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  Félix Peña

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Is it possible to have a realistic but positive view of the integration of Latin America and Mercosur?

English version of the article published by "Diálogo Político" Magazine - Konrad Adenauer Foundation, in September 2010.

To download the original full text click here.

English translation: Isabel Romero Carranza



Latin American integration is a phenomenon that can have different interpretations. Two of these deserve our attention. The first places the stress on what the integration between a group of countries that share a common geographical space should be. The emphasis is thus placed on the regulatory and even idealistic aspects. The other, more positive and realistic, is based on the analysis of the progress achieved so far, not so much in terms of theoretical paradigms, previous experiences, foundational regulatory layouts or the expectations of the current protagonists, but on the actual possibilities and what would have been the prevailing situation between the respective countries had the idea of integration not translated into commitments and facts. In recent times, the debate on the future of Latin American integration and on how to achieve better results has re-emerged. Such debate can be particularly observed within the ambit of Mercsour.

I. A phenomenon with diverse interpretations

The deep changes that are taking place at the international and regional level and certain dissatisfaction regarding the progress achieved, especially when considering the expectations, can account for the deepening of a needed debate on Latin American integration and its future. (Casanueva, 2010, pages. 33-36; Leiva, 2010, pages 17-31; Peña, 2010, pages 425-450; Peña, 2010, pages 23-43; Priess, 2010, pages 175-187; Sanahuja, 2010, pages 451-523; Sanahuja, 2010, pages 87-134; Simonit, 2010, pages 45-86).

This is a debate strongly conditioned by the interpretation that the respective analysts and protagonists have made of the events of the last fifty years and of what is currently happening. This is due to the fact that Latin American regional integration -and the integration of its diverse sub-regions- is a phenomenon that allows for different interpretations, both in its political and in its trade and economic dimensions, which can be quite conflicting. In any case, the complexity of these interpretations may be explained by the proliferation of institutional ambits whose functions and scope would seem to overlap.

For some observers, especially those foreign to the region, such is the impression conveyed for example by the co-existence of UNASUR (Union of South American Nations) and Mercosur (Southern Common Market) -and also to a certain degree the Andean Community of Nations (CAN) - within the South American regional space.

The picture appears even more complex and heterogeneous if we consider the existing institutional ambits -or those that are being projected- within the wider Latin American geographical space. Sometimes it becomes difficult to specify their reach, scope, functions and real jurisdiction. There are several cases that can be considered, each with different degrees of formalization. In some cases their area of responsibility is focused only on economic and trade issues. These are: the Latin American Integration Association (ALADI), the Latin American Economic System (SELA), the Rio Group, the Bolivarian Alliance for the Americas (ALBA) and, most recently, the proposed Latin American and Caribbean Community.

Seen as a whole, such ambits may generate the idea of an unintelligible mosaic, for example in the apparently more orderly perspective of the European integration, at least seen in the light of its most recent stage of the last two decades, before the current global financial crisis had an impact on some of the member countries of the European Union. This tendency towards disorganization produced by the regional reality is accentuated if we consider confrontations such as the ones that have taken place in recent years between the governments of Colombia and Venezuela, or the data on warfare expenditures (Priess, 2010, pages 175-187).
Without overlooking others, there are at least two possible views on Latin American integration that deserve our attention.

The first places the emphasis on what the development of the integration between countries sharing a regional geographical space should be. This outlook stresses considerations of a regulatory and even idealistic nature.

It is a point of view that can be found frequently in the analysis of specialists and protagonists, both from within and from outside the region. In such cases, reality is confronted against what it should be using different reference points. Thus it tends to appear lackluster, even unsettling.

The perspective used is based on theoretical models either coming, for example, from the theory of international relations or of international trade. It is also usually based on the comparison, either implicit or explicit, with other experiences from other groups of countries -most frequently that of the countries which developed the European integration.

The other approach involves a view from the perspective of what were defined as the formal objectives of the corresponding institutional ambit of regional integration, either by the founding legal instruments or by the interpretations that were made of them by the political protagonists of the moment. These interpretations usually have a strong "diplomatic media" content meaning that they involve the use of concepts and the construction of a narrative aimed at producing an immediate positive effect on the local public opinion of the respective countries. The adjective "historical" is frequently used for this purpose.

