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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009

A NECESSARY RENEWAL IN THE CONSTRUCTION OF MERCOSUR?
Ideas about the possible development of a new building stage.


by Félix Peña
November 2018

English translation: Isabel Romero Carranza


 

The idea of facing the renewal of the methodologies used for the construction of Mercosur is not new and has been present in its member countries for quite some time. Recognizing the need for this renewal not necessarily implies questioning the existence of this process of integration between South American countries.

The conclusion of the recent electoral process in Brazil has opened an opportunity to address, through mutual agreement of the partners, the necessary renewal of the methodologies applied for the construction of Mercosur. The idea of working together has not lost validity and no other reasonable option has been proposed so far.

During the almost thirty years that have elapsed since the beginning of the construction of Mercosur many changes have taken place in the international context, in the Latin American region and, most certainly, within the member countries. Many of these changes are very recent and their potential and possible effects have not become fully evident.

In the case of Mercosur, it has been frequently pointed out that, in order to arrive to what is called a common market, the idea is to try to establish a customs union and not just a free trade area. If consensus among the partners could be reached, the most practical way to correct this methodological aspect would be to modify the Treaty of Asunción and explicitly define its objective as that of a free trade area. If, on the contrary, there was no consensus on modifying the Treaty, the partners could move forward taking advantage, among other things, of the multiple conceptual and methodological inaccuracies that characterize the Treaty of Asunción.

In any case, it seems that the possibility has been opened to debate and eventually agree on how to adapt the methods used to build Mercosur to the new global, regional and country realities. If properly addressed, this debate could lead to a new stage in the development of this process of voluntary integration between sovereign developing nations. A fact that may help drive a successful outcome is that it would be difficult to imagine the benefits that the member countries could obtain from abandoning the economic and political objectives that led to the launch of Mercosur in 1991, as a result of the founding initiative that was the process of integration between Argentina and Brazil.


The conclusion of the recent electoral process in Brazil has opened an opportunity to address, through mutual agreement of the partners, the necessary renewal of the methodologies applied for the construction of Mercosur. The idea of working together has not lost validity and no other reasonable option has been proposed so far.

The problem is that such methodologies, in their fundamental ideas on how to develop a regional integration process, originated in different realities. Specifically, of those realities that prevailed in the world and in the region at the beginning of the 1990s and which had developed in the 1950s from the experience of European integration

The idea of facing the renewal of the methodologies used to build Mercosur is not something new and has been present for quite some time in its member countries. In our analysis, we have addressed the issue of the methodological renewal of Mercosur on different occasions and from different angles. (For the most recent approaches, see the newsletters of the months of March 2016, August 2016, May 2017, August 2017, March 2018, and May 2018).

Recognizing the need for renewal not necessarily implies questioning the very existence of this process of integration among South American countries. However, this point is often raised by different observers and protagonists. As has happened with other integration processes, such as the recent case of the NAFTA, renewing the methods employed, which may involve reviewing some mechanisms, rules, institutions and even concepts, is a way of acknowledging the need to continually adapt the methods of construction of a space of voluntary integration between sovereign countries to the dynamics imposed by reality. The debate generated by the Brexit in the countries of the EU and not just in the United Kingdom, also demonstrates how the existential and methodological dimensions of an integration process between sovereign nations can be ultimately linked.

Many changes have taken place in the international and Latin American regional context during the almost thirty years since the beginning of the construction of Mercosur. This also holds true for the internal contexts of the participating countries. Moreover, many of these changes are very recent and their potential and possible future effects have not become fully evident yet.

On the global level, for example, there has been a shift from a time that prompted to imagine the "end of history" and, therefore, the insertion in a new era of unipolar globalization, to another in which a plurality of protagonists and not just national states, are beginning to emerge and re-emerge. These protagonists are aware of their relative power due to the multiple options available for their international insertion strategies, especially in the global economic and technological competition. In this case, the concept of a "multipolar world", which is often used in the analysis of international relations, would seem inadequate. Perhaps, the idea of a "multiplex world", as proposed by Professor Amitav Acharya, would be more appropriate.

