Introduction
Mercosur, Mercado Común del Sur (“Common Market of the South”) refers to an economic and political arrangement among South American countries namely Argentina, Brazil, Uruguay, and Paraguay. Venezuela, Bolivia, and Chile became associate members of the bloc in 2008, which means that they can engage in free-trade agreements but are external to the bloc’s customs union. Other regional countries such as Mexico, Ecuador, Colombia, and Peru have shown their willingness to join the bloc.
Mercosur was formed in March 1991 under the Treaty of Asunction. The Treaty of Ouro Preto established in 1994 afforded the bloc a wider international status as well as a customs union. The main objective of Mercosur is to increase the competitiveness and efficiency of all member states through opening of markets, promotion of economic development in a global framework, enhancing infrastructure and communications, preserving the environment, improving use of available resources, coordinating macroeconomic policies, and generating industrial complementation. The bloc also aims to achieve a common external tariff.
Mercosur is multidimensional in nature because it entails an international subsystem which interactions at the economic, political, and cultural levels. The group express itself through behaviors and perceptions of individual governments of member states, civil society organizations, firms, as well as through trade and investment flows. It also has a network of interactions that involves a number of aspects of social life. The southern cone of the region is characterized by conflicts that are rooted in history. As a strategic idea, Mercosur reflects varying concrete-cum-dynamic national interests as a result of significant differences in economic dimensions among the member countries (Mecham 2003, 369).
History and Organization
The formal launch of the Mercosur happened in March 1991 following the ratification of the Asuncion Treaty by four founding member countries – Argentina, Brazil, Uruguay, and Paraguay. However, prior long-running collaboration and several bilateral complementation agreements between the regional countries contributed significantly to the ultimate formation of the Mercosur (Arrosa 2008, 61). During the sixties there was the ALALC, while the Latinamerican Free Market Association defined engagements from 1980. Bilateral trade agreements increased among would-be Mercosur members towards the end of the last century. In particular, Brazil and Argentina chose to set aside their historical rivalry to enhance regional economic complementation which formed the foundation for Mercosur (Puntiglian 2008, 29). Together with Uruguay and Paraguay, the two South American giants agreed on Montevideo as the headquarters of newly formed Mercosur in March 1991. The overriding idea was to enlarge the national markets (through economic preferences) so that businesses could invest and transform the national economies and become competitive not only at the regional level, but also at the global level (Connolly 1999, 1). It was also envisioned to realize a more attractive environment for the domestic and foreign investments. It was believed that these sort of arrangement would create a win-win situation for all the member countries, including the small economies especially Paraguay and Uruguay.
Organization of Mercosur
The Common Market Council (CMC, Consejo del Mercado Comun) rules the Mercusror, with responsibility for political decisions of the entire integration process. The member states’ Presidents and their respective cabinets constitute the sitting members of the bloc, and meet twice a year on a rotation basis (Bulmer-Thomas, 2000, 1).
The Common Market Group (GMC, Grupo Mercado Comun), which is directly below the CMC, is the executive arm of the Mercosur constituted by Ministers of Foreign Affairs, Ministers of Economy, presidents of Central Banks together with permanent coordinators drawn from each member country (Rosen 2003, 7). The Mercosure presidency is rotated between member states every six months.
The maiden Mercosur Parliament was formally inaugurated on December 14, 2006 in Brazil. In the first phase, a total of 18 representatives drawn from individual member countries following their nomination by local governments constitute the parliament (Eul-Soo 2003, 122). The parliament will only have persuasion powers in the initial phase. It is expected that official elections through universal, direct ballot would be held by 2014 and legislative powers to bind the group would be adopted.
Comparison to other International Trade Blocs
There are substantial differences between Mercosur and Nafta (North American Free Trade Agreement as well as the EU. Mercosur’s main objective is to have greater economic integration compared to NAFTA. The two organizations have similarity in sense of creating a free trade zone for their members, which means that they both share a common objective in eliminating all hurdles to trade among their members (Munck 2001, 12). Mercosur, however, stretches this cooperation through creation of shared external tariffs to third-party member while NAFTA do not.
