Venezuela’s First Meeting as Mercosur Member Begins Today

Chávez Should Watch His Step at MERCOSUR Summit: Every Effort Should Be Made to Convince Uruguay and Paraguay to Stick with the Trade Pact

Venezuela’s July 4 official accession to the Mercado Común del Sur (MERCOSUR), of which Brazil, Argentina, Uruguay, and Paraguay already are a part, undoubtedly adds decisive economic clout to the trade group; however recent squabbles and some misguided moves make it clear that the country’s inclusion also aggravates various traditionally anti-Chávez Venezuelan constituents as well as the smaller MERCOSUR states. The latter already fear the growing clout of dominant bloc members, Argentina, Brazil, and now Venezuela.

With today’s beginning of the MERCOSUR Presidential Summit, Caracas will be joining the group with an overarching commitment to combat Washington’s market-driven development initiatives regarding Latin America by means of regional solidarity and unification. Yet, MERCOSUR is fundamentally a trade group and not some celestial orb, and adding various unintended roles may distort its primary function. As with the inadvertent torpedoing of his favored candidates in elections in Mexico and Peru, President Chávez’s call for the unification of the respective MERCOSUR countries’ military forces, which has not been universally welcomed throughout the trade bloc, may sabotage his goals for the group.

The dream of South American integration, which Chávez is eager to foster via MERCOSUR, will be frustrated should the Venezuelan leader, now its principle proponent, fail to effectively counter often unwarranted accusations of neglecting to uphold democratic values within Venezuela. A Montevideo and Asuncion decision to abandon the South American group in favor of a trade deal with the United States could also act as a roadblock to integration. If this should come to pass, it will deliver a shattering blow to MERCOSUR’s forward momentum, damaging the ability of the world’s third largest trade bloc to survive in its present form. Furthermore, Chávez’s standing both within and outside the trade arrangement could decline in the wake of his explosive statement that MERCOSUR members should create a joint military force. In light of these developments, Chávez would be wise to proceed with extreme caution at the July 20-21 MERCOSUR presidential summit that begins today, so that he does not further jeopardize the viability of his worthy Bolivarian economic development goals.

Venezuela’s Contribution to MERCOSUR
Some MERCOSUR members enthusiastically feel that Venezuela will make a “limitless contribution [to MERCOSUR] in the economic, commercial, cultural, and political fields.” With the addition of Venezuela, the continent’s 3rd largest market, MERCOSUR expands its economic reach to account for over 75 percent of South America’s GDP and becomes one of the hemisphere’s largest global suppliers of oil and particularly natural gas. However, beyond the energy products that comprise at least three quarters of Venezuela’s export revenues, the country has little to offer its new trade partners except credit lines drawn on its huge reserves of hard currency. While some Venezuelan economic theorists claim that multilateral integration is unnecessary to generate energy sales agreements, which are typically negotiated bilaterally, most orthodox thinkers go further by insisting that Chávez’s way is the path to ruin. These constituents fear that the lower tariffs provided by MERCOSUR will weaken the local non-oil-based economy by opening the borders to cheap imports from other countries in the union, particularly agricultural powerhouses Brazil and Argentina.

Chávez Moves without Industry Support
Soon after Venezuela’s formal induction into MERCOSUR, the Venezuelan Grupo 400+, “an informal, plural and independent organization composed of society’s representatives,” published a letter addressed to MERCOSUR member presidents complaining that Venezuela is joining the group without the consent of the National Assembly and in the absence of a nationwide consultation. The National Council for Trade and Services (Consecomercio), a non-profit organization of representatives from the tertiary sector (largely services) who are concerned with coordinating efforts to promote Venezuela’s economic development, also weighed in on the subject. Consecomercio CEO, Noel Álvarez, noted that the government solicited the council’s opinion when it decided Venezuela would join the Andean Community (Bolivia, Columbia, Ecuador, and Peru), but that regarding MERCOSUR, Consecomercio and other groups like it were ignored. Álvarez explained that Consecomercio had met with national authorities last year to discuss MERCOSUR, at which time his group was told that its members would be contacted later “to try to overcome troubles or asymmetries” that they saw in terms of Venezuela’s adherence to the pact, but they never heard from the government again before Chávez signed onto the regional agreement. At this point, it should be noted that many members of business organizations had backed the attempted April 2002 coup against Chávez, as well as the general strike of 2003, leaving tension between the business sector and Chávez supporters.

