| ADAPTATION TO THE NEW REALITIES OF WORLD
Insights on the debate about Mercosur's common external tariff.
by Félix Peña
English translation: Isabel Romero Carranza
The need to adapt institutional frameworks and rules
of global scope, such as those of the WTO, or of regional scope, such
as those of Mercosur, arises from the dynamics of international relations
and world trade. If there is no adaptation the efficiency, effectiveness
and even the social legitimacy of these frameworks may be eroded over
time. The adaptation may even lead to the renegotiation of the corresponding
founding agreement or eventually to the introduction of substantial changes.
Both in the WTO and in Mercosur there are today situations that may
require and adjustment of their objectives and instruments to the new
realities. In the case of the WTO, the temporary obstacles to implement
one of the major agreements reached at the Ministerial Conference in Bali
last December has introduced, as a relevant issue, the need to revise
the methods for decision-making that help move forward, especially in
the context of a Doha Round with no visible prospects. At the same time,
in Mercosur, various questions have been raised regarding the instrument
of the common external tariff, in view of the interests of relevant sectors
and of some of its member countries that see fit to pursue, individually,
preferential trade negotiations with third countries or groups of countries.
This generates the need to analyze and discuss in Mercosur both the
extent of the commitment to the common external tariff and the methods
that will eventually allow reviewing such commitment, for example by eliminating
it or making it more flexible through an interpretation of its real scope.
The fact that there are no legal regulations that specify what is
meant by a common external tariff or that those present in the GATT or
Mercosur, when properly interpreted provide a reasonable leeway for flexibility,
allows us to envision a future development of Mercosur that does not require
a substantial modification of the foundational legal texts, which could
be costly in political terms.
In any case, the important thing would be to preserve the essence
of what was sought, both in a political and economic perspective, with
the construction of the regional preferential space. And it would seem
to be essential to achieve it not so much through a new single economic
space of regional scope, but through one that is common but differentiated,
even with variable geometries, and which favors the objectives of connectivity,
compatibility and convergence of the respective national spaces while
preserving the rich differences, identities and individualities.
The institutional framework for international trade relations in the
global space, or of multinational integration in a regional or sub regional
space, is built over time. Its rules and processes for making decisions
and creating regulations may be viewed as the result of an ongoing effort
to build without time constraints and without the need of having a pre-defined
The formal starting point of such a construction is often reflected in
the founding agreement, embodied in some form of multilateral international
legal instrument. It is what sets the regulatory framework for the development
of actions aimed at achieving common objectives pursued by the participating
When designing this initial regulatory framework the founding countries
should not necessarily follow a predetermined pattern, be it theoretical
or historical. On the contrary, the principle of "freedom of organization"
usually prevails, as was pointed out decades ago by the Italian internationalist
Angelo Piero Seregni. It is a principle that, at least in the case of
this kind of institutional frameworks, can only be influenced by what
is considered as rational and, in particular, by what is prescribed by
the respective domestic legal systems and by the international legal commitments
of the founding countries. Such is the case, for example, of the conditions
for the design of preferential trade agreements -whatever their specific
modality- that result from the framework of the World Trade Organization.
The founding agreement results in processes that are not usually linear.
Rather, they are the outcome of successive steps taken over time or at
pre-determined stages -such as the case, for example, of what is stipulated
by the Treaty of Asunción for the end of the transition period
of Mercosur- and aimed at the achievement of common goals among participating
Over time these steps often require a subsequent adaptation of the objectives,
instruments and work methods to the inevitable changes in the political,
economic and social realities, both of the participating countries and
of the global or regional international environment.
Depending on the factors that influence the requirement for adaptation,
the institutional framework can be adjusted or eventually even redesigned
through its complete transformation. The latter is what usually leads
to the expression "re-founding", which is like starting from
square one. The inability to adapt to the changing realities can also
lead to a failure of the idea that led to the original founding moment
and, therefore, to the banishment of the respective institutional framework
to the realm of irrelevance or oblivion.
The above considerations are motivated by what happened in the scope
of the WTO, especially with the standstill, last July, of the enactment
of one of the main agreements for trade facilitation reached at the Ministerial
Conference in Bali, in December 2013. The virtual veto of India opened
a debate in Geneva on how to adapt the decision-making methods of the
WTO to the new international realities. An argument that is often presented
is that there are currently too many members and that the distribution
of relative power among the countries that have the greatest impact on
the global trade of goods and services is very different from what it
was at the founding moments of the WTO and, even more so, of the GATT.
So it is not possible to continue to assume that the consensus method
that was the basis of the Doha Round can produce agreements and rules
that have the necessary three qualities of effectiveness, efficiency and
social legitimacy. The problem is that it is not easy to change such method
or to create new modalities to move forward with the eventual dismantling
of the restrictions on international trade or to define rules that apply
to global trade.
