MERCOSUR: Does It Have a Role in the Fulfillment of Simón Bolívar’s Dream?

The recent acceptance of Venezuela as a full member of the trading bloc Mercosur has been viewed as highly significant across sections of left wing opinion. Latin American unity is just round the corner they say.  What with the leftward turn in  many of the countries there has been no better time in the last 200 years to achieve Bolívar’s dream, as Hugo Chávez said recently. One might think a united and socialist union of Latin American states was so close you could taste it.

And for sure there have been many positive steps over the last few years.  Small steps, but steps in the right direction all the same.  The agreements the Venezuelan government has with many countries in Latin American and the Caribbean are examples of this. Cuba’s medics treating the poor from across the continent another.  And in Bolivia, since the election of Evo Morales, many Venezuelans have arrived to share their experiences in running the social missions.  Venezuela has bought mountains of Argentina’s debt to help it rid itself of the chains of the IMF. And the list could go on.  But is it really fair to add the newly expanded Mercosur to that list?

Upon being accepted provisionally as a full member back in December 2005 Chávez’s statement was unambiguous:

“I believe Mercosur must be more political. I believe it’s a political project, a collective project for the peoples, for the polis…We need a Mercosur that prioritizes social concerns, we need a Mercosur that every day moves farther way from the old elitist corporate models of integration that look for…financial profits, but forget about workers, children, life, and human dignity.”

Very respectable aims but very, very far from the current state and purpose of Mercosur.

The History of Mercosur

Ironically, Mercosur was born at the height of the neo-liberal restructuring carried out by Latin American governments during the 1980’s and 1990’s. The Treaty of Asunción was signed in 1991 by the governments of Argentina, Brazil, Paraguay and Uruguay, giving birth to Mercosur, the Southern Common Market (Mercado Común del Sur in Spanish) trading bloc.

A customs union was formed which agreed a common external tariff and agreements on internal tariff reductions were reached.  There were also plans for a common market and common external commercial policies.

The governments of Brazil and Argentina were the driving forces behind the project, Brazil being the senior partner.  Enthusiastically neoliberal in outlook and mindful of the likely-hood of FTAA (Free Trade Area of the Americas) negotiations in the not too distant future, they felt they would get a better deal negotiating as a bloc.  Brazil also had in mind the leadership of the region and a set of institutions that served its domestic commercial interests.

But like most international agreements of its kind, it suffers from a serious democratic deficit.  The populations of the four countries had no substantive input into the contents of the agreement and unions and social movements had no significant role in negotiation.

Trade among members did increase significantly between 1991 and 1999, from $8 billion to $41 billion. But that was the best of the news.  Due mainly to the inherent instability of neoliberal policies, the history of Mercosur has been more one of conflict and crises than success.

One of the worst cases of this was in 1999 when the Brazilian Central Bank devalued its currency in an attempt to kick-start the economy.  When this happens a country’s products become cheaper for foreign buyers and it also encourages foreign investment.

All this adversely affected Argentina because, not only were they losing out in investment terms to Brazil due to the devaluation, their products suddenly became more expensive for Brazilians.  Consequently, Argentina’s automotive industry exports were down 58% in the subsequent year. It deepened the recession already underway in Argentina so, due to pressure from business sectors and against Mercosur rules, they introduced import restrictions on some Brazilian products.  Brazil was already subsidising its automotive industry contrary to the free trade rules of the agreement.  The institutions of Mercosur, lacking a functioning dispute resolution mechanism, proved wholly incapable of penalising the rule breakers or resolving the endless conflict.

Neither did anything substantive within the accord confront the massive social problems and inequalities that existed and still exist within each country.  Well, except free trade of course, the all-purpose remedy that is more of a poison than a cure.  In fact, by 1999 unemployment levels had almost doubled across the four countries.  But then the main strategists behind the project never did have their eye on the welfare of the populace.

Always missing from the business pages is the story behind the economics jargon and statistics.  The turmoil described above has enormous social costs.  When a company loses 58% of its business it is the workforce that suffers the most with redundancies and pay-cuts.  When import restrictions are slapped on sports wear it is the workers in the sports wear factories and their families that take the biggest hit.  And when a country falls into a recession it is the poor majority that is most vulnerable.

Throughout this period these people that bore the brunt of the crises did organise and resist.  Social Movements and Trade Unions were active.  Some unions worked within the institutions of Mercosur such as the CUT of Brazil.  But most protest was built up outside of Mercosur and was directly responsive to the damage the economic crises were doing to the societies.

All this has left Mercosur paralyzed for the last few years.

What does Venezuela bring to Mercosur?

