The Nature of Mercosur
From the time of its inception when the Asunción Treaty was signed in 1991 until today, experts and politicians have been unable to pinpoint the ultimate purpose of establishing Mercosur. One point of view sees it as a political project that aimed to unify South American developing countries against the ambitions of the US and other powerful trading blocs that enjoy influence in the world economy (Gomez Mera, 2005). Another view is that Mercosur is an economic project to improve the economic conditions of its members by utilizing the comparative advantages of different countries and strengthening economic interdependence among them via the promotion of trade, the gradual elimination of customs duties and the removal of non-tariff barriers (Global Envision 2005).
Proponents of the first view point to the obstacles the bloc has faced since the time of its establishment and the resilience it has shown in overcoming them. This is attributed to a strong political will, motivated by a common regional vision on part of both Brazil and Argentina’s governments (Gomez Mera, 2005). Advocates of the second view, on the other hand, focus their attention on the wording of the founding documents of the bloc, the Asuncion Treaty and the Protocol of Ouro Preto, which spell out the short and long term goals of the founding members of the trade bloc (Brazil, Argentina, Uruguay, and Paraguay). They point to articles of the treaty that make explicit the fostering of economic integration through the gradual establishment of a free trade area that could later develop into a customs union. They also call attention to the absence of any political language in these documents of the Asunción treaty (Malamud 2005).
Performance and Comparison with EU
It is not uncommon to hear about comparisons between the European Union and Mercosur. There is no shortage of differences when it comes to the institutional structure of the two blocs. The EU integration process is driven by forces such as transnational actors, national governments, The European Commission, and the European Court of Justice. Each of these institutions was a product of the integration process, as much as it was a driving force (Sandholtz and Stone Sweet 1998). The European Court of Justice, for example, has produced hundreds of rulings every year since its inception. To put these figures in context, Mercosur’s dispute settlement mechanism in the form of an ad-hoc tribunal has only been utilized nine times between 1991 and 2005 (Malamud 2005). In general, Mercosur’s institutions have not enjoyed a level of success that is in any way comparable with their European counterparts. As a result the integration process has been largely driven by national governments.
There are various areas that demonstrate Mercosur’s inability to build supranational institutions that can foster a more comprehensive integration process along the lines of the EU. One of them is national governments’ unwillingness to establish an institution that can perform executive functions similar to the European Commission. For these national governments, such an institution would result in reducing their power. Partial success, however, has been achieved through the establishment of a permanent appeals court in 2002. The problem with this court is that only states can be parties in a dispute, unlike the European Court of Justice where citizens can sue government and transnational entities (Malamud 2005). Another area where Mercosur lags behind the EU is the reduction of income disparities across the countries that make the trade bloc. These disparities among countries and across regions within the same country have tended to increase since the creation of Mercosur. The only exception to this trend is Brazil, a country with historically extreme income inequality. In Brazil there has been a reduction in income disparity across different regions. The EU, on the other hand, has had success in reducing income disparities across its different countries (Blyde 2005).
At the heart of these deficiencies in the Mercosur process lies a fundamental factor: the level of interdependence among European Union countries before the integration process began to intensify was much stronger than that among MERCOSUR countries.
Having explained how Mercosur’s shortcomings leave it significantly behind the EU in the efficiency of its integration process, it is worth shining some light on the performance of this trade bloc. In 2002, GATT (General Agreement on Tariffs and Trade) did not consider Mercosur to be a customs union. It described it as an “incomplete free trade area with some degree of harmonization of member states.” Levels of intra-bloc trade increased substantially after the signing of the treaty in 1991 only to slow down later. A recent study, for example, has shown that only 10.3% of Brazil’s total exports and imports are made with other countries of Mercosur (Kassum 2011). Overall, intra-bloc trade still represents a low fraction of Mercosur’s total trade. Intra-bloc tariffs also remain in place, but a common external tariff (CET) has been established. Unfortunately, turbulent economic conditions have forced some countries to violate the rules, resulting in 800 exceptions to the CET. The most prominent example is Argentina in the aftermath of the economic collapse of 2001 (Malamud 2005).
