Article Tag Archives: Brazilian Foreign Policy

The Argentinian elections and their meaning to Mercosur

The dynamics of the integration process depends, by definition, on the agreement of the hegemonic political forces in each country regarding its national objectives. In the case of Mercosur, the election that took place on the 25th of October in Argentina has a meaningful weight on the perspectives on regional integration. When this article is published, the results of the election will have already been defined. It is, therefore, less the case of evaluating the electoral process, but of analyzing its impact on the future of Mercosur. It is evident that the Argentinian election is only one among many other factors that affect the bloc’s evolution. Both the domestic political processes in the other countries and the international dynamics itself are decisive factors. However, the results in Argentina, the second most important country in the bloc, will surely have a meaningful weight.

Two main projects ran for this election: the continuity of Kirchner’s peronism, represented by the candidacy of the Governor of the province of Buenos Aires, Daniel Scioli, of the Front for Victory (FPV), and the opposition, of liberal hue, represented by Mauricio Macri, mayor of Buenos Aires, of the Republican Proposal (PRO). Scioli ran with a nationalist, center-left platform for the continuity of the current Government’s project, characterized by many analysts as populist. Macri, on the other hand, already agglutinated a set of political forces of liberal, center-right, pro-market hue. The opposition candidate represented a bet on a radical change in Argentinian politics, focused on the search for a restoration of the country’s relations with foreign investors and the review of the developmentalist strategy implemented in recent years.

Scioli, by contrast, was clearly the continuity candidate, although his relationship with officialism has always been somewhat conflicting. The Governor of the province of Buenos Aires was vice president in the first term of Néstor Kirchner’s administration (2003-06) and had aspirations regarding the presidency. He lost ground to Cristina and has since adopted a position of relative detachment to the extent that he even established a cordial relationship with the president’s archenemies, such as the media group Clarin. Although he has remained in the FPV, he sought to make clear his views differed from Cristina’s. However, the convergence between the recovery of the Government’s popularity and the fact that Scioli was the most electorally viable candidate made the two extremes of this complex relationship approach once again, a move that was consolidated by the nomination of kircherist Carlos Zanini for Scioli’s vice president.

As regards integration, the views of the two major candidates showed a clear distinction. The candidate of the ruling party incorporated explicitly an integrationist approach into his speech, focusing on Latin America and the South-South relations. In this context, Brazil is a strategic ally, and Argentina’s priority should be to “[…] strengthen and expand Mercosur, consolidate Unasur and give greater dynamism to Celac”.[1] Macri, on his turn, argued that Argentina needed to “reinsert itself in the world” and leave the “Bolivarian axis”.[2] To Rogelio Frigerio, one of his main contributors, “[…] it is necessary to review Mercosur and begin to look more to the Pacific”.[3] The candidate explicitly expressed his skepticism about the bloc, stating that it is now “[…] almost fiction, full of deadlocks, victim of a setback compared with what had been achieved in the past decade”.[4] A superficial reading of the candidates’ positioning, therefore, points to a simplistic view: if Macri wins, the country will break up with Mercosur; if Scioli wins, there will be a greater integration.

However, the reality is often more complex, especially with respect to the relationship between Argentina and its neighbors. On the one hand, it is inevitable to see that Cristina Kirchner’s integrationist speech in her two terms in office has not always been followed by concrete actions. On the contrary, the frequent imposition of barriers in relation to Brazilian exports and the Argentinian objections that have blocked the Mercosur-European Union agreement show that, in real life, such attitudes on the part of Argentina have hindered more than aided the integration furthering. The internal contradictions of the Argentinian politics and economy have imposed a dynamics in which the national interests tend to pose obstacles to the deepening of the integration.

Argentina has been through two big waves of deindustrialization: the first one, during the military dictatorship years (1976-85), and the second one, in the 1990s, in Carlos Menem’s terms in office. Until 1976, manufacturing accounted for more than two-thirds of the total Argentinian exports. The share of manufacturing in the Gross Domestic Product (GDP) of the country fell from 30.9% in 1989 to 17.1% in 1998. Therefore, the protection of the national industry tends to be a priority of the government, which implies the adoption of protectionist measures. In addition, the country has been experiencing serious currency exchange problems since the default of the early 2000s and the subsequent conflicts with creditors, which also imposes structural limits to its trade balance. These two factors mean that the government tends to adopt measures that are contradictory to its prointegration speech.

On the other hand, Macri`s proposal to break with a project focused on the region and on the search for a greater openness towards the rest of the world does not imply renouncing integration. To Argentina, Mercosur keeps being essential. The bloc has generated a trade growth 12 times higher among its members since its formation. In 2013, Argentina destined 28% of its exports to its regional partners and received 28% of its imports from them. This trade registered a high coefficient of intra-industry trade: over 50% of the total exports of manufactured goods from Argentina were allocated to the bloc.

