Mercosur Presidential Summit Concludes with High Hopes

The Córdoba meeting achieved its greatest success in bringing together the bloc’s leaders to discuss the prospects of regional political integration and to revitalize the integration process in light of recent bilateral spats between member states.

All of the Pink Tide’s heaviest hitters were in perfect condition at the 30th Presidential Summit of the Mercado Comun del Sur (MERCOSUR), the South American regional trading bloc, which convened last Thursday and Friday in Córdoba, Argentina. The summit’s primary focus was the smooth integration of Venezuela into the regional trading bloc, which already consists of full members Argentina, Brazil, Paraguay, and Uruguay and associate members Bolivia, Chile, Colombia, and Peru. Additionally, the 2-day agenda included discussions of pending trade agreements with external allies, a common customs code, the appointment of members to the Administrative Labor Court, and the establishment of a consistent MERCOSUR bargaining position for the all-but collapsed WTO Doha round negotiations.

Although some might consider the meeting short on big bangs, when it came to nuts and bolts, in fact, it was one of the most successful trade gatherings in years. It would not be too much to say that MERCOSUR has been a major generative force in redefining U.S.-Latin American relations, as well as representing a significant factor in permanently ending U.S. dominance in the region. It most likely will be remembered as the moment of truth for the Bush presidency, when it came to hemispheric relations, for fielding perhaps the worst Latin American policy in U.S. history, and for doing the most to emancipate the region from Washington’s permanent armlock.

The Córdoba meeting achieved its greatest success in bringing together the bloc’s leaders to discuss the prospects of regional political integration and to revitalize the integration process in light of recent bilateral spats between member states. During the meeting, its participants hailed MERCOSUR as an alternative to U.S.-style free trade agreements, with all member states agreeing that the most lucrative trade agreements would exclude Washington in favor of autonomous Latin American unity.

In a relatively rare international appearance, Cuban President Fidel Castro attended the summit as the special guest of the member states, giving more status to the leftist vision of some MERCOSUR members. While few, if any, negotiations were finalized, reports indicate that contributing parties succeeded in articulating an extraordinarily bold future for MERCOSUR: one that is focused decisively on Latin American solidarity and a series of daring new political and economic frontiers.

The Original Dream
Original member states, Argentina, Brazil, Paraguay and Uruguay, initiated the MERCOSUR trading bloc in 1991 with the signing of the Treaty of Asunción. At this time, the four members agreed, in the compact, to form a common market by allowing for “the free movement of goods, services and factors of production between countries,” through “the elimination of customs duties and non-tariff restrictions on the movement of goods, and any other equivalent measures.” A long-held South American dream has been to use integration to increase regional autonomy while promoting those processes and values essential to the well-being of the area: the eradication of poverty, the protection of the environment and human rights, strengthening regional judicial systems, the pursuit of social and economic equality, sustainable development, and democratic consolidation. The common market was completed in 1995 with the reduction of 85 percent of tariffs and non-tariff trade barriers between member states.

The Political Side of Integration
Although MERCOSUR was originally established as a customs union, integration has predictably progressed to include significant political elements. Even at the outset, the four members acknowledged that the creation of a common market would also necessitate political integration for dispute settlement and increased stable relations among member countries. Furthermore, a stated goal of MERCOSUR is to increase the equality and well-being of all member states’ citizens, an ambition that can only be taken on with some level of political convergence. However, in the fifteen years since the treaty of Asunción was signed, little has been done to either harmonize the foreign policies of MERCOSUR members or integrate the member states socially, and thus the bloc remains primarily a customs union with few effective levels of political integration.

Regarding this stagnation, during last week’s summit, presidents discussed the growing importance of political and social integration in addition to the strengthening of the common market. Particularly notable was the rhetoric employed during the meeting that centered on the future of MERCOSUR as a social, political and economic union. Venezuelan President Hugo Chávez was most vocal in this point, telling the Associated Press that, “MERCOSUR has to take up the banner of the struggle against social inequalities, against poverty, against misery, against unemployment, the struggle to satisfy the needs of the people.” Bolivia’s President Evo Morales, whose country is an associate member of the trading bloc, added that “MERCOSUR should be a solution for the victims of an economic policy that has never resolved the problems of our families,” clearly alluding to largely failed U.S. development strategies based on the Washington Consensus that have been employed in Latin America since the early 1990s.

