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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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ARE THE RULES OF MERCOSUR CREDIBLE?
If not, what could be the political and economic consequences?

por Félix Peña
June 2022


 

The credibility of the ground rules in an agreement between sovereign nations that decide to work together, because they understand that it is in their best interest, is what allows a rational articulation between the three dimensions of a voluntary integration process. These dimensions are the political, the economic and the legal. The articulation between them is essential for the process to become credible.

In a process such as Mercosur, the credibility of the ground rules is a relevant question from the perspective of the member countries and of those countries who seek to negotiate agreements with them that have an impact on trade and investment.

Two recent events make this issue more current. The first is the idea that a Mercosur country can negotiate bilateral free trade agreements with non-member countries which are not part of the network of preferential trade agreements of Latin American countries, especially within the framework of LAIA. The second is that a Mercosur member country may unilaterally modify a significant part of its external tariff without the formal consent of the other member countries.

These two facts are related to each other and would imply, in practice, discarding the idea that Mercosur is a customs union and replacing it with the idea that it is a free trade zone. If this were eventually the preference of the member countries, it would require an amendment of the current version of the Treaty of Asuncion. This would not only involve an agreement between the executive authorities of the member countries, but would also require the formal approval of their respective legislative bodies.

An alternative procedure could be what is often referred to as the "liquefaction" of what was agreed, that is, to erode -sometimes very gradually, almost "by dripping"-the commitments assumed by means of interpretations that, in practice, would imply a substantial modification of what was formally agreed. One side effect of this course of action would be the erosion of the credibility of the whole process in its legal, economic and political dimensions.


The issue of the role of the Law in a process of economic integration has been present from the very beginning of the development of the idea of institutionalizing joint work in the area of trade and investment between the countries of Latin America.

In this regard, it is worth reading the prologue entitled "The Role of Law in a Process of Economic Integration'', which was prepared by the legal section of the Institute for the Integration of Latin America (INTAL-IDB), as an introduction to the "Manual on the Law of the European Communities'', by Italian Professor Nicola Catalano. This work was published by the Institute in 1966 as part of its broader goal of facilitating a better understanding of the budding experience of European integration.

Reading this prologue is still a good starting point for those who, several decades later, are beginning to specialize in the relevant issues of integration processes in this or other regions. It is also a good starting point for those who operate in the political or economic sphere of a contemporary integration process and, in particular, for those who wonder about the relevance of the legal aspect of its development.

Slightly over thirty years after its creation as the institutional framework of an economic integration process between four South American countries (Argentina, Brazil, Paraguay and Uruguay), it is timely to question the credibility of the ground rules agreed for the development of the so-called Mercosur since the signing of the Treaty of Asuncion, in 1991. On previous opportunities we have addressed from different perspectives certain issues related to those that we will develop here (see for example the August, September and October 2021 editions of our newsletter).

It should be noted that the credibility of the ground rules in a relationship between sovereign nations that decide to work together because they understand that it is in their best interest, is what enables the needed rational articulation between the three essential dimensions of a voluntary integration process. These dimensions include the political, the economic and the legal aspects. In other words, without credible rules, such articulation becomes difficult and even impossible.

Therefore, it is a question whose answer becomes most relevant, both from the perspective of the member countries and of those who seek to negotiate agreements with them that have an impact on trade and investment.

These are essential questions in order to be able to assess their effective value as legal rules from a political and an economic viewpoint. They become even more relevant when one of the purposes of an integration project is to influence the image of the member countries on the external front, namely in the countries of those who have to make the relevant investment decisions, that is to say, to invest money that will eventually generate profits.

From a political perspective, the credibility of the legal rules of an integration process is linked, among other aspects, to the level of confidence generated, especially in the citizens of the member countries, by the commitments assumed in relation to the idea of joint work undertaken in the regional space. If the rules were not credible --at least those considered most relevant for the intensity and quality of relations between the associated countries- it is obvious that the project as such would also lose credibility. This loss of credibility would affect the image of the member countries in the eyes of other countries, somehow indicating that what is promised will not be fulfilled and, therefore, should not be taken seriously.

From an economic perspective, such credibility refers mainly to the perception that an investor from a member country or from a non-member country may have regarding the actual compliance with the rules at the moment of effectively realizing their investments, particularly if these involve considerable sums. Moreover, in the event that the rules were not complied with, that there would be effective and therefore credible judicial instances to resort to for the legal defense of their interests.

