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07/21/2021

Mercosur and the risks of rupture inside the commercial block

Mercosur and the risks of rupture inside the commercial block

On July 8, 2021, the Pro Tempore Presidency (PPT) of the Southern Common Market (Mercosur) was transferred in an online summit. Now, the leadership moved from Argentina to Brazil for the next six months. This presidential summit of one of the most important regional integration blocs in South America once again divided the waters between Argentina and the rest of the active member countries, Brazil, Paraguay and Uruguay. Venezuela’s full membership of Mercosur has been suspended since December 1, 2016.

That said, from the speeches of the Heads of State and Government of the active member countries, associates and Bolivia, which awaits the approval by the Brazilian Congress to become a full-fledged member of the Southern Common Market, we highlight the following thematic axes: the founding values ​​and current expectations of the Block; the debates for the reduction of the Common External Tariff; the flexibility to negotiate unilaterally outside Mercosur; and Uruguay’s announcement to begin extra-zone negotiations.

Values and principles

During the transfer of the Pro Tempore Presidency of Mercosur, the Argentinian president Alberto Fernández said that his country understands the values ​​of the regional bloc: unity in diversity, dialogue, consensus and solidarity. These principles “go beyond constituting a common economic space and a cohesive platform for international insertion in a globalizing world. They are basically the ground that makes our peoples feel as part of that project, as citizens with a common identity of a Mercosur with a vision of the future”.

The southern president considers that “this spirit is embodied in the Statute of Citizenship that we presented, on March 26, at the time of commemorating the 30th anniversary of the creation of this integration bloc.” This spirit “encourages the common construction of a Mercosur at the service of our peoples, a productivist Mercosur that provides jobs, generates industry and social cohesion. A Mercosur that listens to the voice of those who often do not have a voice at the table of decisions,” said Fernández.

For his part, the president of Brazil, Jair Bolsonaro, maintains that the values ​​of Mercosur are the promotion of freedom and prosperity for entrepreneurs, hence he calls for privileging the modernization of the bloc’s economic agenda. “We want and will achieve an economy that is more integrated into the world, more competitive companies, more productive workers and more satisfied consumers.” Clearly, economic principles, rather than social or cultural ones guide the current Brazilian government.

At the same time, although he has accused the Mercosur of being obsolete and criticized especially the rule of consensus, the Brazilian president chose to pick from the founding history of the Bloc the aspect, that it was born “with a clear commitment to freedom, democracy and open to the world”. Bolsonaro announced that “these will be the guiding principles of Brazilian action throughout this semester,” adding that “on the Mercosur agenda we will work to generate results that can be understood, valued and, above all, felt and perceived by our populations and our entrepreneurs”.

The values ​​of the Lacalle Pou government of Uruguay are aligned with Itamaraty and Planoalto in both foreign policy and economic policy. During his speech, the Uruguayan president expressed this by explaining that he conceives, first of all, physical integration as a tool for facilitating intra and extra bloc trade. In addition, he indirectly criticized the closure of the borders by Covid19, which has affected the Uruguayan economy substantially.

For his part, the President of Paraguay, Mario Abdo Benítez, reaffirmed that “the founding principles of Mercosur are still valid and necessary today.” According to Abdo, these values ​​“reinforce the idea that there is no better way than to strengthen our integration process, and that, therefore, it is necessary that we continue to actively collaborate on the proposals to consolidate regional trade and consolidate a common commercial policy”, he claimed.

The speech of the Paraguayan president concerning Lacalle Pou’s initiative to advance with negotiations for countries outside the Mercosur zone, was oriented more towards the Argentine side than the Uruguayan side. However, the speech did not deliver a message of integration of the peoples and the citizenships, it did not contemplate the identity issues of the nations that make up and give life to the bloc. We can affirm that this approach to an identity of the Political and Social Mercosur from the bases enjoyed special vigor only when Venezuela entered the bloc.

Some expectations

Post Covid and Multilateralism Era. Expectations within the Mercosur are aimed at overcoming the Covid19 crisis, although for different reasons. Argentina maintains that in the post-Sars-Cov2 era, global value chains will be reorganized, within the framework of “world trade more influenced by geopolitical and national security considerations.” Fernández seeks to revive multilateralism, “something we value so much,” he noted.

Likewise, he argues that “the result of these processes will not necessarily be that of a reversal of globalization, but rather that of a more regionalized world economy.” To do this, he cites the European Union as an example, whose response to the pandemic “has consisted of strengthening the bloc through an economic revitalization package of an unprecedented scale, which includes a common European debt for its financing”.