It is common that such view leads to encounter a gap, sometimes a great one, between what was understood or stated about what a certain integration process would be -especially because of the concepts used in texts and declarations- and what were the actual results.

In the case of Latin America, such outlook normally leads to a negative assessment and even to the devaluation of the phenomenon of regional integration. The trend towards the devaluation of agreements and integration processes is in opposition with that of exaggerating the expectations of the eventual results, used more frequently by the protagonists of the respective foundational moments. As a matter of fact, both trends complement each other.

On the contrary, the other interpretation that can be highlighted, tends to favor the analysis of the progress achieved, even if small, not in relation with theoretical paradigms, previous experiences, foundational regulatory schemes or the expectations generated by the protagonists of the moment, but in terms of the concrete possibilities and of what would have eventually been the prevailing situation between the respective countries had the idea of integration not translated into commitments, facts and lines of action. The capacity and potential of a given integration process to generate, among the participating countries, a relative mutual trust, common ground rules, social and business networks with cross interests and common symbols are some of the main indicators to be taken into account in such interpretation (Peña, 2010, page 440).

The mentioned progress, even when small, can then be measured by the degree of neutralization of the deep forces that in the relations of neighboring nations with a significant degree of connectivity and interdependence normally lead to the predominance of the logic of conflict over that of co-operation and integration. On this regard, history has shown that the most common occurrence between nations that share the same regional geographical space has been the prevalence of the logic of conflict, ultimately resulting in armed confrontation, quarrels and war in its multiple and changing forms.

In this second outlook, the concept of integration is directly linked with that of the governance of a regional geographic space, measured by indicators related with the prevalence of peace and political stability.

Seen in such perspective, it is interesting to observe the trends and events that signal the consensual construction by the participating countries of what they understand to be the most convenient regional environment, particularly in terms of institutions and ground rules that facilitate an atmosphere of reciprocal trust and a relation of mutual co-operation, that also becomes manifest in the different sectors of the respective societies. Such gradual construction, based on the perception that the countries of the referred space have of their respective national interests, is sometimes unnoticeable in the short term.

As will be seen later on, it is a construction that does not necessarily correspond with preconceived models -neither theoretical nor of other regional spaces-, nor does it have an endpoint that would imply the substitution of preexisting national sovereignties for a new autonomous unit of power in the international system, or even reach a point of no return that makes the predominance of the logic of integration irreversible.

In our opinion, a realistic analysis of Latin American integration has to have the characteristics of the second possible interpretation. For this purpose, it has to take into account the experience accumulated in the last fifty years, during which the countries of the region have strived to move forward in the development and institutionalization of voluntary processes under different forms and degrees of formality, but which have as a common denominator precisely the strategic idea of working together between countries of the region or of the different sub-regions that form part of it.

Essentially, the strategic idea refers to the construction of a regional geographical space in which the conditions for peace and political stability, democracy and social cohesion, productive transformation and the competitive insertion in world economy prevail. In this manner, integration is perceived as the opposite of what historically has prevailed among nations sharing a given regional geographic space, namely conflict which eventually leads to different forms of violent confrontation.

More than an ideal the strategic concept reflects a concrete need to favor, in the perspective of each country, a peaceful and cooperative relation with the neighboring countries. Thereof the fact that such idea acquires more significance and is translated into more tangible commitments between the nations that perceive themselves as sharing a same regional space. The issue of geographic vicinity is, in such sense, essential. Sharing a same space means, in practice, recognizing the interdependence -in different planes but in particular, in the political and economic- that results form the degree of connectedness -not only physical- that exists between nations. This interdependence and connectedness can result precisely in cooperation or in conflict and can generate perceptions of common or contradicting interests in the mutual relations and in the relations with other nations.

Different elements are used in this construction. These are expressed through several instruments aimed at establishing, in practice, a differentiation between "us" and "them" based on a minimum degree of mutual trust -that can grow in time- and that translates into trade preferences compatible with the commitments entered into within the wider scope of the GATT and, nowadays, with the rules of the World Trade Organization (WTO).

