July 09, 2007

The Ins and Outs of MERCOSUR

Asunción, Paraguay: June 29th 2007
Buenos Aires, Argentina: July 9th 2007

June 28th was summit time in Asunción, capital of Paraguay. Paraguay was pro-tempore president of MERCOSUR, the Latin American trade block for 2007-2008, now it is Uruguay’s turn. Paraguay’s president, Nicanor Duarte, was transferring the reins to Uruguay’s president, Tabaré Vázquez.

Invited were MERCOSUR members and their friends, in this case Chile, Bolivia, and Ecuador. Venezuela was left somewhat in limbo, neither member nor friend.

The Bouncer at the Club
MERCOSUR came into being in 1995, an extension of the a trade agreement between Brazil and Argentina. When the union formed, it consisted of four states, Brazil and Argentina with Paraguay and Uruguay, and so things remained until 2006. Venezuela applied and was accepted by all four presidents in June 2006. The presidents who signed this decree—Chávez, Lula, Kirchner, Vázquez and Duarte—are all still in power, but Venezuela not yet a member of MERCOSUR a full year later. Technically the delay is due to ratification by all four legislatures. Argentina and Uruguay ratified Venezuela’s entry, Brazil and Paraguay have not.

This article examines some recent trends in Latin American integration in the context of this delay and explores possible scenarios through 2007 and beyond.

Why was Chávez interested in MERCOSUR membership?
MERCOSUR offers the grand prize to its member nations of zero tariff access to the Brazilian market, naturally this is expected to be reciprocated. In general this access benefits members that export highly taxed products to the Brazilian market. Venezuela is predominantly an exporter of oil. The world’s oil supplies are running out and thus taxation is not an issue for exporters. While Brazil is still self sufficient in oil, Venezuelan oil is not a product considered competitive to Brazilian local markets, thus this access benefits Venezuela little.

In fact the Brazilian-Venezuelan trade group in Caracas have been complaining about the damage to uncompetitive producers in Venezuela which will result from reducing protective Venezuelan import barriers to imports from Brazil.

These competition issues were perfectly foreseeable when Chávez applied to join MERCOSUR in the first place so the question remains as to why president Chávez was interested in joining?

Furthermore, has he now changed his mind?

Crisis in Caracas, Safety in Numbers
In 2004 President Chávez was facing a recall referendum in Venezuela. He decided that his strength lay in his Latin American relationships. His MVR party public relations staff draped large posters over skyscrapers of Caracas. The posters depicted a photo of President Chávez with presidents Lula and Kirchner at each shoulder.

This imagery was a double-edged sword aimed at his opponents; not only could President Chávez imply that he was not vulnerable. These posters conveyed the message that the president’s of South America’s two largest countries were allies of Chávez. More important still, by alluding to Latin American integration, Chávez evoked Simón Bolivar, the heroic “Liberator”#1 from the Spanish crown. Better still Chávez was taking one step further integrating with Brazil. Simón the Liberator restricted his actions to Spanish speaking territories, Chávez was also looking to Brazil. The message was clear: Time to unify!

Chávez was to be at the center of the process.

New Scenarios
Fast-forward to 2007 and the MERCOSUR summit in Asunción. The five presidents of MERCOSUR are having their regular meeting, but this time there was to be only four. Chávez, as always, was invited. However his country’s ratification as MERCOSUR’s first new member was tied up in Brazilian red tape. He was losing patience. At the very last moment he informed the four other chancellors that he would not attend. Chávez sent his vice-president to Asunción with a strong message that Venezuela will participate in MERCOSUR and that “the ultra-right were always enemies of Latin American integration”, Chávez instead travelled to Russia to buy submarines, visiting a few other states including OPEC friend Iran.

Why the long delay?
“If we can’t enter MERCOSUR because the Brazilian right is stronger, then we shall leave.”, President Chávez speaking while in Iran. “We hope that does not happen.”, Celso Amorim, Brazilian chancellor. “MERCOSUR has problems in the same way as you do in the European Union, but there is no crisis!”, President Lula on his visit to Europe, three days later.

