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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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WHAT CAN BE LEARNT FROM HISTORICAL EXPERIENCES?
What is easy and what is difficult when attempting to integrate sovereign nations.

by Félix Peña
February 2014

English translation: Isabel Romero Carranza


 

Historical experiences in Latin America and in other regions teach that, at the time of building an integration process among sovereign nations, it is possible to distinguish moments that are relatively easy and moments that are quite hard. Keeping in mind this distinction seems essential to prevent the growth of expectations that later cannot be met. This growth is at the origin of the curve of disenchantment, i.e.: a trend towards a gradual deterioration of the generated hopes.

The disenchantment erodes the underlying reasons that motivate countries that share a geographical space to adopt a strategy of joint work with long-term vision while preserving their sovereignty and national identity. These reasons are related to political stability, peace, democracy and development in the "neighborhood" in which the nations coexist and also to the idea of strengthening the ability to negotiate and compete with other countries. In a setback in these aspects lies the main danger of disenchantment that can result in frustration and, finally, in an attitude of rejection of the integration process itself. That is, in an existential crisis.

Transparency and broad participation are conditions for a debate that enables to define how to approach a desirable and possible integration, or to recycle the corresponding process if there is proof that the disappointment is deep and based on concrete facts.

It is indeed a sincere and broad social debate what Mercosur requires today. Three issues would be of top priority in this debate. The first concerns the global context, that is, a diagnosis of challenges and opportunities posed by the profound changes that are taking place in global power and global economic competition. The second concerns the scope of future commitments in order to enhance the ability to attract productive investment, strengthen the exchange of goods and services in the region and with the rest of the world, and create incentives for transnational production linkages. The third relates to the institutional architecture of the integration and the methodology for joint work.

How to address the articulation of preferential agreements that have been signed in the region is, finally, another issue for debate. The signing in Cartagena, on February 10, of the Additional Protocol to the Framework Agreement for the Pacific Alliance makes it even more necessary to examine the issue of the convergence of preferential trade systems agreed among LAIA member countries.


The distinction between the easy (the launch of the idea of integration among a group of countries and the signing of the founding agreements) and the difficult (translating into reality, over time, what was agreed) in a process of integration seems to be implicitly present in two paragraphs of the speech delivered by Ollanta Humala, President of Peru, at the signing of the Joint Statement of the VIII Summit of the Pacific Alliance in Cartagena de on February 10, 2014 (http://www.presidencia.gob.pe/).

The first paragraph refers to what historical experience indicates is the easiest. That is, to set ambitious and attractive goals. These goals are usually where media strategies focus in order to charm and generate enthusiasm in the citizens, in those making decisions for productive investment and in third countries. It is the paragraph where President Humala said: "The Pacific Alliance was created as a space of agreement, friendship and peace, not of conflict or confrontation with anyone. And he added that "the Pacific Alliance is the expression of regional productive forces come together today under one agreement and that will travel together around the world" (our own English version).

The second paragraph recalls what is really difficult. That is, to get what was promised to penetrate reality and make it sustainable and effective due to its results. President Humala said: "The Pacific Alliance now enters a new stage that I think will be more difficult, it is the stage to apply all that has been signed, to deepen and expand this partnership and to provide all the tools required by our productive forces so that they can utilize the alliance" (our own English version).

This is a distinction based on historical experiences and, more recently, on those of the EU and Mercosur, beyond the obvious differences that exist in their respective contexts, motivations, objectives and methodologies. Such experiences teach us that when building an integration space between sovereign nations, whatever their objectives and modalities, it is possible to distinguish, in relative terms, moments that are easier and moments that are harder. It seems important to remember this distinction in order to avoid the phenomenon of inflated expectations that later cannot be met, which is usually at the origin of the curve of disenchantment, i.e. a trend towards a gradual deterioration, sometimes imperceptible, of illusions that, if not reversed in time, can lead to frustration and even to the actual failure of the integration process, even if it still subsists on paper.

Hence the relevance of the question posed in our previous Newsletter: what are the risks of disenchantment and its costs considering its possible impact on the factors that led a group of countries to develop an integration project? (See http://www.felixpena.com.ar/).

The main risk of disenchantment, perhaps the one with the highest costs, is that it can erode the deep underlying reasons that led countries sharing a geographical space to adopt a strategy of working together with a long-term vision while preserving their sovereignty and national identity. These reasons are related to political stability, peace, democracy and development in the "neighborhood" in which they coexist, and also with the idea of strengthening the ability to negotiate and compete with other countries. In a setback in these aspects lie the main danger-and the costs-of disenchantment that can translate into frustration and, finally, into an attitude of rejection of the integration process itself. That is to say, in an existential crisis.

