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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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A NEW STAGE OF MERCOSUR AND ITS RELATION WITH THE EU?
The leadership and methodological intelligence requirements that arise.

by Félix Peña
February 2016

English translation: Isabel Romero Carranza


 

It is in the context of the current international system and its uncertainties that we need to place the issue of how to continue the process of construction of Mercosur and the conclusion of a bi-regional agreement between Mercosur and the European Union. Can it be considered in this regard that both Mercosur and its negotiations with the EU are entering a new stage? In this sense, there are clear signs that the conditions are right for it to happen. In the case of the new Argentine government, President Macri has clearly stated the importance he attributes to the construction of Mercosur as the central axis of a wider strategy for integration in Latin America and the world. In this perspective, he assigns a special role to the deepening of the preferential relation developed over the past thirty years with Brazil, later extended to the wider Mercosur space and the other Latin American countries. He has also been clear about the strategic importance of relations with other regions. This perspective certainly includes the negotiations of the agreement with the EU and those that will have to be undertaken in the hemispheric space itself and with countries in other regions, among which an eventual preferential trade agreement with China occupies a special place due to its importance in trade and investments.

As for the construction of Mercosur, there are three conditions that seem essential in order to move forward with political realism and achieve concrete results. The first of them is to leave out from the debate the issue of whether Mercosur should continue to exist as it is or if it would be better to transform it into a free trade area or simply eliminate it. The second is that an integration process does not necessarily imply that the participating nations will lose their sovereignty or no longer be autonomous units of the international system, nor that the markets and national economic systems need to be completely merged. And the third condition refers to the methodology for the opening of the local markets to trade and investments originating in the partner countries. Notwithstanding broader commitments, such as those originally agreed in the Treaty of Asuncion on the trade of goods and the common external tariff, individual sectoral approaches were also envisaged, such as that of the automotive sector and the agreed ,even when not widely used, sectoral agreements provided for in the Treaty and in Decision CMC03 / 91. This regulatory framework has been scarcely employed and today could adapt well to the need to facilitate productive integration in other sectors.

An intelligent adaptation of Mercosur to the new global and regional realities and the challenges they pose will help ensure that the negotiations with the EU continue along a more strategic and, at the same time, pragmatic path.


In the relations between nations, the international context is a necessary backdrop for understanding the constant tension between conflict, fragmentation and even the threat of war on the one hand, and cooperation and the possibility of integration, on the other hand. This has always been so and still holds true today, particularly in the case of the relations between adjacent nations given their greater physical connectivity.

In his book "Memorias" (Encuentro-CEU, Madrid 2010); Jean Monnet describes well the role of such a backdrop at the beginning of the path that led to the construction of what is now the European Union. At its founding moment it had a fundamental influence in the perception of an international scenario that risked repeating the experience, so often lived in Europe, of violence and war in the relations between neighboring nations, especially between Germany and France. Political leadership and methodological and technical intelligence was the winning combination that finally resulted in the Schumann Plan (May 1950), the offspring of exceptional personalities such as were, among many others, Robert Schumann and Konrad Adenauer at the political level, and Jean Monnet himself in the strategic and more technical aspects.

The world today is very different from the fifties of last century. However, like then, there are trends and deep forces at work at the global level and in some of the regions, which lead to a climate of uncertainty and pose challenges that are partly similar to those faced by the leaders of that time. In this regard, it may be useful to read and reflect on a recent article by Joschka Fischer, former Foreign Affairs Minister and Vice-Chancellor of Germany, where he presents a tough but realistic analysis of the current world situation. Published in the newspaper El País of Madrid, it has a suggestive title: "Welcome to the 21st Century. A new world order may seem inevitable buts its foundations are still indiscernible" (http://elpais.com/). He bluntly points out that: "Wherever one looks, chaos seems to be ascendant. The international order forged in the fires of the twentieth century seems to be disappearing, and we have not had even the faintest glimpse of what will replace it." He mentions some of the main and known challenges faced today by the community of nations and he adds a pessimistic note on how these challenges will be addressed: "What is not clear is the context in which the response will come - if at all. In which political structures, by whose initiative, and under which rules will these questions be negotiated - or, if negotiation proves impossible, fought over? Political and economic order - particularly on a global scale - does not simply arise from peaceful consensus or an unchallenged claim by the most powerful. It has always been the result of a struggle for domination - often brutal, bloody, and long - between or among rival powers. Only through conflict are the new pillars, institutions, and players of a new order established" (translated from the Spanish version).

This diagnosis helps understand the importance of the efforts aimed at creating conditions for global governance that is functional to the goal of world peace. One of such conditions is the prevalence of the logic of cooperation and joint work between countries of the same geographic region. Regional governance, understood as the result of values, institutions and rules that ensure an environment of peace, security and political stability among neighboring nations, is thus an increasingly valuable public good and, at times, difficult to achieve and maintain.

