Article Tag Archives: Regional Integration

Mercosur and its multiple dimensions

The second issue of Panorama Internacional FEE deals with an important and complex topic, which allows multiple and interrelated possible angles of analysis, such as economic, political and cultural. The Latin-American integration has been debated for a long time in the region. In the economic field, conjectures about the potential effects of productive integration have always been considered when it comes to difficulties and limitations of late and peripheral industrialization in Latin America. The “closed” character of that process, in the sense that industrial plants were installed to supply the restricted national markets, was pointed out as responsible for the disadvantages in absolute costs, related to the smaller scales of production compared to those of the previously industrialized countries. In a speech in Mexico in 1959, Raúl Prebisch[1] evoked this diagnosis in advocating the formation of a Latin American Common Market. In his view, this would be the way to avoid repeating the known limitations of the already established consumer goods industries in the necessary and subsequent phase of installing the sectors of capital goods. The strategy envisioned by Prebisch did not recommend the promotion of partial integration as preparatory action for a second continental integration phase. For the Argentine economist, the more strengthened the sub-regional groups were, the more difficult it would be to achieve the Latin American Common Market.

Actually, the integration in continental scale as advocated by Prebisch has poorly advanced. Moreover, one could hardly attribute this state of affairs to obstacles created by the development of sub-regional integration groups such as Mercosur. These groups have not advanced so much as to the point of generating additional obstacles more important than those already underlying the national borders or those related to the very nature of capitalism. Contradictions and conflicts of interest among countries, sub-national political units, transnational corporations and domestic political groups seem to be enough to constitute a somewhat complex system of barriers to integration. The historical development of that system has not generated so far a solution that could promote significant advances in Mercosur as a process of economic integration.

The adoption of a model to guide the promotion of such integration, resulting from other historical experiences, is quite complicated. The European Union is probably the most developed case of an institutional framework designed to promote integration. However, the recent slow economic growth of the bloc as a whole, the acute problems that the “peripheral” countries have faced, alongside the behavior of “core” countries concerning such problems, indicate serious limitations and contradictions about the values and goals sustaining the integration. Macroeconomic rules adopted to satisfy particular interests have been suffocating some member countries and led many European citizens to embrace a kind of moral judgment that some countries “do not deserve” to be part of the Euro Zone.

On the other hand, despite the absence of an institutional apparatus comparable to that of the European Union, there has been a strong process of productive integration in Asia. Several geopolitical, structural, organizational and economic factors contributed to this outcome (MEDEIROS, 2011)[2]. The data transmission revolution and digitalization enabled the encoding of productive processes and their modularization. From a technical point of view, these changes have made possible the establishment of a large trade flow of parts and components, integrating the lower income Asian countries to those previously industrialized. The asymmetric position of the countries, which may be reinforced for the balance of payments problems, was at least in part neutralized in this Asian integration by macroeconomic stimulus and structural conditions both functional for integration. The regional expansion and its productive integration in Asia have always been oriented to a large consumption market of final goods. The United States was the first market running trade deficits with the less developed countries, and has been progressively replaced in this role by China.

In the case of Mercosur, within certain limits, Brazil could perform this role because of its relative size. To make it happen, however, Brazil would need to increase growth and stop perceiving other countries only as useful markets to compensate the reprimarization of its exports to other continents. In other words, a productive integration along the Asian lines would require Brazil to run trade deficits with the bloc, rather than channeling its more technology-intensive industrial production, displaced from other markets by the Asian producers. It would be necessary, therefore, for Brazil to promote more deeply its domestic market, managing adequately its external constraints at the same time. Arrangements that could promote a joint management of the external constraints would be supportive to integration. The external problems of Brazil and Argentina, especially, have already caused, and always may cause again, serious imbalances for Mercosur to consolidate.

