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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
THE ADAPTATION OF MERCOSUR TO DYNAMIC REALITIES:
A new approach to the recurrent and complex debate on undertaken commitments.

by Félix Peña
May 2015

English translation: Isabel Romero Carranza


 

In the case of Mercosur there have been growing trends in recent times demanding changes in the strategies and working methods of a process whose design originated in its founding moment, when the global, regional and national contexts were markedly different from the current ones. In some cases -however few- explicit doubts have been raised regarding the convenience of the existence of Mercosur as a common project involving its member countries.

Today, the main debate is focused on the possibility that member countries undertake bilateral trade negotiations with other countries. Different official sources of high political level in Mercosur countries have raised the idea of reviewing the methodologies of international trade negotiations.

It has often been noted that the obstacle that would need to be removed to enable member countries to carry out bilateral trade negotiations, or at the very least "multi speed" ones, is Decision CMC 32/00. This is not necessarily so since changing or abolishing this regulation would not suffice.

As a contribution to the debate that has originated, it may be pointed out that the protection of the preferential treatment that the partners have granted to each other results not so much from Decision CMC 32/0, but from the combination of the provisions of Article 5 of the Treaty regarding unrestricted access to the respective markets, established to in subsection a, and the instrument of the common external tariff, provided in subsection c. However, the Treaty does not prevent the common external tariff from being interpreted with the scope and flexibilities of Article XXIV of GATT.

By establishing reciprocal rights and obligations between the member countries, the Treaty creates the main legal -and thus political- guarantee of the commitments freely made by the member countries, conceived as an indivisible whole. Dissociating them would require changing the Treaty with a new multilateral international legal instrument negotiated between Mercosur member countries. This would not be an easy task.


The convenience of adapting Mercosur to the new realities of the global and regional context in which its member countries are inserted seems hard to ignore. It can also be considered as a common occurrence that, from time to time, can be seen in the development of integration processes between sovereign nations that share a regional space. This adaptation has been relatively frequent in Europe and is nowadays one of the most important issues on the agenda of the EU. It is accentuated in times of profound global and regional changes such as these, with notorious political, economic and social impacts on the member countries of the corresponding integration process.

In the case of Mercosur, there is a growing trend towards a demand for changes in the strategies and working methods, which originated mostly at the time of its foundation in 1991. This means that they originated in a global, regional and national context markedly different from the current one. In some cases -however few- there have been explicit doubts regarding the convenience of the existence of Mercosur as a common project of its member countries. These concerns are more existential than methodological. Somehow, they are similar to what can be observed in the European case in the questionings of the sectors called "Eurosckeptics".

However, the main debate today focuses on the possibility of member countries to develop bilateral trade relations with other countries. As we already noted on another occasion, when we considered it appropriate to address the issue (see the November 2014 edition of this newsletter on http://www.felixpena.com.ar/), this is not a new debate, much less the only issue to be included in an agenda for the adaptation of Mercosur to the new realities. Other issues also deserve priority attention, such as the institutional quality of the integration process; the transnational production chains, especially in some sectors where the countries of South America have competitive advantages when inserted in the global economy; or the convergence in diversity of the various integration and cooperation agreements between Latin American countries.

It is a debate that in the recent past has had significant expressions at the business academic and government level. At some point in the year 2001, it was reflected by the proposals of the Argentine government to negotiate bilaterally a free trade agreement with the US. Further on, it was propounded by the governments of Uruguay -first by that of Jorge Batlle and later by that of Tabaré Vázquez- also with the idea of concluding a bilateral agreement with the US. It should be remembered, in light of the current debate, that in both cases there were strong reactions from the Brazilian government in the sense that this would have implied, in practice, the end of Mercosur (see for example, in the case of the negotiations attempted by Uruguay, the compelling book by Roberto Porzecanski: "No voy en tren. Uruguay y las perspectivas de un TLC con Estados Unidos (2000-2010)" published in 2010 by Editorial Sudamericana Uruguay, Montevideo, especially pages 184-185 and 210-211).

More recently, the business and academic sectors of some member countries -particularly from Brazil and Uruguay- are supporting the idea that Mercosur countries should be allowed to negotiate bilateral free trade agreements, especially with the EU, or at least, using the so-called "umbrella" formula, be able to negotiate bi-regional trade agreements of multiple speeds for the commitments made by each one of them, especially in terms of tariff reductions. In some of the statements made in this regard, the position of Argentina has been blamed for the inability to realize an exchange of offers in the negotiations with the EU. As there have been contradictory statements on this issue, the impression is that they could be part of the two most common games in international trade negotiations: the "bluffing game" (to pretend that negotiations are effectively in progress) and the "blame game" (to blame any of the protagonists for the eventual failure of a negotiation). These two games can even become complementary, as seems to be the case when analyzing the FTAA negotiations, in order to understand their failure and also, incidentally, in the bi-regional negotiations between Mercosur and the EU.

