Monday, July 16th 2012 - 03:05 UTC

Mercosur reduced to a group “of bear-hugging and kissing compañeros”

The influential British business and politics magazine The Economist anticipates that following the latest decisions by Mercosur, the South American group has little if any future. The Economist argues that the mounting protectionism and the rule-breaking admission of Venezuela have fatally undermined a once-promising trade block.

It was such a good idea

The full article from last Friday follows:

It was such a good idea. In 1991 Brazil and Argentina set aside decades of rivalry and, together with smaller Uruguay and Paraguay, founded Mercosur as a would-be common market. The project went hand-in-hand with a broader opening of inward-looking economies. Diplomats got to work on harmonizing trade rules. Cross-border trade and investment boomed.

Yet Mercosur, like the European Union (EU) on which it was modeled, ran into difficulties. Brazil’s devaluation in 1999 caused Argentina to seek, and obtain, emergency restraints on imports from there. Politically negotiated exceptions to the block’s rules became the norm. Nevertheless, a dispute-settlement body and a small secretariat were eventually set up. In 2010 the presidents finally agreed on a common customs code, to avoid outside goods having to pay tariffs more than once.

But under left-wing governments, Brazil and, especially, Argentina have become more protectionist. They have come to see Mercosur as a fortress, rather than a bridge: outside South America, the only trade deals concluded by the block in the past decade were with Israel and the Palestinian Authority. Negotiations with the EU, begun in 1999, have languished. Although intra-Mercosur trade has continued to rise in absolute terms, it represents a much smaller share of each member’s total exports than at its peak in 1997. That is partly because the commodity boom has lifted the group’s exports to the rest of the world. But it also because Mercosur has not evolved into the seamless single market its founders dreamed of.

Since January 2011 Argentina has increased (to 600) the items for which import licences are not automatic—a measure accepted by the World Trade Organization (WTO) that allows countries to detain imports for up to 60 days. Exporters to Argentina complain that the delays are even longer. Since February, it has required importers to swear an affidavit with the tax agency before ordering goods. That has prompted a host of complaints against Argentina at the WTO. Its Mercosur partners have not been exempted: so far this year, Brazil’s exports to Argentina are down 15% on the same period in 2011, while Uruguay’s are down by 10%. Brazil has responded by imposing some barriers on Argentine exports.

Mercosur now faces a new, self-inflicted, problem—one that could potentially break it apart. Meeting on June 29th in Mendoza, Argentina, the presidents suspended Paraguay for a year, following the lightning impeachment the previous week of Fernando Lugo, the country’s left-wing president. His ousting, by 39 votes to four in the Senate, was abrupt and misguided—but constitutional. Nevertheless, the others decided it offended Mercosur’s “democracy clause”. They went on to admit Hugo Chávez’s Venezuela as a full member of the group; Venezuela’s application had been held up for years because Paraguay’s Senate had refused to approve it.

Violating due process

All this was legally questionable. Mercosur’s rules require decisions to be unanimous, with all members given a fair hearing. The envoy of Paraguay’s new government was turned away in Mendoza. Its foreign ministry denounced the suspension as “not only illegal but illegitimate and in violation of due process”. Bernadino Hugo Saguier, the country’s ambassador to the Organisation of American States, said: “if we took a poll, 90% of Paraguayans would vote to quit” Mercosur.

What makes these decisions more perverse is that Venezuela’s democracy is as flawed as Paraguay’s, albeit in different ways. Mercosur was set up to be a group of liberal democracies advancing free trade in South America. Mr Chávez is unenthusiastic about these causes. He has variously called for a “new Mercosur”, with a dose of “political Viagra” that would “decontaminate neo-liberalism” in the block, and instead “prioritize social concerns”.

Although Mr Chávez agreed in principle to adopt Mercosur common external tariff, his government has yet to implement this—or indeed any but one of the 131 formal decisions taken by the block so far, according to Paulo Roberto de Almeida, a dissident Brazilian diplomat. Under Mr Chávez, the state has taken over many industries, and non-oil exports have shriveled. But Venezuela’s oil wealth has offered opportunities to Argentine and Brazilian companies, especially in government contracts. Its entry is of “strategic interest” to Mercosur, Brazil’s foreign minister, Antonio Patriota, said this week.

