TRADE-LATAM: Things Looking Up for Mercosur after Tough Year

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Dec 6 1999 (IPS) - The presidents of Latin America’s Southern Cone Common Market (Mercosur) trade bloc are getting ready for their last summit of the century, in which they will reaffirm the strategic significance of an integration process that is moving forward, despite myriad conflicts.

The Mercosur summit, to take place Tuesday and Wednesday in Montevideo, Uruguay, the administrative capital of the bloc, will also be a farewell ceremony.

Argentine President Carlos Menem steps down Friday to president- elect Fernando de la Rúa of the opposition Alliance, who has already met separately with the presidents of Brazil, Paraguay and Uruguay. De la Rúa declined an invitation to attend the summit.

Uruguayan President Julio María Sanguinetti will also be saying farewell, as his successor Jorge Batlle, of the governing Colorado Party, will take office on Mar 1 and take his place in the Mercosur negotiations, to be “relaunched” at the start of the new century, after a period that many analysts describe as a time of stagnation.

This week’s Mercosur summit will also be the last for Chilean President Eduardo Frei, whose term ends Mar 11, 2000.

Mercosur, the idea of which emerged in the late 1980s, and which began to function in 1994, is comprised of Argentina, Brazil, Paraguay and Uruguay, with associate members Bolivia and Chile. The four full members account for 70 percent of South America’s combined Gross Domestic Product (GDP) and 64 percent of the region’s population.

Trade between the four full members soared from four to over 20 billion dollars this decade. The bloc’s combined GDP grew 1.2 percent in 1995, 3.6 percent in 1996 and 4.8 percent in 1997, although it rose just 0.7 percent last year.

A study by the Argentine Foreign Ministry’s Centre of International Economy states that trade between the four countries shrank during the last quarter of 1998 and the first two quarters of this year, due to the impact of the international economic crisis on the subregion.

While in September 1998, Brazil, Argentina’s main client, absorbed 33 percent of it total exports, that proportion had shrunk to 21 percent by March, even though Argentina’s exports fell overall.

But analysts project sound recovery for the economies of Argentina, Brazil and Chile next year, which would mean improved performance for the bloc as a whole.

In 1985, protectionism was the norm in the subregion. Duties stood at an average of 36 percent in Argentina, 80 percent in Brazil, 71 percent in Paraguay and 32 percent in Uruguay.

By 1991, the tariffs charged by the four countries had been slashed to between 12 and 20 percent, and to between 10 and 12 percent in 1994. But by 1998, as a result of the international financial crisis, Argentina and Brazil had hiked their duties back up to around 15 percent.

The crash of the Brazilian real in January was the start of a year of crisis in relations with Argentina, which the Menem administration has been unable to fix. Argentina’s sales to Brazil slumped, while competition for markets between Mercosur’s two largest partners became tougher.

As tends to occur in times of crisis, barriers to trade, even between the members of free trade zones, began to reappear, and with them conflicts, especially in those sectors most vulnerable to competition from abroad.

But despite the pending trade disputes, which in the case of Argentina and Uruguay will be passed on to the new governments, analysts agree that the bloc is experiencing just another temporary downturn in a relationship that everyone is interested in nurturing.

The secretary of international economic relations at Argentina’s Foreign Ministry, Jorge Campbell, pointed out that while the international scene was favourable to Mercosur from 1990 to 1997, the overall slowdown in trade since then has particularly affected developing countries.

But Campbell stressed that instead of returning to individual strategies, the members of the bloc are determined to “reassert Mercosur, as a strategy independent of macroeconomic swings.

“Our priority in the year 2000 must be to salvage the economic and commercial dynamism of our countries, consolidate our customs union, deepen the integration process and progress in the area of extra-regional negotiations,” he said.

The members of Mercosur aim to participate as a bloc in the creation of a Free Trade Area of the Americas (FTAA), and are negotiating a free trade zone with the European Union (EU).

Despite clashes over farm subsidies, Mercosur and EU delegates met last month in Brussels and agreed to formally launch talks toward a free trade area at a meeting slated for March 2000 in Buenos Aires.

Some observers see it as only logical that the process of integration moved so quickly in the first few years, and slower, or by bursts, in the more decisive stage involving the creation of supra-national institutions and macroeconomic agreements.

The challenges of the new year, the new century and the new millenium will be left up to a new group of leaders.