The leaders of Mercosur are convening in Tucumán, Argentina, this week, for their semi-annual conference and for the inauguration of Brazil’s Luiz Inácio Lula da Silva as its pro-tempore president. San Miguel de Tucumán, the largest city in northwestern Argentina and the capital of the province of Tucumán, was the site of Argentine independence from Spain in 1816.
Mercosur should take advantage of the historic significance of this site and use this meeting to redefine itself independently from other regional integration schemes and trade blocs. If Mercosur seeks to maintain the recognized international legitimacy it has worked so hard to achieve over the past seventeen years, it needs to clearly identify its goals for the future.
In 1991, the Treaty of Asunción established the Mercado Común del Sur, commonly referred to as Mercosur. With this treaty, Argentina, Brazil, Paraguay and Uruguay committed themselves to increasing regional integration and eliminating obstacles to internal trade.
Modeled after the European Union (EU), the trade bloc is now one of the largest and most influential commercial trade zones in the world, and is responsible for more than three-fourths of the economic activity on the continent. While Argentina, Brazil, Paraguay, and Uruguay are permanent members, Venezuela’s status as a full member is still pending.
The Andean States of Bolivia, Colombia, Ecuador, and Peru, along with Chile, are associate members. The presidency of Mercosur rotates every six months and is currently held by Argentine President Cristina Fernández de Kirchner.
In the beginning, Mercosur successfully created trade-driven unity among its member countries. However, numerous challenges, both internal and external, have since threatened its efficacy as a bastion of regional integration and economic growth.
Mercosur’s member-states have been divided over a bitter pulp mill conflict between Argentina and Uruguay. In 2005, Uruguay disclosed plans to Argentina regarding the establishment of two pulp mills on the Río Uruguay, a boundary that separates the two nations. Argentines were vehement, claiming that the mills would only pollute the area and dissuade tourism, in addition to violating the 1975 Treaty of the Uruguay River.
Uruguayan leaders insisted that advanced technology and careful management would prevent the mills from polluting the environment. They also argued that the project would be beneficial for the Uruguayan economy and a rare source for hard-to-find jobs. Despite Uruguay’s attempts to justify and defend the project, Argentine activists established roadblocks on bridges over the river, restricting access to Uruguay’s tourist-hot-spot beaches in Punta del Este.
By restricting the passage of trade between the two countries, these roadblocks violated one of the major principles of the Treaty of Asunción. Mercosur held an ad hoc meeting to address this issue and ruled in favor of Uruguay. Argentina then took its case to the International Court of Justice (ICJ), which also ruled in favor of the Uruguayan mills.
All of this activity focused substantial international attention on the issue and magnified its significance, causing strained relations between the two countries. According to José Botafogo Gonçalves, former Brazilian ambassador to Argentina and Mercosur, the mill conflict depicts “the weakness of the integration progress” amongst member nations. Although diplomatic relations between the two countries have improved greatly since 2005, they remain less than amicable.
Another conflict within the trade bloc relates to a specific provision of the Treaty of Asunción that prohibits individual member countries from seeking trade agreements with other blocs. The smaller nations of Paraguay and Uruguay feel restricted by this clause because it makes it difficult for them to have the same economic opportunities as Brazil and Argentina.
In 2007, Uruguay pushed the limits of this restriction by signing a Trade and Investment Framework Agreement (TIFA) with the United States. According to many experts, TIFAs are often preliminary steps to the establishment of Free Trade Agreements (FTAs) with other countries. If Uruguay follows this trend, it would be directly violating its commitment to Mercosur and its membership could be revoked.
The status of Venezuelan membership has also incited debates within the trade bloc. Venezuelan President Hugo Chávez, evoking rhetoric and goals reminiscent of those of Simón Bolívar, has long-championed efforts to create a South American organization to compete with the North American Treaty Organization (NATO).
With a Bolivarian vision, Chavez supported the Venezuelan bid to Mercosur, which he saw had the potential to unite the continent. To expedite the acceptance process, Chávez also withdrew from regional agreements with the Andean Community and the G3. The presidents of member-countries at the time, Kirchner, Lula da Silva, Vasquez, and Paraguayan President Nicanor Duarte, were all proponents of the country’s addition.
Similarly, many academics have asserted that the addition would increase Mercosur’s international clout and stimulate the circulation of resources throughout Latin America, especially because Venezuela has the fifth largest oil reserve in the world. In spite of this support, both Brazilian and Paraguayan legislatures have yet to ratify the bid.
Other experts have argued that this delay is politically motivated and not for the greater economic gain of the trade bloc, to which Venezuelan resources would certainly provide a boost. While Venezuela’s membership status remains undetermined, the cohesion of Mercosur and its ability to move forward as a united organization have been disrupted.
These issues have caused many academics to question Mercosur’s role in contemporary international society. Academics acknowledge that the trade bloc has become politicized over the years and is poised to continue this trend.
Specifically, a George Washington University professor said, “Mercosur is not only weak but also sick, and countries have lost their real desire to remain a part of the trade bloc.” With ongoing friction and disputes within the alliance, the member countries must find a way to put aside their differences so Mercosur can operate as a cohesive front for regional integration.