Disappointment may then erode the positive effects that a process of integration between neighboring countries should supposedly produce through the prevalence of a culture of dialogue, an understanding between people who share the same geographic space, in brief, the essential conditions for peace and political stability in a region. This would be the complete opposite of what led to the chain of events and behaviors that account for the beginning of the "Great War" in 1914. (See a recent article by Frank-Walter Steinmeier, the current Minister of Foreign Affairs of Germany and leader of the Social Democratic Party and especially the book by Margaret MacMillan. Both references have been included in the Recommended Reading section of this Newsletter).

Such erosion is what, at times, seems to be present in European countries on the eve of the election of members of the European Parliament to be held next 25 May. These are elections that have acquired an important political significance precisely because their results could reflect the full depth of the public disenchantment with the idea of Europe. Such disappointment is expressed in the growth of "Euro skepticism" and this could manifest with relative strength in the May elections (on the disenchantment of the Europeans, see the article by Claudi Pérez published in El Pais newspaper, Madrid, February 9, pages 2 and 3, and on http://internacional.elpais.com/).

As also pointed out in our Newsletter of last January, it is the founding moments of an integration process, or of preferential trade agreements, where the seeds that later lead to disillusionment can be found. The originators of the corresponding founding agreement, often times due to political reasons, tend to create excessive expectations about the possible outcomes. That is why currently in many countries and regions there is a growing demand in the civil society and its representative institutions for greater transparency and participation in the respective negotiations. There is a demand to have full knowledge of the details and the commitments that are effectively made. We are all aware that there are winners and losers as a consequence of these negotiations. And it is also known that such a distinction often originates in the fine print or the details of the agreements, precisely "where the devil hides" as they say in the world of negotiations. Classic examples of this in preferential trade agreements are the specific rules of origin and the different mechanisms that allow the exemption of products, sectors or services, even indefinitely.

This growing demand for transparency and social participation has been evinced in relation to current regional and inter-regional trade negotiations such as those of the Pacific Alliance, the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP). It is a demand geared towards knowing what is being negotiated and how what is agreed will be carried out. In this regard, an experienced voice -that of Rodolfo Severino, former Secretary General of ASEAN between 1998 and 2002- has stated the need for participants to be honest in the debate on the future of the integration of Southeast Asia when defining what can and cannot be done in the new stage of ASEAN (on http://www.eastasiaforum.org/).

Transparency and broad participation are then conditions for the debate that a country should undertake when defining how to address a desirable and possible integration process based on its national interests. This also applies when the need to discuss how to recycle the corresponding process is recognized if there is proof that the eventual disenchantment can be deep and based on concrete facts.

It is precisely a sincere, transparent and broad social debate what Mercosur would need today (in this regard see our article "Mercosur: terapia de bloque para escaparle al desencanto", in the Foreign Trade Supplement of the newspaper La Nación, February 11, 2014, pages 4 and 5, on http://www.lanacion.com.ar/). An honest discussion of the options in Mercosur has to take into account what is essential from a political perspective that transcends the economic, especially if envisioned from the perspective of Planalto in Brasilia and Casa Rosada in Buenos Aires. Since its beginning, with the agreements of Presidents Alfonsín and Sarney-the original core of Mercosur-, the essential has been the impact of the quality of the relationship between Argentina and Brazil at all levels on democracy and the political stability of the region. Hence the importance of the nuclear issue without which it is very difficult to understand the path that effectively led to the bilateral agreements first and later to the creation of Mercosur. It is in this framework that we can then appreciate the value of effective trade preferences on national strategies for productive transformation and competitive insertion in world markets. And this framework also allows us to appreciate the value of the South American scope that Mercosur always aspired to have. Let us remember that in the founding plans, besides the four countries that signed the Treaty of Asuncion in 1991, the participation of Chile as a full member (and not just as and associate) was assumed. But in order to be sustainable, this South American scope requires the guarantee of conditions for the mutual gain of all member countries, whatever their economic dimension or level of development.

It is debatable whether the disenchantment observed, especially in some member countries, is justified or if it's social base is really wide. But simply reading the newspapers of member countries in recent months indicates that at least the illusion of the initial moments is fading (among other recently published articles on the case of Mercosur, see that by Mauro Laviola published in the newspaper O Globo de São Paulo on February 13, 2014, entitled "Mercosul, uma mentira institucional". The author is Vice-President of the Association for Foreign Trade of Brazil). This also appears to be happening in third countries or regions with which Mercosur hopes to negotiate to intensify mutual trade and investment flows. Specifically, an erosion of the image of Mercosur as a relevant, credible and therefore attractive process in terms of productive investment and potential negotiations can be observed in the EU. At least in appearance, the current situation of Mercosur is presented as one of the reasons that would lead to seek a multi-speed bi-regional agreement or, directly, bilateral agreements with Mercosur member countries, as in the case of Brazil. A deeper analysis of the issue would imply more sophisticated and complex ramifications, where all kinds of factors would intersect and not just the relative position of Mercosur.

