QUESTIONS ABOUT THE FUTURE OF MERCOSUR
What kind of Mercosur has a future after the bi-regional agreement with
the EU?
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by Félix Peña
February 2020
English translation: Isabel Romero Carranza
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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.
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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.
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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.
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