Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean

CHALLENGES 2007-2008: Mercosur Limps Slowly Along

Mario Osava*

RIO DE JANEIRO, Jan 3 2008 (IPS) - Caught up in a tangle of problems that grow old before they are solved and decisions that seem to take forever to be implemented, the Southern Common Market (Mercosur) will be 17 years old in three months’ time, and no one seems to be willing or able to speed up the South American bloc’s integration process, analysts in the member countries told IPS.

The conflict between Argentina and Uruguay over the installation of a paper pulp mill on the Uruguayan side of a border river, which has dragged on for over four years, highlights "the weakness of the integration process," José Botafogo Gonçalves, president of the Brazilian Centre for International Relations (CEBRI) and former Brazilian ambassador to Argentina and to Mercosur, told IPS.

In his view, the bloc as a whole and Brazil in particular should have acted urgently to prevent the conflict from becoming long drawn out and acrimonious.

Argentine economist and historian Alberto Cimadamore attributes many of Mercosur’s problems precisely to "its design, which lacks supranational institutions" and renders it unfit to solve conflicts.

Thus far, he told IPS, "disputes are arbitrated according to the relative weight of the member countries, or they become ‘dead ends’" like the case of the pulp mill built in Uruguay, which the Argentine government has protested against because it fears pollution.

The bilateral crisis is taking a toll on the bloc, of which Paraguay is also a member. (Venezuela is in the process of joining as the fifth full member.)

The actions of Argentine environmentalists who have maintained a roadblock off and on for three years on the main bridge (out of three) linking the two countries across the Uruguay river has further soured the conflict.

As Mercosur has no effective dispute settlement body, Argentina took its complaint to the International Court of Justice in The Hague, while King Juan Carlos of Spain tried unsuccessfully to broker a resumption of talks between Montevideo and Buenos Aires.

This lack of supranational bodies with the power to resolve disputes between Mercosur member countries is also one of the main causes of the "dangerous stagnation" afflicting the bloc, in the opinion of Uruguayan political analyst Daniel Chasquetti.

"The repeated violations of Mercosur agreements by the big partners" do not result in any consequences for them, the political science professor at the public University of the Republic told IPS.

For instance, Mercosur’s Permanent Review Tribunal (Tribunal Permanente de Revisión) has been so dysfunctional that in October Paraguayan representative Wilfrido Fernández resigned, and said that his decision was due to the four member countries "not showing the political will" for the Tribunal to operate effectively.

Cimadamore, a member of Plan Fénix, a group of economists at the public University of Buenos Aires who are critical of free-market or "neoliberal" economic policies, said it is normal "to experience problems in any integration process," but that blocs must somehow manage to work out their conflicts.

"Intergovernmental politics, which predominate in Mercosur to the detriment of supranational policies, foment conflicts between member states and stand in the way of any long-term vision, so that the integration process is subject to the whims of those in government," he said.

Phases of stagnation are "an intrinsic part of the integration process," but Mercosur’s present paralysis is worrying because of its duration and the absence of any solutions, he said. His hope is that Venezuela’s admission will be a breath of fresh air that will allow a different approach to discussing the asymmetries, by reducing Brazil’s relative weight compared to the other members.

But Venezuela’s entry as a full member is itself mired in difficulties. It was agreed one-and-a-half years ago by the Mercosur governments, but it is still awaiting ratification by the Brazilian and Paraguayan parliaments. The general elections scheduled in Paraguay for April 2008 are an additional factor of uncertainty.

Furthermore, Chasquetti said, Venezuela’s current protected economy does not fit in with the regional integration project.

Fernando Masi, a researcher at the non-governmental Paraguayan Centre for Economic Analysis and Dissemination (CADEP), said that, for example, a deadline should be agreed for Venezuela’s adoption of the bloc’s common external tariff.

But there are other hurdles, political in nature. "Venezuela is not a complication for Mercosur, but President Hugo Chávez is," mainly because of his regional political goals, said Botafogo Gonçalves.

"Venezuela doesn’t have a clear idea of what it wants from Mercosur," said Silvia Portela, an adviser on international affairs for the United Workers’ Confederation (CUT), the largest union organisation in Brazil, which has a seat at various levels of the Mercosur integration process.

But Venezuela’s membership represents "big political and trade benefits for Brazil," she said.

