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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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A NEW STAGE OF MERCOSUR?: Clear horizons after the San Juan Summit

by Félix Peña
August 2010

English translation: Isabel Romero Carranza


 

Has a path opened up towards a new stage in the development of Mercosur? The actual facts support an affirmative answer. The results of the San Juan Summit have been considered positive, among other reasons, because they have shown progress in three fronts that are key for the construction of a space of regional integration among Mercosur member countries. Furthermore, these three fronts are interconnected.

The first and foremost of these fronts is the strategic association between Argentina and Brazil. The cooperation in the nuclear field, a key issue in the strategic relations between the two countries, received a new thrust at San Juan. The second front is the development of Mercosur's full potential. Several were the results of the Summit on this regard. However, the most important ones are related with the consolidation of the customs union through the approval of instruments, such as the Customs Code, which had been pending for several years. The third front is that of the trade negotiations with third countries. On this regard the conclusion of a free trade agreement with Egypt and, in particular, the concrete signals towards joint negotiations with the EU based on a customs union can be highlighted.

While holding the pro-tempore presidency of Mercosur, during the second semester of this year, it is to be expected that President Lula promotes initiatives to agree on the new objectives of integration and to make the conclusion of the EU- Mercosur agreement -at least of its most relevant aspects- a priority at the Foz de Iguazú Summit next December. This would be an attainable goal if both sides show political will, strategic vision and technical ingenuity to cater, with flexible instruments, to the respective sensibilities.


Has a path opened up towards a new stage in the development of Mercosur? The results of the San Juan Summit of the 2nd and 3rd of August would indicate that the conditions to move forward with the construction of Mercosur are now present. This would seem to be the idea conveyed by the Brazilian government through the interview given by the Foreign Affairs Minister Amorim to the newspaper Valor Econômico on August 9. In it he pointed out that some important steps have already been taken but that it would be necessary to move forward. The following were mentioned as some of the issues that will require additional attention: the elimination of the exceptions to the common external tariff; an agreement of government purchasing which results in actual preferences; and a broader services agreement that grants national treatment to the businesses belonging to the block in all of its countries. He added that "em vez de negociar setorzinho por setor será que nâo devemos ter meta para definir, que devem ser alcanzadas?, and wondered whether it would be time to "pensar grande novamente no futuro? Additionally, he made a cautious reference to the progress that might be achieved in the negotiations with the European Union (EU) and considered it more realistic to anticipate advancements during this year but not necessarily the conclusion of an agreement.

The fact that Brazil has held the pro-tempore presidency of Mercosur in this second semester -and thus the coordination of the negotiations with the EU- has given the declarations a special significance. They are supported by real facts, precisely that the results of the San Juan Summit have been positive and, in a certain way, unexpected (for another view of the results of the Summit see the article by the Ambassador Rubens Barbosa, "A saga do Mercosul", in the newspaper O Estado de Sâo Paulo of May 10, 2010). These results have been made manifest in three interconnected fronts.

The first front is the consolidation of the strategic association between Argentina and Brazil. Launched by the agreements Alfonsín-Sarney, its fundamental aspects remain unaltered after a quarter of a Century. However, in a certain way, it is a permanent work under construction. It constitutes an alliance upheld by two basic pillars.

One of these pillars is the mutual trust in relation to the multiple outcomes of nuclear development in Argentina and Brazil, and the appreciation of the reciprocal cooperation in the field. The signals resulting from the San Juan Summit indicate that both countries firmly stand by their commitments on this regard (for the texts both in Spanish and Portuguese of the Declarations of the San Juan Summit of August 3 - San Juan Declaration, Joint Declaration on Malvinas, Joint Declaration on Nuclear Cooperation - go to http://www.itamaraty.gov.br/). This is what makes this bilateral relation the hard core of peace and political stability in South America. Within the current regional and global context this is not a minor fact. As such, it even contributes to generate a favorable climate for the implementation, by businesses, of investment decisions and productive clusters that help develop the huge potential that the region has within the new global economic scenario.


The other basic pillar of this strategic association is that of economic and trade preferences, conceived as instruments for facilitating the joint productive transformation and the capability for negotiating with other countries. This is a pillar that, while preserving the bilateral identity and dynamics, is inserted within a wider Mercosur framework which in several aspects has a clear South American dimension. On this regard, it should be noted that the functions and objectives of Mercosur's and UNASUR's institutional spaces may be considered complementary. This month's events in the relations between Colombia and Venezuela would illustrate this point (on the relations between both institutional spaces and their possible complementation, see our article "La integración del espacio sudamericano: ¿La Unasur y el Mercosur pueden complementarse?", in Revista Nueva Sociedad Number 219, January-February 2009).


