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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
REGIONALISM AND THE GLOBAL CRISIS:
Protectionism, collective reactions and leaderships in the Mercosur experience

by Félix Peña
March 2009

English translation: Isabel Romero Carranza


 

According to a growing consensus, the current global crisis will manage to outlive the upcoming London Summit (April 2nd and 3rd). Even for those who are more optimistic, it is difficult to find arguments to support the forecast that at London the G20 will be able to generate a substantial turning point in the evolution of the crisis.

However the "Obama factor" may still bring in novel elements, as long as the President establishes in Washington a different diagnostic of the main global problems and develop a leadership that arouses the willingness to cooperate among the G20 countries.

The attention of protagonists and analysts -and much more so of the citizens of the involved countries- is focusing as well on the impact of the global crisis on their corresponding regional geographic areas.

As a consequence of the crisis, the issue of unilateral restrictions to mutual trade has risen again within the Mercosur. The epicenter of the problem lies in the commercial relation between Argentina and Brazil. Evidence indicates that the issue revolves along three lines. The first one is the political interest of preserving the climate of good mutual relations and of working together, among other reasons, for its strategic value in the governance of the South American regional space. The second one is the acknowledgement of the limited impact of the commercial problems that have been identified up to this point. The third and last, is the endeavor to solve specific situations through agreements between the business sectors fostered by both governments.

Looking into the future, the challenge for the Mercosur countries and for the South American region, is still to achieve what other regions -especially Europe- have already accomplished: to provide an institutional framework for collective leaderships based on mechanisms that may prove efficient for building consensus and coordinating positions in the face of events such as the current global crisis.


According to a growing consensus the current global crisis will outlive the upcoming London Summit (2nd and 3rd April). Furthermore, it is anticipated that its full effects will only become evident in the medium and long term. Such effects have not yet fully matured in any of the fields where it has had an impact, that is, the financial, the political, and the real economy and international trade.

An attempt to understand and interpret what is happening to the world around us -given that predicting its evolution would be too daring- requires a thorough knowledge of history as well as an interdisciplinary approach. Such was the contribution of professor Gilberto Dupas, a sound Brazilian and Mercosur scholar recently deceased. Among other relevant matters, he helped us to understand the logic behind the fragmentation of production chains -an essential factor to grasp the differences between the current context and that of the 1930s-. The institutional fronts in which he developed his intellectual work have been characterized by a multidisciplinary approach. Among those, we can mention his roles as Coordinator of the area for the monitoring and interpretation of international reality at the Multidisciplinary Group for the Analysis of International Trends (GACIN), at Sao Paulo University (http://www.usp.br/ccint/gacint); as President of The Institute for Economic and International Studies (IEEI) (http://www.ieei.com.br); and as Editor of the magazine Política Externa (http://www.politicaexterna.com.br). (For more on Gilberto Dupas' contributions and biography, refer to the article by his friend and academic colleague, professor Celso Lafer, entitled "Gilberto Dupas (1943-2009)", published in the newspaper "O Estado de S. Paulo" on March 15th, 2009).

The three optimistic visions that were upheld at the beginning of 2008, when the full potential of the current global crisis started to emerge, have lost force with the passing of time (see our analysis on the February 2008 edition of this Newsletter). Those visions referred to the nature of the crisis (it was basically considered a financial problem), its duration (it was measured in terms of semesters) and its scope (it was limited to certain countries with the possibility of "disengaging" from the others). Today there is no doubt that the crisis exceeds the financial and even the economic, that it may be prolonged in time and that it affects all countries to a greater or lesser degree. Aside from this, the fear of the deepening of its impact on the political level is strongly rooted in the leaders and the public opinion of a growing number of countries (see, for example, the article by Moisés Naim published in "El País" newspaper, in Madrid, on Sunday, March 15th, and the interview to José Miguel Insulza, published in "Clarín" newspaper, in Buenos Aires, on the same date).

It is now difficult, even for those who are most optimistic, to find arguments to support the forecast that the G20, in its London Summit, will be able to generate a substantial turning point in the evolution of the global crisis.

