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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
TRUST, FLEXIBILITY AND PREDICTABILITY:
Conditions for Mercosur rejuvenation and for its agreement with the EU.

by Félix Peña
September 2013

English translation: Isabel Romero Carranza


 

Three conditions are necessary for the construction of regional integration, especially between neighboring nations with a strong interdependence: mutual trust, methodological flexibility and predictability.

These help achieve and preserve three of the essential qualities for the permanence of an integration agreement: the effectiveness as a result of the capacity of the ground rules to penetrate reality; the efficacy due to the quality of the results produced, and social legitimacy, due to the identification of the citizens of each member country with the rules, networks and jointly produced symbols.

The three mentioned conditions become present in the current debate on the future of Mercosur, its rejuvenation and its adaptation to the new economic and political realities of the member countries, the region and at a global scale.

They also become current in the ongoing debate within Mercosur countries -particularly in some business sectors- on how to address international trade negotiations, especially with the EU. It is reflected in the idea that is currently being held that it would be sufficient to achieve an "umbrella agreement" as a result of the negotiations including bilateral trade preferences of each individual Mercosur member country with the EU.

Such a formula could eventually erode the scope of trade and economic preferences agreed in Mercosur. It could also imply an irreversible deterioration of a key instrument such as the common external tariff, that was conceived not only for economic reasons but, above all, for its function as mutual guarantee of the loyalty of the partners when negotiating economic preferences with other countries or blocs.

There are options for that formula. Depending on the density of the European strategic interest and of the companies with investments in Mercosur it would be possible to introduce within the common umbrella elements of flexibility that address the most sensitive interests on both sides.

If there is political will, it seems possible to reconcile mutual trust, flexibility and predictability, even in a negotiation with an EU that is going through its own period of economic and political uncertainties, as well as possible internal transformations and complex inter-regional negotiations, particularly with the U.S.


The relationship between Argentina and Brazil has always been at the center of what, in1990, became known as Mercosur. Without prejudice to the relative importance of the participation of the other member countries, this preferential bilateral relationship has been the core of a regional construction with clear implications for the governance of the South American regional space. As noted at the time by the then Foreign Minister Celso Amorim (WEF, Davos 2008), for Brazil Mercosur is synonymous with peace and political stability in South America. The same could be said in Argentina.

It will probably continue to be a solid core. However, there is always the possibility -though not necessarily likely to happen- that such preferential relationship deteriorates beyond what is convenient. This does not imply that there are currently any risks of returning to a not so distant past where the bilateral relationship was marked by mutual distrust and, sometimes, even by a sordid rivalry. It does imply, though, that it would not seem advisable to ignore that such risks can always emerge.

Historical experience shows that when they appear between neighboring nations with a strong interdependence it can be difficult -although not impossible- to reverse the gradual trend -by dripping- towards a relationship of conflict and fragmentation, with the resulting repercussions in the governance of the regional space in which the two countries are inserted -be it South America or the broader Latin American space-. And perhaps because of this, in our regional history the word 'integration' has evoked precisely the opposite of the possible scenarios of 'fragmentation'.

In an era where there is a certain decrease of the attractiveness of the acronym Mercosur -a true regional brand as expressed at the moment by Fernando Henrique Cardoso when he was President of Brazil- it would seem useful to reflect on the three conditions that enable a consensual integration between contiguous nations that aspire to remain sovereign, even when they accept to restrict the free use of such sovereignty -and that is precisely the issue in the case of Mercosur- to have a chance of lasting in time.

It is known that irreversibility is not compatible with the characteristics of this kind of processes among neighboring nations. But the perception that the process and its ensuing economic preferences have the potential to last over time depends on three essential qualities: the effectiveness as a result of its ground rules penetrating reality; the efficiency, due to the quality of the results produced, and social legitimacy, as a result of the identification of the citizens of each member country with the jointly produced rules, networks and symbols.

The three conditions to which we are referring are: reciprocal trust, methodological flexibility and predictability.