Additionally, if a realistic analysis also aspires to be a positive one and contribute to the governance of a given regional geographical space, it should attempt to advance some suggestions on how to continue building in the future processes that help develop the strategic idea implied by the concept of Latin American integration.

II. A fifty-year experience

Half a century has elapsed since the first attempts to institutionalize ambits and processes for the economic integration of the Latin American geographic space.

As a strategic idea, the precedents of regional integration date back to the 19th Century. However, the stage of concretion begins with the negotiation of the Treaty of Montevideo, signed fifty years ago, in February of 1960, which created the Latin American Free Trade Association (ALALC). It was the birth of a process that has had multiple and varied expressions, many of which have been sub-regional in scope. The original scheme had a sub-regional outreach limited to the space then known as the "Southern Cone", which encompassed the countries of the South of South America and was centered primarily in the triangle formed by Argentina, Brazil and Chile (the so called "ABC").

The addition of Mexico extended this initiative of commercial integration to the Latin American geographic space. It is possible to consider that such expansion, initially unforeseen, contributed, together with the use of an instrument that was not originally contemplated either -that of a free trade area-, to the growing distance between the project expressed in the Treaty of Montevideo of 1960 and what later translated into reality. Simultaneously, the countries of Central America undertook their own process of sub-regional integration, which also had deep historical roots.

Later on, the transformation of the ALALC into the Latin American Integration Association (ALADI) through the Treaty of Montevideo of 1980 implied a substantial methodological change and initiated a new stage in the process of regional integration. It resulted from the corroboration that a free trade area in the sense defined by article XXIV of GATT between an heterogeneous group of countries -at that time less connected and more distant than today- with strong asymmetries in their size and degree of development was nonviable in practice, at least as it had been established in the cited multilateral legal instrument. A similar corroboration happened decades later with the failed attempt promoted by Washington to institutionalize a hemispheric free trade area.

Said transformation implied accepting that the existing differences required partial approaches with multiple speeds and of variable geometry. It involved recognizing the realities of different sub-regions and sectors with interdependence densities and interests that not necessarily applied to the rest of the countries. The original approach of ALALC whereby the regional instruments were the norm and the sector and sub-regional ones the exception was thus reversed. On the contrary, what was partial -group of countries or particular sectors- became the main norm, with the regional level as a frame and at the same time a final aim not fully defined in its contents or terms. Due to the Enabling Clause, a result of the Tokyo Round concluded in 1979, such approach became reconcilable with the GATT rules. Since then, ALADI has had great relevance for the development of preferential trade between Latin American countries, including the respective sub-regional and bilateral agreements, in a way that is compatible with the commitments entered into within the current global multilateral ambit of the WTO.

In this way the path was opened for significant transformations in the strategy for regional integration, which evolved in the following years. Among other relevant events during this new stage, which lasts until the present time, the original Andean Group -born in 1969 as an ambit for differentiation from the central role of Argentina and Brazil in the former ALALC- turned into the Andean Community of Nations (CAN). The bilateral integration process between Brazil and Argentina was initiated in 1986 with a strong emphasis on certain sectors, for example the automotive one. Later on Mercosur was created -preserving the strategic preferential relation between Argentina and Brazil-; Mexico was incorporated to the North American Free Trade Area (NAFTA) and the process began for the realization of bilateral or bi-regional preferential trade agreements between Latin American countries and the rest of the world, starting with the US and the European Union. Additionally, an interesting first precedent for the conciliation of the integration of a regional geographic space and the link with third parties was born through preferential trade agreements. Such precedent was the result of the free trade agreement between the Dominican Republic and Central American countries and the US. (CAFTA-DR).

The changes that were simultaneously taking place in the global context had a significant impact at the inception and in the evolution of these first stages of Latin American regional integration. This was so especially during the last two decades, the post-Cold War world with a multi-polar economic competition; the change in US global commercial strategy with the promotion of its own network of preferential trade agreements; the enlargement of what would become the European Union and the development of its global strategy; the growing presence of emerging and re-emerging economies -such as China-; the conclusion of the Uruguay Round; the creation of the WTO and later the start and standstill of the Doha Round and the development of production networks and transnational value chains have been, among others, factors that have deeply altered the external environment where Latin American integration, and particularly the South American one, has taken place. We may also add to this list the deep economic and political transformations that have occurred and continue to develop -also with a differentiated reach- in the region and in each one of its countries. South America in particular started to evince more density in the connections between its productive systems, including the field of energy. Many of its countries have had a remarkable evolution in their experiences at the economic and political level. The relevant role that Brazil has acquired is not a minor fact in the differentiation between what the region was until the 90s and what it has become. This is a regional geographic space in which, aside from the asymmetries in size, degrees of development and economic power, there have been moments of blatant conceptual discrepancies. Even the concept of integration has sometimes led to different interpretations among the countries of the region.