Another example, stated the Argentine president, is found in the countries of Asia and Oceania that, in November 2020, signed the free trade agreement for the Regional Comprehensive Economic Association (RCEP). Its members are, among others, China, Japan, South Korea, Australia and New Zealand together with the ten member countries of ASEAN, and the agreement is also a clear testimony of a commitment to strengthen regional value chains.

Finally, Alberto Fernández declared in the Pro Tempore of July 8, that his government believes “it is through more regional integration and not less regional integration, that we will be in better conditions to produce, trade, negotiate and compete”. This refers to the pressure that Argentina receives to liberalize or make more flexible the pre-established conditions to negotiate with countries outside the Mercosur zone.

Post Covid19 and neoliberal commercial point of view. In the case of Jair Bolsonaro, it is clear that his executive presidency of Brazil and his pro tempore presidency of Mercosur will be oriented to overcome the Covid-19 pandemic to meet the expectations, which were not met by Fernández’s PPT, of modernization of the regional bloc. A modernization that goes through: the reduction of the Common External Tariff and the adoption of flexibilities for negotiations and trade agreements with partners outside Mercosur.

On this, Bolsonaro stated that: “Brazil is in a hurry. Mercosur ministers and negotiators are already aware of our thirst for results. We need to start new negotiations and conclude pending trade agreements while working to reduce tariffs and remove other barriers to the flow of trade between us and with the world at large.” For this purpose, the Brazilian president will count during the semester that his PPT lasts on the undisputed support of Uruguay and Paraguay, as well as with the strong opposition of Argentina.

Risks of Rupture: Uruguay and extra-zone negotiations

Lacalle Pou ended his speech at the Mercosur presidential summit, saying: “Uruguay believes in the rule of consensus and we are going to respect the current Mercosur legal system and, therefore, under that legal system, we have communicated that Uruguay intends to move forward in agreements with other countries. This does not mean violating or negating the rule of consensus”.

The Uruguayan president also maintained that: “the world is already going very fast; the world is becoming commercially intertwined and the end of Covid19 will trigger these negotiations furthermore. The world is moving towards there, of course, and the world is not going to wait for us. For this reason, presidents, calmly and with a Mercosurian concept, we want to tell you, as was already reported yesterday (07/07/2021), that Uruguay is going there. Hopefully we will all go together, but what is clear is that we are going there”.

It should be remembered that, during the preparatory meeting for the Mercosur Presidential Summit, which brings together the Chancellors and Ministers of Economy of the member countries of the bloc; the Uruguayan government, represented by Foreign Minister Francisco Bustillo and the Minister of Economy, Azucena Arbeleche, made public that “Uruguay’s position is to seek the modernization of the bloc, through a substantive, agile, dynamic and flexible and permanent external negotiations agenda”.

According to the right-wing Uruguayan newspaper El Observador: “in view of the few advances in the proposal to make Mercosur more flexible, presented a few months ago by Uruguay and Brazil, the Uruguayan delegation ‘claimed its membership’ in the bloc, but warned that it will begin to talk bilaterally with other countries”. Montevideo understands that “decision 32/00 is not in force, since it was never internalized”, this reignited an old legal conflict between the Mercosur countries.

32/00 is a resolution adopted in the year 2000 that establishes that all the countries of the bloc must endorse the trade negotiations of the other full member countries. The debate about its validity arises because the norm was not ratified by the parliaments of the member countries, however, both Argentina and Paraguay have declared that they consider the resolution part of the bloc’s regulations.

Former Brazilian presidents Lula da Silva and Fernando Cardoso support Argentina

In an unprecedented event in the recent politics of the South American giant, former Brazilian presidents Fernando Henrique Cardoso (1995-2003) and Luiz Inácio Lula da Silva (2003-2011) announced, on June 5, their support for Argentina’s position in relation to the Common External Tariff (AEC) of Mercosur, that is, the former Brazilian leaders united against Bolsonaro’s Minister of Economy, Paulo Guedes, and Bolsonaro himself, in a political message that goes beyond the scope of the bloc of Regional integration:

“We agreed that this is not the time for unilateral tariff reductions by Mercosur, without any benefit for the bloc’s exports. We also agree that it is necessary to maintain the integrity of the bloc so that all of its members fully develop their industrial and technological capabilities and participate in a dynamic and creative way in the contemporary world economy,” said Cardoso and Lula, who were once political enemies, in a joint statement.

