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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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THE CONSTRUCTION OF THE NECESSARY CONSENSUS:
Is it a real weak point for the future functioning of Mercosur?


by Félix Peña
October 2021

English translation: Isabel Romero Carranza


 

In other opportunities we have dealt with different aspects of the debate that is taking place within Mercosur regarding its future and, in particular, what can be called its "methodological crisis". This is a crisis not so much concerning the existential dimension of Mercosur, but rather about how to develop the idea of working together, both in the area of economic and social development, as well as in the area of international insertion, especially in terms of trade (see in this regard, our newsletter from June and August of this year).

A recent event is giving special relevance to this debate. It is the statement made by Paulo Guedes, Brazil's Minister of Economy, when he spoke, "remotely", at the event called "Brazil Wants More", organized by the International Chamber of Commerce.

In his presentation, Minister Guedes referred, in particular, to Brazil's position in relation to the reduction of the common external tariff and to the way decisions are taken in Mercosur, especially with regard to the negotiation of preferential trade agreements with third countries.

The uncertainties regarding Mercosur as an attractive environment for new productive investments are many and diverse. The flexibility for member countries to enter into different types of preferential trade agreements with other countries would be only one of the aspects of Mercosur's functioning that requires priority attention. What is important, therefore, would be a simultaneous approach to the set of issues that would eventually involve changes to what was agreed 30 years ago.

In order to facilitate a rational debate among the partner countries, with a broad participation of citizens in all their diversity, it seems advisable to keep in mind some of the main issues outlined in recent newsletters and that could require building the necessary consensus regarding Mercosur.


On recent occasions we have addressed in this newsletter different aspects of the debate that is taking place in Mercosur in relation to what can be called its "methodological crisis". This crisis is not so much about the existential dimension of Mercosur, but about how to develop the idea of working together, both in terms of economic and social development, and in terms of the international integration, especially in trade (see in this regard, among others, our newsletters of June and August of this year).

A recent event is now giving a special significance to this debate. It is the presentation made by Paulo Guedes, Brazil's Minister of Economy, when he spoke "remotely" at the event "Brazil Wants More", organized by the International Chamber of Commerce, on September 27. (see https://.agenciabrasil.ebc.com.br/).

Among other considerations, Minister Guedes said that "the Brazilian government seeks to modernize the economic bloc, but has encountered resistance from Argentina...our position is to move forward...we will not abandon Mercosur., but we will not accept Mercosur as an ideological tool. Mercosur has a very clear purpose: it is a platform for integration in the global economy. If it does not provide this service we will modernize it, and those who are upset can leave...Brazil has proposed to reduce the common external tariff by 10% for all products, while Argentina insists that only a part of the goods be included in the reduction...we will stand firm in our position...and Argentina seems to be very staunch in an antagonistic position to ours...The disagreements also refer to the way decisions are made.... Currently, all decisions are made by consensus among the four member countries...Unanimity is required to make changes in Mercosur and they turn them into vetoes...".

In his approach, Minister Guedes referred to Brazil's position with respect to the reduction of the common external tariff and the way decisions are made in Mercosur, especially with regard to the negotiation of preferential trade agreements with third countries. Specifically, these are issues that have to be addressed by decisions that require consensus of the four member countries, as established by the Treaty of Asuncion (Article 16) and the Protocol of Ouro Preto (Article 37). We should bear in mind that when the Treaty of Asunción, which created Mercosur, was signed on March 26, 1991, it explicitly opted for a customs union with a common external tariff and joint negotiation with third countries, and not for a free trade zone. Articles 1 and 5 of the Treaty contain the main elements of the scope of the agreement between the member countries. And the core idea of its scope is reflected in Article 2, which establishes reciprocity as the main commitment ("The Common Market shall be based on reciprocity of rights and obligations among the Party States"). Among other factors, the regional context explains the inclusion of these elements in the adopted commitment (especially the beginning of the U.S. initiative for free trade agreements with countries from the Americas).

In order to facilitate a rational debate among the partner countries and, to the extents that it is possible, to have a broad and diverse civil participation, some of the following elements should be taken into account in order to understand the necessary dialogue on Mercosur and its future:

  1. Although Mercosur includes as a central element a system of reciprocal trade preferences, it also has basic political and economic dimensions that run as deep or even deeper than trade preferences. They delve deeply into the history of the relations between a group of Latin American countries, which at times were more marked by a tendency to conflict than to cooperation. And above all, it meant affirming the idea of working together to promote an intelligent, effective and efficient international insertion of each of the Mercosur member countries.

