The Paraguayan dilemma: between reexportation and Mercosur

Abstract

Paraguay has a unique economic development compared to its Mercosur partners. While most of the bloc's members adopted the import substitution model to promote industry, Paraguay opted for what is called the “re-export regime”, or commercial triangulation, which was established as one of the pillars of its economy in the second half of the 20th century. This policy makes use of the customs asymmetry between countries to effectively make Paraguay a “re-exporter” of products coming from outside the continent. By benefiting from regional asymmetries, the model challenges with the ideals of cooperation expected by a common market, as Mercosur seeks to become. It also makes Paraguay an atypical case among small economies: despite being the member of Mercosur most dependent on trade with its neighbors, it is historically the most reluctant to promote and adopt the integration measures proposed by the rest of the bloc. This article aims to explore the origin and scope of the re-export regime, its current perspective, and whether the dilemma historically faced by Paraguay remains valid with the country's growing economic diversification.