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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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COUNTRY STRATEGY, QUALITY RULES AND PRODUCTION NETWORKS: Three conditions for the construction of a regional space for mutual gains.

by Félix Peña
August 2012

English translation: Isabel Romero Carranza


 

Currently Mercosur is experiencing the end of a stage and the transition to a new stage not yet precisely defined. There are three conditions that will be needed in order to make the leap to a more solid and efficient construction, with the potential to grasp the interest of citizens due to its ability to generate mutual gains for each of the countries involved while taking into account the diversities that characterize them.

Such conditions are: the national strategy for the development and international insertion of each participating country; the quality of the ground rules and institutions; and the production chains of transnational scope. It would seem advisable that these issues are present in the necessary national debate agendas that each country interested in continuing to be a member, or willing to become one, should stimulate in order to define the strategies and methodologies of Mercosur's new stage.

The three conditions are interrelated and when combined they enable to face realistic and flexible trade negotiation strategies with other countries and regions. Without a national strategy it will be difficult for a country to benefit from the decisions that are taken to guide the integration process and to generate its ground rules. Without ground rules that are effectively enforced it will be hard to gain flexibility and, at the same time, make companies invest in terms of the enlarged market. Without productive investments, especially within the context of cross-border value chains, it will be difficult for the benefits expected from the process of integration to be present in a stable manner, especially those of strongest social impact due to their incidence in job creation and in the citizens' identification with the idea of a shared region. It will be harder still to establish international trade relations that are favorable for the development and productive transformation of each country in the region.


Reflecting on the conditions that enable the development of integration processes in regional geographic areas in a way that they generate a predictable picture of mutual gains for the participating countries has a strong practical relevance today.

This is certainly true for Europe and especially true for South America. Mercosur's transition to a new stage with still uncertain institutional profiles and work methods increases the need to think how to design, based on the acquired experience and capitalizing on the accumulated assets, integration strategies and methods to generate benefits that are perceived as advantageous by the different countries and, in particular, by their citizens.

This task will not be easy. Since its creation in 1991 the gained experiences and assets have value, for example, in terms of relatively guaranteed preferential access to the respective markets and of a budding productive integration. At times Mercosur was even perceived as being successful and enthusiasm could be noticed.

However, many frustrations have also added up. These have their origin in the difficulties of a joint undertaking that requires combining very different national interests within a context of multiple asymmetries, particularly in the relative economic dimension. It is mandatory to acknowledge, however, that such frustrations can also be explained by a relative tendency to produce media events -at the moment deemed as "historic" by the respective protagonists- that have ended up generating an image of a "showcase integration" (making parallelism with the expression "showcase modernization" used by the well-remembered Fernando Fanjzylber), in which appearances would seem to prevail over reality. These frustrations may account for the indifference and even the rejection of the idea of regional integration by sometimes quite large sectors of some of the involved countries. This phenomenon also manifests itself with different intensities -though not always for the same reasons- in countries who are members of the European Union.

The context of deep changes that are taking place at a global scale should be taken into account when making the suggested analysis. (Newsletter, May 2012). It also requires that Mercosur be viewed within the framework of the institutional architecture of the South American region (UNASUR), the Latin American regional space (ALADI and SELA), and within the broader Latin American and Caribbean context (CELAC). To articulate the regional cooperation actions that may be developed through the array of existing institutions is today one of the priorities recognized by the countries that form part of them. An idealized view of this articulation cold evoke the Russian matrioskas due to the fact that one fits into the other and, at the same time, each reflects a different reality of nuances and dimensions.

Many are the conditions needed for the construction of a regional space ruled by the ideas of integration and co-operation, that is, of the joint work of the nations that form part of it. These are conditions that result, in particular, from certain main aspects of this kind of multinational undertaking, such as the voluntary nature of the participation of each nation -nobody is forced to be a member of a determined integration agreement-; the gradual nature of the whole process, in the sense that achieving any goals, especially the most ambitious ones, can require some time and maybe never fully realized; and the adaptation to the continuous changes in the circumstances that led to the founding moment.