In our opinion, the almost fifty years that have elapsed since the beginning of the formal processes of Latin American integration provide a platform and an opportunity to reflect on its future. The new international context that is being made manifest by the recent global financial crisis and, in particular, by the evident shifts of relative power in the global international scenario also prompt us to do so.

III. What lessons can be learned?

After over five decades of Latin American integration processes there are some important lessons to be learned. Some of them are essential if we want to make a realistic and positive analysis of the phenomenon of regional integration. These are:

  • No single model exists for the methods to be used for the institutionalization of an ambit and an integration process between nations that share a regional geographic space. Experience shows -not only in Latin America but in other regions including most certainly European integration- that in each concrete case the participating countries combine diverse techniques for the integration of their markets and different joint work methods, including those used for decision-making and for the creation of rules. As was mentioned before there are, for the Contracting Parties of the GATT and nowadays for the members of the WTO, certain conditions born from the commitments undertaken in the global multilateral ambit, especially those stated in article XXIV of the GATT or, for developing countries, those included in the Enabling Clause and article V of the GATS, if services are to be included.

  • These are not linear processes. On the contrary, Latin American reality shows that voluntary integration processes between sovereign nations that share a regional geographic space have a gradual and mostly winding evolution. There are regressions and prolonged standstills, but failures are hardly ever formally recognized, least definite ones. What happens normally is that the corresponding process undergoes a great transformation, in actual fact or formally, as was the case for example with the former ALALC or the Andean Group or even with Central American integration. Often, crisis originate leaps forward or cause a metamorphosis of the original plans and engagements, a fact that produces certain bewilderment in those observers prone to interpretations based on theoretical models or the experience of other regions.

  • There is no final result such as, for example, the full integration of the political and economic systems of the participating countries. They may be considered as processes under continuous construction which never actually reach a point of no return that is truly irreversible. They are processes full of contradictions. In fact they often show a state of confusing dialectic tension between facts and attitudes that may result in a future of conflict and confrontation and others which, on the contrary, are the expression of the logic of integration and cooperation. This coexistence of contradictory tendencies is what makes it difficult to decipher the relation between countries that share a regional geographic space and the membership of a formal process of integration.

Several other lessons may be gathered from the accrued experience. One of them refers to the importance of reconciling political leadership with technical savvy in the development of an integration process. This implies a direct involvement, at the highest political level, in the design and follow-up of the corresponding strategy and its roadmaps and, at the same time, a suitable technical formulation in terms of objectives, instruments and work methods. Leaving the construction of a process of integration solely in the hands of political leadership or, worse still, only to the technical levels, could later have a flawed impact on its effectiveness, efficiency and social legitimacy.

Other lesson refers to the need to constantly adapt the objectives and instruments of a process of integration to the changing realities and, at the same time, to preserve certain degree of predictability in the ground rules and collective disciplines that can be fulfilled.

The third lesson is related to the importance of the fact that each country has its own national strategy vis à vis the corresponding integration process. This factor is of the essence. The idea that the path towards the regional starts with a correct definition of the respective national interests is corroborated by the concrete experience of the last years. The countries that have had the clearest idea of their national interests, helped by the institutional quality that shaped their definition, are probably those who have taken the most advantage of the regional integration agreements. Additionally, it becomes a safeguard against the emergence of some sort of integrationist romanticism according to which the so-called hypothetical supranational rationalities would constitute the guiding force behind any given regional process.

IV. A new stage in Latin American integration?

Is a new stage of Latin American regional integration beginning now? Certain elements would indicate so. There are several factors that would be encouraging it.