Additionally, for the first time in MERCOSUR history, the five member states organized a social summit, bringing together civil society leaders from their constituent states, to take place concurrently alongside the presidential summit. With this meeting, MERCOSUR governments invited civil society to form cross-border relationships and common values, thus encouraging non-traditional political actors to become involved in the integration process. With these negotiations and innovative social and political steps now being entertained by MERCOSUR, the bloc truly begins to bridge the gap between economic and political integration, a fundamental goal that was made abundantly clear by the newest participant of the summit: Hugo Chávez.

The Bolivarian Revolution
The shift toward a wider and more venturesome political discourse may be a direct result of MERCOSUR’s July 4 expansion which added Hugo Chávez’s Venezuela to the bloc. The induction of the man and his overarching vision into MERCOSUR has already altered the economic face of the arrangement. MERCOSUR now represents 75 percent of all South American economic activity– over $1 trillion in combined GDP—as well as 65 percent of the continent’s population. As the fifth largest oil producer in the world and a primary supplier of fuel to the four original MERCOSUR member states, Venezuela is crucial to the economic strength of the union. The original four members are cognizant of Venezuela’s economic potential, and have made it clear that they appreciate the fact that Venezuela’s tremendous oil profits can be put to great use, to the benefit of their populations.

Equally important to Venezuela’s contribution to the future of MERCOSUR are the unknown effects of Chávez’s crusade for South American independence from the complex reach of Washington’s asymmetrical regional predominance, along with his fiery rhetoric and lofty goals. With recent actions, Chávez has made it clear that he views MERCOSUR primarily as an avenue for regional autonomy — a stage upon which its leadership can truly begin to execute the dream for absolute South American unification first espoused by 19th century liberation fighter Simón Bolivar, the namesake of Chávez’s socialist revolution. Immediately prior to joining MERCOSUR, Chávez withdrew from the Andean Community (CAN), which now consists of Bolivia, Colombia, Ecuador and Peru, protesting some members’ movements toward bilateral free trade agreements with the United States. Indeed, according to one wire source, Chávez has encouraged fellow leaders to help MERCOSUR become a “common front against U.S. free trade deals.” He further hailed the induction of Venezuela into MERCOSUR as “a victory against Washington’s ‘imperialistic’ plans for the hemisphere.” In considering this, some may perceive MERCOSUR to be taking on a decisively anti-U.S. cast, but this is not necessarily the case. It is MERCOSUR’s conviction that its own course of development parallels, but is not duplicative of, Washington’s. Furthermore, member states realize that Washington’s natural interests are not necessarily coterminous with their own. During last week’s summit, Chávez celebrated the growing independence of MERCOSUR, saying, “We have defeated the ALCA [Spanish initials for the U.S.-backed Free Trade Area of the Americas].” He further added, “The hegemonic power of the U.S. must cease.” In Chávez’s eyes, there is a regional confrontation — call it competition — between conservative and leftist ideologies that has extended into the region’s trading blocs, with MERCOSUR leaning further away from Washington as the weakened Andean Community gravitates toward it, and with Bolivia being strained by the stretch.

While MERCOSUR’s existing members have made it clear that it is an independent body, not to be steered by narrowly defined U.S. interests, Presidents Nestor Kirchner of Argentina and Luiz Inácio Lula da Silva of Brazil expressed their desire that Chávez keep anti-U.S. rhetoric out of the integration process. President Kirchner diplomatically explained during the summit, “We must be united with the world but not in any way; we need it to be an equitable integration for all parties, we do not seek an integration that creates…greater dependence.” Respecting these wishes, Chávez delivered a stellar performance: he avoided employing his inflammatory statements in opposition to the Bush Administration and rather focused on the positive aspects of MERCOSUR. Nonetheless, it appears as though, in expressing the increased desire for political integration and economic autonomy, MERCOSUR leaders have accepted that the trading bloc may be on the way to becoming the unique South American response to U.S. hemispheric hegemony.