The debate on Mercosur here suggested would need to take place at the same time within countries and between member countries, and also between social and productive sectors. To be honest it should begin with a diagnosis of the frustrations and continue with the identification of possible concrete and real options. Assessing frustrations involves imagining what would have happened if the integration had not been formulated and developed as it did. For example, if it had not included a common external tariff. If the results would have been similar in terms of trade, investments and public image, then it would be possible to conclude that perhaps the problem lies not necessarily in Mercosur instruments. But it also involves evaluating the feasibility of any "B plans" in the perspective of each member country. In that regard, it would be essential to avoid voluntarism -what is desired and not necessarily what can be done- and one-dimensional approaches, for example, including only the economic and not the political dimension, or vice versa. It would be voluntarism to imagine that a country of the region can minimize the importance of the geographical reality and its geopolitical implications, especially in an era of strong dynamics and tensions in the competition for world power and markets, with possible repercussions for the Latin American region.

Which might be the relevant issues to be included in a sincere debate on Mercosur and its options? The following three would seem to have top priority and also allow for multiple unfoldings.

The first concerns the global context. It involves a diagnostic of the challenges and opportunities posed to each member country by the profound changes that are taking place in global power and global economic competition. An assessment of the external context can be a powerful factor that stimulates convergence of views and interests within and between countries. Mostly ECLAC has alerted on the convenience of the articulation between the countries of the region in order to compete and negotiate better at a global level. But in a current world with multiple options for the international insertion strategy of any country, it is not surprising that members of Mercosur wonder about the inconvenience of being bound by commitments of regional scope. "Mercosur ties us" is a phrase often heard in member countries. The question would then be to debate whether a country has a realistic and more profitable plan B -and not just in an economic perspective- to the idea of insertion in the world based on Mercosur.

The second issue concerns the scope of the commitments made for the future and how they could enhance the ability of each country to attract productive investment, strengthen the exchange of goods and services in the region and with the world, and generate incentives for transnational productive articulation through different variants of value chains. The question would then be to discuss the added value that, in terms of productive development, may result for each country from sharing a space of regional integration with credible and effective rules.

The third question concerns the institutional architecture of integration and the methodology used for working together. In that regard, it would be convenient to take advantage of: i) the broad and poorly detailed nature of the founding legal commitment of the Treaty of Asuncion; ii) the fact that there is no obligation in an integration process to follow a pre-established model and that the WTO rules -Article XXIV of GATT and also its Enabling Clause- are ambiguous and imprecise, and also iii) the possibility of capitalizing on the accumulated experiences of several decades of regional integration, of LAFTA-LAIA, of the bilateral agreements between Argentina and Brazil, and of Mercosur.

The question would then be to debate how to develop institutions and work methods that help sustain, over time, the balance between various national interests, between short-term requirements and long-term visions, between simultaneous demands for flexibility and predictability, at the moment of adapting to the economic and political dynamics of today's world and of the domestic level of each participating country. And all that taking into account possible conceptual dissonances when addressing realities.

It would be convenient to develop the suggested debate taking into account the map of the current international trade negotiations, both in the global multilateral level of the WTO and in the mega interregional spaces. Uncertainties are present in almost all cases, either about their conclusion (the experience of the FTAA or what is happening in the Doha Round), the effective date of the signed agreement (the Havana Charter of 1948 which created the World Trade Organization is an example), or the added value that, once effective, the corresponding agreement generates with regards to pre-existing trade commitments (this would be the case of the Pacific Alliance regarding the commitments already made by its members in their partial scope agreements in force within LAIA). Transatlantic interregional negotiations (TTIP) and Trans-Pacific negotiations (TPP) also generate doubts either due to their geopolitical connotations, the fate in the U.S. Congress of the presidential authorization needed to conclude trade negotiations (the Trade Promotion Authority-TPA), or because of the difficulties in reaching agreements on sensitive issues such as intellectual property or protection of investments, taking into account the disparity in size, views and interests among the participating countries.

There is finally another question to be included in the necessary debate which involves how to address the articulation of preferential trade agreements that have taken place in the region. Today this issue has its epicenter in the relationship between Mercosur and the Pacific Alliance, especially since the last Alliance Summit, held in Cartagena, where the Additional Protocol to the Framework Agreement that creates the Alliance was signed. (On the VIII Summit of Cartagena and the text of the Protocol signed there see http://www.mincit.gov.co/, http://alianzapacifico.net/, and the annex on specific country of origin requirements on http://alianzapacifico.net/).