The EU, in turn, exceeds the integration of member countries’ economies that characterizes Mercosur. This implies that EU members share common trade policy, free movement of labor as well capital among members while Mercosur does not (Vinuesa 2006, 77). Furthermore, the EU provides room for coordination of independent national legislative activity not offered by Mercosur.
Impact on International Relations
The Mercosur has had significant contributions to international relations, particularly to the European Union (EU). Mercosur is effectively the EU’s 8th most significant trading partner, which a claim of 3% of EU’s total trade (amounting to € 45 billion in 2011). The EU has existing bilateral Partnership and Cooperation agreements with Mercusor’s member countries: Argentina, Brazil, Uruguay, and Brazil (Gardini 2005, 405). The two bodies are presently negotiating a trade agreement for a bi-regional Association Agreement that will also entail political and cooperation elements.
Benefits of Mercosur
Mercosur has achieved significant progress in terms of the quality of relations between and among neighboring member countries. There has been increased growth in trade as well as investments in the integrated area, particularly in the 1991-1998 period (Bajo 1999, 947). Mercosur’s formal integration instruments and process has enabled the countries to warm up to each through international trade. Member countries have developed the feeling of “being in the same boat,” in the sense that what happens to one member’s economy has an impact to the economies of the other members. In this respect, therefore, Mercosur has been able to create a high level of interdependence among its member countries (Blum 2000, 436).
There has also been remarkable continuity and consistency in the political leadership in the Mercosur region. Presidential diplomacy as witnessed during times of crisis such as the 1995 car industry crisis; the 1998-1999 economic recession period, and when Argentina took up exceptional economic measures in the wake of its crisis of 2002 (Phillips 2001, 565). During all these cases, the Mercosur leadership favored the sustenance of strategic direction of the prevailing integration process. The political leadership have consistently showed the realization that it is important to sustain the political and economic health of each partner (Duina & Breznau 2002, 548).
In the wake of the global financial crises (1995-99), Mercosur was gradually perceived as the symbol of resistance to neoliberalism. In fact, it has become to be regarded as an association of developing nations with potential of challenging the US-championed hemispheric free trade. It is considered to have achieved an epic status as a well-placed tool for promoting social instead of merely economic goals (Gardini 2010, 226). The bloc has increasingly moved to ‘a political Mercosur’, that prioritizes social and representative aspects of the regional integration instead of trade and investments objectives.
In particular, Mercosur has been instrumental in Brazil’s foreign policy since the establishment of the bloc in early 1990s. Brazil has been keen to cultivate a strategy of informal enlargement aimed at bringing together all other South American countries into the Mercosur umbrella (De Oliveira 2010, 125). The Brazillian perspective is that South America is by no means a mere specific geographical region (that is different from the Latin America in general) but also a formidable political entity. As such, the Brazilian government considers the South America region as a natural part of her sphere of influence (McCulloch et al 2005, 189). In 2004, the Lula administration was able to form the South American Community (SAC) during the December 2004 Cuzco presidential summit. Mercosur has thus evolved from a trade, custom, and market intergration project to a symbol for strong leftist political activism as well as national liberation ideologies. It has grown into a strategic instrument for lots of South Americans who believe in progressive, developmental, nationalist or anti-imperialist ideas (Richards 2000, 159).
Challenges of Mercosur
The major challenge for the Mercosur group is the historical disputes among its member countries. The greatest tension has been experienced between the two major economies, Brazil and Argentina. In 1999, for instance, when Brazil’s car industry grew increasingly competitive following the devaluation of its currency, Argentina reacted by imposing harsh tariffs on Brazilian steel imports. The economic showdown was sorted out in December 2000 following the signing of a bilateral agreement to end the spat (Mecham 2003, 3).