The second interconnected front is the realization of Mercosur's full potential. This is a multidimensional and long term project. It is a continuous process with no finishing line or guarantees of irreversibility. Such as what is more evident today with the EU, Mercosur does not follow any text book models nor any of the models developed in other regions. It is, as it should be, an attempt at joint work between a group of countries that tries to respond to the characteristics, interests and realities that are particular to the region. It is not an easy task to accomplish in practice and this is the reason why it will always seem incomplete and far removed from any ideal. Even the adjective "imperfect" normally used in the academic world to describe the customs union that is the aim of Mercosur may be signaling some difficulties in the understanding of the real world in which almost anything may be considered imperfect or incomplete in comparison with the ideal models. It could also be reflecting a lack of understanding of the regulations that, within the framework of the World Trade Organization, define such modality of market integration - especially article XXIV, 8 a) of GATT-.

Among other relevant issues, (see the text of the Joint Declaration of the Presidents of the Mercosur member countries on http://www.itamaraty.gov.br/), what was achieved at the San Juan Summit was a significant progress in the development of those unresolved matters that had been pending since the approval of the external common tariff in Ouro Preto in 1994 (see the Minutes from the XXXIX Meeting of the Mercosur Council and Decisions that were approved on http://www.mercosur.org.uy). These are the Customs Code (Decision CMC 27/10 on http://www.mercosur.org.uy or click here); the elimination of the double imposition of the external tariff and the distribution of the customs revenue (Decision CMC 10/10, on http://www.mercosur.org.uy/ or click here); the single administrative document, (Decision CMC 17/10, on http://www.mercosur.org.uy/ or click here),and the procedures manual for the control of customs value (Decision CMC 16/10, on http://www.mercosur.org.uy or click here). What was agreed regarding these issues involved reconciling different interests and views. Additionally, during the final stage of San Juan, it also demanded technical ability and a great deal of political will.

Even when it may be considered a clear success of the Argentine presidency of Mercosur during the first semester of this year, what was achieved in San Juan does not mean that the job regarding these issues is over. Still ahead are the meaningful steps that need to be taken for the commitments to become effective and impact reality. Driving them further will probably be one of the priorities for this year. This may be a hard task to accomplish. However, it is a normal aspect of any integration process between two sovereign nations that aspire to remain so, particularly when there are marked asymmetries in their size and relative economic power. The idea of linear paths with no jolts is not compatible with the political and economic realities, they only exist in theory. On the contrary, the voluntary integration between sovereign nations entails winding journeys characterized by crisis, setbacks and, sometimes -as was the case here- forward leaps. These are processes that can even result in failure or morph into something different from what was originally planned.

In order to assess the work that still needs to be done regarding the issues that were approved in San Juan we should note that in the past other basic instruments of Mercosur, such as for example those related to the defense of competition or how to deal with investments, were never fully approved internally by each country. In a manner of speaking it could be said that Mercosur has several "legal corpses" in its history. A previous version of the Customs Code had already been approved in 1994. It is possible that the buildup of agreements that cannot go beyond the stage of formal approval by the Mercosur Council is one of the clearest indicators of the institutional inadequacies of the integration process. Common rules are often approved without having previously been screened by the filters of the respective national interests or by the competent technical bodies of each government. The need to produce successful summits has demonstrated, in the twenty years of Mercosur's existence, that this can be, depending on the circumstances, either a fact that encourages the progress of real integration or that only generates episodes of "media diplomacy", i.e.: headlines for next day's papers that later fail to translate into facts.

The third of the fronts is that of Mercosur's international trade negotiations with third countries. A new free trade agreement with Egypt was signed in San Juan, (for the full text of the agreement and its annexes go to http://www.mercosur.org.uy/show?contentid=2370). Previously, an agreement had been signed with Israel. Additionally, there are those preferential agreements signed with other developing countries.

More than the relative importance of such agreements, measured by their incidence in the trade and investment flows, what becomes relevant is that they confirm a strategic idea that had been challenged at times by some sectors of the member countries. Lately this idea had been questioned by several personalities in Brazil (see the July 2010 edition of this Newsletter). What is called into question is if Mercosur may be able to carry out preferential trade negotiations with other countries and, in particular, with those with which economic relations are, or could be, of great significance. Thus the need to prioritize bilateral trade negotiations that would involve a change in the fundamental rules of Mercosur has been raised. This could lead to the deterioration of the necessary mutual trust which constitutes the foundation behind the idea of the strategic alliance that has been promoted for the last twenty five years. An interesting precedent on this regard was precisely the reaction of Brazil, and of Argentina as well, to Uruguay's attempt to conclude a Free Trade Agreement with the US. during the presidencies of Jorge Batlle and Tabaré Vázquez. (For an excellent analysis of this precedent, see the book by Roberto Porzecanski listed under Recommended Reading).

