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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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MERCOSUR INTERNATIONAL TRADE NEGOTIATIONS
Considerations on the impacts of the Covid-19 crisis.


by Félix Peña
May 2020

English translation: Isabel Romero Carranza


 

That of international trade negotiations is one of the areas most exposed to the impact of the changes that are taking place in the Mercosur environment. Before the current pandemic was unleashed, the 2020 agenda of its international negotiations presented complex aspects, in which it was possible to detect differences in criteria between the four member countries.

One of the aspects where such differences could be perceived was in the possibility of negotiating preferential trade agreements in which not all member countries participated, thus being able to generate impacts on intra-Mercosur trade and, above all, on the relative value of the existing trade preferences.

The debate that has been taking place in this regard often does not take into account that the Treaty of Asunción formally establishes a common market, with a customs union and with a common external tariff. This implies the recognition that what one country granted to another member country - for example, the zero tariff for reciprocal trade - cannot be dissolved by unilaterally giving the same advantage to a non-member country. This could only be done through an international agreement negotiated and signed by all partners. Hence the need to jointly negotiate those preferential trade agreements with third countries.

If an amendment to the Asuncion Treaty couldn't be concluded, and a country or any number of countries wanted to reacquire the freedom to individually define their international trade commitments, what would be the alternatives moving forward? The international experience in matters of integration has some precedents of what a country can do if the commitments made with its partners in an integration agreement are no longer to its advantage. One solution would be, for example, to withdraw from the agreement.

The convenience of adapting the methods used to build Mercosur to the new global, regional, and domestic realities is now evident. This would be a much better option than to abandon the political and economic objectives, which led to its creation as a result of the initiative of integration between Argentina and Brazil, to which Uruguay and Paraguay later joined.


As the days go by, there are global effects that the Covid-19 pandemic is unleashing worldwide and in many countries, including of course the Mercosur partners.

As with any international crisis of the scale of the current one, it is difficult to foresee its true dimension and the scope of the aftermath. It also makes any diagnostic or forecast uncertain. Therefore, it is not easy to predict what will be its profound impacts on the development of the Mercosur (nor in the case of the EU), due to the multiple political, economic and social effects that are already being observed in each of its member countries, including of course its international trade insertion.

Thus, current times demand much caution in terms of the diagnoses and of the strategies and actions that are undertaken, in particular by the protagonists who have responsibilities at the governmental, business, union, social, journalistic and academic levels. Analyzing the world around us with approaches from the past, even the recent past, does not seem to be advisable today.

International trade negotiations would seem to be the aspect most exposed to the impact of the changes that are taking place in the Mercosur environment. Before the current pandemic was unleashed, the 2020 agenda of its international negotiations presented very complex aspects, in which it was possible to detect differences in criteria between the four member countries. Some of these differences seem to have accentuated in the context of the current crisis.

One of the aspects where such differences could be perceived was in the possibility of negotiating preferential trade agreements in which not all member countries participated, thus being able to generate impacts on intra-Mercosur trade and, more importantly, on the relative value of the existing trade preferences.

The debate that has been taking place in this regard, often overlooks the fact that the Treaty of Asunción establishes a common market, with a customs union and a common external tariff. Furthermore, in article 2 it establishes that "the common market will be based on the reciprocity of rights and obligations between the States Parties" (we have analyzed this topic in previous newsletters, including the March issue of this year).

This means that what one country has already granted to another member country -such as the zero tariff for reciprocal trade - cannot later be dissolved by unilaterally giving the same advantage to a non-member country. This can only be done through an international agreement negotiated and signed by all partners, hence the need to jointly negotiate preferential trade agreements with third countries.

Can this commitment be canceled out or changed without modifying the Treaty with the explicit agreement of all partners? From a legal point of view, the answer is no. It could only be done by means of a Decision of the Mercosur Council that would result, for example, from a modification of Resolution 32/00 of the year 2000, as has sometimes been suggested. It is a well known fact that all legal aspects can have clear political implications as well.

