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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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THE ART OF ACHIEVING SUSTAINABLE EQUILIBRIUM POINTS:
Its relevance for international trade and regional integration strategies

by Félix Peña
October 2013

English translation: Isabel Romero Carranza


 

The need to reconcile different interests and visions can be seen in international relations when attempting to build permanent voluntary coalitions between sovereign nations that share a regional geographic space or that aspire to develop a multilateral trading system, as is the case of the WTO.

Both at the internal level of a nation and at the level of an international agreement -whether global, regional or inter regional- the most complex issue is to preserve the balance of the interests at stake over time. In a way, the founding moment seems to be the easiest step. However many initiatives succumb or lose their vitality at this early stage, which can last years or even decades. It is much more complicated to sustain over time the reciprocity of interests that support the associative link. This is when the 'curve of disenchantment' begins, caused by the fact that not all participating countries continue to view the agreement as a generator of mutual gains. This is the moment when the loss of effectiveness, efficiency and legitimacy of the institutions and rules originating in the founding agreement begins. This is even more complex when an agreement of multilateral cooperation or regional integration is inserted in a context of changing dynamics and even high volatility, either in the member nations or at the global level.

To practice the difficult art of achieving sustainable equilibrium points at the internal level of a nation and at the level of any agreement between sovereign nations that aspire to develop a permanent, multidimensional process of cooperation, with strong emphasis on trade and productive integration, there seems to be three relevant aspects in which it would be more important to achieve institutional progress.. The first is the articulation between the strategies of development and international integration of a country with the requirements of the corresponding regional or multilateral agreement. The second is the articulation between the various preferential agreements in which a country can participate, both among them and with the commitments made at the global multilateral level. And the third is the articulation between the requirements of the short and long term, both in the national strategies as well as in the scope of the international commitments taken on by a country.


TReconciling different and even conflicting interests and views between citizens and social sectors at the internal level of a nation -especially if it is an open society in the sense used by Ralph Dahrendorf in his 'Reflections on the Revolution in Europe' (1991)- is a necessary condition for the political stability and governance of a democratic system. It is also required in order to lay out sustainable strategies and policies for international trade integration, including the development of different types of coalitions and alliances with other nations, particularly if they are embodied in agreements and institutions intended to be permanent.

This is not easy to achieve. It is largely an art in which the best qualities of those who wield political power are fully manifested. It is even harder to achieve in those cases in which a society shows marked economic and social inequalities among its members and when, moreover, there are significant ideological and eventually ethnical and religious fractures. It may also be difficult to accomplish at times when major changes occur in the world power structure and in the conditions of global economic competition, when attitudes of 'everyone for itself' usually prevail between nations but also within them. To some extent, this is what can be observed in some of the members of the European Union (EU) such as, for example, in the case of Greece. These are times when it is more difficult to articulate sectorial interests and sustain over time the equilibrium points that are eventually achieved.

The need to reconcile different views and interests can also be seen in international relations, especially when it comes to building voluntary coalitions, intended to be permanent in time, between sovereign nations that share a regional geographic area or that aspire to develop a multilateral trade system such as the World Trade Organization (WTO). In such cases, the balance that is achieved between the different national interests at stake is what supports the foundational pact and the legal regulations that are included in the agreement that formalizes it. Supposedly, it also sustains the mechanisms and rules that derive over time from the foundational legal instruments. However, this is not always the case and this may lead to a loss of efficiency, effectiveness and even legitimacy of the corresponding agreement and of the process that it aims to promote, be it regional or multilateral and global.

Both at the internal level of a nation and at the level of an international agreement-whether global, regional or interregional- what is most difficult then is to preserve the balance between the respective interests at stake over time. In a regional integration agreement such as Mercosur, the hardest part was not necessarily reaching the founding moment. This moment requires, of course, strategic vision and political skill. It also requires luck. This can also be seen today in the so-called -and much publicized- 'Pacific Alliance'.

In a way, the foundation is the easy stage. However, many initiatives succumb or lose vitality in this first stage, which can last several years or eventually decades. It is much more difficult to sustain over a long time the reciprocity of interests that support the associative link. This is when what could be called the 'curve of disenchantment' starts to show, usually caused by the fact that not all participating countries continue to view the corresponding agreement as a generator of mutual gains. At this point is where the loss of effectiveness, efficiency and legitimacy of the rules originating in the founding agreement begins, sometimes due to a trickle effect. This is even more complex when a multilateral cooperation or regional integration agreement is inserted in a context of changing dynamics and even of high volatility, either in each of the member countries or at the global level. This is what is happening today with the seismic movements that are shaking both the EU and Mercosur, despite their obvious differences.

In the internal front of a nation, a situation of strong dynamics of change can put to the test the quality and effectiveness of government institutions. Also, changes in the realities at the regional level mean a test for the effectiveness of the mechanisms for the conciliation of national interests -both the internal component within each nation and at the common or multinational level- and may also have an impact on the effectiveness of the ground rules that are agreed. An example of this is what happened in the evolution of the Andean Group and its main joint body - the Board of the Cartagena Agreement- which lost efficacy and even legitimacy after a founding period with a favorable external context and affinity of values and interests between the member countries. A turning point in this regard was the withdrawal of Chile, which together with Colombia had played a key role in the creation of the Andean Group under the leadership of then Presidents Eduardo Frei and Carlos Lleras Restrepo, respectively.

