Mercosur: A Distant Dream?

In the foundational charter of the Mercosur, known as the Treaty of Asunción, the founding members of the South American economic bloc, Argentina, Uruguay, Brazil and Paraguay, recognised “the importance of securing their countries a place in the international economy” and that “the expansion of their domestic markets through integration is a vital prerequisite for accelerating their processes of economic development with social justice”.  The landmark agreement did not stop there, affirming that it “must be viewed as a further step in efforts gradually to bring about Latin Americanintegration [my italics]”. It has been 27 years and such ambitions have been nothing but shattered. The bloc has replaced its foundational principles with ideological dogmas and its globalising spirit with an inward-looking protectionist agenda. The organisation is worth saving, but that will require politically bold reforms and a complete change in mentality.

 

Take trade first. The combined GDP of the four founding members is $2.9 trillion, making Mercosur one of the world’s largest trading blocs. Internal trade rose from $4 billion in 1991 to over $40 billion in 2000. Bolivia, Chile, Colombia, Ecuador, Guyana, Peru, and Suriname are associate members and also enjoy tariff reductions, although not free commercial access or voting rights. Inspired by the European Union, as most regional blocs are, the group allows its citizens to work and live freely within it, it has adopted a common trade policy and a common external tariff and even considered the creation of a single currency. However, trade between members as a share of their total trade has fallen from 21% in 1995 to 15% in 2008 and 14% in 2014. This is partially explained by a series of economic crises, from Brazil’s currency devaluation in 1999 to Argentina’s 2001 debacle. But it is also due to state capture by populist governments, which not only turned Mercosur into an ideological platform by allowing Bolivarian Venezuela to join in 2012, but also lost all interest in striking profitable trade deals with the developed world and in boosting trade amongst themselves. Argentina’s Peronist president, Cristina Fernandez de Kirchner, even imposed non-tariff barriers on Brazilian imports, violating the free-trade area and damaging economic relations between the two countries, which account for 95% of the bloc’s total GDP. Some criticisms go deeper, arguing that the very creation of Mercosur was not about opening up to global trade but about protecting Brazilian and Argentine industry from foreign competition. They point to the rapid acceleration of intra-Mercosur integration after the proposal of the Free Trade Area of the Americas (FTAA), an ambitious free-trade deal that would have encompassed the whole American continent, and which Brazil and Argentina counterproductively saw as an American hegemonic crusade to flood their domestic producers with malicious competition.

 

Now take democracy. One of the Mercosur’s most fundamental objectives was to consolidate democracy after many years of disastrous dictatorial rule. Member countries signed a pledge to honour such aim known as the Ushuaia Protocol on Democratic Commitment, which includes a warning that a “rupture in democratic order” would be cause for a member’s suspension from the bloc. Besides Ms. Kirchner’s authoritarian instincts, the most obvious cause for disappointment is Venezuela’s acceptance into the club in 2012. Hugo Chavez and his cronies not only turned the state and the national oil company into their personal source of income, but also abolished press freedom, harassed and arrested opposition figures, bankrupted the economy and made a mockery of the rule of law and human rights. Even with all the evidence pointing towards an autocratic resurgence in Venezuela, the country was only suspended from the Mercosur four years later, in 2016, three years into the even more catastrophic government of Nicolas Maduro. What is more: Paraguay’s one-year suspension in 2012 can be interpreted as a political move by left-wing populists to bar a centre-right Paraguayan government from vetoing Venezuela’s admission into the bloc, suggesting that the organisation had become a mere ideological tool.

The main question is whether there is any hope of fixing Mercosur. There are some hopeful signs. Left-wingers were ousted from government in both Argentina and Brazil: a market-friendly Mauricio Macri now occupies the Casa Rosada in Buenos Aires and has openly shown his enthusiasm for global trade, while Brazil’s Dilma Rousseff from the scandal-ridden Worker’s Party (PT) was impeached for mishandling the public deficit, thus opening the path for her more centrist successor, Michel Temer, to condemn Venezuela and reinvigorate the country’s interest for socioeconomic reform and free trade. Such change in leadership and mentality has led to some policy achievements such as Venezuela’s suspension and a reopening of trade talks with the EU, started in 1999 but long stalled, which could result in cheaper shopping for around 750 million people and the opening of entire new markets and business opportunities for the Mercosur economies. Now it is up to the US to put Trumpian mercantilism aside and support the Mercosur’s most recent liberal swing: a Democratic House could ask for more cooperation and commercial links with the bloc, for example.

Finally, the election of the firebrand Jair Bolsonaro to the presidency of Brazil poses both challenges and opportunities. His tough stance on Venezuela and economically liberal proposals (mainly the work of his chosen finance minister, the free-marketeer Paulo Guedes – both are pictured above) have made some analysts and businessmen optimistic. On the other hand, his authoritarian statements and unholy defences of the Cold-War-era military dictatorship might represent a real threat to Brazilian democracy, perhaps even a right-wing version of what happened in Venezuela. Also, Paulo Guedes recently spoke about the future of the Mercosur, affirming (perhaps correctly) that the current status of the bloc is dragging Brazil behind in a time when a gradual opening of the economy is a must if the country is to recover from the 2015-16 economic downturn. Nevertheless, he angrily stated that the Mercosur is far from being a priority in the new government, raising the dangerous possibility that rather than utilising Brazilian leadership to reform the trading bloc, he might opt for a complete neglect or even exit from the club. Meanwhile, in Argentina, a reformist Mr. Macri is facing a deep financial crisis, the perfect opportunity for a populist backlash in next year’s presidential election. With all its riches and vibrant civil societies, Latin America has never ceased to talk integration. Although continent-wide integration still seems like a distant dream, sub-continent integration in the form of the Mercosur is simply a broken dream, ready to be fixed.

Leave a Reply