To a greater or lesser extent, the governments of Brazil and Argentina share Mr Chávez’s view that Mercosur should primarily serve the cause of political union, and act as a rival project to what they see as the free-trade agenda of the United States in Latin America. “The founding idea that Mercosur would be an instrument of trade liberalization has disappeared,” says Rubens Barbosa, a former Brazilian diplomat involved in the block’s creation. “What we have today is a political and social forum, and micromanagement of trade.”

The decision to admit Venezuela is already prompting buyer’s remorse. Uruguay’s vice-president, Danilo Astori, called it perhaps the most serious “institutional wound” in Mercosur’s history; the country’s foreign minister also criticized the way the decision was taken.

Turning Mercosur into a political union has in practice meant that its decisions are based on the preferences of the current left-of-centre governments, rather than on long-term national interest. It also means that it is hard to spot the difference between Mercosur and the South American Union, a broader but shallower group.

This is a costly moment for Mercosur to neglect its primary purpose. In June Brazil’s seasonally adjusted trade fell into deficit for the first time since 2000, says GlobalSource Partners, a consultancy. The commodity boom looks to be drawing to a close. Credit growth is slowing; retail sales fell in May. Brazil’s manufacturers are losing markets to China.

The fastest-growing part of South America is the free-trading Pacific countries (Chile, Colombia, and Peru), which have shunned full membership of Mercosur. Brazil has chosen as its main allies protectionist Argentina and Venezuela, which practices an archaic state socialism. To revive economic growth, Brazil needs to put more stress on competitiveness and market-opening trade diplomacy. Mercosur once aspired to do precisely that. A group that now consists of little more than bear-hugs and kisses among compañeros serves little purpose in a harsher world.

33 comments Feed

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1 STRATEGICUS (#) Jul 16th, 2012 - 05:34 am Report abuse
The Economist employs some of the savviest economic and political brains in the news industry. They usually can spot developments well before other less august magazines which is why they are listened to by clever decisionmakers around the world. It looks like Mercosur is doomed along with Kirchnerist Argentina and Chavezian Venezuela.
What a bad crowd for decent countries like Brazil and Uruguay to get mixed up with.
2 JoseAngeldeMonterrey (#) Jul 16th, 2012 - 09:52 am Report abuse
The Economist is right, Brazil needs to stay away from protectionism and outdated socialist economic models that only result on more poverty. The world is a race to compete in production globally integrated products that take advantage of regional industries in each geography in the world. The best computers in the world have components made in three continents, but these products and services can only be achieved through openness, education, access to imports of parts with technological value.

The road Mercosur has chose is precisely the opposite.
3 Conqueror (#) Jul 16th, 2012 - 10:09 am Report abuse
Are either Brazil or Uruguay “decent” in the accepted sense of the word. From an outside perspective, it looks like Mujica has CFK's boot firmly on his neck whilst Rousseff is going for Brazilian “expansion”. Watch the moves in respect of Paraguay's “brazilguayans”. Chavez, of course, wants to be an “emperor” and he doesn't care if he destroys Venezuela along the way. He already has a totalitarian one-party state. Harking back to the days of the Roman Republic and Empire, one can see the similarities. In the days of the Republic, the ruling authority was the Senate. Through Lucius Cornelius Sulla, Gaius Marius and Julius Caesar, the Senate diminished in importance, overtaken by the “strong men”. When Octavian, i.e. Augustus, came to power, the days of the Senate were over. It was still there. It was still elected. But it did what Augustus told it to do. And so with Venezuela. When the opposition parties boycotted the 2005 parliamentary elections, democracy was over. Venezuela's National Assembly now consists of the “Chavez party”. CFK is also not prepared to accept “opposition”. Witness her attempts to oust Moyano. Did I not read, in the last few days, that trade union opponents have said that he should not be holding a CGT conference because “the Labour Ministry says it is not lawful”? Since when, in a democratic country, does a government department get to dictate the internal affairs of a trade union? Moyano's opponents are, of course, Kirchnerists or CFK lackeys. LatAm is headed toward implosion and outright totalitarian dictatorship. As well as economic meltdown. We should see this as fortunate. Economics are not susceptible, except in the short term, to politics. Whereas politics are always susceptible to economics. When the people of argentina, “uruguay” (if it survives) and Venezuela are starving, the idealogues will be swept away. If the people have the guts!
4 GeoffWard2 (#) Jul 16th, 2012 - 10:15 am Report abuse
The Economist is right.
Mercosur has taken the path of death, decay and turgidity.
All right-thinking South Americans would be wise to work towards reversing this death-wish.
5 Room101 (#) Jul 16th, 2012 - 10:55 am Report abuse
Whilst the present “function” of Mercosur is practically non-existent , the stabilisation of South America does require some kind of “States in Unison” otherwise it will continue as disparate and desperate self- seeking and largely undemocratically administered Continent. So, I don't agree that the Mercosur idea, originally, was a bad one, or with the present Argebntina view that a Parliament wouldn't work there. On the Contrary.
6 British_Kirchnerist (#) Jul 16th, 2012 - 11:36 am Report abuse
“the only trade deals concluded by the block in the past decade were with Israel and the Palestinian Authority”