Brazil is one of the world’s most bureaucratic nations and sometimes things move slowly. This last year was an election year in Brazil, there have been many delays to all government business in the legislature. The Lula presidential reelection paralyzed government business. The ensuing bargaining to build an acceptable cabinet was excruciatingly slow. This has meant that there has very little active time to process the Venezuelan ratification. Bureaucratic delays due to elections is “nothing but the truth”, but they are not the “whole truth”.

On closer examination it is clear that some influential sectors in Brazil have been pressurizing the Lula government not to ratify Venezuela’s membership of MERCOSUR. Paradoxically this is happening while Brazil’s industrial sector benefit from some excellent contracts from the deep pockets of President Chávez.

In many cases these lucrative contracts—mainly large infrastructure projects such as bridge building, rail and the Caracas underground extensions—might otherwise have gone to northern developed economies. One example is the extensions to the French-built Caracas underground railway being undertaken an international consortium with the active participation of Construtora Norberto Odebrecht (CNO) of Rio de Janeiro.

Why would elite sectors in Brazil lobby to delay Venezuela’s entry into MERCOSUR? Could it be that Chávez’s Bolivarian revolution or his XXI century socialism is incompatible with their vision of Brazilian capitalism? Do members of the Brazilian elite fear Chávez influence in MERCOSUR, or within their own borders, or do they worry about how MERCOSUR will be viewed with Chávez as a full negotiating member. They profess the latter and the former openly and this fear is more powerful than their envy of Venezuela’s vast oil and gas reserves.

Whatever their private reasons, many Brazilian business groups, and some of their Paraguayan counterparts, have come out publicly against Venezuela’s ratification. In one example the Brazilian National Confederation of industry, (CNI), was quoted as saying that Venezuela’s membership could “make commercial negotiations with other nations and blocks more difficult”, because of Chávez’s “ideological orientation”. Other commentators mentioned negotiations with the European Union explicitly, although, in truth, these negotiations have been terminally stalled since long before Venezuela applied for membership. The EU recently replaced their chief negotiator for MERCOSUR, sending replacement Karl Falkenberg, but his hands are tied subject to success in the Doha round of the WTO. This infinite delay may be fortunate; Falkenberg does not even speak Spanish.

Valuable though Brazil’s contracts in Venezuela might be, the numbers are small when compared with trade with Europe, Asia and the United States. The European Union lavished prestige on president Lula in July nominating Brazil a “Strategic Partner” and opening unilateral trade negotiations bypassing MERCOSUR. President Bush also wooed Brazil in an unusual visit. Brazil was more than a strategic partner, but a cofounder of a future dollar-denominated ethanol commodity market.

If Washington timed their visit to Brasilia to stem the growth of MERCOSUR#2 then the timing may have been almost as perfect as that of the European Union’s soft power recognition.

Regional integration in the meantime
There have been a number of important initiatives toward South America regional integration since 2006. Unfortunately there have been a lot more treaties signed than there have been active investments made but this does not negate the real impetus especially among the Andes communities of Venezuela, Bolivia and Ecuador. Outside the restraints of MERCOSUR membership —but still incorporating all MERCOSUR members— there have been some very promising initiatives in the area of finance (Banco del Sur, the Bank of the South) and energy (The Margarita/UNASUR Declaration on Regional Energy Integration). However promising these two initiatives might be they remain largely in the conceptual phase, and face the stiff opposition of the world’s largest transnational oil corporations and the current financial hegemony of the north. The Washington-based Inter-American Development Bank, International Monetary Fund, and the World Bank —putting aside obvious conflict with the National development bank of Brazil (BNDES)— have little need for more competition for their loans nor, worse still, to become replaced as Exxon was in Venezuela. Neither of the two innovations were launched within the framework of MERCOSUR. Both of them were initially promoted from Caracas.

