports from Pakistan slightly increased in 2022.

As depicted in the graph, imports from Mercosur to Pakistan stood at $905 million in 2016, which later reduced to $259 million in 2022.

Meanwhile, Pakistan’s exports in 2016 totaled $399 million and jumped to $1453 million in 2022, depicting an increase over the seven-year period.

However, the trade prospects between the two sides still face multiple challenges.

The most profound hurdle in leveraging South American markets is lack of implementation of agreements. For instance, Pakistan signed a deal with Mercosur in July 2006. This agreement was supposed to initiate the process of a Preferential Trade Agreement (PTA). However, this agreement has not been implemented due to a lack of political will.

Nevertheless, Islamabad, as a way forward, may negotiate on tariff concessions for top ranking goods to increase exports. Economic integration between Mercosur and Pakistan can increase Islamabad’s agricultural exports to the bloc, while technical assistance from the South American states can foster high levels of innovation in the country’s agriculture sector.

Moreover, automobile is another noticeable sector in which Mercosur has the potential to export public transport vehicles worth $2.6 billion to Pakistan. Therefore, the Ministry of Commerce may initiate the “Look South America” policy, mirroring Pakistan’s “Look Africa” policy of 2017 to capitalize on the continent’s untapped resources. Likewise, the MOFA can initiate the ‘Engage South America’ Initiative to nurture reciprocal relations.

References:

ⁱ https://www.imf.org/external/datamapper/profile/SMQ

ⁱⁱ Mahendra Kumar, “Trade Potential of Latin American countries: Chile, Argentina, and Brazil” Trade Development Authority of Pakistan, December 2021

ⁱⁱⁱ https://www.chathamhouse.org/regions/americas/south-america

^iv https://oec.world/en/profile/international_organization/southern-common-market

^v Mercosur: South America’s Fractious Trade Bloc’. n.d. Council on Foreign Relations. Accessed 23 April 2024. https://www.cfr.org/backgrounder/mercosur-south-americas-fractious-trade-bloc.

^vi Mahendar Kumar, “Trade Potential of Latin American countries: Chile, Argentina and Brazil” Trade Development Authority of Pakistan, December 2021