The situation may be more complicated when a founding moment characterized by the affinity of values and interests -a situation of like-minded countries- is then followed by periods of significant differences between the partners, even when temporary. It also becomes more difficult when no mechanism for the conciliation of interests is established -in the sense of what was upheld by Jean Monnet in the founding moments of European integration- to help achieve the balance between national interests when these do not converge. In this regard, the role of the 'independent facilitator' in the decision-making process is critical and provides a guarantee for those participating countries with a smaller endowment of relative power.

The short history of Mercosur shows, at different moments, interesting examples of this. It is even possible to formulate the hypothesis that it has been the absence or weakness of effective mechanisms to facilitate the coordination of national interests one of the reasons that would explain the recurring difficulties Mercosur has had, and still has, to adapt to the effects of the dynamics of internal and contextual changes that have characterized the relations between its member countries -and Argentina and Brazil in particular- since the integration process was launched with the multidimensional agreements of the period 1985-1994, that is, at the strategic, nuclear, political economic and social levels. It is a weakness that could not be overcome neither with the creation of the Technical Secretariat -the fact that is was prevented from publishing on the Internet an annual report on the evolution of Mercosur later had a strong negative impact on its effectiveness-, nor after with the creation of the figure of a High Representative who, however, beyond its representative function has never been able to have sufficient influence in the process of articulating national interests leading to the production of ground rules that are effectively applied. It is an institutional deficit that would require more academic and, above all, political reflection than it has been given in the recent history of Mercosur.

There are three relevant aspects in which it would be important to obtain institutional advances that allow the practice of the difficult art of achieving sustainable equilibrium points, both internally as a nation and in any joint work agreement between sovereign nations that aspire to develop a permanent multidimensional cooperation process with strong emphasis on trade and productive integration -whether global-multilateral such as the WTO, or regional such as Mercosur and now the Pacific Alliance.

The first is the articulation between the strategies for development and international integration of a country with the requirements of the corresponding regional or multilateral agreement. Among many others, an example on this regard are the trade policies that are needed to be applied in view of the combination of offensive and defensive interests of the companies and social sectors of a country and the legal commitments relating, in particular, to the access of the respective domestic market and trade protection. In times of global economic crisis and a relative decline of the international trade flows, the natural tendency of each country is to protect the jobs of its population. Often made covertly and with such legal subtlety, it becomes difficult for those eventually affected by the policy of one of the partners to prove that the agreed rules have been violated. Other times, violations are done overtly and this affects the international credibility of the country applying the measures contrary to the agreement. But, in general, these are situations that highlight the inadequacies of the ground rules, that make it difficult to implement or simply do not consider escape clauses of fast implementation, exceptional and temporal, such as it has been proposed by Professor Dani Rodrik for the WTO, especially in his book 'One Economics Many Recipes. Globalization, Institutions and Economic Growth', Princeton University Press, Princeton and Oxford, 2007.

The second is the articulation between the different preferential agreements in which countries can participate, both among themselves and with the commitments made at the global-multilateral level. In fact, it is increasingly common for a country to participate simultaneously in different regional and preferential trade agreements concluded, at least formally, within the multilateral framework of the WTO, or to aspire to do so. This may eventually trigger the need to achieve equilibrium points between the commitments made in the different agreements and the respective national interests. Achieving such balance also depends on what are the concessions and the rules agreed upon in each of the agreements. And in particular, it depends on the actual goals and the political and strategic scope, sometimes very deep, of a certain regional preferential agreement.

Mercosur offers a case in point. While partners are committed to a customs union with a common external tariff -a key element of the difference between 'us' and 'them', with not just an economic but a deep strategic and political meaning-, which in fact was conceived as a flexible instrument that is functional for the requirements of trade strategies of variable geometry, there are growing trends to try different approaches between partners when negotiating with third countries or groups of countries. The similarity with the experience of 'distinct channels' in Mercosur airports -where the citizens of member countries who are supposed to have preferential treatment (Decision CMC 12/91) end up queuing together with those from third countries but separated from the locals- is quite illustrative of the consequences that such differentiated preferential approaches could have. It is precisely in the case of the negotiations with the EU where the tendency to seek different approaches and paces where this trend shows more clearly. It is usually claimed that the existing limitation (under Decision CMC 32/00) applies only to the negotiations of commercial tariff preferences. Those who argue thus use the expression 'anything but trade' to indicate the extent of what a country, such as for example Brazil, could negotiate bilaterally with the EU. Perhaps they are disavowing in this way the deep strategic and political consequences of such approach.

