January 19, 2007
Mercosur's Jan. 18-19 summit marks a shift for the regional association -- it has changed from a hypothetical trade group paralyzed by diverging member interests to a political forum split by ideological agendas. Even before the terms of Venezuela's admission into Mercosur have been worked out, Venezuelan President Hugo Chavez is calling for the group to be completely overhauled, while Brazil patiently maintains its moderate position. Brazil and Venezuela's ideological differences will keep Mercosur in deadlock for the foreseeable future.
The two-day Mercosur summit concluding Jan. 19 in Rio de Janeiro, Brazil, created an expanding membership -- and an expanding set of problems -- for the organization. Mercosur members Argentina, Brazil, Paraguay and Uruguay have yet to work out the technical consequences of Venezuela's rapid admission last year and are now considering admitting Bolivia as well.
Though the increased momentum of Mercosur expansion is reigniting discussion about integrating all of South America, Brazilian President Luiz Inacio "Lula" da Silva and Venezuelan President Hugo Chavez are at loggerheads regarding what such integration should look like. Da Silva wants Brazil to be the benevolent patron and facilitator of a trade-focused union that promotes regional growth, works to decrease the asymmetries among member countries and has the ability to negotiate on firm footing with North American Free Trade Agreement and other trade groups. Chavez, on the other hand, sees Venezuela as a guiding force to remove Latin America from the U.S. sphere of influence and shift the region toward what he calls "21st Century Socialism."
The dynamics of Mercosur -- with potential member Bolivia favoring Chavez's position, Paraguay loosely favoring Brazil's, Argentina playing neutral and Uruguay threatening to pull out entirely -- are not conducive to either da Silva or Chavez making much progress over the next couple of years. Nevertheless, Brazil is positioning itself to outlast Chavez's ambitions and potentially emerge in several years as the de facto leader of South American continental integration.
Mercosur appeared mostly dead following Argentina's economic crash in 2001. Argentina accused Brazil for isolating itself from its neighbor's woes rather than extending a helping hand in its time of need. Brazil, in turn, resented Argentina for trying to spread its trouble like a disease. This vituperative atmosphere between the group's two most prominent members meant that no substantial agreements -- any of which would require some sacrifice on one party's behalf -- would be made. Mercosur degenerated into a static forum in which Brazil and Argentina bickered and Paraguay and Uruguay whined.
Half a decade later, however, Argentina's economy is growing at a stellar rate while Brazil has established very sound central bank policies, such that its albeit more moderate growth is well-grounded. Under these circumstances Argentina does not have much to complain about, and Brazil is shifting its objectives in Mercosur so that it is more focused on becoming the regional patron than it is on exacting better trade terms from its neighbors.
Brazil has expressed willingness to forgo some of its own trade preferences to benefit the poorer countries in the region and to push forward the goal of regional cooperation and integration. This approach loosely echoes the U.S. approach to Bretton Woods -- give up some economic leverage in exchange for strong influence in creating a political framework. Bucking his predecessor's tendency to tie the region's economic malaise to the need for a large aid package from the United States, da Silva has begun calling for the region to confront its own problems and not depend on outside help.
Enter Chavez. Venezuela's acceptance into Mercosur on July 4, 2006, was done backward -- first Venezuela was admitted, and now the terms of admission will be worked out. Thus, it would seemingly behoove Chavez to quietly secure his position within the group before starting to ruffle feathers. He is incapable of doing anything quietly, however. Chavez arrived in Rio with his own chef in tow, blowing kisses to reporters, staying in Fidel Castro's favorite hotel and demanding that Mercosur be completely reformulated. With his anti-capitalist and anti-American rhetoric in full swing, Chavez called capitalism the path to the world's doom, and called on Mercosur to turn away from free trade objectives, and toward anti-imperialist socialist integration.
Mercosur already had its work cut out for it without Chavez's grandstanding. The group must establish a timeline for Venezuela's integration into Mercosur's common external tariff of 12 percent, while considering special exemptions for Bolivia which -- if admitted to the bloc -- could not afford to raise its tariff to three times its current 4 percent. Uruguay and Paraguay will argue that if Bolivia gets special concessions, they should also get concessions as small countries -- and Ecuador is sitting on the sidelines of the bloc, wondering if it might be able to follow in Bolivia's footsteps.
Bolivia's bid to join Mercosur provides an arena within which Brazil and Venezuela are competing to advance their very different visions. On one hand, Bolivian President Evo Morales is clearly under Chavez's sway; on the other hand, Bolivia's economy is dependent on favorable natural gas trade with Brazil. Da Silva is playing up Bolivia's potential entry into Mercosur as a magnanimous gesture on Brazil's part to take steps to lift the region's poorer countries out of their misery. Bolivia is playing hardball, however; Morales confronted da Silva at the summit, saying that Bolivia can no longer afford to give Brazil "solidarity" pricing on its natural gas and that Brazil needs to accept prices similar to what Argentina pays -- almost triple the current arrangement. Morales also echoed Chavez's calls for Mercosur to be reorganized for the "social" purposes of "the peoples."
Da Silva has an uncanny ability to defuse tensions and appear to advocate the most down-to-earth, sensible position amidst competing shrill demands from all sides. Nonetheless, the Mercosur summit turned into a major headache for him and, optimistic conciliatory speeches aside, he might be regretting fast-tracking Venezuela's entry into the group. Mercosur is still paralyzed, and its newfound ideological deadlock is perhaps even more poisonous to the institution's prospects than the simple interest-based deadlock it used to be in. Meanwhile, Uruguay is moving forward with a Trade and Investment Framework Agreement with the United States that is widely perceived to be a precursor to a free trade agreement. If Uruguay unilaterally negotiates an free trade agreement with the United States, it will be kicked out of Mercosur.
Da Silva can either pursue Brazil's trade ambitions outside of Mercosur, or he can play nice and wait until his term expires before Brazil really shakes things up. His disposition suggests he is mostly like to choose the latter. His main consolation has to be this: Venezuela is building its regional influence on turbulent rhetoric backed by oil wealth that is likely to rapidly diminish over the next few years. Meanwhile, very little threatens Brazil's position as the moderate, reasonable and economically potent giant in the middle of the continent. The price of oil is volatile and is a poor factor to base one's global aspirations upon. As the price of oil declines, Chavez will likely lose his friends abroad and struggle to maintain power at home. Only then will Mercosur and regional trade integration have a chance to move forward.