However the "Obama factor" may still bring in novel elements, as long as it establishes a different diagnostic capability from Washington of the problems being faced at a global scale, and that this translates into an efficient leadership that arouses the willingness to cooperate among all the participating countries. A difficult task, but still liable to happen.

In any case, the results from the London meeting will be evaluated in the light of the progress attained regarding the joint ability to stabilize the financial system; to promote the reform and consolidation of international financial institutions; to hold back the fall of global demand and world trade; and to neutralize the protectionist tendencies. These need to be perceived as effective progresses and not only announcements for immediate impact on the media. Otherwise, it is the same G20 that will cease to be considered as a forum for the exercise of a collective leadership in the current global juncture. The creation of an alternative forum will be no easy task, especially if it has to be undertaken as the consequence of a previous failure.

Relevant news regarding the Doha Round should not be expected from the London Summit either. An indicator of the caution that should be exercised on the future approach of the multilateral trade negotiations -at least in its more ambitious version- may well be what was pointed out by President Obama on the press conference following the Washington meeting with President Lula, last Saturday 14th March. According to the Bloomberg.com version, Obama stated that the two countries are set on working together to revive the halted global trade negotiations. However, he pointed out that "it may be difficult for us to finalize a whole host of trade deals in the midst of an economic crisis like this one…" and added later "…although we have committed to sitting down with our Brazilian counterparts to find ways that we can start closing the gap on the Doha Round and other potential trade agreements". (As per the version published in the newspaper Valor Econômico, on Monday, March 16th, under the title "Meeting Lula-Obama reduces chances for Doha"), for his part, President Lula, following the same path of caution, admitted that "…during an economic crisis it is harder to conclude the agreement").

The attention of protagonists and analysts -and much more so of the citizens of the involved countries- is focusing as well on the impact of the global crisis on their corresponding regional geographic areas. History reminds us that the scenarios for political collapse, and even for its most negative consequences in terms of armed confrontations, have, in general, started out as regional conflicts.

Attention to the adjacent contexts is especially relevant in those integration processes whose aim is to ensure reasonable governance conditions -such as peace and stability- for the respective region. They also offer the potential for strengthening the ability of each of the member countries to achieve their own goals in terms of productive transformation and insertion in the global economy. This is the case of the European Union, the ASEAN and the Mercosur. As observed by Oliver Cattaneo on his article "The political economy of PTA" (from the book edited by Simon Lester and Bryan Mercurio, listed under the Recommended Readings Section of this Newsletter), these processes normally have a political origin which, if its fundamental motivations are preserved or renewed, may account for the long term vitality of its economic content.

It is well known that regional integration processes are constantly submitted to the dialectic tension between factors that drive towards fragmentation and those required as conditions for greater cooperation and integration, at least of the respective economic systems.

It is also a known fact that there is not one unique model that preserves and strengthens the political will of working together among sovereign states. This means that each regional geographic space needs to develop its own methods to articulate national interests. This task is often a complex one when trying to reconcile the sometimes very deep differences in relative power, economic dimensions and level of development, among participating countries.

As a result of the current global crisis, such methods of regional integration are now being put to the test in at least three fronts. One of these fronts is that of the protectionist trends in the mutual relations of participating countries, the second is that related to the ability to articulate common positions in response to the effects of the crisis, and the third one is that of the exercise of an effective collective leadership in the corresponding regional space.

On this opportunity, our analysis focus on the Mercosur, even though there will be references to what can be observed within the ASEAN and the European Union as well.

The issue of unilateral restrictions to mutual trade has risen again within the Mercosur. It had happened previously, towards the end of the 1990s, as a result of the effects of three consecutive blows on the economies of member countries and on trade within the region: the Asian crisis (1998), the devaluation of the Real in Brazil (1999), and the collapse of Argentine convertibility (2002).