In recent times, different official sources of high political level in Mercosur member countries have highlighted the need to review the methodologies of international trade negotiations. As an example, on May 12, there was a consultation meeting between Chancellor Rodolfo Nin Novoa and the representatives from the political parties on the topic of Uruguay's foreign policy. According to the published report: (see http://www.mrree.gub.uy/ ), "In relation to Mercosur, it expressed the commitment to the process of regional integration, the need to acknowledge its progress in some areas and also to face the challenges that it presents in order to boost the international insertion of the region in an international context where the multilateral trade negotiations within the World Trade Organization are finding difficulties and countries are opting for interregional trade agreements. Moreover, the importance of making the process of integration more ´sincere´ was stressed, while seeking to contemplate the situation of every country. This involves two objectives, first perfecting the free trade zone and, secondly, advancing the agenda of external relations to allow agreements with other regions, such as the negotiations between Mercosur and the European Union as well as with other countries, contemplating the modality of different speeds". In his speech at the International Affairs Committee of the Chamber of Deputies(see http://www.mrree.gub.uy/ ), Novoa noted that: "In terms of integration, I would like to state again that Mercosur is our starting point. We are in the region, we belong in the region and we will not be the gravediggers of Mercosur, but we understand that there must be sincerity in its functioning". He added that "we also believe it is necessary for the functioning of Mercosur to explore the possibility of flexibility in the mechanisms of trade negotiations of the bloc, through a system of different paces and speeds that will allow member states to move bilaterally in the measure of their possibilities. We said this in our inaugural speech. We want to see if there is a possibility of relaxing Resolution No. 32/00 which, in reality, has not been internalized by any of the legal systems of the member countries of Mercosur, but since it obviously constitutes a political commitment its violation could bring worse consequences than desired. So we will look for ways of making the possibility of bilateral agreements more flexible" (translation is ours).

Also very recently, there have been statements by senior government officials of Brazil (e.g.: the Secretary of Strategic Affairs and the Minister de Development, Industry and Foreign Trade) with similar and even more forceful arguments (see, in the case of Minister Mangabeira Unger, the articles by Eliane Oliveira, published in O Globo on May 9, 2015, at http://oglobo.glbo.com/economia/ and on May 12, 5015 at http://oglobo.globo.com/, and in the case of Minister Armando Monteiro, the article by Lorenna Rodriguez, published in O Estado de Sao Paulo, on May 7, 2015 under the heading "Acordos bilaterais viram prioridade do governo"). All these has been reflected by many news stories in Mercosur member countries, with natural repercussions in third countries, where it has been pointed out that a consensus could have been reached already, even including the Argentine government, to move forward with multi-speed negotiations.

As we mentioned in the November issue of this Newsletter and continuing with the ideas expressed in it, it is often affirmed that the obstacle that needs to be removed in order to allow members to address bilateral trade negotiations or, at least, "multi-speed" negotiations, is CMC Decision 32/00, which actually referred to trade negotiations mainly within the scope of the LAIA (see the text on http://www.mercosur.int/). In any case, changing or deleting that rule would not be enough. This is clear from Article 1, which reaffirms "the commitment by States Parties of Mercosur to jointly negotiate agreements of a commercial nature with third countries or groups of countries from outside the area in which tariff preferences are granted" (translation is ours)"

Where is then the origin of the commitment to jointly negotiate "tariff preferences" with other countries or blocs? It is in the fact that the provision for a "common external tariff" was established at the founding moment. The Treaty of Asunción did not specifically define its scope. It becomes relevant then, when attempting to define the scope of such commitment, to refer to the only significant legal precedent on the matter: Article XXIV of the GATT, which includes a flexible definition that, paradoxically, was partly 'censored' by Professor Bela Balassa (refer to his book Theory of Economic Integration, George Allen & Unwin Ltd, London 1973, note 1 on page 21). For many experts, the definition of a customs union, including the concept of external tariff, made by Bela Balassa -among other relevant theorists- is almost like revealed truth.

Let us ask again the question we made in the Newsletter of last November: what would explain the inclusion, in the Treaty of Asunción, of the instrument of the common external tariff stipulated in Article 5? The idea of 'anchoring' the tariffs of a country in a multinational commitment seems to have had an influence. At least this was pointed out in reference to those responsible for economic policy in the government of Brazil at the time. But it is also possible to argue that the inclusion of the commitment to establish a common external tariff in Article 5 of the Treaty had much to do with the fact that the US had expressed its interest -through the Initiative of the Americas launched by President Bush- to move towards a free trade area from Alaska to Tierra del Fuego, which then led to the negotiations of what would have been the FTAA.

