Events

Strategic Scenarios and Interstate Relations in MERCOSUR

May 15, 2007 // 2:00pm5:30pm
Event Co-sponsors: 
Brazil Institute

Summary of presentations by Leila Rachid, former Minister of Foreign Relations of Paraguay; Rubens Barbosa, former Ambassador of Brazil to the United States; Félix Peña, Universidad Nacional Tres de Febrero and former Under-Secretary of Foreign Trade, Ministry of Economics, Argentina; Sergio Abreu, Senator and former Minister of Industry, Mining, and Energy, and of Foreign Relations, Uruguay; Roberto Bouzas, Professor of International Economics an the Universidad de San Andrés in Buenos Aires; Eric Farnsworth, Vice-President, Council of the Americas, moderator.

The Southern Cone Common Market (MERCOSUR), a regional economic integration scheme involving Argentina, Brazil, Paraguay, and Uruguay, has recently come under intense pressure as conflicting national interests over investments, infrastructure, energy, trade, and the incorporation of new members (Venezuela) have increased tensions among its founding members. Conference participants, many of them former high-ranking officials who took part in the negotiations to create MERCOSUR, reflected on its current state, relations among its members, and the prospects for further consolidation and growth.

Reflecting on her country's role in MERCOSUR, Leila Rachid argued that Paraguay embraces globalization for more than simple economic reasons. In her view, Paraguay actively pursues regional integration as an instrument for building a community through political, cultural, and social channels, as well as economic ones. This vocation comes in tandem with the consolidation of democracy in the country, giving a political motivation to Paraguay's participation in MERCOSUR. However, mindful of its landlocked geographic position and its status as the least developed of member countries in the group, Paraguay has made regional asymmetries the cornerstone of its bargaining inside MERCOSUR. Ambassador Rachid claimed that collective action within the group has fallen short of Paraguayan government and private sector expectations. She pointed out that even though overcoming asymmetries became an official objective of MERCOSUR in 2003, and a structural fund was recently set up to address the concerns of its smaller members, the group's instruments for tackling asymmetries are lacking. She identified a number of pressing issues if MERCOSUR were, in Paraguay's view, to become an effective instrument for regulating globalization. These included a redefinition of the common external tariff, the strengthening of supranational institutions for collective decision-making, competition policy to address regional market access concerns of its members, and the consolidation of the customs union.

Rubens Barbosa claimed that MERCOSUR is paralyzed in all economic areas. Since governments seem to lack the political will to advance on the major goals of the Treaty of Asunción on which MERCOSUR was founded (that is, creating a common market), they have replaced the original objectives with new ones, especially in the political and cultural realms. Ambassador Barbosa discussed three potential scenarios for MERCOSUR's future: limping along in its current format; evolving into a free trade area; or evolving into a political pact in which each country retains its bilateral agenda. These limited scenarios are based on several fundamental problems. They include 1) the divergent national strategies of MERCOSUR's two main partners, Argentina and Brazil. According to Barbosa, Argentina has short-term industrialist goals whereas Brazil has long-term strategic goals in South America; 2) the enormous frustration of the smaller partners, Paraguay and Uruguay, vis-à-vis the two larger members; 3) the lack of political leadership, especially from Brazil; and 4) the perception among Brazilian entrepreneurs that MERCOSUR is not a large enough market for their country. According to Barbosa, the lack of political will to make important sacrifices in reconciling conflicting domestic and international agendas has led to huge contradictions between ambition and results. A new phase of bilateral relations has replaced regional bargaining, with too many disputes among members discussed outside of MERCOSUR. Barbosa concluded that the forces of disintegration were more powerful than the forces of integration. As a result, MERCOSUR had advanced in areas such as infrastructure, but had failed on trade matters.

Félix Peña shared his concern that MERCOSUR was becoming more and more irrelevant for Argentina. This seeming irrelevance is the result of 1) an overtly ambitious initial roadmap that has not been fully implemented; 2) a changing global economic and political environment in which South American countries are only marginally relevant (though recent global demand for commodity and energy exports might be offering new opportunities); and 3) the absence of clear win-win outcomes for MERCOSUR's members. In spite of these shortcomings, however, Peña noted that MERCOSUR continues to be a significant source of rules for intra-regional trade. It also contributes to regional political stability in South America, by serving as a symbol of integration among its members. The broader South American continent is becoming increasingly important to MERCOSUR's development, simultaneously posing new challenges to its original members. Peña emphasized the need for MERCOSUR countries to continue working towards a common market despite the increasingly divergent national interests among traditional and new members.

Reflecting on its institutional evolution, Sergio Abreu noted that the initial impulse for MERCOSUR was the linear progress in trade liberalization that peaked in 1994. The institutional agenda was inspired by the European model that had supranational characteristics; the organization also reflected a bilateral bargain between Argentina and Brazil within the framework of changing international trade patterns. Uruguay focused its efforts on developing an institutional framework that would keep MERCOSUR from perpetuating the bilateral dominance of the larger countries. However, Senator Abreu argued that MERCOSUR today is a much different body, in which energy and infrastructure, not trade, have become the center of regional leadership at the same time that leadership itself is contested in the region. MERCOSUR is characterized by institutional uncertainty, the inability to commit to dispute resolution and investment policies, presidential diplomacy, and disdain for structural asymmetries that cannot be addressed exclusively through structural funds. Considering its expanded membership and the new configuration of South American politics, Abreu stated that commercial integration is no longer a priority. The nationalism of new populist governments in the region is incompatible with regional integration, he argued.

Roberto Bouzas made several observations about MERCOSUR's performance as a customs union and the ideological climate surrounding regional developments. MERCOSUR members have diverse national interests and an asymmetrical willingness to engage in political sacrifices. Thus, there is no shared understanding of what is required of each country to make the group work. According to Bouzas, MERCOSUR's problems are compounded by the lack of hegemonic leadership or the provision of any public goods, in a South American context where economic interdependence is low and the demand for regional coordination is uneven. As a result, the liberalization agenda of the 1990s--which tended to bring countries together--has given way to a developmentalist agenda that differentiates among countries and is based on national individualities. Bouzas envisioned a continued clash of national interests within MERCOSUR, although certain sectors or policy areas would be better able to find common interests. This prognosis might not be so bad, according to Bouzas, as it could help countries focus on the main domestic constraints to integration, thus avoiding past problems of raised expectations and regional illusions.

José Raúl Perales, Senior Program Associate, LAP, with Cynthia Arnson, Program Director

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