activists in Latin America. FABIO GIAMBIAGI: The Future of Mercosur Lies in Its Origins

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Dec 3 1999 (IPS) - An idea which is gaining strength among the four members of the Southern Cone Common Market (MERCOSUR) – Argentina, Brazil, Paraguay and Uruguay – is that the trade bloc is in need of “relaunching.”

Mercosur, which groups around 200 million inhabitants in 12 million square kilometres, was created by the Asuncion Treaty in March 1991. Since then it has grown into one of the world’s leading trade powers, with a combined Gross Domestic Product (GDP) of 1.1 trillion dollars, accounting for 80 percent of South America’s GDP.

According to influential Brazilian economist Fabio Giambiagi, in order to jumpstart the bloc and pull it out of the myriad trade disputes which have bogged it down, the original spirit of the endeavour must be recovered, progress must be made toward building a common market and supranational institutions, and each member country must specialise in certain branches of industry, in order to make the bloc competitive as a whole.

The Dec 10 inauguration of the government of Fernando de la Rúa in Argentina would be a good opportunity to “relaunch” Mercosur, said Giambiagi, director of planning in Brazil’s National Bank of Economic and Social Development.

Giambiagi, born to Argentine parents, has closely followed the subregional integration process. In 1997, he published an essay on monetary unification in Mercosur, and the following year elaborated on his proposal, in conjunction with Argentine economist Roberto Lavagna, suggesting a process of “coordinated convergence of macroeconomic policies.”

The outlook for the immediate future is still one of tension, given the divergent exchange regimens of Argentina and Brazil, the bloc’s two biggest members. And in order to get over that stumbling block, Brazil will have to temporarily agree to some checks on free trade within the bloc, said Giambiagi.

IPS: Everyone is talking about the need to “relaunch” the Mercosur. Has one phase come to a close? What will the next one be like?

GIAMBIAGI: The change of government in Argentina, in December, would be a fitting occasion to relaunch the bloc, on new foundations. Some things that were okay at a given time are no longer sufficient for the stage the Mercosur has now reached.

It would be useful to recover the idea of a common market, to go beyond trade questions. But that would require solutions to trade matters that have affected relations in the group in the past few years, particularly between Argentina and Brazil, as well as progress in creating an institutional structure for the regional pact.

IPS: Former Brazilian president José Sarney (1985-90), who launched the search for closer ties with Argentina in 1985, is calling for the initial spirit of integration to be salvaged.

GIAMBIAGI: I agree. I believe the people who will handle Mercosur issues in Fernando de la Rúa’s cabinet have a similar vision – in particular Roberto Lavagna and Beatriz Nofal, who served in the administration of Raúl Alfonsin (1984-89). The idea is to overcome trade disputes that have cropped up in the last few years and focus on new issues.

IPS: What issues are important today?

GIAMBIAGI: Questions like government procurements, mutual opening of the services sector, more or less unified competition rules, that kind of thing.

IPS: Are they issues that the increase in trade shunted aside?

GIAMBIAGI: Integration processes have their own tempos. The boom in trade gave Mercosur a political boost up to last year. At the same time, the bloc’s near total lack of institutions allowed for flexible administration and better adaptation to certain situations.

That worked in the past, but now it is beginning to stand in the way of progress. We have reached a level of maturity in trade and in the ambitions of the bloc itself that make necessary certain rules and discussions on the creation of supranational institutions whose decisions would be binding.

We should emulate and learn from the lessons of the European Union, where problems are basically resolved at home. Turning to the World Trade Organisation (WTO) to settle disputes is a bit like admitting that Mercosur is unable to work out its problems on its own.

That puts it in a situation of inferiority when it comes to multilateral and bloc-to-bloc negotiations.

IPS: But don’t the differences in exchange and macroeconomic policies in general stand in the way of the creation of supranational institutions?

GIAMBIAGI: Without such institutions, the problems seen in the past year and a half will tend to repeat themselves over and over again, causing setbacks, as has occurred regarding a series of protectionist demands that have been picked up on by the governments.

If certain supranational game rules existed, governments would have something to take shelter behind to resist such pressures, which will always exist, just as they do in Europe. But the influence of such pressures will wane as the institutions become stronger.

On the other hand, I believe the members of the bloc, especially Argentina and Brazil, have to work together, among themselves and with their respective private sectors, to create the conditions in the productive sector that will lead to a reduction in such [protectionist] demands.

What we need is “intra-industrial specialisation”, a thesis which, I understand, De la Rúa’s team has been pushing in the discussions – for now merely academic – on Mercosur. What is being sought is not for Argentina to produce wheat and Brazil cars, but for both to produce cars, albeit certain kinds of cars in Argentina and other kinds in Brazil.

That is how we have to understand the idea of returning to the bloc’s origins, to the ideas underlying the agreements reached by Argentina and Brazil in the 1980s, which consisted of maximising the advantages provided by an expanded market and large-scale economies. If we all produce everything, we’ll do it poorly and inefficiently, and we’ll produce relatively less.

Through micro-specialisation, Argentina would produce certain kinds of goods on a large-scale to sell in its internal market and in Brazil, and vice versa, thus cutting costs and transforming the region into a platform for exports – a goal that has been frustrated so far with respect to the originally conceived objectives.

And it has been frustrated as the result of various problems: because the bloc remains an incomplete common market; because the existence of widely divergent exchange policies is an obstacle to trade; and due to production on an insufficient scale.

Specialisation, to be agreed on with private sector participation, would mean leaving spaces in branches of industry open to the other country, and would have to be based on the reconversion of production or a shift to other sectors.

That would obviously demand strong governments, because the [affected] sectors react – precisely what has stood in the way of progress in discussions between Argentina and Brazil in the past six months.

Everyone needs to know that certain people sitting at the negotiating table will remain in their posts two or three years down the road. (CONTINUED/2-E)