This interpretation of the common external tariff considers it as some kind of mutual guarantee among Mercosur members regarding the extension to third countries -especially non-LAIA members- of the preferential treatment agreed with the creation of Mercosur. It implies viewing Article 5 -which contains the strongest legal obligations resulting from the Treaty of Asunción- as establishing a direct link between unrestricted access to the respective markets (subsection a) and the common external tariff (subsection c) . The link is legally reinforced by a central clause in Article 2 of the Treaty: "The Common Market will be based on reciprocity of rights and obligations between the States Parties".

One conclusion of the advanced interpretation is that the formula of bilateral preferential trade agreements between countries of Mercosur and other countries, and even the so-called multiple speed reductions agreed with one or more other countries, could be accepted as long as this does not involve unilaterally liquefying the preferential treatment that the partners have granted each other.

Such preferential treatment results from combining unrestricted access for goods in the markets of the partners, with a common tariff on goods from third countries. However, if the effect of liquefaction of the preferential treatment were to result from the negotiations of one partner with third countries, the affected partner could, in such case, suppress the preferential access to its market of the corresponding goods.

As a contribution to the debate, we can restate the conclusion anticipated in our Newsletter from last November, in the sense that the protection of the preferential treatment that the partners have granted each other on the basis of reciprocity, results not so much from CMC Decision 32/00 as from the combination, established in Article 5 of the Treaty, of unrestricted access to the respective markets, specified in subsection a, and the instrument of the common external tariff, provided in subsection c. We should keep in mind, however, that the Treaty does not prevent the common external tariff from being interpreted, for example, with the scope and flexibilities of Article XXIV of the GATT.

By stating in its Article 2 the reciprocity of rights and obligations among member countries as the basis of the Common Market, established in its Article 1, the Treaty of Asunción introduces the main legal -and thus political- guarantee of the commitments freely undertaken by the member countries, conceived as an indivisible whole. Dissociating them would require changing the Treaty, which would involve agreeing on a new multilateral international legal instrument negotiated between Mercosur member countries. Or, alternatively, it would require that the country that eventually disagreed with the connection between unrestricted preferential treatment and a common external tariff denounced the Treaty.



Recommended Reading:


  • Bartesaghi, Ignacio, "La estrategia de Brasil como global player: efectos en el desarrollo de la integración regional", Coordinadora Regional de Investigaciones Económicas y Sociales (CRIES), Documentos CRIES, Buenos Aires, Marzo 2015, en: http://www.cries.org/.
  • Bartesaghi, Ignacio, "El Mercosur, 24 años después", Universidad Católica del Uruguay, Departamento de Negocios Internacionales e Integración, Informes sobre Integración Económica, N° 1, Montevideo, Abril 2015, en: http://www.ucu.edu.uy/.
  • Bernstein, Richard, "China 1945. Mao's Revolution and America's Fateful Choice", Alfred A. Knopf, New York 2014.
  • Brown, Kerry, "The New Emperors. Power and the Princelings in China", I.B.Tauris, London - New York, 2014.
  • Custodio Ruibal, Cecilia, "El Método Tabaré. Vázquez y la construcción del poder", Editorial Sudamericana Uruguaya, Montevideo 2014.
  • Danza, Andrés; Tulbovitz, Ernesto, "Una oveja negra al poder. Confesiones e intimidades de Pepe Mujica", Editorial Sudamericana Uruguaya, Montevideo, mayo 2015.
  • Economy, Elizabeth C.; Levi, Michael, "By All Means Necessary. How China Resource Quest is Changing the World", Council on Foreign Relations Book, Oxford University Press, Oxford - New York 2014.
  • Fenby, Jonathan, "Will China Dominate the 21st Century?", Polity Press, Cambridge - Malden, 2014.
  • French, Howard W., "China´s Second Continent. How a Million Migrants are Building a New Empire in Africa", Alfred A.Knopf, New York 2014.
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  • SELA, "Evolución de la Alianza Bolivariana para los Pueblos de Nuestra América-Tratado de Comercio de los Pueblos (ALBA-TCP)", Secretaría Permanente del Sistema Económico Latinoamericano, Caracas, Agosto 2014, en: http://www.sela.org/.
  • SELA, "Evolución del Sistema de Integración Centroamericana - SICA", Secretaría Permanente del Sistema Económico Latinoamericano, Caracas, Agosto 2014, en: http://www.sela.org/.
  • SELA, "Oportunidades y retos para la articulación y convergencia de los mecanismos de integración subregional de América Latina y el Caribe", Secretaría Permanente del Sistema Económico Latinoamericano, Caracas, Noviembre 2014, en: http://www.sela.org/.
  • SELA, "Estudio comparativo para la identificación de buenas prácticas en la gestión de trámites de comercio exterior en América Latina y el Caribe", Secretaría Permanente del Sistema Económico Latinoamericano, Caracas, Octubre 2014, en: http://www.sela.org/.
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    .

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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