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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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IS MERCOSUR TRANSITIONING TO A NEW PHASE?
The future of Mercosur after the Mendoza Summit

by Félix Peña
July 2012

English translation: Isabel Romero Carranza


 

We can consider that, after the Mendoza Summit, the initial stage of Mercosur has concluded. Many goals were not achieved but, at the same time, certain advances in trade and in the economic interaction between the member countries can be related to the commitments agreed in the Treaty of Asuncion, especially regarding tariffs. Likewise, during this stage the strategic idea of cooperation among neighboring nations, beyond any difference of interests and obvious asymmetries, with the aim of creating a space able to radiate peace, democracy and political stability in South America, installed by presidents Alfonsin and Sarney, was strengthened.

Mercosur may have started thus its transition to a new phase. It would seem too soon to attempt to forecast how long this transition will last and how the new stage will be. At least three priorities will form part of the agenda of this first semester of transition. The way in which these priorities are faced and resolved might determine the characteristics of the future Mercosur. We are referring to de multiple unfoldings that may be derived form the decision to suspend Paraguay's participation -one of its founding members- in Mercosur's organizational bodies; to the full completion of the incorporation of Venezuela and other South American countries; and the eventual negotiation of a free trade agreement with China, while at the same time attempting to conclude the ongoing negotiations with the European Union.

It would seem difficult to imagine realistic alternatives to Mercosur, conceived as a strategic idea with political and economic content and aimed at the governance of a shared regional space of South American scope Moving forward, it would seem advisable to place the focus on improving substantially the quality of the integration process originated with the Treaty of Asuncion. It would imply placing the emphasis on ground rules that, due to their content and predictability, promote the development of transnational production chains within a scheme of mutual gain and a context of significant improvements in innovation, technical progress and physical connectivity.

As to an eventual negotiation of a free trade agreement with China, starting with a feasibility study, it should be noted that it is an attractive yet complex idea at the same time. It would require evaluating all the implications, in order to render feasible any announcements with founded arguments and based on the actual possibility for concretion. This would even imply taking into account the cost of discarding the initiative.


After the Mendoza Summit, Mercosur seems to have initiated its transition towards a new phase. It would still seem premature to attempt to forecast how long this transition will last and how this new stage will be. What has been observed up until now has all the characteristics of a metamorphosis. Looking ahead, it will be important that each one of the member countries clearly defines what they expect and how they envision this new stage.

For the moment, what has become clear is that, in the semester that has started, some meaningful definitions will need to be analyzed and, eventually, adopted by the partners. Brazil, about to assume the temporary Presidency will have the opportunity to exert a certain leadership in the process of designing a new phase. This will put its traditional diplomatic skills to the test.

On this regard, at least three priorities will form part of the agenda of this semester of transition. The way in which these are faced and resolved will probably determine the characteristics of the future Mercosur.

The first of these issues refers to the multiple unfoldings that can derive from the decision to suspend Paraguay's participation in Mercosur's organizational bodies. This has originated an unprecedented situation in the process of integration. Overcoming this situation will require much caution and wisdom. It poses a challenge for the art of politics and diplomacy, where it would be convenient to distinguish the situational from the permanent using a clever combination of values and interests. This seems difficult to achieve given the institutional precariousness that continues to characterize Mercosur in spite of the efforts to generate independent instances to facilitate the reconciliation of national interests. In this case what is at stake are not only complex political and economic realities, with multiple legal connotations, but also the sensitivities and feelings of the citizens of one of Mercosur´s founding nations, whose common history with its partners is deeply rooted and has resulted in countless interrelations.