Moreover, the high degree of institutionalization in the process implies a cost for its rupture. The leader of the Unión Cívica Radical (UCR), party that supports Macri, has said that “[…] it is very difficult for any government to revert the integration processes”, “[…] the correlation of parliamentary forces will not change much and many decisions depend on this state of affairs”.[5] This hinders radical changes under the agreement terms. Moreover, the institutional structure of Mercosur, gestated in the 1990s, is not incompatible with Macri’s liberal agenda.

Therefore, for the liberals, despite the pursuit of greater openness to the rest of the world, Mercosur, in its current design (as a free trade agreement, which is highly advantageous for the Argentinian economy), is also functional. The cost of a rupture would not justify the necessary political effort. Still, the trend, in case PRO wins, is for the country to progressively detach from the bloc’s agenda, with few real efforts to promote the advancement of integration. In this sense, in the long term, Macri’s victory could indeed lead to some kind of weakening of Mercosur’s dynamics. The attempt to leave the “Bolivarian axis” and to extend its relations with other blocs and countries was an important part of the opposition speech.

On the other hand, in case Scioli wins, the starting point tends to be the same: the bloc will continue as it is today — at a slow pace amid deadlocks often caused by Argentina itself. This can result in the continuation of the current dynamics. However, if the starting point is the same, this outcome can also make room for new developments. If the candidate of the ruling party wins, it is possible that the integrationist vocation statements of peronism, far more rhetorical than real, can go beyond the speech. The ideas of productive complementation, value chain articulation on a regional scale and the integration initiatives in the area of infrastructure represent a potentially innovative approach.

The continuity of a FPV government may then make room for a new dynamics, a strategy for deepening Mercosur. In his platform, Scioli champions the resolution of intra-bloc trade disputes, a greater political boost of the productive integration, the repositioning of the strategy of international insertion of the bloc, the addition of value and technological content to strategic sectors and investments in infrastructure and energy integration projects.[6] In this case, the election results can lead to important advances in the region’s integration process.

 

 

[1]  The Union of South American Nations (Unasur) and the Community of Latin American and Caribbean States (CELAC) are two integrationist projects that emerged from an articulation of the countries which aspired to have a protagonist role in the hemisphere, out of the United States’ orbit. Translation mine.

GENTILI, P. Scioli y Macri ante el Mercosur. Página 12, Buenos Aires, 14 jul. 2015. Retrieved from . Translation mine.

[2]  GENTILI, P. Scioli y Macri ante el Mercosur. Página 12, Buenos Aires, 14 jul. 2015. Retrieved from . Translation mine.

[3]  PARTIDO de Macri apuesta a revisar el Mercosur. Montevideo Portal, Montevideo, 10 nov. 2014. Retrieved from . Translation mine.

[4]  MACRI: “Hay que recuperar el Mercosur”. Buenos Aires Ciudad, Buenos Aires, 27 mayo 2013. Retrieved from . Translation mine.

[5]  MOREAU: Macri no fortalecería la relación com el Mercosur. BAE Negocios, Buenos Aires, 18 dez. 2014. Retrieved from < http://www.diariobae.com/notas/48421-moreau-macri-fortaleceria-la-relacion-con-el-mercosur.html>.

[6]  DESARROLLO ARGENTINO (DAR). El-Mercosur y los desafios de la regionalización. 2015. Retrieved from .

 

Mercosur: far beyond the economic integration

In 2016, the Southern Common Market (Mercosur) celebrates its 25th anniversary amid uncertainty and criticism in Brazil and speculations about its extinction. Among the main alleged reasons for such a pessimistic view is, firstly, the bloc’s ineffectiveness in promoting closer economic ties between the countries; secondly, the persisting losses to Brazil; and, finally, the structural constraints when conducting negotiations with other countries or blocs.

Although criticism of Mercosur is pertinent, it is noteworthy to stress that integration should be more broadly viewed and issues beyond trade should also be considered. Although highly relevant, trade is not the only object of regional integration, which also involves security, culture and education. Moreover, the bloc has progressed at different paces in each sector, similarly to other regional integration mechanisms, including the European Union (EU).

Regarding the first criticism, the bloc is said to have failed in promoting economic integration among its member countries and the recent drop in intra-bloc trade, at least in relative terms, has been highlighted. The main reason seems to be the protectionist attitude of the Government of Argentina. In fact, both for Brazil and the State of Rio Grande do Sul, the Mercosur countries have significantly reduced their share in recent years due to the exceptional performance of exports to China.

However, stating that Mercosur has been ineffective or has lost its relevance is not totally true, especially when the historical data are expanded. Despite sharing borders which extend for more than 1,200km, Brazil and Argentina, until the 1990s, lacked relevant and lasting economic cooperation. For decades, Brazil’s main trade partners were the United States and West Germany. Moreover, the dynamics of bilateral relations between Brazil and Argentina has always been marked by ephemeral cooperation initiatives and the persistence of a rivalry logic.