The main players in current international relations -be they countries, companies, citizens, consumers, associations and NGOs- are becoming increasingly connected to each other. This is due, among other factors, to the technological changes, which have had a great impact on transport, information and communications, and which, along with the growing relevance of e-commerce, are shortening physical and cultural distances. The world of today has become more densely populated and more compact at the same time.

At the Latin American regional level there is greater and intense connectivity with the rest of the world and, especially, with the Asian countries. This connectivity is enlarging the opportunities for interaction, commerce and investments. It is also raising the need to develop methods of economic and commercial integration, both regionally and inter-regionally, based on the strategic idea of convergence in diversity, such as was proposed by Heraldo Muñoz to harness the full potential of the ALADI. (See the December 2014 edition of our newsletter on www.felixpena.com.ar).

In the current global and regional scenario, any country that aspires to be inserted in a context of convergence in diversity should seek to achieve a balance between different factors sometimes regarded as contradictory. On the one hand, there are the political, economic and even legal factors to consider when developing and applying a strategy of insertion in the world and in the region and interacting and negotiating with other countries. To privilege only one of these factors or to ignore the others can impact the effectiveness of any actions that are carried out. On the other hand, there are the short, mid and long-term visions and needs. Finally, there is the convenience of articulating two key factors when negotiating with other countries and, especially, when making agreements that involve the commitment to institutionalize joint work, for example in the framework of an integration process. These two factors involve having prudent flexibility in the objectives and work methods that are agreed and reasonable predictability in the ground rules that are settled. The balance between flexibility and predictability will be fundamental in order to convince potential investors of the convenience of taking risks in the markets offered by the corresponding regional or interregional agreement.

In the case of Mercosur, one of the most frequently raised issues has to do with the fact that, in order to arrive to what is known as the common market, it begins by establishing a customs union and not just a free trade area. In this regard, it is often compared to the Pacific Alliance. These views point out that having instruments which are typical of a customs union -especially the common external tariff- makes it difficult for each member to negotiate agreements with other countries. This fact is reflected by an expression that has often been heard at different times and in different sectors: "Mercosur ties us". The proposal that has usually been made in this regard is to transform Mercosur into a free trade area.

If, eventually, the partners reached consensus, the most practical way of correcting this methodological aspect would be to modify the Treaty of Asunción and to explicitly define its objective as that of a free trade area. From a legal perspective, it would not seem enough to delete or amend Decision CM 32/00. The question would seem to be more complex. Special attention should be paid to the modification of the legal commitment to have a "common external tariff". In addition, it would involve modifying Article 2 of the Treaty, which states that Mercosur is based on the reciprocity of rights and obligations between the member countries. We should bear in mind that this point might have reflected the concerns some of the partners might have had at the time of its founding. If Mercosur had been just a free trade area, any partner might have been tempted to engage in unilateral preferential negotiations with the United States, which at the time was promoting the idea, although vague and imprecise, of a free trade area from Alaska to Tierra del Fuego, later known as the Free Trade Area of the Americas (FTAA).

If, however, the partners were unable to reach consensus on modifying the Treaty, they could still move forward by taking advantage, among other things, of the multiple conceptual and methodological variants and inaccuracies that characterize the Treaty of Asunción. Firstly, the fact that Mercosur is inserted in the broader and more flexible framework of the Treaty of Montevideo of 1980, with its figure of partial scope agreements, which in turn "dangles" from the WTO through the "Enabling Clause". Secondly, due to the other significant fact which is that part of the commitments made by the Mercosur partners have developed within the scope of another agreement, the Treaty of Binational Integration between Argentina and Brazil. Finally, and this is not minor, we must mention the fact that the erosion of the rules of the WTO, partly resulting from the behavior of the country that devised the multilateral trading system to start with, opens a wide margin for the revision of the concepts presented in Article XXIV of the GATT, especially on what should be understood by free trade area and, in particular, by customs union.