  2. More than thirty years after the signing of the Treaty of Asunción, the elements that make up the existential dimension of Mercosur, in other words, the reason for working together, are still fully valid. Apparently, there is no questioning of the need for contiguous nations that share their belonging to a region of strong potential and rich diversity to work together to enhance their economic and social development, strengthen their political systems, and achieve a competitive presence in the international system that is functional to their interests and possibilities.

  3. The most notorious differences can now be seen in the methodological dimension, i.e., how to work together. These are usually natural differences in any voluntary integration process between sovereign nations that intend to remain so. On the contrary, the aim is to share the exercise of their respective sovereignties without losing their individuality as nations.

  4. Once institutions and rules are created, they require collective disciplines that enable the construction of the much valued integration.

  5. It is known from international experience that this construction may take time, even more than was anticipated. Therefore, it may be necessary to adapt the approximation steps to the agreed objectives. The path towards the desired goals may require frequent adaptations. The recent European experience has been very telling in this regard.

  6. However, the problems do not stem from the need for continuous adaptation of a voluntary integration process between nations and its narrative to the frequent changes of reality, both in participating countries and in the regional and global environment in which they are embedded. On the contrary, the real problems usually stem from the shortcomings of the methods used to redirect the course of the outlined path or to revise it when the force of reality makes it necessary.

  7. Such problems may even reveal shortcomings and inadequacies in the methods used to reach joint decisions or to ensure their implementation. Or they may reveal deficiencies in the formulation of each country's position in relation to the challenges arising from the changing environment. They may also result, among other things, from a poor understanding of the new realities, which may originate either from governmental actors, from the business sector itself, or from the multiple and diverse social sectors.

  8. Methodological shortcomings have more complex effects if they translate into existential differences. In a way, this is one of the lessons that can be drawn from Brexit, at least from the perspective of those who promoted it. This can happen, for example, when it is considered that there are flaws in the diagnosis of what is wrong with an integration process.

  9. If a country perceives difficulties in introducing modifications in the methodological dimension and considers that this may affect its national interests, it always has the "existential" option of withdrawing from the integration process. This is what happened in the experience of the United Kingdom in the European Union. Methodological failings can be solved with modifications to the agreed common rules and regulations, including, if necessary, those of the constituent pact itself.

  10. From the perspective of the above, it is very important for an integration process such as Mercosur to make a correct assessment of its practical difficulties in navigating a world which is undergoing a continuous process of change. It is a diagnosis that requires taking into account both the national perspective of each of the countries participating in the process and the common perspective as understood from the integration process itself, in this case, from Mercosur. These diagnoses highlight the intensity and quality of the interaction among the multiple actors involved, including, in particular, the contribution of the action-oriented think tanks.

  11. Assuming that the diagnoses are correct, this would certainly not be enough. What is really required to face methodological crises in an integration process, especially if they have the potential to lead to existential crises, are effective and efficient mechanisms for the alignment of national interests in accordance with the interests perceived as common. This implies, above all, political leadership at the highest level of the countries involved, the capacity for coordination within the main common body of the integration process, and most importantly, an active involvement of the respective multiple economic and social sectors.

  12. The critical moments of integration processes, such as the experiences of the European Union and Mercosur, reveal that the main elements of an effective integration methodology, which makes it possible to achieve the desired objectives and, at the same time, avoid the recurrence of existential crises, lie in the consensus-building capacity of the main common body and in the quality of the political leadership of the member countries.

  13. In view of the above, it is necessary to highlight three relevant issues to modernize Mercosur and restore an adequate degree of credibility and efficiency. Actually, these issues are directly dependent on human factors.

    • The first issue relates to the methodologies for opening up the relevant markets and the impact this has on international trade negotiations.

    • The second refers to the institutional methodology applied for the adoption of joint decisions -including the capacity to perform the necessary function of coordinating the national interests- that also impact the development of the agenda of trade negotiations with other countries, and

    • The third refers to the methodology used to ensure that the integration process is based on, and therefore guided by, common ground rules.


    Of course, there are other relevant issues to be addressed, the three that we have just mentioned are those that, after almost thirty years of Mercosur's development, would be advisable to keep in mind, especially in the discussions at the highest political level.