The first factor is the emergence of a plurality of options for the insertion of each Latin American country in world markets and in the international system resulting from the growing number of relevant players in every region and the shortening of all kinds of distances. The second factor is that it is understood that such options may be utilized simultaneously for the development of multiple and cross partnerships. The third factor is that it is feasible to develop, in the majority of the options, strategies for mutual gain in terms of the trade of goods and services, productive investments and the incorporation of technical progress, as long as the respective country has a clear idea of its needs and what it can achieve in the development of a strategy for its international insertion.

However, perhaps the main factor that drives towards new integration modalities in the Latin American regional geographic space, as well as in its multiple sub-regional spaces, is the growing dissatisfaction of many countries with the results achieved by the processes currently under way. This is evident in the case of the Andean Community (CAN) and also in the case of Mercosur.

Such dissatisfaction can lead to at least two scenarios. The first of them is one of integrationist inertia. It would imply to continue doing the same that has been done until now, that is, not to innovate too much. The risk is that the corresponding integration process becomes irrelevant for certain countries. In such case it could result in a process that only moves forward in appearance but that would increasingly show traits of obsolescence and have little impact on reality. The second scenario would result in some kind of foundational syndrome. This would mean discarding what has been achieved so far -and in Mercosur and CAN this is much- both in terms of shared regional strategy and in preferential economic relations, and once more try to start anew.

There is, however, a third possible scenario. It is probably the most convenient and achievable one. It would involve capitalizing on the accumulated experiences and results, adapting the strategies, objectives and integration methods to the new realities of each country, of the region, the sub-regions and the world. Such adaptations would seem to be more necessary in the sub-regional agreements, such as Mercosur of the Andean Community, than in the broader frameworks of the ALADI -whose function in the plane of regional trade is still current- and UNASUR -which however still has to prove its real efficacy.

What are the accumulated assets to be preserved for example in the case of Mercosur? Firstly, the acknowledgement of the integration process as an essential factor for governance in terms of the prevalence of peace and political stability of a given regional or sub-regional geographic space.

Secondly, the stock of economic and trade preferences already agreed and that today influence the reciprocal flows of trade and investment. In the case of Mercosur, such stock accounts for many of the productive investments of the last decades, either by multinationals based in third countries or by the so called multi-Latins. This has enabled the development of a weave of trans-border productive chains of growing density, especially in certain industrial sectors of which the automotive is probably the most relevant example.

Thirdly is the value of certain "brands" in the international image of a group of countries. The "Mercosur" brand had its heyday when the region was shaken by the effects of the Asian crisis during the second half of the 1990s. The fact that it is still a distinct name in the national identification documents, including the passports, of the citizens of the countries that are full members is not something to be overlooked.

Which are the adaptations in the strategies, objectives and methods of an integration process such as Mercosur that can result from the new international scenario and, especially, of its most probable future evolution?
The first refers to the reinforcement of flexible methodologies that combine variable geometries, multiple speeds and sectorial approaches. As was mentioned before, these will not always fit the models of other regions nor follow text-book theories. However, they may work out and be compatible with the flexible regulations of the GATT-WTO legal system.

The second involves institutions and ground rules. In order to organize clearly defined national interests between countries with different dimensions and degrees of development, it would seem essential to place the stress on the ability to formulate common visions and interests through bodies that have certain degree of technical independence from the respective governments. These not necessarily need to be based on the model of supranational institutions originated by the European experience nor be complex or expensive. On this regard, the functions of the WTO Director-General could represent a precedent more attuned with the national sensibilities.

Finally, the third adaptation is related with the importance of having in each country a minimum group of businesses with ofensive interests in the markets of the region or sub-region, which implies the capability to delineate internationalization business strategies even at a global scale. This is a necessary condition in order to move forward in a relatively balanced way towards the ever valued objective of productive integration.