In this last perspective, it could also be interesting for Mercosur to reach a preferential agreement with another WTO member country. Whatever the naming, this would set a precedent of an agreement of multiple speeds and variable geometry compatible with a clever interpretation of Article XXI of the GATT. It would have been ideal to have such a precedent with the EU, but it would have been impossible to adjust to the somewhat dogmatic vision that prevails in Brussels on the bi-regional agreement with the Mercosur. Could China be an appropriate country for an agreement that serves as a precedent for other agreements of similar scope negotiated by the Mercosur with other countries or blocks of developing countries?

Progress could also be made by taking advantage of the scarcely used instrument of the sectoral agreement, envisaged in the Treaty of Asunción, and of the great potential implied by the full use of the instruments provided by the Treaty of Montevideo of 1980, especially the multiple modalities of partial scope agreements.

In any case, it appears that the possibility to debate and eventually agree on how to adapt the methods used to build Mercosur to the new global, regional and country realities is now open. If properly addressed, this debate could lead to a new stage in the evolvement of this process of voluntary integration between sovereign developing nations. A fact that may help drive a successful outcome is that it would be difficult to imagine the benefits that the member countries could gain from abandoning the economic and political objectives that led them to launch Mercosur in 1991 as a result of the founding initiative that was the process of integration between Argentina and Brazil.


Recommended Reading:


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  • Borrell, Josep, "Por una Europa más unida y fuerte", "El País", 25 de octubre 2018, en https://elpais.com/.
  • Cahill, Thomas, "De cómo los irlandeses salvaron la civilización", Machado Libros, Madrid 2018.
  • Daalder, Ivo H.; Lindsay, James M., "The Empty Throne. America's Abdication of Global Leadership", Public Affairs, New York 2018.
  • Dini, Marco; Stumpo, Giovanni (coords), MIPYMES en América Latina. Un frágil desempeño y nuevos desafíos para las políticas de fomento", CEPAL - Euromipyme, Santiago de Chile, en https://repositorio.cepal.org/bitstream/.
  • Engler, John; Pritzker, Penny (Chairs), "The Work Ahead. Machines, Skills, and U.S. Leadership in the Twenty-First Century", Council on Foreign Relations, Independent Task Force Report Nº 76, New York 2018, en https://cfrd8-files.cfr.org/.
  • Graça Lima, José Alfredo; Motta Veiga, Pedro da; Rios, Sandra, "Por una nova abertura da economía brasileira", Núcleo Comércio Internacional, CEBRI, Position Paper, Rio de Janeiro, en Setembro 2018. http://midias.cebri.org/.
  • Graça Lima, José Alfredo, "Por uma política externa construtiva", ""O Globo", 7 nov. 2018.
  • Graça Lima, José Alfredo, "Futuro do Mercosul", "O Estado de S.Paulo", 10 nov.2018,
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  • Thomas, Neil, "Chinese foreign policy under Xi Jinping", East Asian Forum, 21 October 2018, en http://www.eastasiaforum.org/.
  • Steger, Debra, "Redesigning the World Trade Organization for the Twenty-first Century", International Development Research Centre and Centre for International Governance Innovation (CIGI) - Wilfrid Laurier University Press, Ottawa 2010.
  • Steger, Manfred, "Globalization. A Very Short Introduction", Oxford University Press, Oxford 2017.
  • Vicchi, Alejandro, "Franquicias. Una estrategia de exportación para las empresas argentina", Suplemento Comercio Exterior, diario "La Nación", 18 de octubre 2018, en https://www.lanacion.com.ar/.
  • Vicchi, Alejandro, "Efecto Bolsonario ¿Un Brexit tropical?", Suplemento Comercio Exterior, diario "La Nación", 8 de noviembre 2018, en https://www.lanacion.com.ar/.
  • UNCTAD, "Trade and Development. Report 2018. Power, Platforms and the Free Trade Delusion", New York and Geneva 2018, en https://unctad.org/.
  • Wang, Jiao, "Déjà vu? Old policy tools, old risks in China", East Asian Forum, 29 October 2018, en http://www.eastasiaforum.org/.
  • WTO, "World Trade Report 2018. The future of world trade: How digital technologies are transforming global commerce", World Trade Organization, Geneva 2018, en https://www.wto.org/.

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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