The latest summit meeting of Mercosur — the trade bloc comprising Brazil, Paraguay, Uruguay and Argentina — took place in the Paraguayan city of Asuncion on June 29, and it was one of the most uneventful such meetings in memory.
On the one hand, progress was made in the energy sector, where the presidents who attended the meeting expressed support for advancing regional integration. On the other hand, Argentine president Cristina Fernández de Kirchner was absent, preferring to remain in Buenos Aires where she was organizing her next electoral campaign. Moreover, the departure of Brazilian president Dilma Rousseff before the talks officially ended helped to overshadow the meeting.
In addition, the topics covered were practically identical to those on previous occasions, and all of the presidential speeches were mere advertisements, reflecting the fact that the trade bloc’s biannual meetings, which have been going on for 20 years, are attracting less and less interest, and leading to no concrete progress.
Despite all this obvious unwillingness at the latest summit, each of the member states of Mercosur is undergoing good economic times. The World Bank recently forecast that the South American economies are all going to grow by an average of more than 5% this year.
Is Mercosur undergoing a crisis because the nations that comprise it are giving top priority to their own particular goals for economic development?
Perhaps the word “crisis” is too broad to describe the current situation, according to Janina Onuki, professor at the Institute of International Relations at the University of Sao Paulo in Brazil. What is happening today with Mercosur is that it is literally “stagnating and paralyzed, which means that it is not going to disappear, but it is also not going to make progress toward a deepening of regional integration,” says Onuki.
Onuki warns that the bloc is currently being used more as a way to negotiate international agreements with the European Union than to pursue other goals. For more than a year, negotiations between Mercosur and the EU have been moving forward after having stagnated since 2004. The goal is to achieve political and economic cooperation between the two blocs, and to strengthen free trade. So far, no progress has been made regarding the exchange of goods and services, mostly because of concerns by European producers about the possible negative impact of such a treaty on the European agricultural sector.
Nevertheless, some experts point to a clear lack of interest among the respective countries about participating in Mercosur. Raul Bernal-Meza, a professor in the department of international relations at the Faculty of Human Sciences at the National Central University in the Province of Buenos Aires, explains, “In the case of Argentina, this is an expression of the general apathy of President [Fernández de Kirchner] regarding the international environment; which her husband, the late president Nestor Kirchner also had.” This is paradoxical, he notes, because when things started out, Argentina was betting on Mercosur as a way for it to achieve a strategic position on the international scene.
In the case of Brazil, the government of Luíz Inácio Lula da Silva introduced changes in its international policy, according to Bernal-Meza, and that nation has lost its taste for regional blocs and for forging new trade agreements. In turn, trade ties between Brazil and China have intensified.
But Gabriel Foglia, a professor of economics at the University of Palermo in Argentina, argues that the fact that not all of the presidents at the Mercosur Summit were in agreement does not necessarily mean that there is a lack of interest in the trade bloc on the part of these nations. In his view, Mercosur enjoys very solid and stable ties among its members. “In the case of Argentina, the Common Market of the South is its top trading partner, which is an undeniable and compelling fact,” says Foglia.
Foglia recognizes that Mercosur is experiencing a tense period. However, he says that this is natural, to some extent, in any process of economic integration. He believes that if people take advantage of these moments of tension to move forward on key structural reforms, the integration process can be strengthened even further, and wind up benefiting the entire bloc.
After all, Mercosur is still “young,” Foglia points out. The bloc is only 20 years old, compared with other regional alliances such as the EU, which dates from 1957. So it makes sense that the Latin American bloc is still experiencing some adjustment processes. “In addition, you have to consider that this is an integration of developing countries, each of which moves up and down according to its own political, institutional and economic dynamics.”
Some observers, however, note that when Mercosur was established in 1991, forecasts for its regional integration plan were every bit as promising as what the EU had experienced. Expectations were that Mercosur would contribute to the battle against poverty, and promote the equitable economic and social development of the nations of South America.
According to Onuki, the bloc has not been able to deliver on its promise of strengthening integration among its member nations and associated states, “so the countries [in Mercosur] have turned toward meeting their own national interests, to the detriment of regional integration.”
Conflicts and Asymmetries
Beyond the bloc’susefulness as an instrument fornegotiating access to other markets, including the EU, on more favorable terms, Mercosur has experienced several internal conflicts that have hamperedits ability to bring together its member states to pursue common objectives.