At the fourth Summit of the Americas last November in Mar del Plata, Argentina, the 34 members of the Organization of American States (OAS) failed to reach a consensus to move ahead with negotiations and progress toward a Free Trade Area of the Americas. Although 29 states voted to continue dialogue, the five dissenting votes, cast by the four MERCOSUR nations and the then-autonomous Venezuela, were sufficient to destroy the already-foundering process. Not long before gaining official entry to MERCOSUR, Chávez took part in an anti-U.S. protest, vowing to “bury U.S. plans to create a Free Trade Area of the Americas.” On Friday, President Lula reiterated that the FTAA is dead: “No one’s talking anymore.” This initiative faced the first in a series of setbacks in a 2004 meeting, when negotiators failed to overcome key fundamental differences regarding agricultural subsidies and intellectual property rights. This left Washington grasping for any alternate opportunity to further its economic connectivity with the continent. There is little chance that a comprehensive hemispheric free trade area is on the horizon, particularly because Chávez has become heavily involved with striving to maximize MERCOSUR’s full potential outside of Washington’s sphere of influence. In order to maintain this treasured autonomy, MERCOSUR leaders have been addressing potential weaknesses in bilateral member relations that have recently called into question the group’s fortitude.

MERCOSUR Member Tensions Played Down in Córdoba
One focus of the MERCOSUR presidential summit was to address the upheavals now taking place within MERCOSUR’s ranks. Upon forming the union, original members appreciated the differences in size and economic development of member states by initially allowing the weaker nations, Paraguay and Uruguay, more leniency in implementing the terms of the new common market. However, the reality has been that the larger members, Brazil and Argentina, with more developed and sophisticated industrial agricultural sectors, have benefited disproportionately compared to the two smaller states, whose fledgling industries have had difficulty competing.

This aforementioned discrepancy has given rise to bilateral problems that have recently threatened the integrity of the trading bloc. Most pertinent of these is a dispute between Uruguay and Argentina concerning Uruguay’s approval of a joint venture by Spain’s Grupo Empresarial ENCE, S.A., and Finland’s Oy Metsa-Botnia AB and Kymmene Corporation to construct two paper mills along the Uruguay River, which forms the a natural border between the two countries. According to BBC news, the mills, costing $1.7 billion, would constitute Uruguay’s largest foreign investment. Argentina, however, has strenuously objected, countering that the new industrial development would destroy the river’s environment and threaten the fishing and tourism industries of the two countries. Similarly, Paraguay has long fostered a dispute with Brazil regarding the smaller country’s fair share of the fruits of the enormous Itaipú Dam and its associated hydroelectric power plant, which they built together on the Paraná River.

In light of such grievances, Uruguay and Paraguay feel their concerns are being systematically overlooked by the group and have started questioning the alleged benefits MERCOSUR provides for the particular needs of their fragile economies. Leaders in both Paraguay and Uruguay have been contemplating withdrawing from the organization in order to pursue bilateral negotiations with the U.S., which would be a violation of MERCOSUR’s protocols on the part of full members. Eduardo Felippo, of the Paraguayan Industry Confederation, explained that their affiliation with MERCOSUR has been a “disgrace” and has affected “no major change” for his country. President Nicanor Duarte Frutos said Paraguay could “apply the principle of euthanasia [to MERCOSUR], and let it go, faced with the impossibility of revitalising (sec) and mending it.” In the just-finished presidential summit, however, Lula pointedly disagreed with rumors of disbanding: “I do not agree that MERCOSUR is undergoing a crisis. In [the past] there was talk about dissolution and I insisted that there was no crisis in the bloc, but rather in the countries that constituted it. Our central objectives remain more valid than ever.” To prevent further fractioning, the governments of MERCOSUR discussed such bilateral disagreements and strategies to resolve them, without weakening the union as a whole. Yet truly significant steps toward relieving the unfair treatment claimed by smaller members remain almost unnamed and unseen. A departure by Paraguay or Uruguay would represent a mortal defeat for MERCOSUR and would weaken efforts to counter any U.S. magnetic pull on the region’s economy. It would also land a devastating blow to MERCOSUR’s forward momentum, derived from Venezuela’s recent accession and prospects that Mexico will soon add itself to the list of associate members. To counter any such deterioration, MERCOSUR member presidents also pushed ahead discussions of what may prove to be crucial developments for the group, which will result in the negotiation of trade agreements, or even potential expansions, between MERCOSUR and key allies, such as Cuba, Bolivia, and Mexico.

Castro’s Pending Trade Agreement
In a surprise move, Cuban President and ancient U.S. adversary, Fidel Castro, attended the summit as a special guest of the five MERCOSUR members. Predictably, Castro’s presence greatly influenced the ideological and political tune of the gathering – a shift that seemed to be welcomed by attending heads of state, in particular Castro’s friend and ally, Hugo Chávez.