  14. In view of Mercosur's current problems (see, among others, the March and April 2021 issues of our newsletter), at least three scenarios can be contemplated as possible regarding its future development. Of course, they are not the only ones, nor are they all desirable. Neither can we rule out others that are difficult to imagine today, since globally and in the Latin American region the conditions seem to be in place for the development of unforeseen situations that may have an impact on processes such as Mercosur. Uncertainty about its future is therefore a dominant note that may be present for some time to come.

    • A first possible scenario would be the reaffirmation of the main commitments made when the Treaty of Asunción was signed, i.e., understanding the customs union as the necessary basis for the gradual construction of a common market. It would imply adjusting many of the steps that would need to be taken in the future to achieve this goal, which might even require agreeing on modifications or complements to the Treaty of Asunción, but preserving the fundamental features of a customs union and a common market.

      This scenario is therefore in line with what, at least formally, continue to be the cornerstones of the current Mercosur negotiating agenda. Most importantly, it is a scenario in line with the original idea that led to the Treaty of Asuncion. In our opinion, it is still the most desirable and convenient scenario for the four member countries.

      Because of the flexibility resulting from the agreed commitments, it is a scenario that opens up many options as to how to achieve the full development of its fundamental goals and also regarding the deadlines for achieving them. It does not exclude the possibility of differential treatment for some sectors, using one of the instruments of the Treaty of Asunción -sectoral agreements-, or that the specific situation of smaller countries and countries with a lower degree of relative economic development be taken into account. However, it explicitly excludes the possibility of a member country seeking to negotiate, for example, bilateral preferential trade agreements with third countries, especially those with larger markets, that would contradict what was agreed in Mercosur. Specifically, it excludes any policy aimed at "liquefying" the fundamental trade commitments assumed by the members when Mercosur was created, particularly in relation to the preservation of the preferences agreed upon.

    • A second scenario would be that we have indeed reached a situation that could be identified as "the beginning of the end of Mercosur", at least in the sense of what was intended when the Treaty of Asuncion was negotiated and signed in 1990-1991. It would be a scenario of "liquation" of the commitments undertaken.

      Specifically, at the time of the founding of Mercosur, it was considered feasible and convenient to initiate a path towards the creation and gradual development of a common market. To this end, the four countries that created Mercosur explicitly committed themselves to take the steps deemed necessary to make the elements of a customs union a reality, as a basis for the construction of this common market. Thirty years later, these steps have not been fully developed. The customs union formally exists, even if it is far from being perfected and, the commitment made in the Treaty of Asunción remains valid.

      However, what can be observed at present are signs that fuel doubts as to whether the possibility or the will to comply with the commitments really exist, at least in all member countries. At present, there are no clear signs from any of the partners that they might eventually choose to formally set aside the commitments made in the Treaty of Asunción. But neither could we rule out behaviors that, at least in practice, lead to "liquefy" what has been agreed. This is to say, to introduce and legitimize elements that would mean, in fact, casting aside the firm commitments established in the Treaty, without formally modifying them. An example of this might involve the scope granted to proposals aimed at making the goal of a customs union more flexible in such a way that, in practice, it is transformed into a free trade zone. In that case, each of the member countries could eventually consider formally entering into bilateral preferential trade agreements with third countries, especially those with larger markets, such as the United States, China or Japan, to name a few. This is instead of pursuing the initiative of preferential trade negotiations that Mercosur formally develops with the world's major economies, including China and the USA, as was done when negotiating the not yet concluded agreement with the EU.

    • A third scenario would be that of a country opting to withdraw from Mercosur, as is explicitly provided for in Articles 21 and 22 of the Treaty of Asunción. Given the size of their markets, it would be difficult to imagine that Mercosur could survive as a credible and relevant project if either Brazil or Argentina, or eventually both, decided to denounce the Treaty. Nothing would indicate that such a scenario is today being explicitly contemplated by any of the partners, but it would be equally unreasonable to rule it out as a possibility.

The current uncertainties in relation to Mercosur as an appealing environment for new productive investments, are many and varied. That there are many should not be surprising, since the new international environment --and not only as the result of the current pandemic- has increased the degree of uncertainty with respect to many economies, especially developing ones and not only those of Mercosur or Latin America. Nor should it be surprising that they are varied, since they often have political or economic roots, and in many cases, both at the same time.

The flexibility for member countries to engage in different forms of preferential trade agreements with other countries would be only one of the aspects of Mercosur's functioning that require priority attention. What would be important, therefore, would be a simultaneous approach to the set of issues that would eventually imply modifications to what was agreed 30 years ago.