Among the various implications and repercussions of the letter from the former presidents is the accusation of Minister Paulo Guedes, who maintained that the Argentine ambassador in Brasilia, Daniel Scioli, had written the letter. In this regard, Scioli stated:

“The Brazilian Minister of Economy wrongly attributed to me the wording of the letter in which the former presidents defend the integrity of Mercosur, and state that it is not the time to reduce the common external tariff unilaterally. The Minister also noted that Argentina was preventing the modernization of the bloc. I want to state that these statements are not conditional on the spirit of unity and commitment to bilateral integration that I have always promoted in all my meetings with governors, businessmen and political leaders in favor of the integration of both countries and the deepening of the bond between Argentina and Brazil”.

The Argentine position held by President Alberto Fernández is not ideological but rather seeks a rational modernization of Mercosur consistent with current times, defending employment and development of the industries of Argentina and Brazil. (…) Our opposition to the reduction of the external tariff (…) is supported not only by the entire industrial sector of both countries but also by the workers and unions of Brazil and Argentina”. Among them: the National Confederation of Industry (CNI), the Argentine Industrial Union (UIA), ANFAVEA, Abicalçados, ABIQUIM and sectors such as steel and pharmaceuticals.

On the other hand, Scioli clarified that “I never promoted the letter of former presidents Lula and Cardoso in favor of Mercosur. In my institutional role as Ambassador, I met not only with both respected former presidents but also with former presidents Sarney and Collor de Mello, to hear their experiences on the valuable bond between Argentina and Brazil”.

“Argentina has, in its broadest tradition, the essential value of not intervening in the internal politics of another country, much less in the case of a strategic partner like Brazil, a country with which we are united not only by years of friendship but also by twinning consolidated in these 30 years of Mercosur in force. The Argentine Government has absolute confidence that the economic and social problems that we have in the region are solved with more Mercosur, and that is the meaning of my work as Ambassador”, concluded Scioli.

Final considerations

In the current context of Mercosur, there are substantive differences between the four founding countries of the bloc, which have given rise to the greatest tension in its 30 years of existence according to many observers. On the one hand, Argentina is more focused on the defense of the national industry and the Bloc (which has also been classified as ‘protectionism’), on the other, Brazil, Uruguay and Paraguay are united in the neoliberal desire for trade openness and regulation of markets by the “invisible hand”.

In this regard, it must be said that this situation is not new in Mercosur. Argentina has already faced similar situations, for example, in 2014, in relation to the objectives, scope and definitions of the Mercosur-European Union Bi-regional Agreement. Argentina’s strength in the bloc lies in the political technical team made up of career officials, long-standing and with high negotiating capacity, for which, we consider that the Casa Rosada is prepared to resist the next six months of the PPT under the Brazilian mandate and in a correlation of force that is not at all favorable.

However, the ghost of the dismemberment of the iconic regional integration bloc is hovering over Montevideo these days. President Lacalle Pou, in a clear attempt at a show of force, based essentially on the support of President Jair Bolsonaro, maintains his threat to “negotiate alone.” In the last hours, Uruguay has repeated so many times that it will not leave Mercosur that it seems to reaffirm that it is exactly what it intends to do, or at least to try to see how far it can advance in that direction.

Finally, the intra-bloc tension will continue in the short and medium term, and if Uruguay and / or Brazil decide to cut unilateral tariffs, the tension will increase to its maximum, as this implies the violation of the consensus rule among all full member countries. Mercosur does not have a legal basis that allows extra-zone unilateral negotiations of any kind.

The foregoing, without a doubt, would seriously endanger the life of the Southern Common Market, since it would enable and set precedents for other countries of the Bloc to unilaterally negotiate trade agreements with third countries.

Micaela Ovelar
Political scientist and international adviser, Argentine-Venezuelan scholar, feminist and social activist. Micaela has a B.A. in Political Science, a Masters in International Relations; with studies in issues of gender, government, democracy, and the state. She was the international relations adviser of president Hugo Chavez and has worked with the Venezuelan government for the last 15 years.She is also an independent journalist, producer, and in Film & TV Direction from EMPA (Venezuela). She was a producer and commentator at Radio Alba Ciudad (Caracas). Micaela worked as translator and transcriptionist on “South of the Border” by Oliver Stone, archival research on "Silvio Rodríguez. My first calling" by Catherine Murphy, and as a journalist for “Correo del Alba.” (Bolivia-Venezuela).

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