The text ruling Paraguay's suspension and that was subscribed by the Heads of State of Argentina, Brazil and Uruguay, invokes the Protocol of Ushuaia on "Democratic Commitment in Mercosur" (see the full text in Spanish on http://www.mercosur.int/) and establishes to: "1. Suspend the Republic of Paraguay's rights to participate in any of Mercosur´s organizational bodies and deliberations as per the terms of Article 5 of the Protocol of Ushuaia. 2. While under suspension, as provided ins subsection iii) of Article 40 of the Protocol of Ouro Preto will take place with the addition made by Argentina, Brazil and Uruguay, as per the terms of subsection ii) of said article. 3. The suspension shall cease when, according to the provisions of article 7 of the Protocol of Ushuaia, the full reestablishment of democratic order in the affected party can be verified. The Foreign Affairs Ministers will continue regular consultations on this matter" (see the full text in Spanish on http://www.mrecic.gov.ar/). It should be noted that there was no Mercosur Council Decision with the scope of legal act adopted under articles 2, 3, 8 and 9 of the Protocol of Ouro Preto (http://www.mercosur.int/).

According to the approved text, the suspension will be lifted when the reestablishment of the democratic order in Paraguay is verified and regular consultations are expected to on this regard.

The second priority is to fully complete the addition of Venezuela to Mercosur in all its dimensions as agreed in the Protocol of Caracas of 2006. (See http://www.mercosur.int/). The decision taken in Mendoza to proceed with the incorporation of Venezuela is partly the result of what happened with Paraguay. In fact, the Protocol of Caracas could not enter into force because it had not been ratified by Paraguay. At the time, the Executive withdrew the text under consideration from Congress because it believed it would not be ratified. The impasse thus generated is not a minor detail when trying to understand the political climate, at least in some member countries, regarding the question of the incorporation of Venezuela into Mercosur.

In Mendoza, the three Heads of State decided: "1. The admission of the Bolivarian Republic of Venezuela to Mercosur; 2. To organize an extraordinary meeting for the official admission of the Bolivarian Republic of Venezuela into Mercosur for 31st July, 2012 in the city of Rio de Janeiro, Federal Republic of Brazil, and 3. To summon all South American countries so that, in the current complex international scenario, they unite to strengthen the process of growth and social inclusion initiated in the last decade in our region, so that this can act as a stabilizing factor within an atmosphere of full exercise of democracy in the continent".

Following the decision of adding Venezuela, made in Mendoza, without fully complying with the provisions of article 12 of the Protocol of Caracas, a political and even legal debate has been developing in the member countries (see, among others, the article by professor Celso Lafer, "A ilegalidade da incorporaçâo da Venezuela" in Folha de Sao Paulo of 4th July, 2012 and the debate among Uruguayan international trade experts on http://elobservador.com.uy/).

It is relevant to distinguish two issues in this debate. On the one hand, is the incorporation of Venezuela to Mercosur. The decision was formalized by the Protocol of Caracas and expresses the sovereign will of five countries as per the procedures established in the Treaty of Asuncion. After this, the local constitutional process to proceed with its ratification was completed in three of the member countries. On the other hand, is the issue of the decision adopted in Mendoza to complete the addition of Venezuela, even when Paraguay never ratified the Protocol of Caracas. It is this decision, its political opportunity and its legal soundness which has opened a debate at times intense. Some media reports have indicated that this could lead to a discussion within the framework of the Protocol of Olivos (on http://www.mercosur.int/), which establishes the current dispute resolution mechanism in Mercosur (this information was confirmed after the Spanish version of this Newsletter was published).

It remains to be seen now how what the text approved in Mendoza calls the "official admission" takes place. This should happen at the special meeting scheduled for July 31st and will require a good dose of legal creativity and diplomatic skill.

Likewise, it remains to be seen how what was stipulated by the Protocol of Caracas regarding the application by Venezuela of the program for trade liberalization, including the cessation of the effects of the rules and regulations of Partial Scope Agreement N° 59 (ACE Nº59) within the scope of the LAIA (ALADI) (articles 5 and 6 of the Protocol) and also with regards to the incorporation of Mercosur norms and, in particular, of the Common External Tariff and Common Tariff Nomenclature (articles 3 and 4 of the Protocol) is materialized.