Reciprocal trust was at the essence of what led to the bi-national strategic understanding between Argentina and Brazil which would then give origin to Mercosur. It is worth remembering today some foundational milestones of what later led to what is today known as Mercosur. With the passing of time sometimes they are not always present nor the circumstances in which they occurred well remembered. They are reflected in the agreements reached by the Presidents Raúl Alfonsín and José Sarney, first in the Iguazú Declaration of November 30, 1985 (http://www.abacc.org.br/) and later in the founding instrument contained in the Argentine-Brazilian Integration Act of July 29, 1986 (http://es.wikisource.org/). All this resulted in the Program for Integration and Economic Cooperation (PICE) between the two countries and the Bilateral Treaty of Integration, Cooperation and Development of 1988, which took effect in 1989 and is still in force (http://es.wikisource.org/). The Act of Buenos Aires of July 6, 1990, agreed by Presidents Fernando Collor de Mello and Carlos Saúl Menem (http://es.wikisource.org/) is, in turn, the foundational stone of the stage initiated in March 1991 with the formal creation of Mercosur. In its recitals are the shared goals of both countries that reflected the perception of a new international environment and, at the same time, the will to capitalize on the assets accumulated in the process initiated in 1985.

That mutual trust was not what had prevailed in all the long previous period. Opposing views of the world and the region had even led to the failure of initiatives such as the 'Agreement to Promote a Free Trade Commercial Regime' signed in Buenos Aires by Argentina and Brazil on November 21, 1941. An idea of the climate of mistrust existing during the period before the start of the current bilateral integration can be glimpsed from the information published on August 11, 2013, on the website of the newspaper 'O Estado de Sao Paulo' (http://www.estadao.com.br/), according to which, based on secret documents declassified this year, the then President of Brazil, General Geisel, warned in 1974 about the implications of the alleged development of the atomic bomb in Argentina.

Precisely that climate of mutual mistrust led us to publish, forty years ago, together with Celso Lafer a short book entitled 'Argentina y Brazil en el sistema de relaciones internacionales" (Argentina and Brazil in the system of international relations) with a prolog by professor Helio Jaguaribe, a great believer and promoter of a dense strategic relationship between our two countries as the support basis for a most comprehensive and ambitious Latin American integration (see the text of the Spanish version published by Nueva Visión, Buenos Aires 1973). The Portuguese edition was published in the same year by Livraria Duas Cidades (Sâo Paulo 1973). In it, we identified what we believed were possible common perspectives between the two countries and that could result from an analysis of the trends that in those years were emerging in the international system. We proposed, along with Helio Jaguaribe, a shared vision on the world insertion of our respective countries which was not common in those days.

The period initiated in 1985 not only shows that mutual trust is essential to address a sustainable strategic relation but that it requires vision and political leadership; dialogue at every level; shared views of the global and regional realities -which does not mean they should be identical or similar- and, above all, mutual knowledge and the ability to understand the interests and restrictions which the neighbor country and strategic partner may occasionally have.

But in the case of Mercosur the need for mutual trust is not limited to Argentina and Brazil. It also enabled to support the participation of other partners such as Uruguay and Paraguay in the foundational stage, and more recently Venezuela and also Bolivia and Ecuador. What mattered in the cases of Paraguay and Uruguay -besides the respect towards their condition as nations with their own identities- was confidence in what they perceived as essential for their economic development: unrestricted market access to larger economies as a platform to enhance their production systems and their integration into the world.

Reciprocal trust requires, in particular, the reasonable expectation that the idea of 'mutual gains' becomes a reality. This does not imply that the gains of all the partners are equal. It requires that at least in the medium and long term everyone understands that they will gain more by being in the 'club' than by being outside. And it also requires keeping in mind the difficulties and inadequacies of possible options for the respective international insertion strategies. But when a country believes that it has a 'B plan' that is more attractive than that offered by the 'club', it is predictable that it will abandon it in the end.

Methodological flexibility is a condition that has been present from the beginning in the construction of Mercosur and its precedent, the bilateral agreement between Argentina and Brazil. It involves taking full advantage of the principle of 'freedom of organization' raised at the time by the Italian professor Angelo Piero Sereni as an essential element for the organization of joint work between a group of nations (on this regard see his book "Le Organizzazioni Internazionali", Giuffré, Milan 1959, page 260 et seq.). In the case of an agreement containing trade preferences it also implies a correct and non-dogmatic interpretation of the rules of Article XXIV, par. 8 of GATT and a good knowledge of its legislative history.

Such flexibility is essential in European integration as shown by, among other specialists, Alexander Stubb in his book 'Negotiating Flexibility in the European Union', Palgrave, London 2002 (the subject has been analyzed by Mario Filadoro in a paper that can be consulted on http://www.ies.be/files/Filadoro-A2.pdf). And it is a condition, as we shall see later, that can be essential in the unfinished negotiations between Mercosur and the European Union. Variable geometries, multiple speeds and 'a la carte menu' conform, as pointed out by Stubb, a typology of formulas that enable to reach reasonable degrees of flexibility. These are compatible with the idea of building a preferential space between sovereign nations seeking to work together according to their respective national interests and in a manner that is compatible with international principles and rules.