Among others, two recent events contribute to the current relevance of the issue at hand:

a) The first is the onset of the idea that a Mercosur member may negotiate bilateral free trade agreements with non-members and countries that are not part of the network of preferential trade agreements signed by the Latin American countries, especially within the scope of LAIA. This would imply contradicting basic rules of the Treaty of Asuncion (articles 1 to 8) which can be attributed to the particular circumstances at the time of its inception. Assuming that the member countries shared the idea that negotiating bilateral free trade agreements with non-member countries would be convenient for them, it might require prior modification of the corresponding articles of the Treaty.

b) The second is the idea that a member country can unilaterally modify a significant part of its external tariff without the formal approval of the other member countries. In practice, this would imply the dilution of one of the basic instruments of Mercosur, which is precisely the common external tariff (article 1 of the Treaty). The history of the Treaty of Asuncion helps us to understand why the rules that today would make it legally impossible to cast aside the instrument of the customs union were initially adopted.

The two facts mentioned above are related to each other and would imply, in practice, setting aside the idea that Mercosur is a customs union and replacing it with the idea that it is a free trade zone. If this were eventually the preference of the member countries, it would require a modification of the Treaty of Asuncion. In such a case, an agreement between the corresponding executive authorities would not be sufficient, and would therefore require the formal approval of the legislative bodies of each country.

An alternative procedure could be what is often referred to as the "liquefaction" of what was agreed. That is, to erode -often gradually, almost as if "by dripping"-the commitments undertaken by means of interpretations that, in practice, would imply a modification of what was formally agreed.

The cost could be to sow doubts --even serious ones-about the credibility of what was agreed. These are doubts that would extend far beyond the economic and the legal aspects and would penetrate deeply into the political sphere.
The consequences could be serious, especially if we take into account that the erosion of the credibility of legal rules can have a very negative impact on an association of contiguous nations that understand that they need to work together within a credible framework of regulations. Much more so considering that these are nations that are markedly unequal in their relative power, as a result of their disparate geographic and, above all, demographic dimensions.


Lecturas recomendadas:


  • Bajpaee, Chietigi, "Japan draws India closer amid intensifying power politics", East Asia Forum, 7 May 2022, en www.eastasiaforum.org.
  • Bisley, Nick. "The Ukraine war threatens Asia's regional architecture", East Asia Forum, 20 May 2022, en www.eastasiaforum.org.
  • Bremmer, Ian, "The Power of Crisis. How Three Threats -And Our Response- Will Change the World", Simon & Schuster, New York and London, 2022.
  • Carr, Jeffrey, "Inside Cyber Warfare", O'Reilly, Beijing - Cambridge, 2011.
  • Chaisse, Julien, "Hong Kong's case for RCEP membership", East Asia Forum, 6 May 2022, en http://www.eastasiaforum.org.
  • Chongkittavorn, Kavi, "Stronger ASEAN-US ties hinge on careful cooperation", East Asia Forum, 31 May 2022, en www.eastasiaforum.org.
  • Crandall, Britta H.; Crandall, Russell C. "Our Hemisphere"? The United States
    in Lain America, from 1776 to the Twenty-First Century", Yale University Press, New Haven and London, 202l.
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  • Perochena, Camila, "Cristina y la Historia. El Kirchnerismo y sus Batallas por el Pasado", Crítica, Buenos Aires 2022.
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  • Plokhy, Serhii, "The Gates of Europe. A History of Ukraine", Basic Books, New York 2017.
  • Thormton, Susan, "Asia´s ambivalence towards sanctioning Russia", East Asia Forum, 22 May 2022, en http://www.eastasiaforum.org.
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  • Van Tho, Tran, "Vietnam and the new Pacific Trade Triangle", East Asia Forum, 5 May 2022, en http://www.eastasiaforum.org.
  • Yu, Ye, "Making the Belt and Road Initiative "small and beautiful", East Asia Forum, 23 May 2022, en http://www.eastasiaforum.org.

Félix Peña es Director del Instituto de Comercio Internacional de la Fundación ICBC; Director de la Maestría en Relaciones Comerciales Internacionales de la Universidad Nacional de Tres de Febrero (UNTREF); Miembro del Comité Ejecutivo del Consejo Argentino para las Relaciones Internacionales (CARI). Miembro del Brains Trust del Evian Group. Ampliar trayectoria.

http://www.felixpena.com.ar | info@felixpena.com.ar


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