| THE ART OF ACHIEVING SUSTAINABLE EQUILIBRIUM
Its relevance for international trade and regional integration strategies
by Félix Peña
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
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
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,
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
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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