There is also opposition in Venezuela to joining the bloc. "Mercosur is currently undergoing disintegration, with fractures like the split between Argentina and Uruguay, and no progress is being made towards differential treatment of member states to overcome its asymmetries," said Central University Professor Félix Arellano, a former trade negotiator for Venezuela.

Venezuela’s admission to Mercosur "will bring greater uncertainty and institutional instability in its wake, because free markets and agreements with other trade blocs are not part of the Venezuelan government’s rhetoric," he said.

"It could be harmful, because it could deepen differences, and Chávez’s character will not change, despite efforts by other South American leaders to persuade him to tone things down," echoed Elsa Cardoso, a professor of International Relations at the Central and Metropolitan Universities in Caracas.

Venezuela’s "energy assets are a contribution that is more theoretical than practical, because the infrastructure to make them available to Mercosur countries does not exist," she said.

There is pessimism, too, in the two smallest members of the bloc.

Paraguay "is still one of the big losers, a victim of unfair conditions imposed by the larger members, Argentina and Brazil, which have never opened their large markets," complained Max Haber, president of the Paraguayan importers’ association.

But in spite of increasing frustration among Paraguayan producers, the country should remain part of the bloc, and follow Uruguay’s example of "negotiating with countries in other regions so as not to be permanently dependent on Mercosur," said Haber.

Chasquetti confirmed that the Uruguayan government has adopted "the plainly visible, although never clearly stated, strategy of following the middle road" – that is, remaining a full member of Mercosur while at the same time working unilaterally to make headway for its products in markets outside the bloc.

"It’s no coincidence that President Tabaré Vázquez has already visited 10 countries with that intent," he said.

In Uruguay, defending Mercosur has been left to the Foreign Ministry, an additional indication that the small amount of progress made in 2007 was on the political level, with the opening of the Mercosur Parliament based in Montevideo.

"The Mercosur process is bogged down, if its goal is really to form a customs union and a common market," said Masi, who emphasised the obstacles to Paraguayan products imposed by both its large neighbouring markets. "Argentina and Brazil want to stay in charge of Mercosur, managing it bilaterally or unilaterally," he said.

"There is no community spirit. Instead, every country defends its national policies more and more vehemently," which makes integration impossible, he said.

Strengthening integration depends on Brazil, for which "Mercosur is not an important market, although it is a significant political structure" for engaging in negotiations like the World Trade Organisation (WTO) talks, the economist said.

But all these problems do not add up to stagnation, counter the Brazilians. There has been progress on infrastructure and supportive financial mechanisms, such as the Mercosur Structural Convergence Fund, said former ambassador Botafogo Gonçalves, a critic of his country’s current diplomatic policy.

Trade within the region is at a historic high, and Brazil is "investing heavily" in Uruguay, for example, where it reopened the Banco do Brasil "in response to union demands," and opened an office of the National Social and Economic Development Bank (BNDES), said Portela.

Brazilian exports to its Mercosur partner countries were worth nearly 14 billion dollars in 2006, 20.4 percent up from the previous year, while exports between January and October 2007 already exceeded this figure and have grown by 23.7 percent with respect to the same period in 2006, according to the Ministry of Development, Industry and Commerce.

And imports rose even more, by 28.2 percent in 2006 and 27.7 percent from January to October 2007.

Integrating chains of production that involve all the member countries is key to reviving the integration process, said both Portela and the president of the Association of Brazilian Companies for Market Integration, Michel Alaby.

Greater coordination of macroeconomic policies is needed within the bloc, a goal defined in the 1990s but which is hardly mentioned now, said Alaby.

This is a central issue, but the intentions of a decade ago are belied in practice by Argentina, with its present policy of depreciating its currency against the dollar which runs counter to the rest of the bloc, Chasquetti pointed out.

Alaby said that regional free trade must be consolidated, and that the bloc needs to move toward forming the customs union, and carry out external negotiations with a united front. The agreement with Israel has "purely symbolic value," with uncertain political consequences, he said.

Botafogo Gonçalves recommended re-establishing the strengthening of Mercosur as the top priority. In his view, the simultaneous focus on integration of South America as a whole scatters efforts in different directions and leads to paralysis.

* With additional reporting by Marcela Valente (Argentina), David Vargas (Paraguay), Darío Montero (Uruguay) and Humberto Márquez (Venezuela).

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