And the third condition is predictability. It contributes to the idea of joint work between nations that seek that their ground rules, even when flexible, enable to direct productive investment decisions that create jobs for people and that generate a climate of mutual trust that can be maintained over time. In other words, predictability means that even when it is necessary to introduce flexibilities, these are achieved by applying the agreed rules and not through breaking or violating them, that is to say that they are rule oriented and not the result of discretionary acts. It is the opposite of what has happened in Latin American integration, where it has often been interpreted that the rules should only be followed 'when it is possible'. The path of LAFTA first and of LAIA later provide numerous examples on this regard.

The three mentioned conditions become current in the ongoing debate on the future of Mercosur, its rejuvenation and its adaptation to the new political and economic realities, in the member countries, in the region and at global scale.

Also current in the debate that is taking place in Mercosur countries -and especially in some business sectors- is the debate on how to address international trade negotiations, especially with the European Union. It is reflected by the idea being held that, as happened with the Andean Community of Nations, it would be sufficient to achieve an 'umbrella agreement' that is the result of bilateral negotiations and trade preferential agreements of each Mercosur member country with the EU.

Such a formula could eventually erode the scope of trade and economic preferences agreed in Mercosur. It could also involve an irreversible deterioration of a key instrument such as the common external tariff, that has been conceived not only for economic reasons but, above all, as a mutual guarantee of the loyalty of the partners when negotiating economic preferences with other countries or economic blocs.

Perhaps in the context of its founding moment, when the United States promoted what would later become the failed FTAA negotiations, such mutual guarantee was for Argentina and Brazil a key factor in promoting the construction of a process based on mutual trust. Aware of their respective histories, both countries needed an instrument that ensured the behavior of the other in the face of a temptation such as a special preferential relationship with the U.S.

Thus, its value transcends the economic and commercial. It is essentially political, as has been evinced each time that one of the two countries was perceived by the other as seeking that preferential and exclusive relation with the U.S -and previously with Great Britain-. It was also the case of the two attempts by Uruguay to negotiate individually a preferential agreement with the U.S., as narrated by Roberto Porzecanski in his fascinating book 'No voy en tren. Uruguay y las perspectivas de un TLC con Estados Unidos (2000-2010)' (Debate-Editorial Sudamericana Uruguay, Montevideo, 2010).

There are other reasonable options to this formula. It would involve maintaining the idea of a joint negotiation, placing it in the context of a proper appreciation of the balance of interests of both regions in attaining the corresponding agreement. In the case of the EU, it implies questioning whether they would prefer to conclude it before or after the current negotiation with the U.S. of the so called transatlantic trade and investments partnership agreement (TATIP). Moreover, it should also be considered that for a long time a powerful driving force behind the European interest was to offset a preferential access of the U.S. to Latin American countries, including of course those of Mercosur, as a result of the Initiative for the Americas by President Bush in 1989. In fact, the agreements that the EU has already concluded in the region are with those countries that have, in turn, an FTA with the U.S.

Depending on the density of the European strategic interest and of its companies with investments in Mercosur -especially in sectors such as the automotive, capital goods, government procurement and the construction of large public works, among others, which are more exposed to competition from new players operating in the region, such as China and India- it is likely to introduce elements of flexibility that take into account the more sensitive interests on both sides.

It should be noted in this regard that a bi-regional agreement conceived with practicality, negotiated with strategic criteria and with a good dose of political intelligence can include multiple variants of flexibilities, especially in the mechanisms of tariff reliefs and regulatory frameworks. It also requires a good use of evolutionary clauses and of escape mechanisms.

In addition, the time for maturity of the respective commitments that are made -without considering the exceptions that are agreed and the safety valves that could be applied during the development of the agreement- may involve between twenty and twenty five years. This from the moment of concluding the negotiation, with the initialization of the eventual agreement, then considering the time needed for translating the initialed text into the EU languages, its parliamentary ratification and later the time of the tariff reduction period, that can take a minimum of ten years and a maximum to be agreed depending on the interest of both parties to finalize the agreement. This provides more than sufficient time to protect sensitive sectors, without prejudice to the possibility of including in the agreement the access to funding mechanisms for industrial reconversion.