With the precise knowledge of the tariff profile resulting from the full addition of Venezuela to Mercosur, each member country will be in a better position to evaluate the concrete economic effects, in particular in relation to the competitiveness of goods and services originating in Mercosur vis-à-vis those coming from third countries, for example the U.S., the European Union, China or the Andean countries. It will then be possible to know what will be the added value resulting from Venezuela's addition with regards to the preferential treatment in the trade of goods and services, investments and government procurement in relation to what already exists, in particular as a result of ACE Nº 59.

Another step will be Venezuela's accession to the Partial Scope Agreement Nº 18 (ACE N° 18) (http://www.aladi.org/), which incorporates the Treaty of Asuncion to the legal framework of LAIA. Its practical relevance derives from the fact that it constitutes the legal basis for applying the preferences between the partners resulting from commitments made in Mercosur, without these being extended to other LAIA countries. In some of the Mercosur partners such incorporation could be essential to ensure the internal legality of the trade liberalization agreed with Venezuela. To date, ACE Nº 18 has had 93 additional protocols. This is an indicator of its relevance in practice. Article 15 provides for the adherence of other LAIA member countries through an Additional Protocol to ACE Nº18.

Linked to the above issue of Venezuela, it will also be important to note what will be the modalities and scope of the incorporation of other South American countries to Mercosur. In Mendoza, an explicit reference was made to the incorporation of Ecuador. However, this idea would seem to be aimed at conferring Mercosur a South American scope. This was contemplated by the same Treaty of Asuncion. Most likely, this will accentuate the need for Mercosur to have, in this new phase, a configuration that combines a reasonable degree of legal certainty with variable geometries and multiple speeds in its commitments. Even the possibility of merging Mercosur with UNASUR has been mentioned.

The third priority issue is the one resulting from the statements made by Wen Jiabao, the Chinese Prime Minister, especially in the videoconference on June 25th ,from Buenos Aires, with the participation of the presidents of Argentina and Brazil and the President of Uruguay (see the information on http://news.xinhuanet.com/ and the video conference on http://www.youtube.com/). He suggested making a feasibility study on a possible free trade agreement. He also raised the goal to double the mutual trade in four years (see information on the results of Wen Jiabao's visit to Mercosur countries and Chile on http://news.xinhuanet.com/ and the comment by Ana Soliz Landivar, on http://payasobarricada1954.blogspot.com.ar/. With another perspective, see the article by Raul Zibechi on http://questiondigital.com/?p=6952).

Any progress in the initiative of an eventual free trade agreement between Mercosur and China will have, due to its dimension, an impact on the trade negotiations of Mercosur with other countries and regions (see the article by Alejandro Rebossio, in the Business Section of El Pais newspaper, July 8th, 2012 on http://economia.elpais.com/). Particularly, it could have an impact on the delayed negotiations Mercosur-EU. With regards to these negotiations, much political oxygen will be required, as well as conceptual and technical flexibility, if the aim is to achieve an agreement that leads to a long term process that is balanced and ambitious in all its stages.

After Mendoza, it would seem possible to affirm that that the initial stage of Mercosur has concluded. Evidently, on the one hand, many goals were not achieved but, at the same time, much of the progress in trade and in the economic interaction between the member countries can be related to the commitments made in the Treaty of Asuncion. Likewise, during this stage the strategic idea of cooperation between neighboring nations has been reaffirmed beyond any diverging interests and obvious asymmetries, so as to generate a space that radiates peace, democracy and political stability in South America. It is obvious that much work lies ahead. But much has been learned as well and now this can be capitalized in the new stage that is about to begin.

It is necessary to acknowledge that the abovementioned issues, in particular those referring to Paraguay and Venezuela and due to very different motives, including political, legal and ideological ones, seem to have accentuated a debate, heated at times, on Mercosur and its future within the member countries. There are even growing existential doubts on the convenience of continuing with the construction of Mercosur. These questions would have, in this case, an existential dimension and not just a methodological one. However, there is not always an indication as to what could be the "Plan B" for each one of the countries as an alternative to continuing to promote Mercosur and orienting it towards the beginning of a new phase. Especially, a new plan that contemplates de political, economic and social dimensions of nations that share a regional geographic area and that have developed an increasingly dense network of all kinds of interlocking interests.