This is not to say that there has not been progress in MERCOSUR. The new parliament is an encouraging step. Also, from the standpoint of commercial activity, MERCOSUR members and associates have increased regional trade significantly. However MERCOSUR is still dealing with some significant internal turmoil. When it comes to the smaller states of Paraguay and Uruguay MERCOSUR is highly unpopular, in the larger countries it is largely ignored.

Is it possible that Chávez is just having too much fun inventing alternative forms of integration with Morales, Correa and Castro to be bothered with the real nitty-gritty of block membership and its rigid trade rules?

Diplomatic faux-pas, power-play or strategic withdrawal?
There are many ways to interpret President Chávez’s recent threat to disassociate Venezuela from MERCOSUR. It is certainly possible that diplomatic circles in Caracas may regret the recent pronouncements by their president especially when it comes to antagonizing the Brazilian senate#3. Many media outlets accuse Chávez of non-diplomatic outbursts, however it is more likely that Mr. Chávez spoke quite intentionally. The question is: Was this a power-play or a strategic withdrawal?

The recent scramble of diplomatic initiatives to avoid a crisis between Brazil and Venezuela was particularly energetic in Buenos Aires. Could it be that this was an intended result of Chávez’s ultimatum? A test of allegiance? An effort to light a fire under MERCOSUR to re-invigorate it in the depths of the southern winter? Does Chávez believe that he has the assurances he needs to drive his nation’s membership to completion, on his schedule and on his terms?

Alternatively this could be interpreted as a first step in a strategic withdrawal from MERCOSUR. It could be postulated that President Chávez’s government has lost interest in full membership of the MERCOSUR trade block. By trying to impose terms that would cause internal political problems in Brazil, Chávez’s strategy may be intended to give Brasilia an excuse to let Caracas out of its contractual obligations to join MERCOSUR.

Could it be that Caracas has calculated that his popular ALBA/UNASUR initiatives are for the time-being more flexible than MERCOSUR membership? Maybe Chávez’s consolidation of power in Venezuela and Brazil’s reticence to enter into regional military alliances has made full membership of MERCOSUR less relevant from a security standpoint to Caracas?

We may never know the truth but it could be argued from a purely economic perspective that Caracas would be better able to protect it’s strategic interests as an associate member of MERCOSUR following the Chilean example. The question is would MERCOSUR be better off without Venezuela? In the realm of the World Trade Organization negotiations commentators use the analogy of a bicycle: if they don’t move forward the fall over. Will MERCOSUR face the same problem?

What Next?
Lula has offered —and Kirchner has requested— a meeting with his “friend” Chávez. Lula seemed to be genuinely disturbed by Chávez’s ultimatum and not happy about it. This meeting will be key and must happen soon if Venezuela is to have any hope of staying in MERCOSUR. The two leaders need to determine whether their view of Latin American integration are compatible at least within MERCOSUR.

#1 Simón Bolivar was the leader of the revolution against Spain creator of Gran Colombia, no split into Venezuela, Colombia and Ecuador

#2 Washington's alternative proposal for a South American trade block is the Federal Trade Agreement of the Americas (FTAA/ALCA) which is still touted in some conservative sectors but has been stagnant since 2005

#3 Chávez described the negative commentary of the Brazilian senate as to his government's refusal to renew the broadcast license for the Venezuelan TV channel (RCTV) as parroting Washington's concerns

Posted by Tony Phillips at 04:24 PM | Comments (1)

July 07, 2007

Translation of Raúl Zibechi's Banco del Sur Article

I decided to help out the excellent organization The Center for International Policy's Americas Program, based in the US and Mexico City, by translating a Spanish article by Raúl Zibechi, Montevideo, Uruguay. If you are interested you can take a look at it by clicking on the banner below:

Posted by Tony Phillips at 02:59 AM | Comments (0)