In addition to the above issues, other relevant ones are now on the Mercosur agenda and will require, sooner rather than later, an approach at the highest political level. One of these refers to the joint proposals made by the industrialists of the four countries, which involves the development of policies to help transition from primary economies to the manufacture of intelligent products with added value and, at the same time, to enable the insertion of their companies in transnational trade and productive investment networks. This would imply placing in this perspective the issue of trade negotiations to be developed by Mercosur (see the July 2021 edition of our newsletter).


Recommended Reading:


  • Bell, Daniel A.; Li, Chenyang (editors), "East Asian Challenge for Democracy. Political Meritocracy in Comparative Perspective", Cambridge University Press, New York 2013.
  • Bell, Daniel A., "The China Model. Political Meritocracy and the Limits of Democracy", Princeton University Press, Princeton and Oxford 2015,
  • Brook, Timothy, "The Troubled Empire. China in the Yuan and Ming Dynasties", The Belknap Press of Harvard University Press, Cambridge - London 2l010.
  • Brummer, Alex, "The Great British Reboot. How the UK Can Thrive in a Turbulent World", Yale University Press, New Haven and London 2020.
  • Cai Fang, "Right time for China's "common prosperity drive", East Asian Forum, September 19, 2021, http://eastasianforum.org
  • Clement, Martín, "Mitos ,verdades y revelaciones del complejo comercio exterior argentino", Suplemento Comercio Exterior de La Nación 23 de septiembre 2021, página 3.
  • Dickson, Bruce J., "The Party and the People. Chinese Politics in the 21st Century", Princeton University Press, Princeton & Oxford 2021.
  • Di Lampedusa, Giuseppe Tomasi, "El Gatopardo", Anagrama, Barcelona 2019.
  • Doshi, Rush, "The Long Game. China´s Grand Strategy to Displace American Order", Oxford University Press, New York 2021.
  • Gokhale, Vijay, "The Long Game. How the Chinese Negotiate with India", Penguin Books, 2021.
  • Goldin, Ian; Kutarna, Chris, "Age of Discovery. Navigating the Risks and Rewards of our New Renaissance", Bloomsbury Information, London-New York 2016.
  • Kagan, Robert, "Opinion: Our constitutional crisis is already here", The Washington Post, Opinion, September 23, 2021.
  • Kahl, Colin; Wright, Thomas, "Aftershocks. Pandemic Politics and the End of the Old International Order", St.Martin's Press, New York 2021.
  • Kaplan, Stephen B., "Globalizing Patient Capital. The Political Economy of Chinese Finance in the Americas", Cambridge University Press, New York 2021.
  • Lafer, Celso; Peña, Félix, "El Mercosur un proyecto vigente", Clarín, 18 de septiembre 2021, página 39.
  • Martin, Peter, "China's Civilian Army. The Making of Wolf Warrior Diplomacy", Oxford University Press, New York 2021.
  • Mondino, Diana, Uruguay se acerca a China y para la Argentina es un Nuevo desafío regional", en Suplemento Comercio Exterior de La Nación, 9 de septiembre 2021, página 3..
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  • Rizka Darmawan, Aristyo, "Reformulating ASEAN'Outlook on the India-Pacific", East Asian Forum, September 28, 2021, http://eastasianforum.org.
  • Sachs, Jeffrey, "La Era del Desarrollo Sostenible", Deusto, Barcelona 2015.
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  • Schott, Jeffrey J., "China's CPTPP bid puts Biden on the spot", Trade and Investment Policy Watch, PIIE - Peterson Institute for International Economics, September 23, 2021.
  • Slaughter, Anne-Marie, "Unfinished Business", Random House, New York 2015.
  • Slaughter, Anne-Marie, "Renewal. From Crisis to Transformation in Our Lives, Work, and Politics", The Public Square, Princeton University Press, Princeton and Oxford 2021.
  • Solís, Mireya, "Dilemas of a Trading Nation. Japan and the United States in the Evolving Asia Pacific Order", Brookings Institution Press, Washington D.C. 2017.
  • Tamames, Ramón, "La mitad del mundo que fue de España. Una historia verdadera, casi increíble", Editorial Planeta - libro electrónico abril de 2021.
  • Tarapore, Arzan, "AUKUS is deeper than just submarines", East Asian Forum, September 29, 2021, http://eastasianforum.org.
  • Wolf, Martin, ""The strange death of American democracy", Financial Times, Opinion, September 29, 2021.

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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