In this regard, during the recent visit to Brazil by Antonio Tajani, Commissioner for Industry for the EU, the President of EUBrasil, a forum that brings together companies and specialists (see: http://www.eubrasil.eu/about/), sent him a letter in which the following paragraph stands out: 'There is a widespread expectation that there is no possibility of arriving, in the foreseeable future, at an EU-MERCOSUR agreement; negotiations are stuck since 2004. But in order to foster a new more competitive growth model, Brazil needs more access to foreign markets (and the EU is its most important customer market) and needs to open up much more its own market if it wants to enhance its firm's competitiveness. There are two possible parallel paths to unlock the current situation. The first is to go ahead with a set of bilateral EU-Brazil agreements on "anything but trade": rules, standards, SPS, investment, taxation, regulations, business facilitation, the whole arsenal of technical barriers to trade and non-tariff barriers to trade. This can be done without endangering MERCOSUR and would strengthen the Brazilian hand in promoting the second path: the sequencing of the bi-regional talks. MERCOSUR would be kept as a negotiating umbrella under which each member country could adopt faster or much slower liberalization commitments and schedules. The EU has already experienced this kind of solution in its negotiations with the Andean Community' (emphasis added). (Refer to the full text of the letter on http://www.eubrasil.eu/2013/10/07/eubrasil-letter-to-vice-president-antonio-tajani-european-union-mission-to-brazil-october-1011-2013/). On the consequences of any eventual bilateral agreements of Mercosur countries with the EU, see our article published in La Nación Newspaper from May 22, 2012 on http://www.felixpena.com.ar/). What the letter does not mention is that after the negotiations of two of its member countries with the EU -Colombia and Peru-, the Andean Community of Nations entered a phase of significant irrelevance. And the problem that could arise in Mercosur would be precisely that the bilateral scope of trade negotiations of Mercosur members with the EU, even when not including preferential tariffs, could end up affecting the fundamental reason behind the agreements reached between Argentina and Brazil, first in 1985-86 and then in 1990-91, which penetrate deep into strategic and sensitive issues such as, among others, the nuclear one. It does not seem convenient in the context of a strategic integration conceived as a synonym for 'peace and political stability in South America'- such as was noted at the time by the then Foreign Minister, Celso Amorim, in response to a question made by a colleague in a panel on international trade at the World Economic Forum in Davos, in 2008.

Finally, the third level is that of the articulation between the requirements of the short and the long term, both in the respective national strategies and in terms of the international commitments taken on by a country. What can be observed on this respect is an effect of growing erosion of the distinction between short and long-term interests, resulting from the close link between trade and productive investment, which is reflected in the new forms of organizing production at multinational level. In fact, the fragmentation of production in transnational value chains is generating, as one of its effects, a great difficulty to distinguish between the short and long term when a country applies restrictive trade policies.

Depending on how they are applied, even when theoretically such measures would impact only short term trade flows, they may also have a strong effect on investment decisions to the respective country as a result of the appraisal that, within the context of a transnational value chain, is made on the convenience of operating from its market. The uncertainty regarding trade flows can then have effects on productive investment decisions that, while aimed for the long-term also have a bearing on the short-term. In the automotive industry, for example, it can lead investors to prefer those countries that, together with market size and level of industrial development, provide assurance regarding the fluency of cross-border trade flows.



Recommended Reading:


  • Armstrong, Shiro, "Indonesia connects APEC to regional ambitions", October 6th, 2013, on http://www.eastasiaforum.org/.
  • Aydin, Cemil, "The Politics of Anti-Westernism in Asia. Vision of World Order in Pan-Islamic and Pan-Asian Thought", Columbia University Press, New York 2007.
  • Bernal Meza, Raúl; Quintanar, Silvia Victoria (coordinadores), "Regionalismo y Orden Mundial: Suramérica, Europa, China", Nuevo Hacer/Grupo Editor Latinoamericano, Universidad Nacional del Centro de la Provincia de Buenos Aires, Buenos Aires, 2012.
  • CEPAL, "Panorama de la Inserción Internacional de América Latina y el Caribe. Lenta postcrisis, meganegociaciones comerciales y cadenas de valor: el espacio de acción regional", CEPAL, Santiago de Chile 2013, on http://www.cepal.org/.
  • Chen, Xiangming,; Chen, Kayla, "China and Latin America vie for competitive status", East Asia Forum, October 11th, 2013, on http://www.eastasiaforum.org/.
  • Drysdale, Peter, "Asia gets on it while America's out of play", East Asia Forum, October 7th, 2013, on http://www.eastasiaforum.org/.
  • Emmott, Stephen, "Ten Billion", Vintage Books, New York 2013.
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  • Urmeneta, Robert, "ASEAN: Interrelaciones y potencialidades con América Latina y el Caribe", CEPAL - Observatorio América Latina Asia Pacífico, Montevideo 2013, on: http://www.observatorioasiapacifico.org/.
  • VanGrasstel, Craig, "The History and Future of the World Trade Organization", WTO, Geneva 2013, on http://wto.org/.
  • Wise, Timothy A., "Can We Feed the World in 2050? A Scoping Paper to Assess the Evidence", Tufts University, Global Development and Environment Institute, Working Paper N° 13-04, Medford, September 2013, on http://www.ase.tufts.edu/.

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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