REVIEW 2000-MERCOSUR: Defining a Joint Strategy on Integration

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Dec 20 2000 (IPS) - Over the coming year, the Southern Common Market (Mercosur) trade bloc will face the challenge of defining its strategy regarding Americas-wide trade, after ending this year with a new dispute sparked by associate member Chile’s decision to negotiate a bilateral free trade agreement with the United States.

The latest challenge poses a new risk to the unity of the bloc, despite the accomplishments of the Dec 14-15 summit in Florianopolis, Brazil, where the presidents signed a much-delayed agreement on trade in automobiles and made progress towards macroeconomic convergence by setting fiscal and inflationary targets.

This time it is not about sectoral trade disputes, which do not call into question the advantages provided by the trade bloc, but about the Mercosur’s strategy of integration with the Americas and the rest of the world, the strength of joint negotiations, and the priority put by each member country on eventual alliances outside the bloc.

Relations between the presidents of the Mercosur – which is comprised of Argentina, Brazil, Paraguay and Uruguay, with associates Bolivia and Chile – appear to be trouble-free, or at least that was the image given off by the leaders at last week’s summit in Florianopolis.

“Mercosur will negotiate in bloc with the United States,” Brazilian President Fernando Henrique Cardoso and his Argentine opposite number Fernando de la Rúa affirmed.

Cardoso was even more emphatic when he underlined that the members would also act as a bloc in the negotiations for the creation of the Free Trade Area of the Americas (FTAA). “That is the political option chosen by the bloc, simply because it bolsters our capacity to win advantages.”

The leaders of the two biggest members of Mercosur thus attempted to lay to rest the controversy that broke out on the eve of the summit, when it was reported from Washington that the United States had begun to negotiate a bilateral trade deal with Chile, which had previously committed to discussing its admission as a full member of Mercosur during the summit.

Santiago justified its decision to engage in talks with Washington by pointing out that it had never stopped insisting on maintaining autonomy with respect to negotiating agreements outside the South American bloc.

Spokespersons for the Chilean government also said the Mercosur’s staggered arrangement of tariffs, which range from zero to 35 percent, was incompatible with Chile’s single duty of nine percent, which is set to be gradually scaled down.

Presidents Cardoso and De la Rúa, along with their counterparts Luis González Macchi of Paraguay, Jorge Batlle of Uruguay, Hugo Banzer of Bolivia, and Ricardo Lagos of Chile, agreed that the FTAA should go into effect by 2005 as planned.

De la Rúa, whose government had previously insinuated its interest in moving that deadline forward, said it would respect the timetable agreed at the 1998 Summit of the Americas in Santiago.

However, the positions of Mercosur members regarding relations with the United States are not so uniform at lower levels of government, when addressed by ministers, secretaries or other negotiators in the region, for example. And conflicts arise when the views of the private sector are taken into account.

Argentine Foreign Minister Adalberto Rodríguez Giavarini, on his return from Brazil, said that it was “Manichean” to paint Chile’s decision to maintain close ties with the Mercosur while simultaneously negotiating a bilateral arrangement with the United States as contradictory.

But he also said his country did not need to follow in Chile’s footsteps. “I don’t believe it is necessary to seek a short-cut with the United States, because we want to move towards the FTAA from the Mercosur,” said Rodríguez Giavarini.

Economist and United Nations adviser Julio Nogués said Argentina should focus on integration with industrialised countries, as Mexico did with the United States or as Spain, Ireland and Portugal did with the European Union.

Nogués says the empirical evidence has demonstrated that income per head only grows if integration initiatives are not limited solely to developing countries.

However, that argument fails to explain the leap in trade seen among Mercosur members, despite the bloc’s poor access to the U.S. market.

Economist Arturo O’Connell, a former director of the Centre on the International Economy, a local thinktank, admitted that Argentina’s position with regards to that question was not clear.

O’Connell told IPS that Argentina gave the impression that it was caught between pressures to follow the path taken by Chile, and strike up an alliance with the United States, or firmly follow Brazil’s lead in the Mercosur.

“It looks like Argentina and Uruguay are more afraid of alignment with Brazil than with the United States,” commented O’Connell, who said he was convinced by the statistics on trade that the Mercosur, not the FTAA, was “the best deal for Argentina.”

O’Connell’s reference to Uruguay arose from President Batlle’s remarks in favour of moving the deadline for the launch of the FTAA up to 2003 – a position analysts said was a result of Uruguay’s concerns over the leadership role Brazil is seeking in the Mercosur and South America as a whole.

Brazil, the world’s eighth largest economy, is Latin America’s giant and the biggest Mercosur partner, accounting for 71 percent of the bloc’s combined GDP, followed by Argentina, with 26 percent, Uruguay (two percent), and Paraguay (one percent).

The Mercosur is South America’s leading trade bloc, representing nearly 80 percent of the region’s GDP.

“Uruguay applauded (the idea of a Chilean-U.S. trade deal) because it is tired of what it sees as constant neglect and discourtesies from its large neighbours,” explained former Argentine foreign and defence minister Oscar Camilion, in a column published this month in the Buenos Aires daily ‘La Nación’.

Camilion added that “Asuncion very likely thinks the same, but its heavy dependence on Brazil means its spokespersons are more cautious.”

O’Connell acknowledged that at the top levels of power, such questions are always clearer. For example, former Argentine president Carlos Menem (1989-99) stood firm on the need to negotiate with the United States only in the company of the rest of the Mercosur.

The analyst said that those who were pushing hardest for the FTAA “are heavily influenced by a doctrinaire liberalism that is not in harmony with demands from producers in the real economy” who, in Argentina as well as Brazil, are now calling for a return to protectionism.

The Argentine Industrial Union and associations of small businesses and farmers are increasingly joining ranks against government policies aimed at opening up the economy.

In Brazil, on the other hand, such views are better represented by the Cardoso administration.

For that reason, Brazil was the first to react with annoyance to the announcement of bilateral trade talks between Chile and the United States.

In sharp contrast to the enthusiastic reaction of ministers in Argentina, Brazil’s Foreign Ministry saw the negotiations as a slight to the Mercosur, and as a decision that effectively shelved the plans for Chile’s full adhesion to the bloc.

The Cardoso administration holds that in order to negotiate the creation of the FTAA, the Mercosur must obtain a commitment from the United States that it will totally throw open its market to products from the South American bloc, including farm products – a demand that at least for now appears to be utopian, according to analysts.

But Argentina, Paraguay and Uruguay do not seem to be interested in simply aligning themselves unconditionally with Brazil in order to boost their bargaining position and obtain real access to the U.S. market.

“The main decision that diplomats in Argentina and Brazil will have to make in 2001 is to define their policies on the FTAA, because it has become clear that there are discrepancies at very high levels,” said Camilion.

The former minister recommended that the Mercosur get ready to receive “presumably individually addressed” invitations to join the FTAA. He also suggested that it “begin to seriously study a coordinated line of action vis-á-vis the United States,” without neglecting to pay attention to the interests of Uruguay and Paraguay.