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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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QUESTIONS ABOUT THE FUTURE OF MERCOSUR
What kind of Mercosur has a future after the bi-regional agreement with the EU?


by Félix Peña
February 2020

English translation: Isabel Romero Carranza


 

The conclusion of the negotiations between Mercosur and the European Union, announced on June 28, has raised more questions about the future of Mercosur itself.

The main ones refer to the effect that the bi-regional agreement will have once concluded, signed, ratified and put into effect, on substantial aspects of the future of Mercosur, including preferential relations between its member countries and, in particular, its impact on the quality of the relationship between Argentina and Brazil.

In particular, the agreement raises questions about whether, after its ratification process and due to the way in which it was conceived, Mercosur will continue to be a customs union including a common external tariff, or if it will in fact be transformed into a free trade area. Worse still is the possibility that it ceases to exist, at least for some of its member countries.

The mentioned ones are not minor questions considering that the founding legal instrument of Mercosur, the Treaty of Asunción, explicitly opts for the methodology of the customs union and includes the instrument of the common external tariff.

Indeed, other questions have been raised as well after the conclusion of the bi-regional negotiations. An important one is how each member country and Mercosur as a whole will prepare to compete in the expanded market that would result from the bi-regional agreement.

If there is a confirmation that Mercosur is effectively a customs union with a common external tariff, once the original idea of the integration process has been reaffirmed, it will be possible and necessary to focus on the issue of how to join efforts to compete together within the bi-regional preferential space created with the EU and on how to address the agenda of preferential trade negotiations with other countries.


The conclusion of the negotiations between Mercosur and the European Union, announced on June 28, has raised more questions about the future of Mercosur itself. The agreement has not yet been formally signed. Even the full text of its final version is not yet available, at least for the general public. Perhaps minor details are missing, for example, in the "general provisions" section, which would include relevant information on the ratification process and its entry into force. Currently, it is undergoing a process of legal review of what has already been agreed, the so-called 'legal scrubbing process', especially of the commercial section.

The main questions refer to the effect that the agreement will have once concluded, signed, ratified and put into effect, on substantial aspects of the future of Mercosur, including preferential trade relations between its member countries and, in particular, its effects on the quality of the relationship between Argentina and Brazil.

In particular, it raises questions about whether, after the ratification of the bi-regional agreement, Mercosur will continue to be a customs union, including a common external tariff, or if it will, in fact, be transformed into a free trade area. Worse still is the possibility that it ceases to exist, at least for some of its member countries.

All these are not trivial questions, considering that the founding legal instrument of Mercosur, the Treaty of Asunción, explicitly opted for a customs union and included the instrument of the common external tariff. Because of its political and economic relevance, at least in the case of Argentina, an open or veiled change of the founding methodology would require a formal modification of the Treaty.

In this regard, we should take into account that the option chosen at the moment of its founding of the figure of the customs union and, together with it, the instrument of the common external tariff, was not necessarily due to theoretical or ideological considerations. It was explicitly agreed after considering the consequences that the eventual bi-lateralization of the possible negotiation of a preferential trade agreement with the United States could have, especially in the bilateral relationship between Argentina and Brazil. Moreover, it was also a consequence of the cultural influence that the so-called "European model" had in our region, especially in terms of economic integration. We should keep in mind as well that, at that time and from our regional perspective, three processes were perceived as having a parallel development: that of Mercosur itself and especially in its connection with South American integration; that of the American initiative of what was later called the FTAA, and that of bi-regional integration with the EU.

On different occasions we have addressed the question of the methodologies used for the construction of Mercosur. It is an issue that always needs to be addressed by considering the political, economic and legal factors. An approach focused on just one of these factors can lead to a wrong interpretation of the realities and therefore is not recommended. In these approaches, we have emphasized the debate that has been present almost since the origins of this integration process and whose essence is reflected in two questions: Should we continue to opt for a customs union, which includes a common external tariff, as was done in the Treaty of Asunción? Or, on the contrary, would it be better to limit the objective to a free trade area, with the ensuing impact on the trade negotiations that member countries could develop with other countries or groups of countries?

The practical implications of such an option are clear. Undoubtedly, a customs union and the instrument of the external tariff, even with the flexibilities that may be introduced, requires that the member countries negotiate jointly with other countries or groups of countries. (In this regard, see our proposal in the November 2018 edition of this newsletter, entitled "A necessary renewal in the construction of Mercosur? Ideas about the possible development of a new building stage", on http://www.felixpena.com.ar/. See also the monthly reports for the months of January 2019; May 2017; December 2016; March 2016; May 2015; November 2014; September 2014; September 2013; February 2013; April 2012; June 2011; November 2009; August 2009; September 2006, at http://www.felixpena.com.ar).

This is a debate that is being activated now on the occasion of the announcement of the conclusion of the negotiations of the bi-regional agreement (see the July, September and December 2019 editions of this newsletter).