In the case of Mercosur, the restriction agreed in the Treaty of Asunción does not derive solely from theoretical considerations. It is the result of the context in which the Treaty of Asunción was negotiated. In addition to the weight that the "European model" had at the time, let us remember that a backdrop was the concern of the partners -especially Argentina and Brazil - that any of them would be tempted to start a bilateral trade negotiation with the The United States, which had already launched its Initiative of the Americas aimed at negotiating bilateral free trade agreements with countries of the region.

Moreover, this could have been one of the reasons why Chile chose not to accept the invitation to become a member of Mercosur. Later on this country finalized its bilateral free trade agreement with the United States.

If, eventually, an amendment to the Treaty of Asunción were not possible and one or several member countries wanted to reacquire the freedom to individually define their international trade commitments, what alternatives would be possible?

As we have pointed out before, in the international experience in the field of integration, there are several precedents of what a country can do if it considers the commitments made with its partners in an integration agreement are no longer convenient.. There is the possibility of withdrawing from the agreement: Brexit is a recent experience in this regard. Obviously, this option has economic and political consequences, both for the country leaving the agreement and for the countries that remain in it. However, it is a much better option than continuing to be a member of a club which is perceived as offering no benefits.

The fact is that now, once again, Mercosur is going through a difficult time. These troubles have also been recurring in similar processes, even in Europe. Despite the fact that these processes are meant to last forever, they continually need to be updated and adapted to the changes in realities that sometimes may even be influenced by the process itself.

A recurring question about these processes is whether they have a future. It is possible to formulate it with respect to Mercosur and the question has been asked many times in the case of the EU. It is being formulated today again as a consequence of the effects that the Covid-19 crisis is having in Europe. One of the reasons why such a question is frequently asked is due to the fact that these are processes that continue to be voluntary in terms of the participation of a specific country. If any member considers that the process as such is not beneficial for them, they are free to withdraw, following of course the rules that have been previously agreed for that purpose.

The interpretation of the decision of the Argentine Foreign Ministry not to continue participating in the negotiations of the new free trade agreements that are being developed between Mercosur and a group of countries (among them South Korea, Canada, and Lebanon), has produced numerous reactions in Argentina, including strong criticism. It had a huge media impact in the four member countries and was considered quite confusing. Even at the highest governmental level it was necessary to clarify that the country was not withdrawing from Mercosur altogether.

It all originated in the virtual meeting of the Mercosur Coordination Committee on April 24 last. From what has transpired from the presentation made by Jorge Neme, current Secretary of International Economic Relations, after presenting his views on issues related to the origins and evolution of Mercosur, he emphasized some specific points. In them we can find the essence of the position of the Argentine Foreign Ministry during the current juncture of the pandemic crisis regarding the idea of accelerating new trade negotiations with a group of countries such as South Korea, among others.

The relevant points of the presentation were three:

  • The first refers to the fact that the international crisis unleashed by Covid-19, with its multiple impacts, means that, in the perspective of the Argentine government, this is not the right time to dedicate Mercosur efforts to move forward with other trade negotiations. Such efforts should remain focused on completing the negotiating process with the EU and EFTA;
  • the second point refers to the fact that this position does not mean that Argentina withdraws from the new negotiations forever;

  • the third point is that Argentina would accept that other Mercosur partners chose to accelerate the progress of the negotiations already started, especially with South Korea. In this case, a logical conclusion is that the four partners would need to find political and institutional solutions in order to make future agreements that are negotiated with the provisions of the Treaty of Asunción possible. We should remember that its rules now prevent the negotiation and conclusion of free trade agreements that do not include all the Mercosur member countries in them.

A lesson to be drawn from this recent experience is that Mercosur will continue to require much attention from all the sectors of its member countries. The quality of the information and analysis on its development will continue to be essential, especially now when it is evident that a period of strong turbulence lies ahead. This fact will increase the difficulties that the member countries may have to understand their own situation in the international environment. When such difficulties are made manifest in the relations with the neighboring countries, the domestic economic and political consequences in each country may even be magnified.