Venezuelan representatives of the industrial sector, who were distressed by the decision to join MERCOSUR, criticize the new alliance as a political move lacking a sound economic foundation. The director of the Venezuelan Confederation of Industries laments the dearth of dialogue between government and business associations because he fears that Venezuela is not ready to compete with huge Brazilian and Argentine producers. Venezuelan businessmen told El Universal that the deal “will have a negative impact in an early stage on both the industrial sector and the agricultural business. They will be very damaged indeed.” José Luis Betancourt, of the National Council of the Federation of Trade and Industry Chambers (Fedecámaras), an organization that has consistently opposed Chávez, adds that “the decisions of the public [sector] should not be different from [the ones] in the private sector. At the end of the day, along with [labor], we are [the ones] who make integration processes possible.”

Agribusiness spokespersons in Venezuela are also among those who have most vociferously condemned Chávez’s move to join MERCOSUR as hasty and dangerous to the country’s economy. Although these criticisms originate in the more wealthy and bureaucratically involved ranks of Venezuela’s relatively smaller farming sector, and not Chávez-loyal campesinos, the accusations do beg the important question of whether joining MERCOSUR was undertaken with good economic reason, or only as the next phase of Chávez’s war of ideas with Washington.

Departure of Uruguay and Paraguay Would Weaken Chávez
The antagonists of Chávez’s master plan for an alternative style of South American integration, which stresses issues of social justice, are not limited to his domestic enemies. Unlike the complaints coming from Venezuelan big business, that the president is accustomed to hearing and ignoring, grumbles originating from MERCOSUR members themselves might lead to serious setbacks to Chávez’s long-term goal of unifying the continent against Washington. Leaders in Uruguay and Paraguay are embroiled in deepening disputes with Brazil and Argentina, as the leaders from both of these small economies have started to question the domestic advantages of full member status in the trade bloc.

Recently, leaders of the major MERCOSUR countries have been speaking out about addressing bona fide Parguayan and Uruguayan concerns over fair treatment that date back almost to the group’s formation. Paraguay and Brazil, which share the gigantic Itaipú Dam, one of the world’s largest hydroelectric energy projects, are perpetually in a dispute over Brazil’s dominance of the venture. The president of the Paraguayan Industry Confederation, Eduardo Felippo, described general participation in MERCOSUR “as a disgrace,” since bloc membership has meant “no major change” for the country. As he told Brazzil Magazine, “our main problem and challenge are the pseudo tariff barriers imposed by the ‘important private lobbies’ from Argentina and Brazil,” which have perpetuated pre-MERCOSUR trade barriers in key sectors of Paraguay’s economy. Uruguay’s complaints that MERCOSUR does little for the country have been a similar drone. Lately, these frustrations have flared up once again over Argentina’s attempt to block Uruguay’s construction of two paper mills on its side of the Uruguay River, and Buenos Aires’ simultaneous refusal, as the standing temporary president of MERCOSUR, to convene the body that arbitrates member controversies to deal with the dispute. Facing this reality, leaders from both Paraguay and Uruguay are now actively considering forming bilateral free trade agreements with the United States, an act which has led Chávez to renounce Venezuela’s economic affiliations with other South American trade groups that have followed that route and could require the offending MERCOSUR apostates to give up full membership in the trade bloc.