It is in this context that we should place the issue of how to continue building Mercosur and the conclusion of the bi-regional agreement with the EU. Both are part of complex processes of integration into broader regional and bi-regional spaces. And both are explained by a very dynamic and multidimensional combination of political, economic, social and cultural factors. Pretending to understand these processes and, especially, to operate on them just from the perspective of trade or the economic, or even the political, involves the risk of generating illusions that then do not translate into reality. This has happened many times, especially in the case of Mercosur.

Could it be considered in this regard that both Mercosur and its negotiations with the EU are entering a new stage? In this sense, there are clear signs that the conditions might be right for this to happen. They have been present for some time in at least three of the Mercosur members (Brazil, Paraguay and Uruguay). More recently, the signals given by the new Argentine government indicate a strong political will to advance the development of both processes and place them in the broader Latin American regional integration frame, through the convergence of the countries of Mercosur and those of the Pacific Alliance. It should be noted that the Alliance countries have already concluded free trade agreements with the EU.

The newly elected Argentinean President, Mauricio Macri, has been clear on the importance he attributes to the construction of Mercosur as the central axis of a broader more active and assertive integration strategy of the country in Latin America and in the world. In this perspective, he assigns a special role to the continuation and deepening of the preferential relation developed over the past thirty years with Brazil, later extended to the wider Mercosur space and other Latin American countries. He has also been clear about the strategic importance of relations with other regions. This perspective includes, most certainly, the negotiations of the agreement with the EU and those that will have to be undertaken in the hemispheric space itself and with countries in other regions, among which an eventual preferential trade agreement with China occupies a special place due to its importance in trade and investments (on this topic, refer to the January 2016 issue of this newsletter on http://www.felixpena.com.ar/).

With regard to Mercosur, it will be important to see if three of the existing perceptions pervasive in member countries can be overcome. One of such perceptions is outlined in the phrase "Mercosur binds us." The other in the expression "the market that was assured was never made available". And the third states that "the promised preference was liquefied". The first perception refers to the fact that Mercosur requires its members to negotiate together any tariff preferences with other countries (combined effect of the common external tariff and CMC Decision 32/00). The second perception is linked to restrictions of all kinds that have continued to be applied to mutual trade by all member countries (although the most notable case in recent years has been Argentina). And the third perception points to the fact that sometimes member countries have unilaterally extended trade preferences -not necessarily of the tariff kind- to third countries; thus placing them on an equal footing with member countries.

The clear signals sent by the government of President Macri of a real interest in concluding the negotiations with the EU and of advancing the convergence between Mercosur and the Pacific Alliance, but without ruling out other subsequent trans-regional negotiation initiatives, would eliminate the possibility of arguing that "Mercosur binds us." This was a contention focused, correctly or incorrectly, on the perception that Argentina was the main obstacle to trading with third countries and, in particular, with the EU. As raised in two different articles by Ricardo Lagos, former President of Chile, and Osvaldo Rosales, negotiator of free trade agreements signed by Chile and Director of the International Trade Division of ECLAC, an intelligent agreement between Mercosur and the EU would open the door to renew the methodology of Latin American integration itself due to its effects in the creation of an appropriate institutional framework for the development of regional value chains aimed at the markets of the region itself, but mainly of other regions (see the article by Lagos on http://www.ricardolagos.org/. The article by Rosales entitled "Chile and the relevance of the agreement Mercosur-European Union" has not yet been published).

As for the construction of Mercosur, three conditions seem essential in order to move forward with political realism and achieve concrete results.

The first of these conditions is to leave out from the debate the issue of whether Mercosur should continue to exist as it is or if it would be better to transform it into a free trade area or simply eliminate it. It is an issue that often arises from ideological or theoretical perspectives, the latter especially originating in a dogmatic interpretation of economic theories (for example, what a customs union should be according to the views of Bela Balassa, which leads to the distinction between the "perfect" and the "imperfect". Mercosur is usually placed in the second category, overlooking thus the scope of the definition of Article XXIV of GATT). It would be wiser to emphasize, especially by the political leadership, that what is under discussion is not whether the partners should work together or not (that is, the existential dimension of Mercosur), but how they can work together (that is, the methodological dimension). In this regard, what is important to consider and make clear is that there is no single model to determine how neighboring countries should cooperate and work together and that in each case the methodology for joint work should be adjusted to the needs and possibilities rather than to theoretical models. It should also be adapted to the international commitments that have been undertaken, especially in the WTO. (On the topic discussed in this paragraph refer to the April 2012 issue of this newsletter on http://www.felixpena.com.ar/).