The figure below shows that bilateral trade between Brazil and Argentina reached historic levels after the creation of Mercosur in 1991. In addition, a rise in trade can also be traced back to the early 1960s, which was subsequently discontinued. The creation of the Latin American Free Trade Association (LAFTA), a tripartite initiative between Brazil, Argentina and Mexico, explains that inflection. However, as governments lacked interest in maintaining the project, regional trade turned back to previous standards, which can be a warning to the proposers of the dissolution of Mercosur.

Share of Argentina in Brazilian foreign trade — 1953-2013

Mercosur was a path for the consolidation of multi-sectoral efforts of rapprochement between Brazil and Argentina initiated by the end of the Brazilian civil-military dictatorship. Actually, moments of greater optimism can be outlined, such as in the early 1990s, during the formalization of the bloc, as well as other critical phases, such as the devaluation of the real (the Brazilian currency) in 1999, which deeply disappointed the other Mercosur members, and shortly after that, when Argentina experienced a severe economic and social crisis. The recent stagnation in terms of value of trade flows certainly causes apprehension, but it is worth observing that the imposition of import quotas on Brazilian products by the Government of Argentina is a measure of trade protection in accordance with the rules of the World Trade Organization (WTO) in case a sudden surge in imports harms a given sector of the economy or its balance of payments, if proved the causal nexuses between them.

Beyond the trade issue, an institutional framework has been gradually established for implementing cooperation projects in several issues such as policy, education, culture, security, among others. In addition, the institution of the democracy clause by means of the Ushuaia Protocol (1998), and more recently the creation of the Mercosur Parliament, denotes the political commitment of governments to the democratic values and institutions, bringing together citizens in a more effective fashion. Although the deadline for parliamentary elections by direct vote has been extended to 2020, in Paraguay two elections have already been held (2008 and 2012).

Regarding the issue of costs, “mercopessimists” assert that Brazil is the most affected nation in the bloc. However, it should be noted that in many of the cases of formation of regional coalitions, the most powerful nations (in economic, political or military terms) are the proponents of regional integration initiatives, such as in the Franco-German condominium in the EU, Russia in the Eurasian Union, the United States in the North American Free Trade Agreement (NAFTA) and China in the negotiations of the Comprehensive Economic Partnership for East Asia. In all these cases, larger nations have granted some tangible or immediate advantages to smaller partners so as to increase the attractiveness of the bloc. For example, in the European Community and in Mercosur, the headquarters of the integration mechanisms lay outside the territory of the major nations: Brussels (Belgium) and Montevideo (Uruguay), respectively, attend to this function.

The benefits or concessions directed to smaller countries in any process of economic integration is usually explained by the fact that the economies of these countries, in many cases, lack the degree of competitiveness of the enterprises of the larger ones, which typically operate on a much larger scale and can explore opportunities faster than their counterparts. Another argument advanced by Uruguayan and Paraguayan politicians and negotiators is that their countries are more prone to trade diversion after the imposition of a common external tariff. According to this view, smaller countries tend to be more damaged, because their economies are normally more dependent on foreign trade than those of the bigger ones.

Adhering as minority partners, the more fragile nations in economic, demographic or territorial terms need to rely on tangible and immediate benefits to bring to bear their participation in the regional integration project. In the case of Mercosur, it is observed that the main political gains could only be obtained by Brazil, the only one that can rise to a global player status. If the integration process is proven to be successful, the Brazilian companies would be the most favored ones, Brazil would be a global power and in a better position to own a permanent seat at the United Nations Security Council. Therefore, it is expected that the actor with higher stakes in Mercosur should bear a greater part of its costs, in order to mitigate regional disparities and promote intra-bloc economic growth. It is not reasonable to imagine that Uruguayans, Paraguayans, Venezuelans and Argentines would desire to take part in a group led by Brazilians without obtaining material advantages in return.

A third set of criticism argues that Mercosur has hampered negotiations of trade agreements with other countries or blocs because of alleged low willingness of some of its members to strengthen relations with other countries. From this perspective, Brazil should abandon its regional commitments and alone conduct negotiations with the European Union and the United States. However, in this case, a complex yet common dilemma in international politics can be pointed out. Actually, it is possible to admit that any agreement between Brazil and the European Union may be more comprehensive in terms of content, but it is also likely that its terms will be more unequal than those of an agreement between blocs. The bargaining power tends to be higher when its actors prefer acting together to negotiating separately, but it is also likely that the final agreement will exhibit a more limited thematic scope.

This way, the 25 years of existence of Mercosur should be evaluated concurrently from both political and economic perspectives, considering their synergies. Analyzing its dimensions separately means viewing it as the individualized strategies adopted by each of its members in a zero-sum game. Although the economic dimension of Mercosur has been used as a gauge of its success due to how easy it is to measure the volumes and values ​​of its trade flows, it is imperative to highlight that any economic agreement is preceded by some sort of political understanding to mitigate the differences inherent in the integration process. For this reason, the political dimension of integration in Mercosur plays an important role. As its institutions are consolidated as integration and conflict resolution forums in the different areas of their respective governments, opportunities are created both to reduce costs and to increase the gains from the integration between its member countries.