According to a slew of Reuters and AP wire stories, “Chávez has promoted the MERCOSUR union as one counterweight to U.S.-backed free trade deals,” celebrating his country’s admittance as a “historic step toward South American integration and a victory against Washington’s ‘imperialist’ economic plans for the hemisphere.” However, if this is to be the case, Chávez must avoid spurring the departure of Paraguay and Uruguay, as a fracturing of MERCOSUR’s internal coherence would represent a devastating ideological defeat in Chávez’s battle to keep Washington’s influence quarantined in the region. To this aim, Venezuela will immediately lower tariffs on key Uruguayan and Paraguayan products before free trade zones are finalized for the remainder of Venezuela’s inter-MERCOSUR commerce by 2012-13. The ability of this tiered approach to effectively address Paraguay’s and Uruguay’s adverse economic situations, as well as bolster the smaller countries’ attitudes toward the trade group, will determine whether momentum toward South American solidarity can be maintained at a time when their benefits from MERCOSUR are being viewed with increased skepticism.

Images of ideological battles with the United States are not the only ones Chávez conjured up with his remarks on the occasion of Venezuela’s official entry into MERCOSUR last week. In addition to promoting South American development without the “help” of Washington’s heavy hand, Chávez suggested, “the day should come when [MERCOSUR] has a defense organization, where we are to merge the armed forces of our countries and where we are to devise our own security, sovereignty and defense strategy. Let us be free! Venezuela has decided to be free and not to depend on any foreign axis of power.” Fellow MERCOSUR members were unaware of Chávez’s intention to suggest initiating plans to form a joint army before hearing his words, and, only hours later, began to distance themselves from his controversial remarks. Different delegations began releasing statements clarifying that Chávez’s words should not be taken literally and that MERCOSUR is a trade, not a military, body.

Undoubtedly, the announcement of a goal to establish a fighting force for MERCOSUR could further polarize a continent where states already feel compelled to choose sides between Caracas and Washington. With this initiative, Chávez strayed from his typical antagonizing of pro-business foes, and, in doing so, could cause a lamentable departure from progress toward his persistently conjured-up vision of South American integration. Perhaps a more productive step would have been rallying his new partners around a pro-poor, pro-South American solidarity, pro-development stance, rather than a discussion of a defense alliance.

Chávez’s Next Move
At this point, President Chávez should proceed with great caution during the coming MERCOSUR presidential summit which begins today. Joining MERCOSUR without doing more to consult private sector industrial and agricultural authorities in Venezuela– even though this sector is heavily stigmatized by its insurrection role– was a mistake which has allowed his critics to accuse him of behaving in an autocratic manner. It calls into question the democratic core of Venezuela’s governing process, which must be the crown jewel of the Venezuelan leader’s revolution. MERCOSUR decision-makers ought to advance goals for South American unity with transparency, while taking care not to ignore Uruguayan and Paraguayan economic challenges. Brazil and Argentina must lend an ear to Uruguay’s and Paraguay’s complaints that the two MERCOSUR giants have been guilty of “selfishness and even hypocrisy.” As Paraguayan President Nicanor Duarte Frutos has noted, “MERCOSUR condemns the protectionism of the U.S. and the EU, when the same practices persist amongst us.” If the smaller economies feel at risk of being bullied by giants much closer to home than Washington, they may decide their interests would be better served outside MERCOSUR. Additionally, calls to build an army may push Chávez’s political and economic adversaries to act more concertedly to counter his plans for integration or even prompt hesitant allies to qualify their previously whole-hearted support. In light of the rebukes Chávez has been receiving from his private business sectors, together with the tenuous standing of smaller MERCOSUR members, and the wary reception given to his call to build a MERCOSUR army, Chávez should step lightly in the first weeks of Venezuela’s operational role in the trade pact. He should be more the observer than the galvanizer at the present time, and be wary of introducing any initiative which could threaten his laudable dreams of South American integration and solidarity.

This analysis was prepared by COHA Research Associate Katie Bolduc
July 20th, 2006

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