However, in the case of Mercosur as it stands now, at the end of one stage and transitioning into a new not yet precisely defined stage, (Newsletter, July 2012, and the article by the author mentioned bellow in the Recommended Reading section), there are three conditions that would seem necessary in order to make a leap towards a more flexible but solid and efficient construction, with the potential to grasp citizen interest due to its ability to generate mutual gains for each one of the participating countries while taking into account the diversities that characterize them.

These conditions are: the national strategies for development and international insertion of each participating country; the quality of institutions and ground rules; and the productive articulation of trans-national scope.

It would seem advisable that these three conditions are present in the necessary national debate agendas that each country interested in continuing to be a member, or willing to become one, should stimulate in order to define the strategies and methodologies of Mercosur's new stage.

The joint work between nations that share a regional geographic space, especially if it is expressed through agreements and institutions with ambitious and long terms goals such as is the case of Mercosur, presupposes that each participating country knows what it needs and what it can obtain by associating with others. This means, that it has a strategy for development and international insertion designed according to its own domestic characteristics and of the objectives valued by its own society. This strategy will not be limited only to the region. Today more than ever and given the multiplicity of options that any country has, whatever its dimension, the objectives set on the regional plane should be based on those of global scope.

How such a strategy is crafted and expressed depends on each country. What is true though is that the consensual construction of a multinational region, whatever its objectives, modalities and scope, is based on the national aspect, that is, of the interests of each participating country. In this sense it has been rightly noted that countries associate at the regional plane not based on hypothetical supranational rationalities but on concrete and sometimes even pathetic national rationalities.

Hence, it is required to be honest in the sense that if a country does not have such a strategy or if it was not realistic (for example, if it overestimates its worth and its negotiation capacity with the rest of the world and more concretely with its partners), it will be difficult to imagine that the other countries will fully contemplate its interests -beyond rhetoric-. This is what Ian Bremmer crudely expresses in the title of his recent book on the current world situation: "every nation for itself". He adds even more crudely that there will be "winners and losers" (in "Every Nation for Itself. Winners and Losers in G-Zero World", Portfolio-Penguin, New York 2012). The message to be drawn is thus clear: in a global context without a central power -and without a directory of credible central powers (G-0)- each nation must defend its own interests and, in order to do so, it must know what it needs and what can be obtained. In the transition to the world of the future there will be winners and losers. It is a valid message for each one of the regional geographic spaces and certainly also for South America.

In the case of Mercosur in its current crossroads, it would be convenient for each member country to wonder about their real, not theoretical, options. If a large or small country were not satisfied with Mercosur and visualized other reasonable options that would enable it to have a better outlook of its insertion in the region and in the world, meaning that it thought it had an alternative plan, it could then be reasonable to abandon the joint undertaking. Chile did it at the time with the Andean Group and after that by not accepting the invitation to form part of Mercosur as a full member. Venezuela did it too when it decided to renounce its membership to the Andean Community of Nations. If, on the contrary, such country were unable to visualize a reasonable alternative plan from a political or economic perspective it would be convenient for it to ponder, from its own perspective, what should be the scope of the future Mercosur stage in the light of the constituent pacts and of the methodological options that could be imagined. However, such consideration would be stronger in the measure that it reflected the objectives defined in the corresponding strategy for national development (the "home grown plan" as per the well-known work of Professor Dani Rodrik), that would seem reasonable to imagine would include an appraisal of what the country needs and may obtain form its global and regional context.

A second condition is related to the quality of the institutions and the ground rules. This includes the process of decision-making and the rules that are approved and the mechanisms for their implementation and for the settlement of the disputes that may arise between the member countries in relation to the compliance of the agreements. It includes both the national and multinational level of Mercosur institutions. Again, it can be argued that institutional quality begins at the national level and is later expressed in the multinational level -whatever the composition of the respective organ and its voting system-, and is later re-expressed at a national level when what has been agreed is implemented or not.

The intensity of the participation of the civil society in the internal front of each member country is a key factor to ensure the institutional quality of an integration process. It requires, in turn, of a culture of transparency that is reflected both at the national and the multinational planes, in the quality of Web pages filled with useful information for the management of the competitive intelligence on the part of all players.