Hopefully with Chavez in and his advanced views on the issue they might now break the link with apartheid Israel
7 Be serious (#) Jul 16th, 2012 - 12:22 pm Report abuse
Chavez for Mercosur President.
8 Simon68 (#) Jul 16th, 2012 - 12:43 pm Report abuse
6 British_Kirchnerist (#)

On the showing of Chávez, the next deals will be with Syria and Iran, both of which are such *cough, cough*“ pure left wing states”, *cough, cough*
9 Condorito (#) Jul 16th, 2012 - 12:55 pm Report abuse
The Economist with quality as always.

BK: go live in Venezuela.
10 yankeeboy (#) Jul 16th, 2012 - 01:43 pm Report abuse
I have been saying for months MeroSur is dead, it is like drowning man caused by Argentina and CFK is trying to pull the rest of them down with it. It will be gone shortly hopefully right along with CFK and Chavez.

Interesting read today about some shlub from YPF going to TX with his begging pot. He was asked 2 questions, did he get approval of his projected sales prices ($bbl) from CFK and when will it see profit. He didn't answer either one. I am guessing his trip was an embarrasing failure.
Funny don't all these RGs think they can get along w/o out the USA? They should close the boarder and stop the embarrassing begging all over my country. They're just getting laughed at.

Did you know that the 1st visit of CFK to the USA they told her to take off most of her make-up and change her clothes so she wasn't mistaken for a hooker?

BTW the gov't has stopped reporting expenditures!! Huge deal more secrecy, all the $ is goooonnnne.

Also the dialysis organization is in danger of shutting down in a week because they are out of funds since gov't hasn't paid for their insured.

11 ljordao (#) Jul 16th, 2012 - 02:06 pm Report abuse
The recent history of Mercosul deserves a whole new chapter in the next edition of “Guide to the perfect Latin American idiot”.
12 XAVIERV (#) Jul 16th, 2012 - 02:21 pm Report abuse
True, we are not Europe to do the right things at all times (See what happens in Greece, Spain, Italy) If you Islanders for all the American things we do is never good, it's time to ask yourself: What are they doing here islanders? pirate go home!
13 expbrit (#) Jul 16th, 2012 - 03:28 pm Report abuse
@12 WHAT??!!! Comments are supposed to be in English.
14 briton (#) Jul 16th, 2012 - 05:25 pm Report abuse
The blind , leading the blind .lol.
15 Truth_Telling_Troll (#) Jul 16th, 2012 - 07:24 pm Report abuse
Apparently the Economist can “spot” everyone else's problems, but are useless in spotting their own problems.

Everyone in the world knows the UK banking system played a big role in the world economic crisis that rocked Europe and North America in particular, but other regions also. Because authorities in those countries are incompetent and worthless (thus no one has been prosecuted, nor even any proof of wrongdoing been ”formalized... this when we all know there was major fraud there), some still dare to suggest shamelesly that UK/US/EU financial institutions are to be trusted.

Then came Liborgate.

All the UK banks (and others), purposefully manipulating banking rates to squeeze other banks, private companies, and consumers. Basically, a big “take this fat stick and push hard through any available hole”, to the average person in those countries.

Anyone who would still argue anglo-saxon finance (a once GREAT system), has any microscopic shred of credibility left (and the Economist is part of the inner cabal), is quite simply on cockails of street powder.

Let the Economist discuss Mercosur's problems, while their own house is burning down.
16 GeoffWard2 (#) Jul 16th, 2012 - 08:04 pm Report abuse
“Whilst the present “function” of Mercosur is practically non-existent , the stabilisation of South America does require some kind of “States in Unison”....” Room101 (#5)

You are under-informed. The relevant POLITICAL 'states in unison' exist. At the various levels they are (i) The OAS. (ii) UNASUR (iii) PARLASUR.

The protocols for TRADE of Mercosur have been conspicuously under-developed, and - latterly - the body has been wilfully and consciously debased and warped, largely at the whim of the Argentinian president.