But these are also considerations motivated by what is happening with
Mercosur. What can be perceived in this case is a questioning, at times
very intense and that would be counterproductive to ignore, of its adaptation
to the new realities of the regional and international insertion of the
member countries. This is focused on one of the instruments that originate
from the founding moment, which is the common external tariff (CET). Some
of the most relevant questions are: Is it convenient to keep the CET or
not? And in any case, what is the real extent of the commitment assumed
in this regard by the member countries? And most particularly, what kind
of flexibility exists for its effective implementation in the case of
trade negotiations with third countries? Moreover, what would be the impact
of its elimination on the validity and the actual scope of the intra-Mercosur
trade preference originally agreed in the Treaty of Asuncion?
As a consequence of its effect on the leeway for action that member countries
consider they have to carry out preferential trade agreements with third
countries or group of countries -such as the negotiations with the EU-
it is an issue that tends to gain more strength due to the weight of the
arguments and the protagonists in business and political sectors of Brazil,
Uruguay and Paraguay. In some cases, it even reaches the point where the
very existence of Mercosur is questioned, although this is not often reflected
in proposals on how to replace it in a way that takes into account economic
and political factors that contribute to the direction, quality and density
of the relations between the member countries.
If, from an economic point of view, it would be convenient or not to
preserve the instrument of the common external tariff and, therefore,
the figure of a customs union, is something that, in practice, should
be determined by the member countries based on to their own national interests
and on other considerations related with their trade policies and the
effective operation of the preferential agreement concluded by them.
In this regard, it is also important to note the degree of permissibility
granted by the existing regulatory framework of Mercosur. The basic question
is whether it would be sufficient to modify the rules that have been approved
by the Mercosur Council as the main body for normative creation or if,
on the contrary, amendments to the founding treaty, i.e. the Treaty of
Asuncion, would be required. The political energy and the costs that either
option would demand could be quite different, even to a great extent.
On this occasion we will only make an initial approach to this last dimension
of the question, which is the legal and institutional. This does not imply,
of course, underestimating the weight of the other dimensions.
In that regard it should be noted that the figure of the CET is explicitly
incorporated into the founding pact of Mercosur (articles 1 and 5 c) and
that it is linked to a common commercial policy. It is mentioned as one
of the basic elements of the methods to be employed in the construction
of the preferential economic space. In that sense, it can be considered
to be closely linked to another basic element which is the complete elimination
of tariffs and restrictions on mutual trade. This element was made more
flexible during the process that led to the formation of the customs union.
Such flexibility was formalized by article 53 of the Protocol of Ouro
A question that may be relevant in this regard relates to the reasons
that led to include the CET in the Treaty of Asuncion. A plausible hypothesis
is that, among other things, a commitment to a CET implied a mutual guarantee
among member countries regarding any possible trade negotiations with
third countries and, in particular, with the United States following the
launch of the Initiative for the Americas.
This being so, the argument that implies that what prevents member countries
from individually negotiating preferences with third parties is Decision
32/00 CM loses its strength. This effectively prevents the individual
negotiation of preferential trade tariffs. But a decision may be amended
by a further Council decision. Instead, a Treaty commitment can only be
modified by a review of the very same international foundational legal
instrument. In order to grasp the scope of such revision, we should keep
in mind that it would involve reviewing other commitments that were later
added to the original text. We are referring in particular to the complete
elimination of tariffs and restrictions on reciprocal trade between partners.
In this regard, a key provision of the Treaty is article 2 which stipulates
reciprocal rights and obligations among member countries.
Another viable option would be to relax the interpretation of the scope
of the CET. The fact that the founding legal instrument does not define
such a scope -it only states that a common external tariff must be approved-
and that, moreover, the wording of article XXIV of GATT lends itself to
multiple interpretations, which do not necessarily conform to the usual
definitions of economic theory, provides ample space to adapt this instrument
to the needs of Mercosur member countries.
The flexibilization can be an option more in tune with the political
necessity of preserving Mercosur as a hard core for the construction of
a common space among its member countries, conductive to the objectives
of regional political stability, convergence in the national economic
and social development strategies and a reasonable articulation between
the respective production systems, at least in the most important sectors
for their development and integration into international economy.
Hence the convenience of analyzing and debating between the Mercosur
countries, in the broader context of the Latin American regional space
or, at least, the South American space, both the extent of the assumed
commitment in the sense of having a common external tariff, and the methods
that would eventually allow either to significantly revise such commitment
-for example, through the elimination of the common external tariff- or
to make it more flexible through an interpretation of its effective scope.
The fact that there are no legal regulations that prescribe what is meant
by a common external tariff or that those in the GATT or Mercosur, properly
interpreted, provide ample room for reasonable flexibility, enables us
to imagine a future development of Mercosur that does not require substantial
modifications to its foundational legal texts, which could be very costly
in political terms.
Perhaps in this regard it would be important to try to preserve the essence
of what the members wanted to achieve, both in a political and economic
perspective, with the construction of a regional preferential space. And
what is essential could be reflected not so much by the idea of a new
single economic space of regional scope, but by a space which is common
but differentiated, even with variable geometries, and that favors the
connectivity, compatibility and convergence goals of the respective national
spaces while preserving their rich differences, identities and individualities.
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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