From there the importance of the signals that have clearly emerged from the San Juan Summit in relation to the recently re-launched bi-regional negotiations with the EU Three of these signals are worth noting. The first and foremost is the reaffirmation by the partners of their commitment to strengthen Mercosur, even placing commercial differences within the broader perspective of a strategic intent that transcends the economical. On this regard we can recall the definition given not so long ago by the Foreign Affairs Minister Amorim when he pointed out that, for Brazil, Mercosur was a synonym of peace and political stability in South America. The second signal comes precisely from the measures adopted to complete the basic instruments of a customs union. The Customs Code, the double imposition of the external tariff, and the distribution of the customs revenue, have been some of the main priorities in the expectations list of the EU in order to negotiate with Mercosur. Finally, the third signal has been the reaffirmation by President Lula of his interest in a fast progress of the bi-regional negotiation.

While holding the pro-tempore presidency of Mercosur during the second semester of this year, it is only natural that President Lula should make of the progress towards the conclusion of an EU-Mercosur agreement -at least in its fundamental aspects- a priority of the Foz de Iguazú Summit next December. This is an attainable goal if both sides show a good dose of political will, strategic vision and technical ingenuity in order to tend with flexible instruments (multiple-speed, variable geometry, safety valves, differential treatment) and with the specific rules of origin, to the respective sensibilities. These are present in all the participating countries and on both sides of the Atlantic. Additionally, it could be necessary to give special treatment to certain complex and sensitive sectors such as the automotive one, among others, which has had a special treatment since the inception of Mercosur. Something similar has happened with the agricultural sector in the case of the European Union.

Other issues which have been the purport of agreements signed and decisions adopted at the San Juan Summit give evidence of the density and relevance that Mercosur's agenda will have in the future. The main ones refer to the Guarani aquifer (for the text of the agreement signed by Argentina, Brazil, Paraguay and Uruguay, go to http://www.itamaraty.gov.br/); the financing of infrastructure and productive projects of general interest (for the texts of the Council's Decisions in reference to these projects go to http://www.mercosur.org.uy/), and the cooperation with other countries reflected, in this opportunity, by the trade preferences granted to Haiti http://www.mercosur.org.uy/ or click here).

The three issues mentioned by Minister Amorim, quoted above, should also be included in the priorities of the future agenda of Mercosur. Two facts should be mentioned here in relation to the issue of government purchases. The first is the approval of Decision CMC 23/10 on the modification of the Public Purchasing Protocol that is expected to be presented at Mercosur's Council meeting next December (for the text of Decision CMC 23/10, go to http://www.mercosur.org.uy or click here). The other fact is the approval by the Brazilian government of the Provisory Measure nº 495 of 19 July 2010 (for the Explanatory Reasons go to https://www.planalto.gov.br/ and the text of the Provisory Measures on https://www.planalto.gov.br/), which introduces modifications to the legal regulations of government purchases to grant a preferential margin of up to 25% for goods and services of Brazilian origin (the original text reads: "§ 6o A margem de preferência por produto, serviço, grupo de produtos ou grupo de serviços, a que refere o § 5o, será definida pelo Poder Executivo Federal, limitada a até vinte e cinco por cento acima do preço dos produtos manufaturados e serviços estrangeiros"). Such preference is extended to the Mercosur countries (once the Purchasing Protocol comes into force, which constitutes an incentive for this to be achieved in the short term) and to those countries with which Brazil has agreements regarding government purchases (the corresponding text states that: "§ 10. A margem de preferência a que se refere o § 6o será estendida aos bens e serviços originários dos Estados Partes do Mercado Comum do Sul - Mercosul, após a ratificação do Protocolo de Contratações Públicas do Mercosul, celebrado em 20 de julho de 2006, e poderá ser estendida, total ou parcialmente, aos bens e serviços originários de outros países, com os quais o Brasil venha assinar acordos sobre compras governamentais"). This generates an additional incentive for European businesses to become interested in the conclusion of the bi-regional agreement that is currently being negotiated between Mercosur and the EU (on this Provisory Measure see the articles "Governo quer frear China em licitaçâo pública", by Sergio Leo; "Margen de preferencia será estendida e deve facilitar acordo con UE", by Assis Moreira; and "Margen de preferencia será estendida e deve facilitar acordo con UE", by Diego Z.Bonomo published, all published in Valor Econômico on July 22, July 23, and August 9, respectively).

However, above all, in view of the progress achieved and of the negotiations that are underway -as well as of others that will come as a consequence of an eventual agreement with the EU and of the resulting preferences-, Mercosur will require the refining of its institutions in order to guarantee a greater transparency and efficiency of its ground rules and an active involvement of the different social sectors in its future development (on this regard see the on November 2009 edition of this Newsletter).


