Economy & Trade, Headlines, Latin America & the Caribbean

SOUTH AMERICA: Mercosur Opens Doors to Worrying Fifth Element

Darío Montero

MONTEVIDEO, Dec 8 2005 (IPS) - Venezuela’s admission to South America’s Mercosur trade bloc – which is not as imminent as was previously announced – is backed by economic sectors keen on gaining access to oil under preferential terms.

But certain doubts are raised by questions like the harmonisation of tariffs and Venezuelan President Hugo Chávez’s fiery anti-U.S. rhetoric.

Mercosur (Southern Common Market), made up of Argentina, Brazil, Paraguay and Uruguay, will formally invite Venezuela to become the fifth full member of the bloc at Friday’s summit meeting in Montevideo, the Uruguayan capital, although lengthy negotiations lie ahead before the agreement is finalised.

Not even Chile, the bloc’s oldest associate member – a status it was granted in 1996, a year before Bolivia became the second associate member – has attempted to become a full partner, because to do so it would have to bring its foreign tariffs into line with those of the bloc. (Chile has a foreign tariff of six percent, compared to the Mercosur common external tariff of 35 percent).

The differences with respect to trade questions remain in place despite the ideological affinity between the centre-left Chilean government and the left-leaning administrations currently ruling Argentina, Brazil and Uruguay.

But firebrand Chávez came knocking on the Mercosur’s door with a suitcase full of petrodollars that looked tempting to highly indebted economies, and a generous offer to finance purchases of increasingly scarce oil and natural gas, in exchange for abundant agricultural products needed to reach his dream of food sovereignty (the primacy of people’s and community’s rights to food and food production, over trade concerns) for Venezuela.

But the road to full membership in Mercosur is long and complicated. Before Venezuela becomes the fifth partner, it will have to accept the bloc’s statutes, rules and regulations, fulfill a series of tariff requirements, and ratify Mercosur agreements – a process that is supposed to take six months to a year.

Presidents Néstor Kirchner of Argentina, Luiz Inácio Lula da Silva of Brazil, Nicanor Duarte of Paraguay and Tabaré Vázquez of Uruguay will merely be extending a “political welcome” to Chávez to join the Mercosur bloc, which was founded by the Asunción Treaty in 1991.

That will mark the start of a period of the fulfillment of requisites for Caracas to have a vote in the bloc rather than simply a voice (as an associate member), Nelson Fernández, assistant director of integration matters and Mercosur in the Uruguayan Foreign Ministry, told IPS.

He said that although it is possible that the process will take two or three years, he doubts that it will stretch out as long as some observers expect.

He added, however, that the formal acceptance of Venezuela is an important step in the integration between that country and Mercosur, which he said have complementary economies.

The first question to be dealt with at the Friday summit will be the approval of the document creating the Mercosur Parliament. After that will come the complex negotiations for Venezuela to sign the Mercosur protocols, adopt the common external tariff, assume the bloc’s agreements with third party countries, and accept the bloc’s negotiations with third parties, like the ongoing talks with the European Union.

The Treaty of Asunción states that any member of the Latin American Integration Association (ALADI) can join Mercosur if all four full partners approve the request. Venezuela formally filed its application in August.

“It is a very atypical admission process in comparison with the experiences of Latin American integration up to now,” said Uruguayan expert in international relations Romeo Pérez.

That is because the aim is to resolve questions of tariff harmonisation and trade and economic compatibility in just six months to a year between a new partner and a bloc that is already nearly 15 years old, he told IPS.

Pérez, a political science professor at the University of the Republic, also warned that by opening up its market to the Mercosur free trade zone, Venezuela will be flooded by agribusiness products from Argentina and Brazil, two of the world’s leading exporters of agricultural commodities.

He also underscored the impact that Venezuela’s admission will have on “the nature of Mercosur, which will move in the direction of becoming a political unit with little economic and commercial discipline.”

“It will become an association of those who are opposed to the United States,” especially in trade matters, said Pérez.

He pointed to what has already occurred in the negotiations for the creation of a Free Trade Area of the Americas (FTAA), particularly at the early November Summit of the Americas in Argentina, when the four Mercosur members and Venezuela joined together to oppose the renewal of the stalled FTAA talks.

But the analyst also noted, with a certain amount of pessimism, that Venezuela’s actual admission “will depend on the results achieved in a long, arduous negotiation process.”

A completely different view is held, although for different reasons, by Fernández and the director-general of the Andean Community trade bloc, Héctor Maldonado.

Venezuela’s application to join Mercosur is seen by the Andean Community – made up of Bolivia, Colombia, Ecuador, Peru and Venezuela itself – as “an extremely positive development for the construction of the South American Community of Nations,” above and beyond the fact that “we still have to analyse Venezuela’s proposal to become a full member,” said Maldonado.

The embryonic South American Community was launched at the third South American Summit in December 2004 in Lima, Peru.

“We are optimistic with respect to this process,” because Caracas’ intention of joining Mercosur will help strengthen South American unity, Maldonado told IPS by telephone from the headquarters of the Andean bloc’s General Secretariat in Lima

Although it is not yet clear exactly what the process of admission of an Andean Community member into Mercosur will look like, the Andean bloc “has been extremely flexible” when a member negotiates agreements with third countries or blocs on its own, he commented.

Maldonado recalled that in its December 2004 summit meeting in Quito, the Andean Community adopted article 598, which expressly authorises the partners to engage in free trade negotiations outside of the bloc, as Colombia, Ecuador and Peru are currently doing with the United States.

Maldonado also confirmed that Venezuela had emphatically assured its partners that it had no plans to abandon the Andean Community, the oldest trade bloc in the region (originally known as the Andean Pact).

At any rate, he said, significant trade compatibility problems must be cleared up first, like the fact that the Andean Community has a four-tier external tariff structure of five, 10, 15 and 20 percent, while Mercosur has a 35 percent tariff applicable to imports from outside of the free trade zone.

This is just one of the problems that must be resolved before Venezuela can be admitted to Mercosur, he stressed.

Pérez was referring to these and other touchy aspects when expressing his pessimism with respect to the future of the Mercosur-Venezuela partnership. “This is a full membership that is based on fuzzy legal foundations,” he said.

“It is not good for the bloc to move away from its current economic and trade profile,” undermining long-term accords, to seek an alliance with Caracas only in response to immediate needs, “like petrodollars to alleviate the public debt, in Argentina’s case, or in search of energy security, in the case of Brazil and Uruguay,” he said.

Nor is everyone in the private sector eager to see Venezuela join Mercosur. Agricultural producers in Venezuela, for example, see their powerful competitors to the south as a serious threat to farmers in Venezuela. The country’s agricultural chambers have already called for compensatory measures, but analysts assume these would fall far short.

The president of the Venezuelan livestock association, Genaro Méndez, pointed out that “it costs 18 cents of a dollar to produce a litre of milk in one of the Mercosur countries compared to 35 cents in Venezuela. At present we cannot compete.”

There are also actors behind the scenes ready to take the stage to throw new wrenches in the gears, because the proposed integration between Caracas, Brasilia and Buenos Aires has caused nervousness not only within the region but outside of it as well.

 
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