Overshadowed by the Argentine 33 months long recession crisis, Mercosur, Common Market of the South, the ambitious economic integration project which includes Argentina, Brazil, Paraguay and Uruguay, plus associate states Chile and Bolivia, commemorated this week its tenth anniversary.
In March 1991 the Treaty of Asunción set the foundations for a customs union that automatically created the world's fourth largest trade block with a population of 210 million and a virtually unlimited horizon. However ten years later there were no official celebrations or candles: in Montevideo where the Secretariat supposedly functions, the whole Uruguayan cabinet was absent from the flying for the first time, of the Mercosur flag. And in Buenos Aires and Brasilia the top brains were working to pull Argentina out of recession, (and default), even if it meant ignoring Mercosur's spirit and charter. Mercosur has been in trouble since before the unilateral 50% devaluation of the Brazilian currency in January 199 when international speculation in emerging markets (Asia, Russia) exposed the weakness of many developing economies threatening their financial stability.
The block's first spectacular five years of constant growth in trade figures have diluted into stagnation and constant bickering regarding trade among members, besides the fact that macro economic decisions are taken focused on domestic problems and ignoring regional impact. The latest example, "super" Minister Domingo Cavallo's attempt to get the Argentine economy rolling again by, among other things, unilaterally changing the tariff system, increasing it to 35% for most consumer goods, in spite of Mercosur's agreed average 14% (22% maximum), and dropping it to zero for industrial equipment imports.
Brazil momentarily consented, but Uruguayan President Jorge Batlle said "this means a complete change form the original Mercosur idea, and we've effectively turned back into a simple free trade area". Mr. Batlle who favors a partner ship with Nafta countries (Canada, United States and Mexico), and Chile's 9% average tariff policy, added that the situation indicates that the "Chilean option of bilateral agreements, and tariff reduction, seems the most appropriate". Nevertheless Uruguay's situation is fragile, over half of its foreign trade is with Brazil and Argentina.
However, the political impact of these decisions, the undisputed, (almost capricious), predominance of the Brasilia-Buenos Aires axis, and the tacit acceptance or not, by Mer