Recommended Reading:

  • Aguirre Reveles, Rodolfo; Pérez Roch, Manuel, "The EU-Mexico Free Trade Agreement Seven Years On. A warning to the global South", Transnational Institute Mexican Action Network on Free Trade (RMALC) ICCO, Debate paper Alternative Regionalisms, June 2007 en http://www.rmalc.org.mx; http://www.tni.org.
  • Brenton, Paul; Manchin, Miriam, "Making EU Trade Agreements Work. The Role of Rules of Origin", Centre for European Policy Studies, CEPS Working Document n° 183, March 2002, en http://www.ceps.eu/.
  • Caballero Santos, Sergio, "El Mercosur Ideacional: Un enfoque complementario para la integración regional sudamericana", CERIR, Cuadernos de Política Exterior Argentina, Rosario, octubre-diciembre 2009, nº 98.
  • Centro de Economía Internacional, "Revista del CEI. Comercio Exterior e Integración", CEI-MRECIC, Abril de 2010, Número 17, en http://www.cei.gov.ar.
  • Cincunegui, Jorge Eduardo, "Análisis de factibilidad de generar valor agregado en los complejos cerealeros y oleaginoso en base a experiencias de países seleccionados", Fundación INAI, Febrero 2010, http://www.inai.org.ar.
  • Correa, Ana, "Ciudades, Turismo y Cultura. Nuevas perspectivas para el desarrollo equitativo de las ciudades", Icrj mediaciones, La Crujía, Buenos Aires 2010.
  • FUNCEX, "Revista Brasileira de Comércio Exterior: Logística e Exortaçôes", Fundaçâo Centro de Estudos do Comércio Exterior, Rio de Janeiro, Ano XXIV - abril/junho de 2010.
  • Gathii, James Thuo, "African Regional Trade Agreements as Flexible Legal Regimes", Albany Law School, Working Papers Series N° 20 of 2009, en http://works.bepress.com/ or click here.
  • Instituto de Relaciones Internacionales, "Relaciones Internacionales", IRI-Universidad Nacional de La Plata, Año 19 - Nº 38, Diciembre 2009 - Mayo 2010.
  • Leiva Lavalle, Patricio (editor), "Relaciones Internacionales y renovación del pensamiento", Instituto Latinoamericano de Relaciones Internacionales, Universidad Miguel de Cervantes - Institut dEstudis Humanistics, Santiago de Chile 2010.
  • Leiva Lavalle, Patricio (editor), "Diálogos sobre La Haya. El límite marítimo entre Chile y Perú", Instituto Latinoamericano de Relaciones Internacionales, Universidad Miguel de Cervantes, KAS-Universidad Miguel de Cervantes, Santiago de Chile 2010.
  • Martín, Miguel Angel; Oddone, Carlos Nahuel (compiladores), "Las ciudades y los poderes locales en las relaciones internacionales contemporáneas", Estudios y Comentarios nº 13, Unión Iberoamericana de Municipalistas (UIM) e Instituto de investigación urbana y territorial (IUT), Granada 2010.
  • Martin, Philippe; Mayer, Thierry; Thoenig, Mathias, "The geography of conflicts and regional trade agreements", WTO, January 4, 2010, en http://www.wto.org/ or click here.
  • Murray, Edmundo, "Becoming Irlandés. Private Narratives of the Irish Emigration ton Argentina (1844-1912), L.O.L.A-, Literature of Latin America, Buenos Aires 2006.
  • Narula, Rajneesh, "Much ado about nothing or sirens of a brave new world? MNE Activity for developing countries and its significance for development", Background paper for the "Perspectives on Global Development 2010. Shifting wealth", OECD Development Centre, Paris April 2010, en http://www.oecd.org/dev/gdo.
  • Perales, José Raúl; Morón, Eduardo (eds.), "La Economía Política del Tratado de Libre Comercio entre Perú y Estados Unidos", Woodrow Wilson Center for Scholars, Latin American Program, Washington 2010.
  • Porzecanski, Roberto, "No voy en tren. Uruguay y las perspectivas de un TLC con los Estados Unidos (2000-2010)", Debate, Montevideo 2010.
  • Rosen, Daniel H; Wang, Shi, "Deepening China-Taiwan Relations through the Economic Cooperation Framework Agreement", Peterson Institute for International Studies, Policy Brief, Number PB10-16, Washington June 2010, en http://www.petersoninstitute.org/ or click here.
  • Tolstói, Lev, "Los cosacos", Atalanta, Girona 2009.
  • Woolverton, Andrea; Regmi, Anita; Tutwiler, M.Ann, The Political Economy of Trade and Food Security", ICTSD Programme on Agriculture Trade and Sustainable Development, Geneva July 2010, en http://ictsd.org/ or click here.

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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