A fundamental aspect in the activation of the debate would be what has been called the "bi-lateralization" of the ratification process of the bi-regional agreement. It refers to the fact that, in the case of Mercosur member countries, the agreement would enter into force in each country after it is ratified by the respective national Parliament. This would mean that, until the agreement is in effect ratified, it would not be valid in that country. This situation could go on for several months, even years.

Based on the information that has been made public so far (January 31, 2020) it is difficult to comment on the feasibility and consequences of this eventual bi-lateralization of the process of ratification. The specific text by which this is established has not been published yet. However, from the versions that have circulated, we can infer that its effects could mean an erosion of the commercial preferences that the partners had reciprocally granted, among other things because, in practice, this would mean the erosion of the common external tariff. It is, precisely, Article 2 of the Treaty of Asunción which attempts to guarantee that such preferential treatments are respected.

It is possible that the objective of the bi-lateralization of the ratification process and, therefore, of the entry into force of in each Mercosur member country is precisely to discourage an eventual parliamentary resistance to the agreement and, in particular, to the content actually agreed upon in the negotiations that concluded on June 28.

Certainly, other questions have been raised by the conclusion of the bi-regional negotiations. An important one is how each member country and Mercosur as a whole will prepare to compete in the expanded market for the purposes of the bi-regional agreement. If the idea that Mercosur is a customs union with a common external tariff is finally reaffirmed, it will be possible and necessary to focus on how to join efforts to compete together in the bi-regional space that will be created with the EU.

Still more relevant will be the issue on how and when to address the joint negotiations with other countries including, for example, China, the United States, Japan, India and Canada. Will they be negotiated by the Mercosur countries as a whole? Also important on this note will be how to continue to develop the economic integration with the countries of the Pacific Alliance and with the remaining Latin American countries.


Recommended Reading:


  • Anderson, Perry, "Brasil. Una Excepción 1964-2019", AKAL - Pensamiento Crítico, Madrid 2019.
  • Arana, Marie, "Bolívar. Libertador de América", Traducción de Mateo Cardona y Marta Cecilia Mesa, Debate, Penguin Random House, Buenos Aires 2020.
  • Battaleme, Juan, "Sudamérica junto a Europa, la llave para escapar al dilema de la bipolaridad", "El Cronista", Buenos Aires, 6 de enero 2020.
  • Burgueño, Carlos, "Macrinomics. Crónica de una decepción política", Edhasa, Buenos Aires 2019.
  • Carden, David L., "Mapping ASEAN. Achieving Peace, Prosperity and Sustainability in Southeast Asia", Indiana University Press, Bloomington 2019.
  • Cavazzini, Anna, "New Study on Mercosur: A bad deal for climate and environment", Bilaterals.org 16 January 2020.
  • De Bellaigue, Christopher, "Patriot of Persia, Muhammad Mossadegh and a Tragic Anglo-American Coup", Harper Collin Publishers, London 2012.
  • Ghiotto, Luciana; Echaide, Javier, "Analysis of the agreement between the European Union and the Mercosur", The Green/EFA in the European Parliament, Berlin, Buenos Aires, Brussels, December 2019.
  • Hsieh, Pasha L.; Mercurio, Bryan (editors), "ASEAN Law in the New Regional Economic Order. Global Trends and Shifting Paradigms", Cambridge University Press, Cambridge 2019.
  • Inama, Stefano; Sim, Edmund W., "Rules of Origin in ASEAN. A Way Forward", Cambridge University Press, Cambridge 2015.
  • Makuc, Adrián, "El Miedo del Fin del Mundo", Distal, Buenos Aires 2018.
  • Natalegawa, Marty, "Does ASEAN Matter? A View from Within", ISEAS Yusof Ishak Institute, Singapore 2018.
  • Niebuhr, Jorge, "Los Orígenes de la Dependencia Argentina. Algunas razones históricas de nuestra actualidad", Prometeo Libros, Buenos Aires 2019.
  • Peña, Félix, "La OMC y el peligro de un mundo en el que predomine la ley de la selva", Suplemento Comercio Exterior, "La Nación", del 16 de enero 2020.
  • Rodrik, Dani, "Necesario cambio en el comercio global", "El Economista", Buenos Aires 30 de diciembre 2019.
  • Rodrik, Dani, "The Changing Face of Economics", Project Syndicate, January 10, 2020.
  • Santamarina, Silvio, "Historia de la Guita. La cultura del dinero en Argentina", Planeta, Buenos Aires 2018.
  • Tokatlián, Juan, "Diplomacia ciudadana con Brasil", "Clarín", Buenos Aires 12 de enero 2020.
  • Weatherbee, Donald E., "ASEAN's Half Century. A Political History of the Association of the Southeast Asian Nations", Rowman & Littlefield, Lanham-London 2019.
  • Zweig, Stefan, "The World of Yesterday", Plunkett Lake Press, 2011.

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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