In 2006, Argentina and Uruguay (which the bloc’s smallest member country) clashed over the latter’s plans to build a couple of massive paper pulp mills along the border of the two countries. This was the largest foreign investments that Uruguay had ever attracted. Argentina cited environmental pollution concerns as well as potential negative impact to her tourism and fishing industries (Ferrari 1993, 798). The matter was taken to the International Court of Justice (ICJ), where the ruling was in favor of Uruguay. Nonetheless, Argentina vowed to sustain its objection against the mills. To show displeasure, Uruguay has gone forward to sign a TIFA (Trade and Investment Framework Agreement) with the United States. Signing a Free Trade Agreement with the U.S. violates the Mercosur’s charter, in which bilateral agreements with countries that are nonmembers is forbidden (Leipziger et al 1997, 599). If the TIFA ultimately results in creation an FTA with the U.S., the Mercosur’s leadership would either be forced to terminate Uruguay’s membership, or rewrite the charter anew, allowing member countries to enter into bilateral agreements with countries outside the bloc (BBC 2012, 2). Furthermore, the Mercosur’s smaller country members – Paraguay and Uruguay, have consistently complained about restricted access to markets in the larger Argentina and Brazil. In light of this, Paraguay and Uruguay have strived to set up independent bilateral trade deals that are outside Mercosur, which is against the rules and stipulation of the bloc.
In addition, Venezuela’s membership has been a long-outstanding conflict area among the member countries (Europa 2012, 5). While the country was afforded full membership in 2006 pending ratification by the original member countries, its status has remained hanging ever because Paraguay was yet to approve the decision. The Paraguayan Senate has had reservations over the democratic attributes of the Venezuelan President Hugo Chavez (Klonsky & Hanson 2012, 45). In July 2012, following the suspension of Paraguay from the bloc, Venezuela was fully admitted to Mercosur as the fifth member, gaining voting rights and full access to the bloc’s common market. However, this move has been seen to primarily benefit both Argentina and Brazil and risking to further politicize the group (Pena 2005, 9). The admittance of Venezuela has caused tensions in the bloc because the country is known to be philosophically opposed to free trade. Since 2006, when Venezuela appended signature to the part-membership with the Mercosur, President Chavez has championed for a Mecosur whose priority are social concerns instead of the “old elitist corporate models of cooperation that seek financial profits at the sake of workers, children, human dignity, and life” in general. Critics also doubt Venezuela’s ability to effectively compete with other member countries of the bloc (Termansen 2007, 65). It is feared that Venezuela’s domestic economy would suffer at the expense of the overall Mercosur because of lack of monopoly power over other member countries.
Likewise, the consideration to add Bolivia as a full member state is proving problematic because of Mercosur’s history with the country, along with the issue of common external tariff (Malamud 2005, 367). Bolivian Head of State Evo Morales has been critical of Mercosur, terming it as a tool designed to only benefit the wealthy and business as opposed to poor people. Furthermore, Bolivia’s tariffs are significantly lower than Mercosur’s (Reardon & Berdegue 2002, 98). This translates that Mercosur would have to allow several exemptions to Bolivia so as to admit it in the bloc. If the exemptions are granted to Bolivia, Uruguay and Paraguay would feel shortchanged because they were not afforded the same leverage.
The Mercosur has also come under increasing accusations of drifting towards a political agenda and away from its original free-trade concept (Bouzas 2001, 465). Argentina, for example, has enlisted the support of Mercosur member countries in her opposition of British continued sovereignty over the disputed Falkland Islands. Argentina has asked the members to disallow ships flying the Falklands flag from docking in their ports (Malamud 2005, 409).
The future of Mercusor would remain unstable unless solid actions are undertaken to better the organization and render it relevant to the regional and global environment (Jordan 2012, 7). There should be more enforcement of the bloc’s rules, strengthening of its main collective trade disciplines; development of systematic coordination of macro-economic policies; extension of economic preference across the membership to include trade and government procurement; and developing solid cooperation measures with smaller countries for them to make sense of the enlargement of their markets (Guimaraes 2012, 65).
Conclusion
Since its inception more than 20 years ago, the journey of Mercosur has been characterized by a blend of success and failures. Politically, the bloc has had success in fostering domestic democratic stability together with sustainable peace among its member countries in a region typical for authoritarianism and military rule. Economically, member states have undertaked significant economic reforms and contributed remarkably to the growth of intra-regional trade in a short period of time. International, the bloc has afforded its member countries a degree of visibility they would have had. Lastly, Mercosur has attracted great foreign investment in the member countries especially in the 1990s.
However, Mercosur has had many shortcomings: it is yet to grow into a fully-fledged free-trade region. The members have also deviated from the original goals and expectations, there is chronic suspicion and decreased cooperation among the members.
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