It is difficult to imagine realistic alternatives to Mercosur conceived as a strategic idea of political and economic content and aimed at the governance of a shared regional space with a South American scope. Thus, it would seem advisable that looking forward, the efforts are focused on improving significantly the quality of the process of integration. This implies placing the emphasis on ground rules that, due to their content and predictability, promote the development of transnational production chains for the mutual gain and within a context of significant improvements in physical connectivity. Especially those production chains aimed at profiting from opportunities opened up to the region as a result of the new global political and economic reality. This would seem the most appropriate path for the necessary generation of productive employment in our countries, with the resulting effects of social inclusion.

With regards to an eventual negotiation of a free trade agreement with China, starting with a feasibility study, it should be noted that this is an attractive yet complex idea. Therefore, it would need to be evaluated in all its implications in order to render feasible any announcements with sound arguments and based on the actual possibility for concretion. This implies taking into account the costs of having to discard the initiative. It can be argued that a well negotiated agreement with China would complement any successful negotiation with the European Union and also with many other countries.

It is necessary then to include the issue of an eventual free trade agreement with China in the definition of Mercosur's international strategy that contemplates the new global realities. At the same time, in each of the member countries the public-private articulation, including the academic and technological sectors, will be fundamental to define the country strategy and to profit from the advantages that may result from an eventual agreement. It is important to establish what goals need to be achieved with a long-term strategic vision, to articulate the interests of Mercosur partners and, of course, to negotiate successfully. Both LAIA and ECLAC can make valuable contributions in the design of a strategy for a renewed Mercosur with a global projection.

The transition to a new stage of Mercosur coincided with the resignation of Ambassador Samuel Pinheiro Guimarães from his position as General Representative of Mercosur. His resignation was accepted at the Mendoza Summit. Simultaneously, he submitted a substantial report (MERCOSUR/XLIII CMC/DI Nº 02/12 - RESERVADO on http://www.mercosur.int/), that has yet to be published. This report contains interesting and even controversial elements to feed the necessary debate on the future of Mercosur. Consequently it would seem convenient to ensure its proper dissemination.


Recommended Reading:


  • ALADI-CEPAL, "30 Años de Integración Comercial en la ALADI", joint publication ALADI-CEPAL, Montevideo, July 2012, on http://www.aladi.org/.
  • ALADI, "Evolución del Comercio Intraindustrial en la ALADI", ALADI/SEC/Estudio 201, Montevideo, March 2012, on http://www.aladi.org/.
  • Auboin, Marc, "Use of Currencies in International Trade: Any Changes in the Picture?", WTO, Economic Research and Statistics Division, Staff Working Papers ERSD-2012-10, Geneva, May 2012, on http://www.wto.org/.
  • Australian Government, "Australia in the Asian Century", Australia in the Asian Century Task Force, Issues Paper, Camberra, December 2011, on http://asiancentury.dpmc.gov.au/issues-paper.
  • Cardoza, Guillermo; Fornes, Gastón, "The International Expansion of China's Small and Medium Sized Enterprises: A Review", SPAIS, University of Bristol, Working Paper N° 05-12, Bristol 2012, on: http://www.bristol.ac.uk/.
  • Cardoza, Guillermo; Fornes, Gastón, "Chinese MNCs in Latin America: Characteristics and Comparisons with Investments in Developed Markets", SPAIS, University of Bristol, Working Paper N° 10-12, Bristol 2012, on http://www.bristol.ac.uk/.
  • Cooper, William H., "Free Trade Agreements: Impacts on U.S. Trade and Implications for U.S. Trade Policy", Congressional Research Service, Washington, June 18, 2012, on http://www.fas.org/.
  • European Commission, "Ninth Report on Potentially Restrictive Measures. Identified in the Context of the Financial and Economic Crisis. September 2011- 1 May 2012", European Commission, Directorate-General for Trade, Brussels, June 2012, on http://trade.ec.europa.eu/.
  • Fernández Lamarra, Norberto (compilador), "Universidad, Sociedad e Innovación. Una Perspectiva Internacional", EDUNTREF, Buenos Aires 2009.
  • Fernández Lamarra, Norberto; Costa de Paula, María de Fátima (compiladores), "La Democratización de la Educación Superior en América Latina. Límites y Posibilidades", EDUNTREF, Buenos Aires, 2011.
  • Gutiérrez, Alejandro, "El complejo proceso del ingreso de Venezuela al Mercosur", en Briceño Ruiz, José (ed), "El Mercosur y las complejidades de la integración regional", Teseo - Universidad de Los Andres, Mérida, Buenos Aires 2011, ps. 439 y ss.
  • Jackson, John, "Interview with Professor John Jackson on the Dispute Settlement System", WTO Video Debates, 4 July 2012, on http://www.wto.org/.
  • Lacroix, Jean-Michel; Mace, Gordon (dir), "Politique étrangère comparée: Canada - États-Unis", P.I.E. Peter Lang, Bruxelles 2012.
  • Lamy, Pascal, "Europe needs a Legitimacy Compact", WTO Director-General Speech, University of Edimburg, 29 June 2012, on http://www.wto.org/.
  • Murphy, Sophia, "Changing Perspectives: Small-scale farmers, markets and globalization", Hivos - iied - Mainumby Ñakurutú, Knowledge Programme, Small Producer Agency in the Globalized Market, London-The Hague, 2012, on http://www.hivos.net/.
  • Paredes, Ricardo, "Una Evaluación de la Ayuda para el Comercio en la Práctica. Lecciones del Perú", ICTSD, Programa sobre Competitividad y Desarrollo, Issue Paper No.24, Ginebra, June 2012, on http://ictsd.org/.
  • Peña, Félix, "La agenda de una relación necesaria y posible", Letras Internacionales, Publicación del Departamento de Estudios Internacionales. Facultad de Administración y Ciencias Sociales, Universidad ORT, Montevideo, June 2012, on http://www.ort.edu.uy/.
  • Piñeiro, Martin; Villarreal, Federico, "Foreign Investment in Agriculture in Mercosur Countries", tkn - iisd, Winnipeg, Manitoba, July 2012, on http://www.iisd.org/.
  • Rivas, Gonzalo, "La experiencia de CORFO y la transformación productiva de Chile. Evolución, aprendizaje y lecciones de desarrollo", CAF, Banco de Desarrollo de América Latina, Serie Políticas Públicas y Transformación Productiva, N° 3/2012, on http://publicaciones.caf.com/.
  • Rojas Aravena, Francisco; Álvarez-Marín (editores), "América Latina y el Caribe: Confianza ¿Un bien escaso?", Teseo - AECID - FLACSO, Buenos Aires 2011.
  • Saner, Raymond, "Plurilateral Agreements: Key to solving impasse of WTO/Doha Round and basis for future trade agreements within the WTO context", written with the research assistance of Mario Filadoro and of Prof Dr Lichia Yiu, CSEND Policy Brief Nr. 7, ISSN 2235-8048, Geneva, April 2012, on http://www.csend.org/.
  • UNCTAD, "Investment Policy Framework for Sustainable Development", UNCTAD, Geneva, 2012, en: http://unctad.org/.
  • United States International Trade Commission, "Brazil: Competitive Factors in Brazil Affecting U.S. and Brazilian Agriculture Sales in Third Countries Markets", USITC Publication 4310, Investigation N° 332-524, Washington, April 2012, on http://www.usitc.gov/.
  • WTO, "Report to the TPRB from the Director-General on Trade-Related Developments (Mid-October 2011 to mid-May 2012)", World Trade Organization, Trade Policy Review Body, WT/TPR/OV/W/6, 28 June 2012, on http://docsonline.wto.org/.
  • Zhang, Zhiming, "Inside the growth engine. A guide to China's regions, provinces and cities", HSBC Global Research, Hongkong, December 2010, on http://www.research.hsbc.com/.

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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