No redemption for Mercosur?

Mercosur in the news again Image source: Respuestas

Alphabetically speaking, it is Venezuela’s turn to lead the Southern Common Market, the Mercosur. According to Chapter II Article 12 of the Treaty of Asuncion, the presidency of the Common Market Council “shall be exercised through the rotation of the member states in alphabetical order for periods of six months.” However, the same Treaty of Asuncion possesses a “Democratic Clause” that restricts the rotating presidency of the Mercosur only to democratic states. This is precisely where it all becomes murky for Venezuela and its authoritarian president Nicolas Maduro. Back in 2013, the same Mr. Maduro held the rotating presidency for six months, but back then Venezuela was still a democracy; what Mr. Maduro presides over at the moment is very far from one.

 

Maduro might be coming in the way of the deal with the EU Image Source: Miseshispano

The presidency of the Mercosur has thus become an intriguing game of thrones with Mr. Maduro taking over the presidency by force and proclaiming himself the rightful president of the Mercosur for the next six months, whereas the heads of state of Brazil, Argentina and Paraguay try at all costs to keep the Venezuelan leader away from the presidency. The reason for the skirmish is very simple: the prospect of finally signing a free trade and cooperation agreement with the European Union that has been postponed since the 1990s. Mr. Maduro in the presidency of the Mercosur however proves to be a sizeable obstacle to overcome should the other members wish to finally clinch the proposed deal with the EU. However, for a bloc that has been lethargic for the past decade, keeping Maduro away from the rotating presidency is a must in order for any significant economic breakthroughs to occur in the near future.

Ever since its creation in 1991, the Mercosur has been the classical story of “what could have been.” On paper, its proposal was fantastic, but in its execution thus far, not so much. There have been no major accomplishments to be proud of, only modest accomplishments. The biggest one was perhaps the mediation of the impeachment of Paraguayan president Raul Cubas Grau back in 1999, and even in that episode the leaders of the Mercosur – Brazil and Argentina in this specific case – limited their participation to offering asylum in exchange for the president’s resignation in order to prevent the impeachment crisis from escalating into a bloody civil war. However, Mercosur was designed to be much more than just a mediator for its members’ internal conflicts. Its purpose was to create a continent-wide free-trade area, its aim was to bring about the free movement of goods, capital, services and people among its member states, it was designed to affront the NAFTA countries and challenge its influence and prestige in the global market. And yet, Mercosur accomplished none of its goals. Even worse, its history is marked by conflicts rather than accomplishments.

The initiative to create the Mercosur came from its two most important countries: Brazil and Argentina. The inception of the Mercosur may date to the year of 1991, but the idea behind it dates back six years before when in 1985 the two South American giants created the Argentina-Brazil Integration and Economics Cooperation Programme; there were even some talks about creating a new currency, the Gaucho, as the currency for regional trade. However, fast-forward to fourteen years later and all the audacity and camaraderie the two countries displayed in 1985 not only disappeared, but were also replaced by a bitter dispute among the two. The massive devaluation of the Brazilian Real in 1999, a side effect of the Plano Real installed under the previous Franco administration, led to an increased competitiveness of the Brazilian car industry in the region, to which Argentina promptly responded by imposing tariffs on Brazilian steel imports to protect its domestic car industry. The issue was dealt with in 2000, but the issues were only starting. In 2006, Argentina and Uruguay clashed over the creation of two pulp mills along the border of the two countries. The issue had to be eventually settled by the ICJ (International Court of Justice), which ruled in favor of Uruguay. However, the biggest issue that has been plaguing the bloc is the asymmetry present within the bloc with regards to market access between its members. Uruguay and Paraguay, the bloc’s smaller associates have always complained of restricted access to markets in both Argentina and Brazil and have more than once threatened to seek bilateral trade deals outside of the Mercosur, something prohibited under the Mercosur’s rules. And yet all these personal disputes only serve to partly explain Mercosur’s lethargy. The reason for Mercosur’s inefficiency is actually a combination of internal disputes and ineffective leadership from its leaders, especially within the past decade.