At the Latin American level, the reform of Mercosur and its coordination with the Pacific Alliance is, today, a priority. It would seem advisable to achieve this objective without it being necessary to immediately introduce fundamental reforms in the Treaty of Asunción, since it could pose internal difficulties in member countries.

This would be feasible if dogmatic approaches to what a customs union or a free trade area should be are not introduced. The combination of political sense, economic pragmatism and legal flexibility would help achieve concrete results, while ensuring the necessary predictability of the agreed rules.

In any case, the convenience of adapting the methods used to build Mercosur to the new global, regional, and domestic realities is becoming evident. This would be better than abandoning the political and economic objectives that led to its creation in 1991, as a result of the founding initiative of integration between Argentina and Brazil and which was later joined by Uruguay and Paraguay.


Recommended Reading:


  • Acemoglu, Daron; Robinson, James A., "The Narrow Corridor. States, Societies, and The Fate of Liberty ", Penguin Press, New York 2019.
  • Boucheron, Patrick, " Machiavelli. The Art of Teaching People What to Fear ", Ocher Press, New York 2018.
  • ECLAC,"América Latina y el Caribe ante la pandemia del COVID-19. Efectos económicos y sociales", Special Report COVID-19, n ° 1, April 3, 2020, www.cepal.org/
  • Irango, Angela; Caballero, Sergio, "The periphery at the center: an analysis of Latin American regionalism from the borders", Journal Space and Polity, published on-line April 24, 2020, at https://doi.org/10.1080/13562576.2020.1755827 .
  • Lang, Tim, "Feeding Britain. Our Food Problems and How to Fix Them ", Pelikan Book, London 2020.
  • Michaels, David,"The Triumph of Doubt. Dark Money and the Science of Deception ", Oxford University Press, Oxford-NewYork 2020.
  • Peña, Félix,"La agenda del Mercosur y sus principales frentes de negociaciones comerciales", Real Instituto Elcano, ARI 9/2020, Madrid, January 30, 2020.
  • Peña, Félix, "La integración regional en un mundo en transformación: una visión desde Argentina", published in "Desenvolvimento e Cooperacâo na América Latina: a Urgéncia de uma Renewed Strategy", Enrique García (coordinator), Centro Iberoamericano da Universidade de Sao Paulo, Edusp, Sao Paulo 2020, pp. 615-642.
  • Peña, Félix, "El Covid-19 y sus impactos en el comercio global y en la integración regional", Supplement of Foreign Trade of "La Nación" on April 9, 2020, section The Expert, p. 3.
  • Peña, Félix, "Mercosur ¿algo más que una negociación postergada?", Clarin Digital newspaper, April 28, 2020, www.clarin.com/.
  • Peña, Félix, "¿Una medida prudente pero mal comunicada?, Foreign Trade Supplement of" La Nación "on April 30, Section El Experto, p. 3.
  • Peña, Félix, "Las consecuencias de dejar un club en el que se está incómodo", TradeNews April 24, 2020, www.tradenews.com.ar/
  • Perego, Gustavo, "Crisis in Brazil: who is who in Bolsonaro's complicated political chess", El Cronista Global, May 4, 2020, www.cronista.com/
  • Slobodian, Quinn, "Crisis en Brasil: quién es quién en el complicado ajedrez político de Bolsonaro", Harvard University Press, Cambridge-London 2018.
  • Steel, Carolyn, " Hungry City ", Random House Books, London 2009.
  • Steel, Carolyn,"Sitopia. How Food Can Save The World ", Vintage, London 2020.
  • Wang, Gungwu, " Home is not Here ", Ridge Books, Singapore 2018.
  • Wang, Gungwu,"China Reconnects. Joining a Deep-rooted Past to a New World Order ", World Scientific Publishing, Singapore 2019.

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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