Economy & Trade, Headlines, Latin America & the Caribbean

SOUTH AMERICA: Venezuela Brings Economic Clout, and Tension, to Mercosur

Mario Osava

RIO DE JANEIRO, Jul 25 2006 (IPS) - The incorporation of Venezuela as the fifth full member has amplified internal and external political tensions in South America’s Mercosur trade alliance. But on the positive side, it bolsters the bloc’s power on the energy and financial fronts, which should help neutralise factors tending towards fragmentation.

Venezuela is “a good reinforcement” of investment potential, because of the country’s willingness to pour its financial resources, boosted by record high oil prices, into regional development and integration infrastructure, Theotonio dos Santos, professor of international economics at the Fluminense Federal University, told IPS.

As a result, Mercosur (Southern Common Market) has become more attractive to other South American countries and has gained internal cohesion, contributing to overcoming dissension among its full members: Argentina, Brazil, Paraguay, Uruguay and Venezuela.

“Now it is harder for Paraguay and Uruguay to keep threatening to leave the bloc,” the expert from Niteroi, a city near Rio de Janeiro, remarked.

This positive change seems to have taken concrete shape in the proposal, presented by the host government at the Jul. 20-21 summit of the bloc’s leaders in the city of Córdoba, in central Argentina, to create a Mercosur Development Bank, “to finance infrastructure projects and, at the same time, to consolidate a financial strategy for the region,” according to the final joint declaration.

But assimilating a new full member with the gravitas of Venezuela under President Hugo Chávez creates additional tensions and conflicts in the “complex geopolitics” that results from joining different interests in a bloc that aims at becoming a customs union, according to Sonia Camargo, coordinator of the Institute of International Relations at the Catholic University of Rio de Janeiro.

If Uruguay used to complain about Brazil’s leadership, with its moderate stances, imagine what will happen now, with the presence of Venezuela’s government, which is permanently hostile to the United States, she remarked to IPS.

Tabaré Vázquez, whose leftwing administration took power in Uruguay last year, announced his government’s intention of negotiating a bilateral trade agreement with the United States, an initiative that would be incompatible with full membership of Mercosur, which presupposes a common policy on this issue.

The fact is that Mercosur came to its 30th summit with a number of different disputes simmering among its members.

Paraguay and Uruguay, both small countries, feel their interests are harmed when Argentina or Brazil take unilateral or joint decisions without consulting them, and have called insistently, but so far unsuccessfully, for the asymmetries within the bloc to be addressed.

The confrontation between Buenos Aires and Montevideo over the construction in Uruguay of two large paper pulp mills on the Uruguay River, which forms a natural border between the two countries, is also at its height.

The pulp factories represent a total foreign investment of 1.8 billion dollars, the largest in Uruguay’s history. But the residents of an Argentine town across the river, relatively near the mills, have been fighting hard against them on the argument that they may pollute the Uruguay River, which is managed under a bilateral accord.

Meanwhile, the constant trade disputes between Argentina and Brazil, which have cast a shadow on several previous summits, did not play a negative role this time.

However, there was noticeable tension over the nationalisation of energy resources by Bolivia’s new leftwing government, and the consequent rise in price of the natural gas bought by Buenos Aires, which also affects Chile’s gas imports from Argentina. Difficult negotiations over the same issue are also taking place between the Bolivian and Brazilian governments.

Brazilian President Luiz Inácio Lula da Silva thus took on the rotating chair of Mercosur for the next six months with the difficult task of overcoming internal differences and strengthening the bloc, consolidating integration and broadening external agreements.

Counteracting asymmetries through a policy of “generosity” on the part of the large partners would be a part of his job, Lula said in his final speech at the Córdoba summit.

October’s elections in Brazil, in which Lula will be seeking re-election, will create added difficulties, as he attempts to reconcile national interests – to which he must pay attention in the campaign for votes – with integration measures that may have an impact on those same interests, Camargo noted.

Other issues to be dealt with are the bloc’s increasingly left-leaning image, reinforced by Venezuela’s entry as a full member – a step that Bolivia under President Evo Morales may also take – and the developing links with Cuba, reflected by President Fidel Castro’s presence at the summit.

Mercosur signed a trade agreement with Cuba, which extends to the bloc as a whole the preferential trading terms agreed bilaterally by several of them with the Caribbean island nation.

It will be necessary to act “with clarity and pragmatism, that is to say, with state policies,” said Camargo.

As for negotiations abroad, it will be difficult for Lula to make much progress towards a trade agreement with the European Union (EU) during his country’s term presiding over Mercosur, as the EU was interested in moving forward with the issue only after the completion of the Doha Round of multilateral World Trade Organisation talks, which collapsed Monday.

Besides the trade pacts signed at the summit with Cuba and Pakistan, Mercosur negotiations with the Gulf Cooperation Council and the Southern African Customs Union hold out the only prospects of progress in the short term.

But there is also Mexico’s request to join Mercosur as an associate member, confirming the bloc’s growing appeal in the region. Bolivia, Chile, Colombia, Ecuador and Peru are already associate members.

Another of President Lula’s dreams is to consolidate the South American Community of Nations, including all 12 countries of the region. This is going well, and Venezuela’s full membership of Mercosur was another step forward. But a major obstacle is Colombia, because of its close military and economic ties with the United States, and its armed conflict, Theotonio dos Santos summed up.