Precarious rules with a low capacity to become effective and efficient, especially if they are a result of deficiencies in their process of creation, tend to erode the efficacy and legitimacy of the very same integration process. They do not favor the member countries of smaller relative dimension and are not taken seriously by those who make the decisions for productive investment. In Mercosur, the precariousness of the institutions and of the ground rules, even the insufficient transparency and weak participation of civil society -shown by multiple examples-, are a major cause for the deterioration experienced by the integration process. Perhaps it is a kind of virus that comes from the integration experience first in LAFTA and then in LAIA, where we often observed a prevalence of the culture of anomie, in the sense that the rules were met only to the extent that it was feasible and that the information necessary to make decisions was not readily available. The history of the exception lists on this regard would deserve to be reviewed. It is a culture that at the local level, in a society, and at the international level tends to favor those who have more relative power, accentuating inequalities and promoting all kinds of imbalances.

Reconciling flexibility with predictability seems to be crucial if the next stage of Mercosur aims to include other South American countries, increasing thus the asymmetries and the diversity of interests. This will require the use of variable geometry and multi-speed methodologies. Without quality ground rules these methodologies could accentuate tendencies towards the dispersion of efforts and lead Mercosur to new frustrations.

The third condition is related to regional productive integration. The idea of productive integration has today an important place in Mercosur's agenda. Actually, it comes from its founding moment, when the concept of sector agreements was incorporated to the Treaty of Asuncion and Decision CMC 03/91 was approved (on http://www.mercosur.int/). It is based on the experience gained during the period of bilateral integration between Argentina and Brazil. Its precedents are manifold. They can be traced back to the founding moments of European integration and also of what constituted the Andean Group.

The productive integration through transnational value chains also allows participating countries to generate a picture of mutual benefits in developing what Jean Monnet, in his foundational layout of European integration, called de facto solidarities. They can be, in this sense, a strong factor to reduce the risks of reversibility of the commitments made by member countries. This is so because they contribute to link the different national productive systems and its players, generating strong incentives to preserve and expand a process of multinational integration. It requires, in each of the countries, business firms with aggressive pursuits and capacity for international projection.

The three abovementioned conditions are closely linked with each other. Added together they help us imagine a realistic strategy of trade negotiations with other countries and regions. Without a national strategy, it will be difficult for a country to benefit from the decisions that are made to guide an integration process and to generate its ground rules. Without ground rules that are effectively enforced, it will be difficult to gain flexibility and encourage companies to make productive investments based on the expanded market. Without such productive investments, especially in the context of cross-border value chains, it will be difficult to generate the stable benefits that can be expected from an integration process, especially those of greater social impact due to their effects on job creation and on the identification of citizens with the idea of a shared region. It will be harder still to enable international trade negotiations that are favorable to the development and productive transformation of each country in the region.


Recommended Reading:


  • Abeles, Marc, "Antropología de la globalización", Ediciones del Sol, Buenos Aires 2012.
  • Ackermann, Juan; Villegas Oromi, Alfredo María, "Las Malvinas ¿son uruguayas?", Botella al Mar, Maldonado, Uruguay, 2012.
  • Altomonte, Carlo; Aquilante, Tommaso; Ottaviano, Gianmarco I.P., "The triggers of competitiveness: The EFIGE cross-country report", Bruegel Blueprint 17, Brussels 2012, on http://www.bruegel.org/.
  • Arbuet-Vignali, Heber, "Crísis en Paraguay ¿O en los conceptos políticos y jurídicos de su región?", Consejo Uruguayo para las Relaciones Internacionales, Estudios del CURI, Estudio n° 04/12, Montevideo July 11, 2012, on: http://curi.org.uy/.
  • Arocena, Felipe, "La Mayoría de las Personas son otras Personas. Un ensayo sobre multiculturalismo en Occidente", Estuario Editora, Montevideo 2012.
  • Astori, Danilo, "Mercosur: silencios imposibles y peligrosos", Uy.press, Agencia Uruguaya de Noticias, Montevideo, July 9, 2012, on http://www.uypress.net/.
  • Bacchetta, Marc; Beverelli, Cosimo, "Non-tariff measures and the WTO", VoxEu.org, Center for Economic Policy Research (CEPR), London, 31 July 2012, on http://www.voxeu.org/.
  • Barfield, Claude, "A Big Deal: Canada and Mexico join the Pacific Trade Pact", VoxEu.org, Center for Economic Policy Research (CEPR), London, 1 August 2012, on http://www.voxeu.org/.
  • Beckwith, Christopher I. "Empires of the Silk Road. A History of Central Eurasia from the Bronze Age to the Present", Princeton University Press, Princeton - Oxford 2009.
  • Bulliet, Richard W., "The Camel and the Wheel", Columbia University Press, New York 1990.
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  • Draper, Peter, "The shifting geography of global value chains: Implications for developing countries and trade policy", VoxEu.org, Center for Economic Policy Research (CEPR), London, 16 July 2012, on http://www.voxeu.org/.
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  • Farias, Matías, "América y el Mundo. Una selección de los escritos de J.B.Alberdi sobre política internacional y diplomacia", Instituto del Servicio Exterior de la Nación (ISEN), Buenos Aires 2012.
  • Fernández Alonso, "Los desafíos de la integración. A propósito de la generación y el cumplimiento de las reglas político-económicas", en Letras Internacionales, Universidad ORT Uruguay, Año 6, n° 158, Montevideo, July 19, 2012, on http://www.ort.edu.uy/.
  • Frieden, Jeffry A.; Pettis, Michael; Rodrik, Dani; Zedillo, Ernesto, "Don't count on enhanced global governance", VoxEu.org, Center for Economic Policy Research (CEPR), London, 26 July 2012, on http://www.voxeu.org/.
  • Fundación Standard Bank - Fundación ExportAr, "Programa para la formación de consorcios de exportación. Informe de Actividades - Año 2011", Buenos Aires 2012, en: http://www.grupos.fstb.com.ar.
  • Ghemawat, Pankaj, "World 3.0. Global Prosperity and How to Achieve It", Harvard Business Review Press, Boston, Massachusetts 2011.
  • Heng, Pek Koon, "ASEAN Integration in 2030: United States Perspectives", Asian Development Bank Institute, ADBI Working Paper Series, N° 367, Tokyo, July 2012, on http://www.adbi.org/.
  • Leconte, Ricardo G., "Reducir la pobreza en el NEA: un desafío que nos une", Edición del Círculo de Legisladores Provinciales de Corrientes, Corrientes, May 2012.
  • Lehne, Stefan, "The Big Three in EU Foreign Policy", Carnegie Endowment for International Peace, Carnegie Europe, The Carnegie Papers, Washington, July 2012, on http://www.carnegieendowment.org/.
  • Martinez Sarasola, Carlos, "Nuestros paisanos los indios. Vida, historia y destino de las comunidades indígenas en la Argentina", Editorial del Nuevo Extremo, Buenos Aires, 2011.
  • Messerlin, Patrick A., "Keeping the WTO busy while the Doha Round is stuck", VoxEu.org, Center for Economic Policy Research (CEPR), London, 29 July 2012, on http://www.voxeu.org/.
  • Mehta, Pradeep S.; Chatterjee, Bipul; Kaukab, Rashid, "Defining the Future of Trade. Need for a Geneva Consensus", CUTS International, Briefing Paper, N° 1/2012, Jaipur 2012, on http://www.cuts-international.org/.
  • Palit, Amitendu, "The Trans-Pacific Strategic Economic Partnership. Will it divide the Asia-Pacific?", CUTS International, Briefing Paper, N° 6/2012, Jaipur 2012, on http://www.cuts-citee.org/.
  • Patrouilleau, Rubén D.; Saavedra. Marcelo; Patrouilleau, M.Mercedez; Gauna, Diego, "Escenarios del Sistema Agroalimentario Argentino al 2030", Instituto Nacional de Tecnología Agropecuaria (INTA) - Ministerio de Agricultura, Ganadería y Pesca, Buenos Aires, 2012.
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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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