In fact, "we are constantly seeing conflicts involving trade and tariffs between Brazil and Argentina," says Carlos Malamud, chief Latin American researcher at the Real Instituto Elcano in Spain. Clearly, he adds, "each of the two countries tries to impose its own vision in order to defend the interests of their productive sectors."
Even before the latest Mercosur summit, regional press releasesmentioned the tense atmosphere between Fernández de Kirchner and Brazilian President Rousseffafter a harsh bilateral clash over certain obstacles that both countries applied to their respective imports. Although a latent conflict remains, both the Argentine and the Brazilian government have agreed to lift the penalties for the sectors involved, along with mutual monitoring of their imports.
The absence of a speedy mechanism to resolve such problems, "along with the absence of any sort of support mechanism, such as the stabilization funds of the European Union, increases the imbalance and asymmetries between the two big countries on the one hand, and with Uruguay and Paraguay [on the other hand],” notes Cristián Garay, a professor of international relations at the Andrés Bello University in Chile. In May 2010, the EU created a stabilization fund of approximately 500,000 billion euros in order to stop the spread of the problems of sovereign debt among some of its members.
While Brazil and Argentina have historically competed against each other, trying to impose their own economic criteria, neither nation is completely satisfied with the development that Mercosur has sparked within their respective economies. However, as Malamud points out, the two countries are "not interested inputting an end to the bloc; much less in appearing as the parties responsible for triggering its demise.”
Another big problem facing the bloc, adds Garay,is that its associate members — Bolivia, Chile, Peru, Colombia and Ecuador — do not have the same political rights as its founders, so they cannot fully participate in Mercosur. Regardingthis point, Malamud says that after the four member countries approved the incorporation of Venezuela, that process has yet to be complete because of the failure of the Paraguayan parliament to ratify Venezuela’s accession. This is a prime example "of Mercosur’sinstitutional deficiencies,” he notes.
The lack of institutions is one of the bloc’s main weaknesses, according to many critics in academia. For example, there is still no agency that regulates the unification of technical standards in the expanded economic space, notes Foglia, or an institution that coordinates the various macroeconomic policies, or one that is responsible for realizing the desired monetary unification. “In other words, what’s missing is a supranational bureaucracy with the power to create rules and ensure that they are fulfilled.”
The bloc still has not resolved the asymmetries between all of the countries involved, Onuki says, nor givenits institutions a stronger role. As a result, "Mercosur suffers from a lack of transparency."
Despite its problems, Mercosur has made significant gains in terms of growth of intraregional trade and foreign direct investment, Foglia points out.
In 2007, Daniel Chudnovsky and Andrés López noted the following in their study, “Foreign Direct Investment and Development: The Experience of Mercosur”:“Since its creation, Mercosur has been one of the main focuses of attraction for foreign direct investment (FDI) from developing countries. Between 1990 and 2004, this bloc took in almost $300 billion dollars in FDI.”
Just as importantly, Mercosur has implemented major advances in terms of physical integration, Garay notes, with a wide range of initiatives for establishing points of connection among the territories of the Pacific and the Atlantic. In this sense, the Paraguay-Paraná Hydrovia project — which would convert the Paraguay and Paraná rivers into an industrial shipping channel — is one of the most important projects thatthe regional bloc is now promoting, according to Mario Montserrat Llairo, research director of the Center for Latin American Integration and Development Studies at the department of economics at the University of Buenos Aires. If realized, the project wouldhave a major impact on the physical and economic integration of Brazil, Paraguay and Uruguay.
Garay also pointed to the development that has come out of the bloc’s merchandise security protocols, and its cooperative efforts to fight organized crime and promote energy integration. This last point may be most worth emphasizing now that Paraguay and Argentina share the energy supply generated by the Yacyretá hydroelectric plant, and Paraguay and Brazil do likewise with the output from the Itaipú hydroelectric plant.
What can be expected from Mercosur in the future? Essentially, it all depends on the plans of Brazil, says Bernal-Meza, because thatnation has changed its strategy with respect to its regional and global roles."Any regional agency that disregards Brazil or Argentina is irrelevant over the medium term."
Most likely, the bloc will not advance in either one direction or another for quite some time, Malamud predicts. “There will be an effort to maintain unity and force global agreements, but it remains to be seen to what extent reality will impose limits on the project."
According to Foglia, trade within Mercosur is very important for all of its members, so the bloc should, despite political frictions, move ahead at its own pace toward freer trade. “The stakes are too high –investments in infrastructure, tariff agreements and projects for improving supply chains — to take the risk that Mercosur becomes only a passing dream.”