CHALLENGES 2004-2005: Mercosur Stronger on the Outside, Weaker on the Inside

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Dec 27 2004 (IPS) - The past year brought significant advances for Mercosur on the global front, with new trade agreements signed with the Andean nations, India and the Southern African Customs Union. At the same time, however, growing internal conflicts have weakened the bloc’s unity and negotiating power.

In 2005, the Southern Common Market (Mercosur) – made up of Argentina, Brazil, Paraguay and Uruguay – will enter into trade talks with Canada, Egypt and Morocco, as well as preliminary negotiations with South Korea, Israel, Japan, China, the Caribbean Community and others.

According to Brazilian Foreign Minister Celso Amorim, countries and trade blocs from around the globe are "lining up" to reach agreements with Mercosur, which is testament to its solidity.

Outward expansion was kick-started this past year when a free trade agreement with the Andean Community of Nations (CAN), signed in October after years of negotiations, opened the way for the creation of the South American Community of Nations, established on Dec. 9 in Cuzco, Peru.

This new community comprises the member countries of both Mercosur and CAN (Bolivia, Colombia, Ecuador, Peru and Venezuela), in addition to Chile, Guyana and Suriname.

The Mercosur bloc played a pivotal role in the community’s formation, largely due to the leadership shown by Brazil.

In addition, all of the Andean countries are now associate members of Mercosur, following the addition of Colombia, Ecuador and Venezuela at the bloc’s summit held earlier this month in Ouro Preto, Brazil.

The past year has also brought frustrations, however. Attempts to reach a free trade agreement with the European Union (EU) were foiled by the fact that both sides were unsatisfied with the offers put forward by the other.

Although negotiations are to resume next year, there will be little chance for progress without major changes within the blocs, particularly in terms of Europe’s agricultural policies.

Given the lack of progress in trade negotiations with the EU, as well as in the U.S.-sponsored project to establish a hemisphere-wide Free Trade Area of the Americas (FTAA), Mercosur’s focus has shifted to promoting trade and cooperation with other countries of the developing South.

At the 11th session of the United Nations Conference on Trade and Development (UNCTAD), held in Sao Paolo, Brazil in June, the decision was adopted to revive the Global System of Trade Preferences (GSTP) by calling a third round of talks among the 43 developing countries that are already members and any new additions.

"We are changing the geography of trade," said Brazilian President Luiz Inácio Lula da Silva.

In addition to pledging its active participation in this process, Mercosur reinforced its bilateral ties with nations of the South by signing preferential trade agreements with India and the Southern African Customs Union, made up by Botswana, Lesotho, Namibia, South Africa and Swaziland.

The Brazilian government was particularly active in South-South diplomatic efforts, which culminated in November with visits from the leaders of China, Viet Nam, South Korea, Russia, Canada, Morocco and Pakistan. Most of these heads of state were on official tours that also included Argentina and Chile.

Inside Mercosur, however, relations have become increasingly tense, and some sectors in Brazil have begun to oppose the priority granted to fellow bloc members by the Brazilian government, according to Tullo Vigévani, an international relations specialist and professor at the State University of Sao Paulo.

The most vocal critics include the powerful Sao Paulo Federation of Industries, which is unhappy with the protectionist measures adopted by Argentina against the flood of Brazilian manufactured goods, and what it views as the overly complacent response of the Brazilian government.

Brazilian-made refrigerators, televisions and other appliances, as well as shoes and textiles, are among the goods subject to import restrictions in Argentina. In addition, Argentina is proposing the adoption of automatic safeguards to reduce eventual trade imbalances within Mercosur.

Some representatives of the Sao Paulo industrial sector have gone so far as to advocate that Mercosur return to its former status as a mere free trade area, as opposed to an "imperfect" customs union. Moreover, they believe that each country of the bloc should be free to sign bilateral trade agreements outside Mercosur.

Internal conflicts have also served to hinder joint initiatives. The subject of free trade with China has been discussed at length, but aside from the inherent economic disadvantages involved, the initiative is unworkable, because Paraguay recognises Taiwan as the Republic of China, and does not have diplomatic relations with Beijing, Vigévani noted.

Some observers also believe that Mercosur’s offers to the EU were considered unsatisfactory because of a lack of consensus on opening certain sectors, with only the most timid proposals put forward, meaning that the negotiations were largely determined by the most protectionist countries within the bloc.

Those who deny that there is any crisis within Mercosur point out that the current trade conflicts affect less than five percent of trade among the bloc’s members. Nevertheless, Vigévani claims that this small proportion "pollutes the general atmosphere" and damages the process as a whole.

In addition to the persistence of problems with no foreseeable solution, he added, the bloc has created "bodies with no effective power," such as the Consultative Forum of Municipalities, Provinces and Departments (States), and the Mercosur Parliament, which will be established in December 2006.

Overcoming the bloc’s difficulties and inconsistencies will demand "reducing the inequalities and modernising sectors that are lagging behind," including a good number of Argentina’s industrial branches, said Vigévani.

Brazil, as the bloc’s strongest economy, will have to "pay the cost" by financing efforts to boost the competitiveness of its partners, he commented.

In addition, integration cannot be consolidated solely through increased trade, but also requires fuller economic relations than those currently shared by the Mercosur members, in terms of investment, financial flows, technological exchange and business associations, he concluded.