I totally concur with ljordao (#11):
“The recent history of Mercosul deserves a whole new chapter in the next edition of “Guide To The Perfect Latin American Idiot”.”
Essential reading for all open-minded South and Central Americans, and great perspective for overseas posters here.
17 Joe Bloggs (#) Jul 16th, 2012 - 09:39 pm Report abuse

What a load of bullshit. No charges? Where the hell do you live? There have been several charges and many more to come. The more the better too. To suggest the Economist is covering anything up in the UK is frankly too funny to take seriously. To save you the time I know that the weekly newspaper is partly owned by a UK bank and that it has been criticised by some American journalists for having too many Oxford Uni grads on staff but show me some proof that it is covering up the debacle that is the UK banking system.

18 Condorito (#) Jul 16th, 2012 - 09:42 pm Report abuse
While the Economist is a British publication it is not a mouth piece of the British government. One of the reasons I subscribe to it is that their reporting is objective and insightful.

If independent publication were not to report on foreign matters because there were problems in their home country, no magazine/newspaper in the world would have any international news.
19 Joe Bloggs (#) Jul 16th, 2012 - 09:52 pm Report abuse
18 Condorito

I look forward to getting my electronic copy each Friday. I read it straight after Penguin News.

Tell me something though Condorito. Are you a fan of your country's favourite rogue comic character and namesake or is your tag just a coincidence? I adore those comics and cartoons. If I had to name the top ten things I think of when I think of Chile I think Condorito would make the list.
20 Pete Bog (#) Jul 16th, 2012 - 09:53 pm Report abuse
1/-“What are they doing here islanders? pirate go home!”

1/-The Falkland Islanders are home.

2/-Remind me where most of the pirates that exterminated the original population of what is now Argentina originated from.

2/- ”See what happens in Greece, Spain, Italy)”

Thanks Xav, that's where the Argentinian pirates should return to when Argentina is returned to its rightful inhabitants -back home!
21 briton (#) Jul 16th, 2012 - 10:04 pm Report abuse
Everyone in the world knows the UK banking system played a big role in the world economic crisis

And now the world knows who is putting a stop to it, and who exposed it all,
Yes TTT the British did,

And the rest of the corrupt world, is doing WHAT .
about there own coruption .
22 Condorito (#) Jul 16th, 2012 - 11:05 pm Report abuse
I like the electronic version, but it is the paper version I really enjoy. There are few publications with such good international coverage and real quality. I would be in favour of them removing the UK section. For the international readership, such a level of detail on UK affairs is not of great interest. Have you ever seen their year book? At the end of the year they publish a special edition on their predictions for the coming year. I have the year 2000 edition which predicted that the worst country in the world in 2001 would be Afganistan. Nailed that one.

I am a big fan of Condorito. I have to wait for my kids to finish it first, then I sit down and read it and have a good old chuckle.

Do you get it down there in the Falklands?
23 Windrider (#) Jul 16th, 2012 - 11:49 pm Report abuse
#15 TTT, You have illuminated the situation perfectly. Somebody fetch the Economist a crying towel, eh?
24 ManRod (#) Jul 16th, 2012 - 11:56 pm Report abuse
Joe Bloggs, Condorito is indeed a Chilean icone and a very popular export along the Americas. He's got even a monument in Santiago, so no wonder it belongs to the 10 things you associate with the country.

Know all the characters... like Che Copete, the braggy Argentine, too?
25 Pirat-Hunter (#) Jul 17th, 2012 - 12:24 am Report abuse
I don't see how accepting Venezuela into mercosur could be considered bad when they have a lot of oil to offer, Paraguay in the other hand couldn't even keep up with the trade of yerba mate not long ago. You live and learn.
26 Condorito (#) Jul 17th, 2012 - 12:44 am Report abuse
@25 Pirat
Brazil has massive oil reserves already, it doesn't need Venezuelan oil.
Venezuelan oil is currently sold on the global market, that won’t change. If Argentina buys oil from Venezuela it will still have to pay the market price. The real winners will be the Brazilian oil companies that will be allowed in to Venezuela to exploit the oil there. At the end of the day it is just big companies peddling influence – good old capitalism hiding behind the mask of Brazilian socialist rhetoric.

Although Chavez’s intentions are probably good – I refer to his desire to redistribute wealth – the fact is that he is failing. Some of his pet projects have had visible success, but the country is stuck with increasing poverty, crime and not very much democracy. His meddling in the internal affairs of other countries is not only hypocritical given his criticism of the US for the same, but will be counterproductive.