July 4th, 2006 will be the day when Venezuela is formally ratified as a full member with voting rights to Mercosur.  The Extraordinary Summit of Mercosur will be led by current President Nestor Kirchner and will take place in Caracas.  Bolivian President and current CAN (Community of Andean Nations) President Evo Morales will also attend.

It will also be the day before Venezuelan Independence Day and most of the leaders are expected to stay to take part in the celebrations.  Just think: freedom from El Imperio Español by Simón Bolívar; it will be a time for grand speeches about the role of Mercosur in fulfilling Bolivar’s dream of a united Latin America free from imperial domination.  There will be talk of solidarity and co-operation and the leaders will be smiling, joking, and patting each other on the back.  But beyond the usual rhetoric and antics from heads of state, what changes with Venezuela’s incorporation into the project?

At a meeting of Mercosur Foreign Ministers in Buenos Aires on June 16, Venezuelan foreign Minister Alí Rodríguez Araque said, “Venezuela has the largest energy reserves in the western hemisphere and because of that the inclusion of our country in this economic bloc will result in a major shift in the continent and in the rest of the world.”

Whether the world as a whole will be affected or even conscious of the latest developments, it is true that Venezuelan oil, as ever, will be the major resource it brings to Mercosur.  It also has lots of gas, which it hopes to provide to members at a favourable price.  Brazil and Uruguay certainly see the possibility of energy security as an attractive proposition.

Venezuela’s purchase of a large chunk of Argentine debt did it no harm in acquiring an enthusiastic cheerleader for its acceptance into Mercosur.  But Kirchner also saw Venezuelan membership as a strategic victory in terms of redressing the skewed balance of power against Brazil.

And with Venezuela as a member, Mercosur contains 75% of the GDP of South America or around a trillion US dollars.  It also increases the market size by 25 million people, meaning that almost 250 million people now live in the trade zone.

But, perhaps equally significant, Venezuela comes with a government committed to integration not just within Mercosur, but throughout Latin America and the Caribbean.  This commitment is more than vocal as it has put its money, or should we say its oil, where its mouth is.

But how influential Hugo Chávez and his government can be remains to be seen.  Brazil is certainly no walkover and has a very different approach.  If Lula fails to get re-elected in October—a possibility—then a Brazilian government looking in a completely different direction could effectively end Mercosur.  There are powerful capitalist forces within Brazil and indeed in all member states that have little interest in a socially oriented union.  Within Venezuela itself many are unhappy about Chávez spending oil money overseas and these complaints can be heard almost as often in the Barrios as in Altamira.  And Venezuela still has to economically integrate itself within the current set-up, taking on the common external tariff and agreeing tariff reductions for member states’ imports.   Rodríguez Araque said normalisation could take 4 years.

And anyway, conflicts elsewhere continue.  Brazil and Argentina still haven’t resolved their problems.  Argentina and Uruguay are squabbling over alleged polluting paper factories on the Uruguayan side of the Río de la Plata.  These are serious issues.  The dispute could end up at The Hague.

But again, the fact that it could end up at the Hague also demonstrates that Mercosur´s institutions are incapable of resolving disputes between its members.

What Mercosur needs for success

So, if Mercosur is going to work as a regional capitalist development project with a social character, the institutional framework must have the authority and functionality to make and enforce its own rules.  Not only that, it must be able to collect, distribute and redistribute resources across the member states.  The status-quo isn’t even capable of resolving disputes so there must be a radical overhaul.  Maybe the long term goal could be something like the European Union with a central bank and a single currency.  There is talk of an elected parliament this year.

But let’s not forget external factors.  The US will do everything it can to wreck the project.  It is negotiating bilateral trade agreements with whoever it can in the region.  It recently closed agreements with Colombia and Perú, which caused Venezuela leave CAN.  In the short term that means a merging of CAN and Mercosur is off the horizon and for Brazil that means their plans of one Latin American trading bloc with itself as the leader have been spoiled.  That in itself could reduce Brazil´s interest in making Mercosur a success.

So, looking at the positions of the governments across the continent, the idea of a large regional bloc incorporating many more members that functions in some way as the EU seems like a pipe dream.  But if you see all the different processes, that is, Petrosur, Petrocaribe, the continental gas pipeline project, and the one just agreed  between Colombia and Venezuela, and all the rest, you never know how things could develop.  Not just economically.  The development of ideas and a sense of unity among the peoples are important too.  So if these things continue then maybe Mercosur will succeed.

In the end, real regional integration must come from below and Mercosur must be a means to an end and not an end in itself.  The argument that with leftists at the helm progressive forces within each country will have more influence may yet come to be correct.  So social movements, trade unions and other groups need to do some integrating with each other.  It already happens to an extent. And they must prepare for Mercosur, keeping a close eye on events and, when necessary, they must push and pull governments so that wherever they make economic policy it serves the interests of everyone.