The European Factor
Mercosur has sought to promote free trade within Latin America by initiating the negotiation process with other trade blocs. In 1995, Mercosur signed an Interregional Framework Cooperation Agreement with the EU, affirming both parties’ commitment to pursuing negotiations. The EU is Mercosur’s biggest trade partner, receiving twenty-four percent of its exports. Additionally, the EU is the biggest financial supporter of Mercosur.
After thirteen years of stalled negotiations, however, no free trade accord between the two blocs has come into fruition. A potential EU-Mercosur agreement would increase both blocs’ legitimacy and give both sides the potential to contend with other economic hegemons. Taking this into consideration, the lack of an agreement must be seen as detrimental for both parties.
Dr. Shannon K. O’Neil, Fellow for Latin America Studies at the Council on Foreign Relations, believes that an agreement between the blocs will probably not occur anytime soon. However this is not because both parties do not aspire to negotiate, but because “regional trade resolutions are very different, and the European Union has had a hard time with this” due to the differences in mandates and missions of member countries.
Mercosur and the EU recently met on May 17 at the fifth EU-Latin American and Caribbean Summit in Lima, Peru. During this meeting, participants reaffirmed their commitment to continue the process of negotiations but did little else, while the date of their next meeting remains undecided.
President Fernández de Kirchner and the head of the European Commission, Juan Barroso, declared that, “if no country yields [to the other], there’s no agreement.” Mercosur did not yield to EU requests for heightened tariffs on manufactured imports during the May meeting. According to Fernández de Kirchner, the EU proposals would impoverish many people, thus contradicting the overall purpose of an agreement.
Mercosur should have capitalized on the opportunity to negotiate by providing concrete evidence of how heightened tariffs would have been detrimental to people throughout the continent as more reason for the EU to compromise. The disparity of wealth between the upper and lower classes in Latin America remains vastly larger than the disparity of wealth found in European countries. The EU cannot expect Mercosur, representing an impoverished continent in comparison with Europe, to agree to heightened economic conditions.
In addition, both parties have stated that negotiations are stalled pending the results of the Doha World Trade Talks. However these talks have been underway since 2001 and have achieved little progress. Mercosur and the EU cannot afford to further prolong negotiations by waiting for the Doha Round. By doing so, the legitimacy of both blocs is further compromised by their inability to achieve results and the lack of tangible progress after thirteen years.
Regardless of Mercosur’s stalled negotiations with the EU, the organization has made slow but important progress in other areas. On December 19, 2007, Mercosur leaders met in Montevideo, Uruguay for their semi-annual conference, and inked a long-awaited agreement with Israel, a country that Mercosur engages in US$ 1.1 billion of trade yearly.
The agreement resolved to reduce trade tariffs on the majority of goods and services between the countries in the next ten years. This shows that Mercosur is willing to negotiate beyond regional boundaries, and is seeking to expand its influence on a greater international level than initially asserted in Asunción’s language.
On May 23, 2008, the creation of the Union of South American Nations (Unasur) by Latin American leaders merged the regional trading blocs of the Andean Community and Mercosur. Although Unasur maintains that it prioritizes political integration over economic integration, the latter is still on the organization’s agenda.
Plans to facilitate intra-regional trade include eliminating all ‘non-sensitive’ tariffs by 2014 and the gradual elimination of all tariffs on products by 2019. These plans would theoretically eliminate tariffs throughout all of Latin America, one of Mercosur’s chief objectives.
Regardless of Unasur’s political foundation, involvement in the larger trade bloc will provide more obstacles for Mercosur and will make it harder for member nations to retain their alliance to the organization. Another bloc with more members and similar goals is poised to be stronger and more effective than Mercosur, so what will the purpose of Mercosur be now? The Southern Common Market needs to find a way to maintain its essence.
According to Dr. O’Neil, however, involvement with Unasur would not interfere with Mercosur’s goals. She elaborated that the organizations are complementary because Mercosur has not achieved its initial aspirations and thus is not competing on the same level with Unasur.
In other words, if Mercosur was still attempting to achieve its original aspirations there would have been a conflict of interest, but the organization is no longer strong enough to do this and thus will be willing to participate in Unasur.
Furthermore, organizations such as Unasur have emerged to fulfill just what Mercosur failed to achieve – intra-regional integration and unity. Based on this, Mercosur inevitably faces a challenge ahead: how to achieve growth and unity between member states while at the same time becoming a part of a larger regional integration scheme.
What lies ahead for the Mercado Común del Sur? The trade bloc has recently announced plans to negotiate with more partners outside of Latin America, including the South African Customs Union, the Cooperation Council of the Gulf (Arab nations), and India.
These plans for international economic growth have great potential to help the organization achieve international prominence if carried out correctly and efficiently. However, stalled negotiations such as those with the EU only pose a threat to the organization’s legitimacy and credibility.
Moreover, the internal disputes within Mercosur destabilize the unity of the organization and are counterproductive for an organization designed to promote intra-regional solidarity. Under the auspices of its peoples’ best interests, Mercosur must rediscover itself, keeping the past struggle for regional integration in mind while establishing goals for the future.
This analysis was prepared by COHA Research Associate Kristin Bushby. The Council on Hemispheric Affairs (COHA) – www.coha.org – is a think tank established in 1975 to discuss and promote inter-American relationship. Email: email@example.com.