It is still difficult to anticipate if the adaptation scenario will take place in the near future of Mercosur and other Latin American integration processes that have suffered in the last years an erosion of their effectiveness, efficacy and social legitimacy. However, the path of the last fifty years, with its progresses and its disappointments, anticipates that regional integration will continue to be valued by the countries and their respective public opinions. At least there seems to be certain consensus in that the costs of non-integration could be too high. This helps predict that there will still be a sinuous progress, with advancements and setbacks, unorthodox but persistent, towards a greater degree of integration at every level -not just the economic- between the countries of the region and of its different sub-regions. On this regard, it is even possible to imagine a greater resemblance to what has been the Asian experience during the last years and, eventually, the future evolution of European integration after the recent Euro crisis. By this we mean integration that is propelled from the bottom-up by the effect of the growing social and business networks that are evidence of the increasingly dense web of crossed interests facilitated by factors such as a greater physical connectedness, the integration of productive chains and the perception of common external challenges.

V. The case of Mercosur: some shortcomings

A final word on Mercosur's shortcomings which have sometimes caused questionings and dissatisfaction. Without overlooking others, and due to its relevance, in this opportunity we will mention the issue of its legal and institutional quality. On this regard, it can be said that in practice the precariousness of the ground rules is one of the factors -albeit not the only one- that has contributed to a slow but persistent process of deterioration of Mercosur's image, credibility and even social legitimacy.

In this sense, something that has characterized regional integration processes since they were formally encouraged in the 50s may be observed. Both in the history of the ALALC and later in that of the ALADI there was evidence of a strong tendency to consider that rules were to be obeyed in the measure that was possible. And what was possible was often determined by each member country in relation to their frequent economic emergencies. What was common then was to see that non-fulfillments were compensated by other non-fulfillments. The result was that, in the name of pragmatism, the image that citizens, investors and third parties had was of a "dummy" economic integration, meaning that due to the precariousness of its rules it had enormous difficulties to penetrate reality and was limited, in many cases, to just an appearance.

With the creation of Mercosur by the Treaty of Asuncion (March 1991) it was understood that such precariousness would be overcome, at least with regards to its main demandable rule, stated in Article 5 and developed in Article 1 of Annex I. It explicitly establishes the complete elimination of customs duties, charges and other equivalent restrictions in foreign exchange, both for imports and for exports. It also eliminates restrictions imposed "unilaterally" by a State Party. Even though the original period for its compliance was December 31, 1994, circumstances led to it being deferred until the end of 1999. Later on, Decision CMC 22/00 gave way to a sort of "filibustering" in the application of different types of unilateral non-tariff restrictions that had already been seen before both in the ALALC and the ALADI.

Without overlooking other cases the issue becomes current when the partners, especially Brazil and Argentina, demand each other the application of non-automatic licenses in their bilateral trade. This has happened quite frequently, even in recent times. It has been claimed that these are consistent with the corresponding WTO regulations, which in principle is true, although it may be debated if in their implementation such consistency has also been maintained by both parties. In the case of Brazil the measure has been explained as being a result of those applied by Argentina. As a matter of fact, it has been possible to apply them because their internal rules allow it by not excluding products coming from the Mercosur area form the possible non-automatic licensing. In any case, it is not usually mentioned -at least in public statements- that such licensing constitutes a restriction which is not authorized by the current Mercosur regulations. In this way, by applying non-automatic licenses -beyond the commercial reasons invoked- they are contributing to the weakening of the rules that govern intra-Mercosur trade.

In fact the compensation for non-fulfillment of what was formally agreed by the partners reaffirms a culture of legal precariousness that erodes the fundamental asset that was sought after with the creation of Mercosur and that consists, precisely, in safeguarding the member countries against unilateral behaviors that imply, in practice, the protectionism of their own markets. Such insurance against unilateral protectionism has the purpose, as is well known, of avoiding the negative economic impact generated by the uncertainty in the access to the respective markets, in particular in relation with the decisions for productive investment.

Concretely, the economic consequences of the predominance of precarious ground rules result in a weakening of the advantages originated by the decision to invest in any member country in terms of the enlarged market. As can be seen in other regions where countries with asymmetries in economic dimensions and relative development coexist, in practice this usually benefits the country with the largest internal market.

The most disturbing fact is that the interpretation of which are the rules that are to be obeyed and which not is left to the unilateral point of view of each member country. In this way there is a high risk of seriously damaging one of the fundamental pillars of the legal architecture of Mercsour, Article 2, which explicitly establishes that "The common market shall be based on the reciprocity of rights and obligations between the States Parties". If every member country may unilaterally decide which are the obligations it must follow or not, it becomes extremely hard to assess if the principle of reciprocity has been honored. In fact, a situation may arise where a member country chooses not to comply with the obligations that it considers are not convenient while the other countries are indeed observing them, or are unable to stop doing so due to the characteristics of their own internal legal order.