Addressing the issue of Mercosur, Panorama Internacional FEE does not intend to provide definitive answers to all these complex issues.  The purpose is to put forward some elements to invite the reader to join the debate. In that sense, researchers Cecília Hoff and Tomás Torezani discuss Rio Grande do Sul’s position in the Mercosur context, highlighting the particularities of trade and productive relations of the state with the other countries and calling attention to the agricultural capital goods sector and the conflict of interest established by the movements of the Argentine industry. Researcher Ana Julia Possamai presents a central dimension: digital integration. Although still receiving little attention in most economic analyses on integration, a slow development in this field may represent an important constraint on productive integration in the era of modularization of production, apart from the political and cultural implications. The interview of this issue of Panorama brings Professor André Luiz Reis da Silva, from Universidade Federal do Rio Grande do Sul (UFRGS). He provides some impressions about achievements and challenges of Mercosur, the accession of Venezuela and the possibility of a free trade agreement with the European Union, along with other issues. Robson Valdez, Ricardo Leães and Bruno Jubran address the need for a political settlement inside the bloc, noting that the economic agreements underlying a process of economic integration presuppose an appropriate balance of costs and benefits to potential participants. Finally, Tarson Nuñez brings us important conjectures about the outcome of the presidential election in Argentina. The situation in that country is always substantial for a conjuncture analysis of the region, considering the more radical changes associated with political changes there from a Brazilian standpoint.

[1] PREBISCH, R. El mercado comun latinoamericano. Boletin del Banco Central del Ecuador, Quito, v. 33, n. 384-385, p. 19-28, jul./ago. 1959. Retrieved from <http://hdl.handle.net/11362/32866>.

[2]  MEDEIROS, C. A dinâmica da integração produtiva asiática e os desafios à integração produtiva no Mercosul. Análise Econômica, Porto Alegre, v. 29, n. 55, p. 7-32, mar. 2011. Retrieved from <http://seer.ufrgs.br/AnaliseEconomica/article/view/13381>.

Mercosur leverages Brazil

André Luiz Reis da Silva has a PhD in Political  Science and a Post-Doc from the School of Oriental and African Studies – University of London. He is a Professor of the Graduate Program in Political Science and Coordinator of the Graduate Program in International Strategic Studies of the Federal University of Rio Grande do Sul (UFRGS).

In an interview to Panorama, André Luiz Reis da Silva talks about successes and challenges of MERCOSUR, analyzing the strategic position of the State of Rio Grande do Sul. The researcher also evaluates Venezuela’s entry into the bloc and the negotiations between Mercosur and the European Union. The interviewee of this issue also opines about Brazil’s foreign policy and how this matter was addressed in the Brazilian presidential elections in 2014.

Panorama: After 25 years, what are the main achievements of Mercosur’s integration process and what are the biggest challenges to be faced?

Mercosur is one of the major national projects of Brazil, in progress since the 1980s. Since its establishment, even amid difficulties, some still persistent (i.e. the issue of the asymmetries and differences in the bloc’s framing), Mercosur has achieved many successes, such as the creation of a peace and cooperation zone in the Southern Cone, the expansion of intra-area trade and the strengthening of a South American conception. Mercosur, which will be celebrating its 25th anniversary in 2016, has been through several stages and difficulties and has made many achievements. The main references are the Brazil-Argentina rapprochement in the 1980s, which culminated with the inclusion of Paraguay and Uruguay in the project; then, there was the very launching of Mercosur in 1991. Although in a neoliberal context (in which Mercosur was perceived as a fast track towards trade liberalization), it served as a counterpoint to the U.S. proposal of integration of the Americas (Free Trade Area of the Americas). Its major crisis took place in 1999, when the Argentines decreed “the end of Mercosur”. However, it was relaunched under a new perspective, to base a bold project of integration in South America. In recent years, besides the associate States (Chile, Bolivia, Peru, Colombia and Ecuador), Mercosur has been advancing with the membership of Venezuela, the creation of the Structural Convergence Fund for Mercosur (FOCEM) (an effort to reduce the structural inequalities) and a parliament (which still must be developed).

In short, for Brazil’s foreign policy, Mercosur has managed to articulate a regional area and thereby has succeeded in fostering the interests of other economic blocs and countries, thus becoming a respected interlocutor both in multilateral forums and in bilateral agreements. In addition to growth prospects, such a position has opened up possibilities for cooperation among several blocs and countries and the establishment of strategic partnerships. Thus, Mercosur has contributed for Brazil’s foreign policy, an important foothold in trade negotiations and a focal point for other countries in South America.So, in despite of an apparent loss of relevance, I reckon that Mercosur remains a strategic space for Brazilian diplomacy and cannot be “abandoned” as some wish, even in Brazil, before any minor setback. Some say Mercosur hinders Brazil. It’s a real fallacy. Mercosur leverages Brazil, especially the Brazilian industries.