The second condition is that an integration process does not necessarily imply that the participating nations will lose their sovereignty and will no longer be autonomous units of the international system, nor that the markets and national economic systems need to be fully merged. Neither does it imply that there will be a final product within a specified period. An integration process involves drawing a roadmap to gradually build more connected and integrated economic areas through a process that will never be linear, but that must have a reasonable degree of conclusiveness. It implies, most importantly, that the participants voluntarily accept freely agreed collective disciplines. This means the possibility of achieving, through rules and institutions, a balance between national and common interests as well as between a reasonable degree of flexibility in the commitments and a necessary and also reasonable degree of predictability in the agreed rules. Otherwise, the effects that are sought for productive investment and job creation in terms of the expanded markets will not be achieved.

And the third condition refers to the methodology for the opening of markets to trade and investment originating in partner countries. Notwithstanding broader commitments, as those originally agreed in the Treaty of Asuncion regarding the trade of goods and the common external tariff, sectoral approaches were always envisaged, such as that agreed and still in force for the automotive sector, and the also agreed -but not widely used- sectoral agreements provided for in Article 5.d of the Treaty and which had a first regulatory framework in Decision CMC03 / 91. This regulatory framework has been scarcely used and today could adapt well to the need to facilitate productive integration in other sectors. In addition, it would help articulate this sectoral productive integration with that which could be developed in the context of the strategy of convergence in diversity, anticipated for the relations between Mercosur and the Pacific Alliance. Plus a sectoral strategy of this kind would not go against the broader idea of achieving, over time, the so-called regional common market. On the contrary, it would facilitate it. In this regard, the ALADI has the necessary tools that derive from the rules laid down in the Treaty of Montevideo of 1980. How to use the ALADI for the necessary articulation between the Pacific Alliance and Mercosur is one of the issues that should be prioritized on the agenda of the new stage of Mercosur.

The revitalization and adaptation of Mercosur and its instruments to the new global and regional realities and the challenges they pose to the countries of both regions will also help to ensure that the negotiations for a bi-regional association with the EU follow a more strategic, as well as pragmatic and intelligent, path. The implicit flexibilities of Article XXIV, paragraph 8, of GATT allow such an approach (strategic and pragmatic), provided it is the result of strong political leadership on both sides of the Atlantic (which can only be driven at the highest level of the respective member countries) and of an imaginative methodology consistent with the rules of both integration processes and the WTO. (On the leeway for action provided by GATT rules, especially Article XXIV when properly interpreted, see Sangeeta Khorana, Nicholas Perdikis, May T.Yeung and William A.Kerr, "Bilateral Trade Agreements in the Era of Globalization. The EU and India in Search of Partnership", Edward Elgar, Cheltenham UK-Northampton, MA. USA, 2010).


Recommended Reading:


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  • Cohen, Craig; Dalton, Melissa G. (editors), "2016 - Global Forecast", Center for Strategic & International Studies - CSIS, Washington 2015, en http://csis.org/.
  • Denis, Jean-Pierre; Greilsamer, Laurent (editores), "El Atlas de la Globalización. Todas las claves del proceso que está cambiando el mundo", Carlos Alfieri, coordinador de la edición Argentina; Le Monde - Le Monde Diplomatique - Capital Intelectual - Fundación Mondiplo, Buenos Aires 2015.
  • Hernández Requejo, William; Graham, John L., "Global Negotiation. The New Rules", Palgrave Macmillan, New York 2014.
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  • Melendez-Ortiz, Ricardo; Samans, Richard, , Executive Summary, Ross, Alec, "The Industries of the Future", Simon & Schuster eBook, New York 2016.
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  • Trucco, Pablo Agustín (editor), "Socios en la integración productiva. La estrategia asociativa de las empresas en el Mercosur", Teseo-Flacso-LATN, Buenos Aires 2015.
  • Valori, Giancarlo Elia, "Geostrategic forecast for the next ten years", One Europe, Bruxelles, 02-08-2015, en http://one-europe.info/.
  • Vasconcelos, Jorge, "Para despegar, la economía necesita más exportabilidad", Revista Novedades Económicas, IERAL-Fundación Mediterranea, N° 850, 18-01-2016, en http://www.ieral.org/.
  • Vieira Vargas, Everton, "El Legado del Discurso. Brasilidad e hispanidad en el pensamiento social brasileño y latinoamericano", Editorial Biblos, Buenos Aires 2015.
  • Williams Woolley, Anita, "Sabiduría en Grupo", en Ideas, "El País", 31-01-2016, en http://tecnologia.elpais.com/.
  • Wong, Dato' Steven CM, "ASEAN Post 2015: Together we build the future", ASEAN Summit Roundtable 2016, Post-ASEAN Summit Roundtable Forum "Forging Ahead Together", The National University of Malaysia, Kuala Lumpur 13 January 2016, en http://www.isis.org.my/.
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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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