Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean

SOUTH AMERICA: Mercosur – Overly Ambitious?

Diana Cariboni

MONTEVIDEO, Dec 10 2005 (IPS) - Many of the hurdles facing South America’s Mercosur trade bloc in its attempts to deepen the integration process have to do with the gap between its ambitious aims and the institutions and other instruments that have been put in place to achieve those goals.

When it was founded in 1991, Mercosur (Southern Common Market, made up of Argentina, Brazil, Paraguay and Uruguay) “established the objective of strengthening economic integration, intraregional trade and development,” said professor of international trade Marcel Vaillant.

But another aim was to become an instrument for improving the insertion of its members on the international scene, he added in an interview with IPS.

Mercosur is attempting to build a customs union – a rare form of integration that involves the duty-free circulation of goods among member countries and a common external tariff for imports from outside the bloc.

“There are 220 trade agreements registered in the World Trade Organisation (WTO), and only 10 of them are customs unions,” said Vaillant, with the economics department in the faculty of social sciences at the University of the Republic of Uruguay.

“It’s like building a new nation in the sphere of trade and it requires a deep level of commitment and harmonisation of policies,” he added.

But Mercosur has other ambitious goals as well: a structural convergence fund to assist the smallest members of the bloc and reduce the asymmetries, the regulations for which were approved Friday at the 29th Mercosur summit in Montevideo, or common environmental and animal health policies.

“There are many policies that don’t work unless they are regional,” such as the defence of a shared natural resource like the Guarani Aquifer, or measures to fight foot-and-mouth disease, for which specific instruments are needed, said the analyst.

The bloc’s technical secretariat has just four advisers. “The half-yearly reports that the technical advisers have to submit” are confidential, the information does not circulate, and in many cases they end up unread at the bottom of a drawer in one of the member nation’s foreign ministries,” said a Mercosur source who preferred not to give his name.

There are very few high-level meetings that are attended by all of the relevant senior officials from the various member countries, he told IPS.

When Mercosur was first conceived of, the countries tried not to create new structures or accentuate the existing problems of credibility that had arisen from a long tradition of failed attempts at integration in Latin America.

“Questions of fiscal austerity also weighed in, which did not benefit the creation of new institutions,” said Vaillant.

This approach worked at first, when the focus was on eliminating reciprocal trade barriers. But as the integration process moved forward and the members worked on building common policies, the need for new institutions became more and more obvious.

“If you want to pound in a nail and you have a hammer, great. But if you then want to use screws and build a wall, and the only tool you have is a hammer, things aren’t going to work,” he said.

However, it’s not a question of creating more red tape, he stressed. Mercosur is involved in negotiations in more than 200 different areas, and specialised departments already operate in the member nations’ foreign ministries.

“It’s about changing the bureaucracy, with an intergovernmental, permanent and specialised structure that is non-supranational in character,” said Vaillant.

In addition, he said, the six-month rotating presidency should be lengthened, and certain functions should be delegated to common structures, he added.

The Mercosur parliament, approved by the presidents meeting in Friday’s summit, could be beneficial, because it implies diversifying the actors involved in the process and incorporating new visions, as well as encouraging political parties to take a greater interest in questions of integration.

Meanwhile, the ideological affinity of the current left-leaning governments of Argentina, Brazil and Uruguay, which at one point gave rise to speculation that it could help overcome obstacles to integration, has not brought about significant changes.

The problems faced by the countries with respect to the integration process are structural and permanent, such as national interests, said Vaillant, who believes the difficulties have neither gotten worse nor better.

Tensions have run high among the “progressive” members of the bloc. In his address on Friday, Uruguayan President Tabaré Vázquez complained about “arrangements” agreed on by the two biggest partners, Argentina and Brazil.

But the business community is not opposed to integration, said the analyst. “The private sector has been taking advantage of the opportunities that Mercosur continues to offer. Relations continue to exist, business continues to be done, and if the option of doing away with Mercosur were brought up today, in Uruguay there would be a huge backlash,” he added.

Trade between Argentina and Brazil grew significantly over the past few years, and even a small country like Uruguay has experienced “steady investment and structural changes in terms of logistics, improvements of the port system, and highway infrastructure” that has been key to both extra-bloc trade and commerce among the bloc’s partners, said Vaillant.

He played down the notion that the bloc is in the midst of an explosive expansion, with the incorporation of new members, like Venezuela, whose request to become a full member was formally accepted at Friday’s summit.

Chile and Bolivia became the bloc’s first two associate members as far back as 1996 and 1997, and the Mercosur negotiations with South America’s other big trade bloc, the Andean community, had already begun in the second half of the 1990s, although “they crystallized in the past few years,” he noted.

The neogiations with the Andean Community – comprised of Bolivia, Colombia, Ecuador, Peru and Venezuela – have been complex.

Vaillant pointed out that it takes a long time to create a free trade zone, and that the aim now is to achieve common preferential tariffs between the members of the customs union and third party countries, “which was not a goal in the past.”

“Today Mercosur has common accords with Chile and Bolivia (practically a free trade zone), and a relatively lengthy convergence programme for bringing about a free trade zone with the rest of South America within 15 to 18 years,” he said.

With the launch of the South American Community of Nations at a 2004 summit in Peru, Mercosur took on an even higher profile as “a big international relations operation,” said the analyst.

The bloc is also involved in negotiations with developing nations like India, Egypt, Morocco and South Africa, as well as countries “with little or no economic significance,” while it faces major hurdles in reaching accords with industrial powers like the United States or the European Union, with which Mercosur has been involved in negotiations for 10 years.

If the number of free trade accords signed by Mercosur is compared to the list of agreements negotiated by others in the region, like Chile or Mexico, the bloc would appear to be lagging.

The comparative advantages of the Mercosur countries (especially Brazil) “are concentrated in the very sectors that are targeted by the protectionist policies of the industrialised nations,” Vaillant observed.

For the EU, a free trade deal with Chile or Mexico does not involve significant internal adjustments. But an agreement with Mercosur “is problematic, not only because of questions of scale or size, but because the South American bloc’s comparative advantages are in areas that coincide with most of the European bloc’s protectionist policies,” he underscored.

That is seen not only in agribusiness and livestock breeding, but also in the case of steel and other industries, he said.

In Vaillant’s view, trade between South America or Mercosur and the EU is “19th century” and “almost caricaturistic”: raw materials with no value added in exchange for manufactured products with a high technological content.

Although there are tensions in the same sectors, South American goods exported to the United States have a greater technological content overall.