The politicization of mercosur makes it unstable. Should a right-of-centre government come to power in Brazil the whole thing becomes unworkable.

So kind of you to refer to me as an icon ;)
27 Ottona (#) Jul 17th, 2012 - 02:54 am Report abuse
What Brazil's national security analyst Col. ret. Fregapani tells Brazil's military and national security community: “Taking advantage of the removal of Paraguay for the inclusion of Venezuela was a master move!” In the same analysis he writes: “We got to be clear that the only potential enemies that we can have are the U.S. , Britain, and their possible allies.” (It is right now in DEFESANET unter Titel “Comentario Col. Fregapani”. DEFESANET is a privately published blog for Brazil's military ). --------------------------------------How come the “Economist” never told us about the LIBOR fixing which went on for years at Barclays in London, only three blocks from the “Economist” ? Really - let's see an explanation! Don't be shy!
28 JoseAngeldeMonterrey (#) Jul 17th, 2012 - 03:20 am Report abuse
The Economist was not supposed to know about the LIBOR scandal simply because they are not a federal investigation agency, nor is their job to be investigating banks or financial institutions as they are not a banking authority in charge of supervising the financial health of the banking system.
They are just a magazine, they publish stories based on facts that are mostly public to anyone, they are not in the business of finding obscure secrets hidden somewhere, they may find them sometimes, but it not their job, nor their moral obligation.
The Economist is a financial and economic magazine. They look at the facts about the economy of countries, success stories as well as stories of failed economies, they look at economic and fiscal policies leaders around the world implement and then publish their valuable opinions. Some leaders may not like their findings and conclusions, but it is not the Economist job to please everyone on earth with their opinions and reports.
29 Truth_Telling_Troll (#) Jul 17th, 2012 - 02:10 pm Report abuse
The difference is that Argentina's inflation scandals only affect Argentina and no one else. So it is none of the Economist's business.

Second, the squabbles in Mercosur only affect Mercosur members, thus again it is “at best” marginally the Economist's business, especially since it is mainly a political piece (I thought they were financial economic magazine).

Whereas cooking financial books is well up their alley, yet when has the economist blasted their peers around “the city” for their practices of the last 10 years? I don't ever recall one article critical of it.
30 Simon68 (#) Jul 17th, 2012 - 03:30 pm Report abuse
29 Truth_Telling_Troll

Argentine inflation DOES affect people outside Argentina, those that hold Argentine bonds that are inflation indexed.
31 Condorito (#) Jul 17th, 2012 - 04:42 pm Report abuse
Whether Arg inflation affects anyone outside Argentina is irrelevant. The Economist (or any other publication) can report on what they want.

The Economist frequently criticises UK/US banks and provides the letters section as a forum for counter arguments to its analysis.
32 Joe Bloggs (#) Jul 17th, 2012 - 09:42 pm Report abuse
31 Condorito

Yep, I think it's a quality publication and to be honest I doubt TIT reads it on a regular basis judging by his comments. I have never read the year book though; I must order the next one.

I always remember a few Condorito comics that make me pee myself laughing. One was Condorito getting dressed one morning and trying to decide which tie to wear. He had them all laid out and was holding them up against his shirt one at a time. He was agonising over the decision and this went on for about 4 or 5 frames. In the final frame he'd hanged himself by his neck tie. I could never decide whether he was choosing the tie with which to hang himself or if he hanged himself because of the trauma choosing his tie caused him. LOL!

In another one Condorito had to do a word puzzle using the letters IGNORANTE. He kept shuffling the letters around and scratching his head with a clock counting down behind him. He tried and tried and was about to give up when he had a flash of light and worked it out. Pepo didn't show the full answer but the last frame showed Condorito frantically arranging the letters with the word ARGENTION. His hands were poised on the O and the N about to switch them.
33 Condorito (#) Jul 18th, 2012 - 12:44 am Report abuse
32 Joe
Argentino - Ignorante - I love it. The humor is very universal and it sells well throughout the Americas, possibly not much in Argentina.

Did you read “The Clinic” while you were here. It is kind of like the English Private Eye. Ruthlessly cruel, funny and anti everybody. After Bin Laden was executed, the front cover showed a trussed up Bin Laden being kicked from a helicopter in to the sea by an American soldier who was exclaiming “¡A la Chilena!” (the Chilean way!).

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