Currently, given the growth of Brazil’s global interests, Mercosur and also Unasur have lost centrality and incentives. The agenda with the emerging countries (especially the BRICS) and the discussion of an economic and financial global order have gained more interest in Brazil’s international agenda. The big challenge for Brazil nowadays is to combine the regional and the global agendas, recalibrating interests and priorities, once a global agenda is not possible without a strong regional presence.
Panorama: Alongside the commercial aspects of Mercosur, which other areas of integration could be classified as strategic for the future of the bloc and how do you evaluate Venezuela’s admission to the bloc?

We still have a long way to go. Commercially speaking, Mercosur is usually classified as an “imperfect customs union”, because there are several products with circulation restrictions, quotas and exception lists. We also need to advance to the construction of common regulatory frameworks in various fields, such as social security and labor rights. A bloc that wants to go as far as Mercosur cannot be restricted to trade issues: it needs to move forward in all areas, including military cooperation and energy and infrastructure integration.

In relation to Venezuela, Brazil has a commercial surplus, and our economy is complementary to theirs. Venezuela’s admission to Mercosur is very positive to Brazil and the other members, because (1) it increases our access to the Venezuelan market; (2) it promotes the Brazilian model of regional integration; (3) Venezuela’s economy is complementary to ours; (4) it strengthens Mercosur’s capabilities in the negotiations with other blocs and powers; (5) it reassures the Brazilian project to have regional integration in South America, a project that Venezuela agrees with; (6) it strengthens democracy in South America, because every Mercosur country must comply with the democratic clause.

Panorama: What are the biggest obstacles for the member states to reach a free trade agreement with the European Union and what would be the consequences for Mercosur?

Negotiations between Mercosur and the European Union have been going on for the past two decades. Usually, these negotiations balk at the European refusal to grant further liberalization of its agricultural market (much because of France’s interests and the EU’s Common Agricultural Policy). The European Union does not offer a good return for the opening of Mercosur. Therefore, the logic goes as follows: having no agreement is better than having a bad one. This is the deadlock. No illusions.

When it comes to its regional surroundings, Brazil’s foreign policy focuses mainly on Mercosur and the South American integration, which creates space for Brazil to exercise its regional leadership and to have a more assertive stance in global forums. Thus, it is not in Brazil’s best interest to walk a lonely path, disengaging itself from its neighbors to reach bilateral agreements outside the continent. This strategy may seem enticing, but it could result in the loss of important markets for Brazilian industrial products and in the further opening of the region to extra-regional competitors.

Panorama: As for Brazil’s foreign policy, how does Mercosur polarize the political debate in the country?

Although we have witnessed fierce presidential elections, with an intense debate that mobilized society, with contrasting projects and solutions for Brazil, the subject of foreign policy was poorly addressed in the 2014 presidential campaign. But it is important to stress that the challenges of the foreign policy are decisive for the success of a development strategy, given the increasingly dense and complex links of Brazil with other countries, in an international scene marked by relevant transformations.  On the other hand, a country with the dimensions and capacities of Brazil cannot omit its contribution, both in global and in regional issues.

Perhaps the question that most came up during the 2014 election campaign was whether Brazil should disengage from Mercosur in order to seek trade agreements on a bilateral basis. It was a dangerous path proposed by the neoliberal opposition, because Brazil has more to lose than its neighbors in that strategy. Mercosur works as a market reserve for the Brazilian industrialized goods in the region. A careless liberalization may mean the destruction of part of the Brazilian industry.

Some also argued, in a reckless fashion, that Brazil should join the “Pacific Alliance”, which is perceived as a perfect liberal model. This is a nearly ideological fallacy, which ignores the risks embedded in that kind of strategy. Nowadays, the Trans-Pacific and the Transatlantic agreements, the growing trade engagement of China, the U.S. free trade agreements, all these topics are challenges which must be discussed within Mercosur.

Panorama: Given the strategic location of Rio Grande do Sul as a meeting point between Brazil, Argentina and Uruguay, how to make the state become a vector of regional integration?

The geographic location and the historical and cultural ties Rio Grande do Sul has with Argentina, Uruguay and Paraguay give a strategic sense to the region. In the early days of Mercosur, the Government of Rio Grande do Sul and the companies feared competition from Uruguay and Argentina. Over time, they realized that Rio Grande do Sul was on the way between Buenos Aires and São Paulo, that is, the path of integration passes through Rio Grande do Sul. Not seizing this opportunity would be a big historical mistake. Rio Grande do Sul has a lot to take in terms of border integration, road and energy interconnection, expansion of tourism and the linkage of regional networks of production.