There are also some non-tariff barriers such as administrative delays of customs and side delays between principle businesses. Despite this, it is said that 85 percent of goods and services are traded free of restrictions. This does not mean that Mercosur has not made any significant achievements. Trade within Mercosur has increased seven fold between 1991 and 2008, reaching a total of USD86 billion (Xinhua Net 2010) Significant progress has been made with regard to the elimination of the double levying of the CET, and some commitments have been made to strengthen the Customs Union Consolidation Program (Inter-American Development Bank 2011). But perhaps Mercosur’s most salient achievements are in the political realm. Its establishment has led to the reduction of rivalries in a region that was, until recently, rife with inter-state competition and conflict. A case in point is the Brazilian-Argentine nuclear rivalry which was practically ended by the opening up of these programs and the initiation of cooperation in this area (Argüello 2009).
Power Dynamics within Mercosur
Given the fact that Brazil and Argentina represent the core of Mercosur’s economic weight, it is not surprising that the governments of both countries, especially that of Brazil, have played an essential role in founding the trade bloc and steering its development in a direction that fits their national interests. However, the other two small countries, Uruguay and Paraguay, have not shied away from pressing for concessions that would benefit their economies. Brazil has been able to gain access to a larger market for its goods via Mercosur which has helped develop its industry – in some cases at the expense of the industries of other countries in the bloc – and lock in liberal reforms through an international agreement. This, however, has also reduced its flexibility to sign FTAs with extra-bloc members, since Mercosur has to negotiate as a trade bloc with outsiders (Maldaner 2010). Argentina also benefited immensely through access to the vast Brazilian market. The other two countries have been able to push for programs that promote structural convergence and develop competitiveness. They have also lobbied successfully for a Mercosur credit fund that can help small and medium enterprises access banking credit (Maldaner 2010). This explains why Brazil has been particularly accommodating to Argentina’s frequent additions to the listing of goods that are exempted from CET rules in the aftermath of its economic crisis in 2001.
There is more to Brazil’s interest in Mercosur than utilizing the comparative advantage it has in certain sectors. Brazil sees Mercosur as a tool that will allow it to cement its status as a hegemonic power in South America. This will therefore strengthen its position, as well as South America’s, in multilateral, hemispheric, and inter-regional negotiations.
Challenges Facing Mercosur
The past year has seen many developments that are likely to play an important role in shaping the future viability of Mercosur as an integration project. The first development was the suspension of Paraguay’s membership on the 22nd of June at the summit in Mendoza, Argentina. This was due to the swift impeachment process which resulted in the ousting of the President and the Vice President’s assumption of power, a process likened to a civil coup. The second development was the admission of Venezuela into the bloc as a full member (AEGIS Advisory 2012). In some way, the second development came as a consequence of the first since Venezuela’s membership bid had already been approved by the national assemblies of all Mercosur countries except that of Paraguay, so the suspension of its membership played a pivotal role in the approval of the bid.
Venezuela’s accession to the bloc is likely to have a number of consequences. On the one hand, there is the obvious benefit of expanding Mercosur, and thus boosting its economic clout. This can also have a positive effect on the economies of Brazil and Argentina since it opens up a new market for goods coming from these two countries. On the other hand, it might not be as beneficial to the Venezuelan economy and result in the politicization of the bloc. Many Venezuelan economists have warned that some Venezuelan industries are already not very competitive. Exposing these sectors to competition from other Mercosur countries will certainly have a deleterious effect (Márquez 2012). There are many ways that Venezuela’s accession to the bloc can result in internal rifts. One way this can happen is through Hugo Chavez’s anti-imperialism rhetoric, likely to continue under Nicolás Maduro, which informs a starkly different vision for what Mercosur should be about than that of its founding members. Bolivia’s president subscribes to a doctrine which had been espoused by the Chavez government called “The Bolivarian Alternative for the Americas” (La Alternativa Bolivariana Por Las Americas). This doctrine advocates the rethinking of many of the liberal economic underpinnings of Mercosur (Brown 2010). Another way is the emergence of intra-bloc retaliatory measures. The most recent example of this is Venezuela’s embracing of Mercosur’s instruments of multilateral collaboration but explicitly excluding Paraguay from the latest set of regional accords (United Press International 2013).