Once again as before, the epicenter of the problem lies in the commercial relation between Argentina and Brazil. Bilateral trade has fallen over 40 percent in the first two months of this year. This clearly reflects the decrease in economic activity and foreign trade in both countries and has originated reciprocal references regarding the application of restrictive measures, especially through the use of non-automatic import licensing. In fact, both countries apply them. In the case of Brazil, the recent Trade Policy Review report by the WTO Secretariat points out that its regulations contemplate the implementation of non-automatic import licenses for approximately 3,500 tariff lines. (For the full text of the chapter on "Trade policies and practices by measure" of the document by the WTO Secretariat WT/TPR/S/212 dated February 2nd 2009, go to http://www.wto.org/ or click here. This document also presents a detailed analysis of the financing programs for exports and investments, which contemplate subsidized interest rates with the aim of making them equal to the international ones).

There is a controversy regarding the causes of the current trade imbalance and the extent of the measures being applied. However, as it happened on the previous occasion, all indicates that the reciprocal trade issue is being approached from three angles. First, is the political interest of both countries of preserving the climate of good mutual relations and the working together idea, among other reasons for its strategic value in the governance of the South American region. Second, the acknowledgment of the limited impact of the trade problems that have been identified (they involve roughly 5 percent of mutual exchanges). And third is the attempt to solve each particular situation through agreements between the business sectors, fostered by both governments. These have proved successful in the past and there is no reason to believe that they will prove otherwise now. It might have been wiser to contemplate some escape clauses -flexible yet ruled by collective controls at the same time- as a comprehensive component of the mechanisms and instruments of Mercosur. However, this was not achieved on a previous opportunity. Only a bilateral mechanism between Argentina and Brazil, not yet in force, was agreed upon on that occasion.

Regarding the ability to articulate joint positions, even when there have been some bilateral exchanges -such as the visit of the President of Uruguay to Brazil and of the President of Argentina also to Brazil- the Mercosur lacks a recent joint analysis of the impacts of the global crisis and how to face them. Instead, there have been meetings at the highest political level in the case of the European Union (several meetings with the aim of agreeing a common position before the London Summit) and of the ASEAN. (For example, the "Press Statement on the Global Economic and Financial Crisis" from the 14th ASEAN Summit held in Cha-am Hua Hin, Thailand, on 1st March 2009. In it, after reviewing the different aspects of the impact of the global crisis on the region, it is stated that the member countries "looked forward to working with other partners to convey the above views at the forthcoming London Summit in April 2009. In this connection, they asked ASEAN Finance Ministers to provide further inputs for the ASEAN Chair and Indonesia, as a member of G20, to convey to the London Summit". The full text of the press release by the Summit can be read at http://www.14thaseansummit.org/ or click here.

Ultimately, the issue of an effective collective leadership within Mercosur or South America is reflected in the foreign perception of the role of Brazil. Due to its economic dimensions, the President Lula's image and its institutional strength, Brazil is perceived as a country that is able to assume the leadership of the South American region as well as of the Mercosur. President Lula's visit to Washington and his interview with the US President on Saturday 14th March may contribute to consolidate this perception. It had been previously evinced in the strategic partnership that was agreed between Brazil and the European Union.

However, the experiences of other regional geographic spaces indicate that efficient leaderships are those which result in the creation of shared positions among different countries that have the capacity, at the same time, to be relevant protagonists and leaders themselves. Mike Hammer, the spokesman for the US National Security Council (NSC), reminds us of this when he mentions that Brazil is a key regional leader (in the newspaper "Folha de Sâo Paulo", from Saturday 14th March) and goes on to affirm that other countries in the hemisphere have leadership aptitudes as well, among which he mentions Mexico and Argentina.

Looking into the future, the challenge for the Mercosur countries and for the South American region is still to achieve what other regions, in particular Europe, have already accomplished: to provide an institutional framework for collective leaderships based on mechanisms that may prove efficient for building consensus and coordinating positions in the face of events such as the current global crisis.

The fact that this has yet to be achieved may rise some questions as to the possibility that any individual country -as large as it may be and above all if it is not relevant enough in terms of power resources and critical mass- may really aspire to reflect a regional collective point of view in places such as the London Summit.


Recommended Readings of Recent Publication:


Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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