TRADE-LATAM: Mercosur Postpones Solutions While Time Runs Out

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Dec 9 2002 (IPS) - The leaders of South America’s Mercosur once again postponed solutions to the problems that have plagued the trade bloc for the past three years, even though time is running out as deadlines loom in the free trade negotiations with the European Union and the talks on the Free Trade Area of the Americas (FTAA).

The negotiations for the creation of the FTAA continent-wide free trade bloc will begin to focus over the coming year on concrete targets to be adopted by the 34 countries involved – all of the countries in the hemisphere with the exception of Cuba – in order for the bloc to go into effect in 2005.

The future members of the bloc will soon start to discuss the degree of market access that each country will offer to the rest of the members, and the timeframes for the elimination of import duties.

The negotiations between the Mercosur (Southern Common Market, made up of Argentina, Brazil, Paraguay and Uruguay) and the European Union will enter a similar stage next year.

Despite the urgency posed by the FTAA talks and negotiations with the EU, the Mercosur presidents meeting last Thursday and Friday in Brasilia put off solutions to pressing internal problems that weaken the bloc.

Nor did the leaders reach a decision on the sought-after free trade deal with South America’s second-largest bloc, the Andean Community (Bolivia, Colombia, Ecuador, Peru and Venezuela).

One of the issues on which a decision was deferred were the exceptions to the bloc’s common foreign tariff, which were to expire this year in order to transform the Mercosur into a true customs union, with each member country charging the same duties on imports from outside the bloc.

Presidents Eduardo Duhalde of Argentina, Fernando Henrique Cardoso of Brazil, Luis González Macchi of Paraguay, and Jorge Batlle of Uruguay decided to extend to Dec 31, 2003 the list of 100 products on which the member nations maintain different tariffs.

The summit in Brasilia was also attended by the presidents of the bloc’s two associates, Gonzalo Sánchez de Lozada of Bolivia and Ricardo Lagos of Chile, as well as representatives of the Andean Community.

The Mercosur leaders authorised crisis-stricken Argentina to import capital goods from outside the bloc duty-free until Jun 30, 2003, six months beyond the originally established limit.

That measure affects industry in Brazil, the main supplier of capital goods to the rest of the bloc, leaving it at a continued disadvantage in terms of competition with non-Mercosur countries for the Argentine market.

The Brazilian Foreign Ministry’s director of integration, Clodoaldo Hugueney, said the decision was a response to Argentina’s need for special conditions enabling it to get the economy back on its feet after the December 2001 collapse.

But it was not only Argentina’s economic troubles that forced the Mercosur to postpone progress towards its objectives. The high inflation, for example, reported by all four member states led them to put off to 2006 the target of limiting inflation to five percent.

The macroeconomic coordination plan adopted by the Mercosur two years ago had set the five percent target for this year. However, the crisis sweeping South America has made that goal impossible to achieve.

Argentina will end the year with an inflation rate of over 40 percent, while the accumulated rate from January to November stood at 10 percent in Brazil, 13 percent in Paraguay and 24 percent in Uruguay.

The currency turmoil in Brazil pushed inflation up to three times the target agreed with the International Monetary Fund (IMF), and to the highest level seen since 1995.

The summit also postponed a free trade agreement between the Mercosur and the Andean Community, which Cardoso had hoped would be in place before he hands over the presidential sash to his successor, Luiz Inácio Lula da Silva of the leftist Workers’ Party, on Jan 1.

The document signed by the two blocs, which has been described as a ”framework accord”, permits bilateral trade negotiations between members of the two blocs, highlighting their weak integration and the consequent difficulties in negotiating as blocs.

Thanks to that new flexibility, Mercosur will begin discussing an agreement this week to expand trade with Peru.

An agreement with Peru is actually an initiative of Brazil, which is keen on gaining new markets for its industrial goods and on forging a South America-wide bloc to strengthen the region’s bargaining power vis-a-vis the United States in the FTAA talks.

The negotiations actually began when Peru’s trade minister, Raúl Diez-Canseco, visited Brasilia in late November. He pointed out that Peru would offer Brazil an outlet to the Pacific ocean through its ports.

But before that can be achieved, South America must move forward on its plans for physical integration, an initiative also strongly promoted by Cardoso, on which limited progress has been made due to the political and economic crises affecting nearly all of the countries involved.

In addition, the Mercosur summit discussed the political turbulence in Venezuela and the possible impeachment proceedings against Paraguayan President González Macchi on corruption charges, which the Chamber of Deputies voted in favour of last week. A decision is now pending by the Senate.

Although analysts say the internal damages that could be caused by the impeachment process would be limited, because presidential elections in Paraguay are due in April, the Mercosur could be affected by the fact that it is Paraguay’s turn to assume the bloc’s six-month rotating presidency.

Brazilian president-elect Lula, meanwhile, looks set to take on a strong leadership role in the bloc, and has put an emphasis on ”rebuilding” and strengthening the Mercosur as a space of political, rather than merely commercial, integration.

TRADE-LATAM: Mercosur Postpones Solutions While Time Runs Out

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Dec 9 2002 (IPS) - The leaders of South America’s Mercosur once again postponed solutions to the problems that have plagued the trade bloc for the past three years, even though time is running out as deadlines loom in the free trade negotiations with the European Union and the talks on the Free Trade Area of the Americas (FTAA).
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