MercoPress. South Atlantic News Agency

Mercosur summit fails to advance in internal trade issues

Pesidential farewell: ...until our next meeting in June in Argentina....

The political coincidences of the two-day Mercosur presidential summit held in Montevideo overshadowed the lack of relevant decisions for the consolidation of the block as a customs union, according to Brazilian sources.

Although there was unanimous support in condemning spurious Honduras elections and in praising exempalry democratic ballots in Uruguay and Bolivia as well as commitment to advance trade negotiations with the European Union, most issues of the domestic agenda remained stalled.

The Common External Tariff, TEC which applies to out of the region imports, according to an agreement reached at the end of 2008 should eliminate what is known as the double charge. This basically means that once a product is inside the block it should not pay further tariffs even if it crosses more than one border. The issue had been strongly debated and a compromise reached was vetoed by Paraguay which, as a landlocked country fears the loss of customs revenue.

The Mercosur Customs Code was finally drafted at the end of 2008 and the following pace was the automatic interconnection of the four countries customs systems through a computer program. Together with the elimination of the double charge of TEC it should facilitate negotiations with the EU and other partners. However differences persist and the code is yet to be enforced.

Moreover the four Mercosur full members decided to extend until December 31st, 2011 the list of TEC exceptions. The original mechanism was for gradual reductions beginning in 2010 and phasing out at the end of the year. However Argentina’s Development minister Deborah Girogi requested an extension of the exceptions because of difficulties in their “integral enforcement”.

Similarly it was agreed to increase TEC for eleven dairy products from 11% to 28% on suggestion from Brazil which argued for better competitive protection from highly subsidized US and European production. Brazil also requested that TEC on certain textiles also be increased from 14% to 18% to combat Chinese competition. And on request from Argentina TEC was increased from 16% and 18% to 35% for backpacks, suicases and bags.

Ms Girogi also reported that Mercosul would extend until 2016 special import regimes scheduled to be eliminated at the end of 2010. This includes the import of agriculture provisions on which Uruguay was counting.

The Focem or Structural Convergence Fund created to finance infrastructure investments for the Mercosur smaller economies (Paraguaya and Uruguay) is expected to accumulate over 500 million US dollars by 2010. However in this last summit no projects of the several on the pipeline were approved. One of them involving 80 million US dollars is for a high voltage power interconnection between the Uruguayan city of San Carlos and Candiotta in Brazil, but Argentina vetoed the operation because of the ongoing conflict over pulp mills constructed by Uruguay on its side of a shared and jointly managed river. Uruguay apparently will now attempt a direct loan from Brazil’s Economic and Social Development bank to finance the investment.

Finally the Mercosur Parliament or Parlasur has also become a headache. At the end of 2008 a new structure (more in line with population representation) was agreed by which Brazil will have 75 seats, Argentina 43 and Uruguay and Paraguay 18 each. But the mechanism to approve legislation has still to be worked out. This among other things delays the direct election to Parlasur scheduled for next year in Brazil in coincidence with presidential elections.