SOUTH AMERICA: Integration Faces New Challenges in Mercosur Summit

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Dec 14 2004 (IPS) - Minor advances are being highlighted in an attempt to downplay the tensions sparked by trade-related frictions at the twice-yearly Mercosur Summit, being held Wednesday through Friday in the southern Brazilian cities of Belo Horizonte and Ouro Preto.

The safeguards that the Argentine government wants to establish for trade within the bloc, to aid the country’s industrial recovery in the face of the flood of Brazilian products, constitute the main bone of contention at this latest meeting of the Southern Common Market, made up of Argentina, Brazil, Paraguay and Uruguay.

Brazil has opposed the Argentine proposal, and the secretary of the Brazilian Chamber of Foreign Trade, Mario Mugnaini, has threatened reprisals if Argentina adopts new trade barriers against Brazilian products.

Argentine wheat, rice, wine, garlic and onions could be subject to new restrictions as a result, he warned.

Argentina and Brazil, the two largest members of Mercosur, have agreed to hold bilateral negotiations on these issues next month, so as not to bog down the summit even further.

For his part, Argentine President Néstor Kirchner has pledged that he will take part, hoping to smooth over the conflict with Brazil caused by his failure to attend the meeting that formalised the creation of the South American Community of Nations, held in Cuzco, Peru on Dec. 9.

The 27th meeting of the Mercosur Council – comprising ministers of foreign relations and the economy – is being held this Wednesday and Thursday in Belo Horizonte, the capital of the southern Brazilian state of Minas Gerais.

Presidents Kirchner of Argentina, Nicanor Duarte of Paraguay, Jorge Batlle of Uruguay and Luiz Inácio Lula da Silva of the host country Brazil will also meet on Thursday afternoon in Belo Horizonte, although the official summit will take place Friday in nearby Ouro Preto, the historic former capital of the 18th-century Brazilian gold rush.

The main themes on the meeting’s agenda are the creation of the Mercosur Parliament and a fund to finance joint projects for "structural convergence", the elimination of double payment of common external tariffs, job creation strategies, and the establishment of a government procurement protocol.

Numerous external agreements will also be signed. Ecuador and Venezuela will officially become associate members of Mercosur, joining Bolivia, Chile and Peru.

In addition, a preferential trade agreement will be formalised with India, and another will be signed with the Southern African Customs Union, made up of Botswana, Lesotho, Namibia, South Africa and Swaziland.

The pact signed with India will encompass 900 products, split evenly between the two sides, while the agreement with the African nations will cover close to 1000 products on each side.

Illegal migration and cooperation in regional security and health care are other issues on the agenda that could lead to agreements.

Yet all these advances and agreements cannot hide the cracks in Mercosur’s two main pillars, namely trade and ties between Argentina and Brazil. Disputes between the two have threatened the bloc’s further development since Brazil decided to devaluate its currency in January 1999.

This step led to new imbalances in bilateral trade, which had been favourable to Argentina since 1994. This year, for the first time, Brazil will have a trade surplus of close to 1.7 billion dollars, out of a total trade volume of 13 billion dollars in both directions.

As a result, the Argentine government imposed restrictions this year on imports from Brazil of appliances and electronic equipment manufactured in the Manaus Free Zone, in northern Brazil, as well as shoes and textiles. Bilateral negotiations on quotas for Brazilian exports have been largely unsuccessful.

As a comprehensive and ongoing solution for the various conflicts that have arisen, Argentina has proposed the application of safeguard mechanisms to protect sectors threatened by the imbalances resulting from the assymetries of Mercosur member economies.

The Kirchner government, under pressure from the business community, has argued that something must be done to reverse the trend that will eventually turn Argentina into a mere exporter of raw materials, particularly agricultural commodities, in contrast to a highly industrialised Brazil, an asymmetry that runs counter to the goals of Mercosur.

Until now, the solution to crises like these has always been sought through efforts to further strengthen integration within Mercosur. In this case, Brazil has proposed the integration of production chains, and even a common industrial policy.

At the same time, however, there has been growing scepticism in some sectors, along with proposals that would represent setbacks. For example, some business segments in Brazil, such as the powerful Sao Paulo Federation of Industries, have been pushing for the dissolution of the customs union, whereby Mercosur would return to being a mere free trade zone.

The customs union entails a shared trade policy, represented mainly by common external tariffs, which in the case of Mercosur are still subject to hundreds of exceptions, given the difficulties for each country to adopt the same taxes on purchases from its partners in all trade lines.

As a simple free trade area, each country would have greater freedom to sign bilateral agreements and expand relations, a goal sought by current conservative Uruguayan President Batlle, who will be replaced by leftist president-elect Tabaré Vázquez on Mar. 1.

But the summit in Ouro Preto will have great symbolic value precisely because it marks the 10th anniversary of Mercosur’s conversion into a customs union, a key landmark for the bloc established in 1991.

Moreover, a step backwards like this would signal an end to the hopes for establishing a free trade area with the European Union, which has made it clear that it would only reach such an agreement with Mercosur as a customs union. Losing this status would strip Mercosur of its negotiating power as a united bloc.

More ironic still, the uncertainties surrounding this summit have come at a time when there would appear to be greater ideological similarities among the Mercosur governments than ever before.

In addition to the progressive governments currently ruling Argentina and Brazil, Uruguay will be governed as of Mar. 1 by the leftist Broad Front coalition, whose candidate took more than 50 percent of the votes on Oct. 31.