Herein is possibly the main crack that is affecting the solidity of Mercosur's structure and that might result in a gradual, albeit imperceptible, deterioration of mutual trust, which is the main support of the quality of the political relations between the partners. If the rules that imply rights and obligations may or may not be abided at a member's own discretion how can there be a guarantee for the other partners that the balance between national interests that led to the approval of the Treaty, as well as of its derived norms, will not be seriously affected?
This is not a trivial issue if we consider that other economic and even political factors could trigger centrifugal forces in the integration process that has allegedly been institutionalized by Mercosur. These have become evident in relation with the growing pressures that exist to establish bilateral and preferential negotiations with third countries. Uruguay raised the issue at one time and most recently such trend has been discussed intensely in different sectors of Brazil. José Serra the presidential candidate for this year's elections has repeatedly raised the subject. Until now such possibility is excluded, at least for the preferential trade negotiations of a member country with a third country or group of countries, by Decision CMC 32/00 of the Mercosur Council. The consensus of all member countries would be needed to change this.

Transforming Mercosur into a free trade area, instead of the current customs union, has been proposed as a possible solution for its multiple problems. However, it should be noted that such solution would only be feasible through the amendment of the Treaty of Asuncion, given that in its Article 5 it explicitly contemplates the validity of a common external tariff, a constituent element of a customs union. Moreover, the Protocol of Ouro Preto also mentions explicitly "the introduction of the customs union as a stage in the establishment of a common market". It would be easy to anticipate that a negotiation to modify the Treaty of Asuncion in such a fundamental constituent aspect would have evident connotations, both technical and political. In practice, it could imply a complete renegotiation of everything, which might even affect the current stock of trade preferences that, is spite of Mercosur's deterioration, still has significant value for many businesses in the four member countries.

Certain innovations in the ground rules, however, would be easier to achieve and would allow for an adaptation of Mercosur instruments to the new international realities and of its member countries. These would enable to introduce, as was previously mentioned, elements of variable geometry and multiple speed in its functioning. One such innovation would be the regulation of the restrictions compatible with the adequate functioning of a customs union. Thus they would not be "unilateral restrictions" -such as the ones being applied currently and referred to by Article 1 of Annex I of the Treaty of Asuncion- as they would be adopted under the conditions established by common rules. These regulations could be based on those of the WTO with regards to automatic and non-automatic licenses. A second innovation would be to modify Decision 32/00, anticipating the possibility of preferential bilateral trade negotiations with third countries, at least in the cases of Paraguay and Uruguay and under the conditions established by the new common rules. The precedent of the trade negotiations with Mexico and even with the countries of the CAN could be evaluated and eventually taken into account. However, this is a step that would require sufficient guarantees that it would not imply reducing to zero the respective trade preferences granted between partners. Finally, the third innovation would be to establish a system of safety valves for Mercosur that would also allow, under special circumstances, to temporarily withdraw products from unrestricted free trade. Neither in the current legal structure of Mercosur nor in that of the WTO (Article XXIV of GATT-1994) are there any significant obstacles for such regime.

In order to appreciate the importance of the innovations as the ones suggested, in the case of Mercosur it is necessary to remember that its construction is based on the solidity of two fundamental pillars. One, centered in the political, is that of the quality of the strategic alliance between Argentina and Brazil. This is based on the mutual trust that began to flourish when, in the 1980s, a scenario characterized by the logic of conflict and with clear implications in terms of the nuclear development of both countries, was reversed. The other, centered in the economical, is that of the trade preferences compatible with the global multilateral commitments of both countries within the framework of the current WTO and aimed at facilitating a joint process of productive transformation and the competitive insertion in world markets. Both pillars complement each other and it would be difficult that one lost strength or disappeared without substantially affecting the other.

This is the reason why the views on Mercosur need to be, at the same time, realistic in the sense of valuing what was accrued as experiences and assets, and positive, in order to indicate possible courses of action that may help overcome the existing shortcomings.


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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. |

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