The fact that the Protocol will require some time to actually come into force may provide, during that period, an opportunity for an analysis at the government, business and academic level of formulas and mechanisms to provide the necessary convergence between two of the major systems of trade preferences of the Latin American space. The common framework of LAIA can be used for this purpose, despite the fact that the Cartagena Protocol does not mention the 1980 Montevideo Treaty nor the commitments therein agreed and that are, supposedly, still in force. Does this reflect a recurring Latin American tendency to disregard the legal commitments that have been made in the past? Wouldn't this trend be one of the main reasons that lead to the curve of disenchantment and failure of the respective agreements? Perhaps this is another topic for the necessary debate on the future of Latin American integration.

In a first step, the aforementioned convergence could be based on the system of rules of origin. The Protocol of the Alliance, in its Article 4.8, explicitly stipulates the principle of cumulation of origin which is essential for a strategy with different modes of production linkages of regional scope. The convergence could also be achieved in relation to other important issues when promoting transnational production chains and addressing trade negotiations with third countries or regions. One of such issues is related with regulatory frameworks. Finally, the interest in such convergence could result from the advantages that can be generated for the region by a joint approach of integration in the multilateral trading system, within the framework of the WTO and in the network of preferential mega-agreements of regional and interregional scope being developed in recent times, such as TPP and TTIP mentioned above.



Recommended Reading:


  • Anania, Giovanni, "Restricciones a las exportaciones agrícolas y la OMC. Opciones para promover la seguridad alimentaria", ICTSD, Puentes, Volumen 15, Número 1, Febrero 2014, en: http://ictsd.org/i/agriculture/183962/.
  • Bartesaghi, Ignacio, "Implicancias de la transformación agrícola en el Mercosur", ICTSD, Puentes, Volumen 15, Número 1, Febrero 2014, en: http://ictsd.org/i/agriculture/183958/.
  • Davis, Christina L., "Overlapping Institutions in Trade Policy", Princeton University 2009, en: https://www.princeton.edu/.
  • Defraigne, Pierre, "Entre le TTIP et l'Europe, il faut choisir/Choosing Between Europe and the TTIP", Madariaga Foundation, Madariaga Paper, vol.6, n° 7, November 2013, en: http://www.madariaga.org/.
  • Del Valle Márquez Molina, Julybeth, "Perspectivas de la Alianza del Pacífico para la Generación de Encadenamientos Productivos Regionales", Estudio de Caso para optar al Título de Magister en Estrategia Internacional y Política Comercial, Instituto de Estudios Internacionales (IEI), Universidad de Chile, Santiago de Chile, junio 2013, en: http://www.google.com.ar/.
  • IRI, "Revista Relaciones Internacionales", Instituto de Relaciones Internacionales de la Universidad de La Plata - Nuevo Hacer, Grupo Editor Latinoamericano, Año 22 - N° 44, La Plata, Enero-Junio 2013.
  • Jatkar, Archana; Mukumba, Chenai, "Unpacking the Bali Package. A Snapshot of the Bali Ministerial Decisions of the WTO Members", CUTS International, Discussion Paper, Jaipur 2014, en: http://www.cuts-citee.org/.
  • Joosep, Krista, "Trade Facilitation as a Means to Improve SME Competitiveness and Consumer Welfare in Developing and Least-Developed Countries", CUTS International, Briefing Paper, N° 1, Jaipur 2014, en: http://www.cuts-geneva.org/.
  • MacMillan, Margaret, "1914. De la Paz a la Guerra", Turner Noema, Madrid 2013.
  • Madariaga Foundation, "Transatlantic FTA: Boosting Growth at what Cost?", Madariaga Foundation, Madariaga Report, Brussels 24 June 2013.
  • Observatorio América Latina-Asia Pacífico, "Los Mega-Acuerdos de Asia Pacífico", Observatorio América Latina-Asia Pacífico (ALADI-CAF-CEPAL), Informe n° 1 - Debate Académico, Montevideo, Febrero 2014, en: http://www.observatorioasiapacifico.com/.
  • Rosecrance, Richard; Stein, Arthur, "The Theory of Overlapping Clubs", en: http://www.grandstrategy.net/.
  • Seshadri, V.S., "Transatlantic Trade and Investment Partnership", Research and Information System for Developing Countries (RIS). RIS-Discussion Papers, Discussion Paper 185, New Delhi, November 2013, en: http://ris.org.in/images/.
  • Steinmeier, Frank-Walter, "La tragedia que hundió a Europa en la barbarie", Diario "La Nación", Sección Opinión, 03 de febrero de 2014, en: http://www.lanacion.com.ar/.
  • Viner, Jacob, "The Customs Union Issue", Oxford University Press, Oxford-New York 2014.
    .

Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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