This being so, it would seem possible to reconcile mutual trust, methodological flexibility and predictability, even in a negotiation of Mercosur with an European Union that is going through its own period of economic and political uncertainties, as well as possible internal transformations.



Recommended Reading:


  • Acharya, Amitav, "The Making of Southeast Asia. International Relations of a Region", Cornell University Press, Ithaca and London; Institute of Southeast Asian Studies, Singapore, 2012.
  • Akhtar, Shayerah Ilias; Jones, Vivian C., "Proposed Transatlantic Trade and Investment Partnership: In Brief", Congressional Research Service, 7-5700, Washington July 23, 2013, on http://www.fas.org.
  • Álvarez, Isabel; Fischer, Bruno B.; Natera, José Miguel, "Mercosur: tendencias de internacionalización y capacidades tecnológicas", Revista CEPAL, n° 109, Santiago de Chile, April 2013, pgs. 43 to 60, on http://www.eclac.org/.
  • Balassa, Bela, "The Theory of Economic Integration", Routledge Revivals, New York 2011.
  • Bekerman, Marta; Dulcich, Federico, "La inserción internacional de la Argentina: ¿Hacia un proceso de diversificación exportadora", Revista CEPAL, n° 110, Santiago de Chile, August 2013, pgs. 157 to 182, on http://www.eclac.org/.
  • Clulow, Germán, "El Debate sobre la Inserción Internacional del Uruguay: ¿Mucho ruido y pocas nueces?". Part I and II, in Letras Internacionales, Montevideo, Year 7, n° 168, 22 July, 2013, on http://www.ort.edu.uy/ and n° 170, 15 August, 2013, on http://www.ort.edu.uy/.
  • Coatz, Diego; Dragún, Pablo; Sarabia, Marianela, "La industria argentina frente a los cambios globales: de la política comercial a la integración regional", Boletín Informativo Techint, n° 341, Buenos Aires, May/August 2013, pgs. 37 to 62, on http://www.boletintechint.com/.
  • Dussel Peters, Enrique; Gallagher, Kevin P., "El huésped no invitado del TLCAN: China y la desintegración del comercio en América del Norte", Revista CEPAL, n° 110, Santiago de Chile, August 2013, pgs. 85 to 111, on http://www.eclac.org/.
  • Emmerson, Charles, "The Future History of the Arctic. How climate, resources and geopolitics are reshaping the North, and why it matters to the world", Vintage Books, London 2011.
  • George, Rose, "Ninety Percent of Everything. Inside Shipping, the invisible industry that put clothes on your back, gas in your car, and food on your plate", Metropolitan Books, Henry Holt and Company, New York 2013.
  • Henry, Ken; Shuli, Hu; Feigenbaum, Evan A.; Acharya, Amitav, "Multiplex world: steps toward a new global order", East Asia Forum, ANU, Canberra, August 14, 2013, on http://www.eastasiaforum.org/.
  • Hoffman, Jan, "El potencial de puertos pivotes en la costa del Pacífico sudamericano", Revista CEPAL, n° 71, Santiago de Chile, August 2000, pgs 121 to 143, on http://www.eclac.org/.
  • Howse, Robert, "El momento de Azevedo", ICTSD, Puentes, Volume 14, Number 5, August de 2013, on http://ictsd.org/.
  • Magi, Gianluca (in charge of), "Las 36 Estratagemas. El arte secreto de la estrategia china para triunfar en cualquier campo de la vida cotidiana", Ediciones Obelisco, Barcelona-Buenos Aires 2009.
  • Makuc, Adrián; Vega, Carolina; Scarpanti, Luciano, "La quimera del oro: ¿Quo vadis OMC?", Boletín Informativo Techint, n° 341, Buenos Aires, May/August 2013, pgs. 79 to 109, on http://www.boletintechint.com/.
  • Niang, Alioune, "Acuerdo sobre facilitación de comercio: ¿a quién beneficiará?, ICTSD, Puentes, Volume 14, Number 5, August 2013, on http://ictsd.org/.
  • Reed, John, "México insurgente", Gandhi Ediciones - Océano, México 2011.
  • Saggia, Aura, "Paraguay ante la Triple Alianza del Mercosur", ICTSD, Puentes, Volume 14, Number 5, August 2013, on http://ictsd.org/i/news/puentes/174384/.

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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