SOUTH AMERICA: Two Blocs Unite, but More Politics than Trade

By Mario Osava Reprint | | Print |

Mario Osava*

RIO DE JANEIRO, Apr 9 2004 (IPS) - The free trade accord negotiated between Mercosur (Southern Common Market) and CAN (Community of Andean Nations) is "a diplomatic exercise" more than a true advance in trade, say experts.

At least that is true for Brazil’s agro-industrial sector, according to Gilman Viana Rodrigues, head of foreign affairs for the Brazilian National Confederation of Agriculture and representative of the sector in international negotiations.

The agreement, to be formalised in July, was reached last weekend in Buenos Aires between Mercosur and Ecuador, Peru and Venezuela. It represents the integration of practically all of South America in a bloc that is home to 350 million people.

The other two CAN members, Bolivia and Peru, had already established partnerships with Mercosur (made up of Argentina, Brazil, Paraguay and Uruguay), as had Chile.

Only Guyana, Surinam and French Guiana remain outside of the South American integration-in-progress.

But the CAN-Mercosur accord lacks "trade density", because the Andean countries have "scant purchasing or consumption capacity," which limits the possibilities of increasing Brazilian exports, Rodrigues told IPS.

Rodrigues expressed the frustration of Brazil’s agro-industrial sector with the negotiations to create the Free Trade Area of the Americas (FTAA) and to liberalise agricultural trade under the rules of the World Trade Organisation (WTO), bogged down by wealthy countries’ resistance to opening their farm markets.

The FTAA has "dried up", because little remains of the original proposals for the hemisphere-wide trade area, said the Brazilian negotiator.

More than the trade side, observers are underscoring the political and strategic sides of Mercosur-CAN integration.

The agreement "is a way of intertwining all the economies of South America, which could thus become a bloc that wields some real weight" in negotiations, especially for the FTAA, Telasco Pulgar, chief of projects for the Caracas-based Latin American Economic System (SELA), told IPS.

"The position of one country alone, like Ecuador or Venezuela, is not the same as a set of nations that are home to 350 million consumers, with major potential that makes one think of the United States and Canada," said Pulgar, giving his personal opinion..

The agreement is important in the political sense, because it is the first agreement on broad South America integration, said Germán Umaña, professor at the National University of Colombia, and former representative of his country to the European Union.

He noted that the foreign affairs ministers, not trade ministers, played a key role in putting together the general rules of the CAN-Mercosur accord.

The negotiations began more than eight years ago, but advanced quickly since last year. "What changed was the flexibility of Brazil and of the Mercosur countries in general," commented Umaña, adding that the Brazilian government of President Luiz Inácio Lula da Silva is quite different from its predecessors.

Colombia was able to join the accord after many of its interests were finally taken into account, particularly in farm trade and rules of origin. But the expert does not expect the treaty to have a significant impact on Colombian economic growth.

The combined exports of the Andean countries to Mercosur were worth just 1.4 billion dollars in 2002, a tiny portion of their overall exports of 50.9 billion dollars, according to CAN figures.

It is also very little in comparison with the 23.4 billion dollars in CAN exports to the North American Free Trade Agreement (NAFTA) countries: Canada, Mexico and United States.

But it is with Mercosur that CAN has its biggest trade deficit, in relative terms, reaching 2.9 billion dollars in 2002, while imports were 4.3 billion dollars, with around 60 percent coming from Brazil.

The treaty calls for immediate tariff cuts for certain products, mostly commodities, and various different deadlines – of up to 15 years – for tariff reductions on more "delicate" products, taking into account the relative development levels of the countries involved.

Rules of origin of traded goods will also reflect the region’s internal economic asymmetries, requiring South American content of 45 percent for goods from Ecuador and Paraguay, and up to 60 percent for Argentina and Brazil, with adjustments to be made after the first seven years.

The Andean countries will need to be treated differently in some areas, such as agriculture, when faced with regional powers Argentina and Brazil, Enrique Amayo, Peruvian-born professor of international relations at the State University of Sao Paulo, told IPS.

But in these integration agreements it is essential to consider "the complementarities more than competition," and to maintain a common vision, he said.

If Mercosur has economic advantages, the Andean nations have their strategic location on the Pacific Basin – "the current engine of the global economy" – and so cooperation can be mutually beneficial, says Amayo.

In his opinion, the economies of the two blocs would benefit from the revenues generated by activities in expansion almost immediately, such as tourism, and other slower areas, such as physical integration.

Social matters will gradually be incorporated into the agreement, leading Pulgar to note that labour mobility "will have to be regulated," to resolve the problem of massive illegal migration amongst the South American countries, which affects the immigrants themselves as they are deprived of rights, and the countries receiving them.

(* With reporting by Constanza Vieira in Colombia and Humberto Márquez in Venezuela.)