The presidencies of Luiz Inacio Lula da Silva and later Dilma Rousseff in Brazil, coupled with the disastrous presidencies of Nestor Kirchner and later on his wife Christina Kirchner in Argentina play an important role in explaining the actions of the Mercosur in the past decade. The current state of the Mercosur is due to a clear prioritization of ideology over the principles of free trade the Mercosur was founded on. Over the past decade, Mercosur greatly diverged from its founding free trade principles and instead turned it into a private club for left-wing governments whose only agenda was a clear anti-Americanism and isolation of Mercosur from the rest of the world; protectionism soon became the order of the day. As a matter of fact even intra-Mercosur trade declined over the previous decade. According to The Economist, intra-Mercosur trade was only 14% of its members’ total trade in 2014; in 1995, four years after Mercosur’s creation, that same number was up to 19.5%. The coup-de-grace however came in 2012 when, taking advantage of Paraguay’s suspension due to the impeachment of President Fernando Lugo, Mercosur leaders voted to allow Hugo Chavez’s Venezuela to join the bloc as a full member. The decision was highly controversial at the time due to the fact that Paraguay did not get to vote on Venezuela’s admission, thus clearly violating Mercosur’s rules of unanimous decision when allowing new members into the bloc. Uruguay’s then-vice-president called Venezuela’s admission into the bloc a “self-inflicted wound.” He was not wrong. The admission of Hugo Chavez pushed the Mercosur into a further protectionist and ideological agenda. Mr. Chavez never really tolerated Mercosur’s free market foundation and instead publically pushed for the creation of a “new Mercosur” that prioritized “social concerns” and “decontaminated neoliberalism” from the region.

Fortunately for the bloc, gone are the left-wing governments of Argentina and Brazil, having been replaced by more business-friendly and pro-free market governments. Furthermore, after two failed attempts, the EU is signaling its willingness to resume talks about a cooperation and free-trade agreement with the South American bloc. That would be the big break the Mercosur has been waiting for since its creation, and unlike in previous attempts, the new state leaders currently heading the negotiations are much more capable of ensuring a positive and beneficial outcome for the South American bloc. The new round of negotiations however is likely to be even tougher than the previous ones, and success is far from guaranteed. Agriculture remains the hurdle to overcome in order to secure a bilateral agreement between the two blocs, as a group of 13 European countries- headed by France- are skeptical of any new deals due to their local farmers’ fear of Mercosur, the world’s most competitive producer of grains and meat. Concessions from both sides will inevitably have to be made.

The truth is that a free-trade agreement with the EU would be highly beneficial to the Mercosur; not only would the bloc be going back to its free-trade roots and leaving behind a bizarre decade of economic isolation from the rest of the world, but also the EU would prove to be a fantastic market for some of the region’s manufactures as well its grains. It is a deal that must occur to ensure the survival of the bloc in a close future. The Venezuelan predicament Mr. Maduro poses must thus be dealt accordingly but also within the legal constraints of the Treaty of Asuncion. The best resolution would be to emulate what was done with Paraguay in 2012 and invoke the “democratic clause” of the Treaty of Asuncion to suspend Venezuela of its membership until order has been restored in the country and the state of emergency imposed by President Maduro is lifted. In this sense, the next country in line, Argentina, and its president, Mauricio Macri, would be set to head the presidency of the Mercosur. As a matter of fact, this is the most likely outcome to the crisis The presidents of Argentina, Brazil and Paraguay all met in Brasilia last month to initiate talks of a possible suspension of Venezuela’s membership if Caracas does not comply with all the accords to which all Mercosur members are subject to.

If Mr. Maduro has any respect for the Mercosur and its legal framework, he will step down and will either comply with the accords all members are subject to in order to keep his turn in the rotating presidency, or he will allow the rotating presidency to skip his turn and go straight to Mr. Macri in Buenos Aires. Either way, Mr. Maduro is in a battle he cannot win. He is flexing his muscles trying to feign power and influence in the region when in reality he is not even able to lift a finger to prevent his country from tearing itself apart. When Venezuela joined the Mercosur in 2012, many economists and political scientists called it the end of the bloc and lamented the end of a project that had all the makings to be vastly successful. The Mercosur was never dead, but its situation was highly critical. However, it appears set to start breathing again.

Lucas Silva Lopes

Lucas was born and raised in Sao Paulo, Brazil, having lived there for fifteen years prior to moving to the United Kingdom, where he currently resides. At the moment, Lucas is pursuing a Bachelor of Arts degree in political science with a minor in economics at the University of Connecticut in the United States.

His research interests lie in the fields of political economy and economic history of Latin America. At the moment, he is conducting research for his honors thesis on presidential challenges in Latin America since 1978 and the political and socioeconomic consequences they bring to each country.

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