During the summit, member states addressed the issue of a pending trade agreement between Cuba and MERCOSUR which will dictate the reduction of tariffs on a number of goods traded between the two entities. While nominally for economic purposes, the trade agreement most significantly demonstrates a high degree of Latin American solidarity against the importing of suspect U.S. attitudes, even at the risk of associating MERCOSUR with Castro’s polarizing anti-Washington sentiments. Castro’s presence at the summit is likely to be interpreted in Washington as a hostile gesture and further solidified MERCOSUR’s increasingly bold pro-Latin American, anti-U.S. stance.

During the summit, Castro made clear his vehement support for Latin American integration. He emphasized the social side of MERCOSUR, challenging the integration process to address problems plaguing Latin America such as illiteracy and poor health care. He also extolled the leaders for taking the challenging step away from U.S. dominance telling them, “I do not see how the Latin American integration will be challenged.”

Bolivia Proposes CAN-MERCOSUR Union
President Evo Morales of Bolivia, now a close friend of Chávez and Castro, attended the MERSOSUR summit as a representative of his associate member nation and proposed linking the Andean Community with MERCOSUR. This possibility will depend largely on the group’s decisions regarding integration with the United States. Presently, the CAN countries are hesitant to join with Washington in a coherent integration plan beyond the preferential tariff rates offered by the U.S. under the terms of the Andean Trade Promotion and Drug Eradication Act (ATPDEA), set to expire on December 31. This preferential treatment accord is unlikely to be extended given Bolivia’s recent nationalization of its energy resources and what Washington perceives as other damaging economic decisions coming from La Paz and Quito. In the absence of the ATPDEA, MERCOSUR might more readily entertain proposals to form a multilateral agreement with CAN. This window of opportunity for these two important South American blocs may be fleeting as U.S. officials hope to wrap up bilateral trade agreements in short order with Columbia and Peru. Nearby Bolivia, still free from binding agreements with the United States, made it clear in Córdoba that it would rather see the group create ties with MERCOSUR, in which heads of state wholeheartedly supported solidarity for a united “Mercoamerica” (Lula).

The Mexican Card
Repeated requests from Mexican officials eager to join MERCOSUR suggest a potential giant step toward hemispheric integration. In Córdoba, Mexican Foreign Minister Luis Ernesto Derbez reaffirmed Mexico’s hope of integrating with the bloc, and proposed that the agreement be finalized before President Fox’s term expires on December 1. A potential sticking point to Mexico’s accession is its present participation in NAFTA (North American Free Trade Agreement), an agreement that has demonstrated the potential dangers, particularly regarding agricultural issues, of Washington-style trade accords. Given the country’s deep-rooted affiliation with the U.S., Mexico would only participate in MERCOSUR as an associate member. This new tie would represent a significant development in pulling a traditionally northward-looking Mexico into Latin America’s most non-Washington-oriented alliance.

MERCOSUR Turning to Europe?
Little discussion of Europe was heard in Córdoba, but previous dialogue has made it clear that MERCOSUR prefers to pursue greater global integration via the European Union (EU) rather than the United States. Although representatives of the two trade bodies have been largely unsuccessful in producing any real progress since their first meeting in 1999, they continue to look for ways to overcome persisting differences. These questions have mainly concerned MERCOSUR’s remaining internal tariffs and the EU’s unyielding agriculture protection measures. Since MERCOSUR’s heavies refuse to continue negotiations toward an FTAA, their persistence with EU negotiations reveals a clear preference for Europe over Washington. Still, greater integration will likely come about first within the hemisphere, especially as ties with Cuba and Mexico came to the forefront last week in Córdoba.

After a short two days in Córdoba, MERCOSUR has clearly emerged as the regional counter-weight to U.S. preeminence in South America’s economic development and trade relations. With the formal inclusion of Venezuela and movements made to dispel rumors that Paraguay and Uruguay are disgruntled with the group to the point of abandonment in favor of U.S. ties, MERCOSUR is poised to foster South American solidarity without acquiescing to Washington’s hopes for a hemispheric FTAA. Indeed, the MERCOSUR leaders spoke of improving internal relations and expanding their ranks with more like-minded partners such as Cuba, Mexico and the Andean Community, as well as integrating non-governmental groups, to address not only economic development, but also to merge the bloc politically — a feat that is indicative of a lasting, deepening and more mature alliance.

This analysis was prepared by COHA Research Associates Lauren Watts and Katie Bolduc
July 25th, 2006

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