The most daunting and potentially devastating challenge Mercosur faces is the prospect of some of the smaller member states leaving the bloc. There are many ways this scenario can play itself out. One example is the case of Paraguay where its continued suspension from the bloc under the pretext of the breach of Mercosur’s democratic clause can severely undermine bloc’s credibility should it decide to tolerate Chavez’s successor’s authoritarian practices. Such an action would indicate that the only principle Mercosur’s strongest members are committed to is expanding their access to regional markets and cementing their hegemonic status. Another example is the case of Uruguay which is already alienated by the possible accession of Bolivia and its granting of special exemptions on its tariffs (Klom 2003). Should Bolivia be admitted and granted these exemptions, Uruguay is likely to demand the same treatment and use its Trade and Investment Framework Agreement with the US as leverage to pressure Brazil. Should that fail, Uruguay is likely to sign an FTA with the United States and leave the bloc.
AEGIS Advisory. 2012. Mercosur’s controversial move. July 20.http://www.strategicriskindex.com/pdf/Mercosur’s%20controversial%20move%2013%20Jul%202012.pdf.
Argüello, Irma. 2009. Brazil and Argentina’s Nuclear Cooperation. January 8.http://www.carnegieendowment.org/2009/01/08/brazil-and-argentina-s-nuclear-cooperation/5cm.
Blyde, Juan S. 2005. Convergence Dynamics in Mercosur. January.http://sela.org/DB/ricsela/EDOCS/SRed/2006/05/T023600002155-0-Convergence_Dynamics_in_Mercosur.pdf.
Brown, Kristin. 2010. Venezuela Joins Mercosur: The Impact Felt Around the Americas.http://studentorgs.law.smu.edu/getattachment/International-Law-Review-Association/Resources/LBRA-Archive/16-1/Article5.pdf.aspx.
Global Envision. 2005. Mercosur – Demystified. September 28.http://www.globalenvision.org/library/15/807.
Gomez Mera, Laura. 2005. “Explaining Mercosur’s Survival: Strategic Sources of Argentine-Brazilian Convergence.” In Journal of Latin American Studies, 37, 109 – 140.
Inter-American Development Bank. 2011. MERCOSUR Report Number 16. June.http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=36712280.
Kassum, Julian. 2011. The 20 years of Mercosur – a turning point? February 26.http://abconomics.com/2011/02/26/the-20-years-of-mercosur-a-turning-point-2/.
Klom, Andy. 2003. Mercosur and Brazil: a European perspective.http://www.chathamhouse.org/sites/default/files/public/International%20Affairs/Blanket%20File%20Import/int.
Malamud, Andres. 2005. “Mercosur turns 15: Between rising rhetoric and declining achievement .” Cambridge Review of International Affairs 421.
Maldaner, Luis Felipe. 2010. MERCOSUR – Advantages and Disadvantages from the Brazilian Perspective. http://www.ajlas.org/v2006/paper/2010vol23no102.pdf.
Márquez, Humberto. 2012. Local Producers Worried about Venezuela’s Admission to Mercosur. July 31.http://www.ipsnews.net/2012/07/local-producers-worried-about-venezuelas-admission-to-mercosur/.
Sandholtz, W., and A. Stone Sweet. 1998. “European Integration and Supranational Governance.” Oxford: Oxford University Press.
United Press International. 2013. Venezuela intent on freezing out Paraguay. January 3.http://www.upi.com/Top_News/Special/2013/01/02/Venezuela-intent-on-freezing-out-Paraguay/UPI-45281357164729/.
Xinhua Net. 2010. Brazil’s Lula hails Mercosur achievements. December 17.http://news.xinhuanet.com/english2010/world/2010-12/17/c_13654034.htm.