Dilma Rousseff and Fernando Lugo, the presidents of Brazil and Paraguay, met to discuss a wide range of subjects during private conversations at the 41st Mercosur Summit (Southern Cone Common Market). Paraguay, occupying the rotating presidency of the economic block, hosted the summit.
With a GDP of slightly over US$ 33 billion, a landlocked area of a little over 400,000 square kilometers and a population of almost 6.5 million, Paraguay is Latin America’s second poorest country, behind Bolivia.
For the sake of comparison, Brazil has a GDP of US$ 2 trillion, an area of 8.5 million square kilometers and a population of close to 190 million. At the end of the summit, Paraguay passed the rotating Mercosur presidency to Uruguay.
The origins of Mercosur date back to 1985, although it was officially established by treaties only in 1991 and 1994. The founding members were Argentina, Brazil, Paraguay and Uruguay.
Venezuela signed a membership agreement in 2006, but awaits ratification by Paraguay before it can become a full-fledged member.
Bolivia, Chile, Colombia, Ecuador and Peru are associate members. Mexico participates as an observer nation. Mercosur has free trade agreements with Egypt and Israel.
Dilma Rousseff and Fernando Lugo decided, at the request of Paraguay, to modify a bridge (the second) that would connect the two countries, spanning the Paraná River at Presidente Franco and Foz de Iguaçu. The bridge was originally planned for only vehicles, but will now also have train tracks.
During the conversations with Lugo, Dilma requested an expedited solution for the problem of some 300,000 so-called “Brasiguayos,” Brazilians who live in Paraguay and have land ownership difficulties.
Another topic was the situation of so-called “sacoleiros” from Brazil, who cross into Paraguay and bring goods back in sacks for resale in Brazil. It is estimated that Brazil loses 5 billion reais (US$ 3.20 billion) in tax revenue due to smuggling on the border.
The question of Itaipu and its surplus energy, a subject that has recently been highlighted in the Paraguayan media, was also discussed by the presidents. Paraguay, one of the poorest countries in the world, with little industry, has a right to 50% of the electricity, but uses only a small percentage.
The two countries have a contract that requires Paraguay to sell its surplus energy to Brazil until 2023 at a fixed price (Brasilia just recently agreed to triple what it pays for Paraguay’s surplus Itaipu electricity from $120 million to $360 million annually).
Paraguay seeks to obtain the right to sell surplus energy at market prices to any buyer when the present contract expires. Uruguay, for example, has expressed an interest in buying electricity from Paraguay.
Brazil wants to maintain the status quo. Presidential aide for international affairs, Marco Aurélio Garcia, expressed the Brazilian position by pointing out that Paraguay does not need other markets citing the construction of a transmission line from Itaipu to the metropolitan region of Asuncion.
“This will eliminate a paradox: Paraguay as the country with the highest electricity generation per capita in the world, but parts of the country have frequent blackouts,” Garcia said, adding that the new transmission line will attract Brazilian firms to Paraguay and boost the local economy.
In his speech at the close of the Brazil-Paraguay summit, Lugo seemed to say that he is not interested in maintaining the status quo, calling for “free transit” of energy and goods.
While in Paraguay, Dilma signed six agreements with president Fernando Lugo and held separate meetings with him on a number of issues of mutual interest. Brazil-Paraguay commerce reached almost US$ 3.2 billion in 2010, up 39%, compared to 2009. This year, up to May, total bilateral trade was US$ 1.3 billion, with Brazil exporting goods worth US$ 1.1 billion.
As for Mercosur, total trade in 2010 was US$ 44.55 billion, of which US$ 39.22 billion went into or out of Brazil. This year, with total trade up to May at US$ 17.9 billion, it is up 27%, compared to the same period in 2010.
The presidents of Venezuela, Hugo Chavez, and Argentina, Cristina Kirchner, were absent from the summit, both with health problems.
Bolivia and Ecuador
Mercosur plans to begin negotiations with associate members Bolivia and Ecuador to make them full members, said Brazilian Foreign Affairs minister Antonio Patriota.
“There is a feeling that it’s time to increase outreach to potential candidates to become full members” said Patriota. “Two countries emerged in conversation – Bolivia and Ecuador” pointed out the Brazilian official.
Ecuadorian president Rafael Correa is currently in Asuncion to join the Mercosur summit when Paraguay hands over the rotating chair to Uruguay for the next 6 months.
Patriota said a task force of diplomats from the four member countries, Argentina, Brazil, Paraguay and Uruguay, will travel to the two countries to begin talks about full membership. Bolivia and Ecuador currently have associate status in the group.
Nevertheless Patriota said he still expects the Paraguayan congress to approve Venezuela’s bid for full membership in the trade pact, something that has already been approved by the legislatures of the other three full members.
Paraguayan president Fernando Lugo does not have the sufficient votes in the Senate and several members of the upper house have stated they will not vote for “President Chavez’ Venezuela”, claiming he’s not democratic, muzzles the press and persecutes his political enemies.
Venezuela first applied for full membership in 2006. Argentina and Uruguay legislatives supported the initiative, but in Brazil the process was exasperating slow with many objections to President Chavez’ style of government. It was finally negotiated and passed in the last quarter of 2010.
The ministerial meeting previous to the presidential summit approved several initiatives including Paraguay’s demand of no obstacles to its foreign trade which is mostly shipped along the Parana River, crossing Argentine territory.
With the purpose of increasing macro-economic policy coordination the four members agreed to create several standing groups to follow fiscal, monetary, financial, balance of payments and macro-economic dialogue policies.
Another significant point was the approval of freedom of transit for cargo which originates or is destined to a Mercosur country member. This was Paraguay’s main demand following “fluvial pickets” organized by Argentine unions that for several months impeded normal traffic along the Paraná. There is a legal WTO record on the issue but Mercosur expanded it to cover land and fluvial transportation.
Finally a task force will advance in the drafting of projects to help overcome asymmetries in the trade block and to address strategic planning, medium and long term.