Category Archives: MERCOSUR

Pointed analysis of Mercosur from former Uruguayan President Sanguinetti

Former Uruguayan president Julio Maria Sanguinetti (1985-1990, 1995-2000) has published a very insightful article about the state of Mercosur on the Infolatam.com site.

Sanguinetti starts with a quick review of the bloc, noting that the first eight years from 1991 to 1998 were marked by numerous successes, but when Brazil devalued the real in 1999, the institutional fragility of the bloc became clear. Dispute resolving systems were barely in place and didn’t work. Argentina then shifted to a highly protectionist trade policy within a common market. What little institutional and legal strength Mercosur retained took a serious blow with the opportunistic suspension of Paraguay earlier this year.

The Treaty of Ushuaia was implemented to vouchsafe the democratic nature of member-states after a nearly successful attempted 1996 coup in Paraguay. This is the mechanism that was used by Argentina and Brazil to suspend Paraguay and let Venezuela into the bloc. But, as Sanguinetti points out, the Treaty requires that extensive consultations with the questioned country take place before it is suspended. His problem with the procedures followed in Mendoza is that these consultations did not take place and that massive political pressure was used to silence Uruguayan objections to a clear violation of the Mercosur treaties by Argentina and Brazil.

As intrinsically distasteful as Lugo’s impeachment may have been, Sanguinetti reminds us that it took place through the constitutionally appropriate mechanisms in what amounted to a political trial. It should not have mattered that Lugo was seen as something of a friend by Dilma and Cristina.

A quick Google Translate rendition of Sanguinetti’s last paragraph is worth including for the non-Spanish reading:

“What happened in Mendoza is a setback in the process of regional integration and the international validity of the statutes and the recognition of their underlying principles. In the name of democracy, [Argentina and Brazil] have ignored all the values ​​that underpin it. There are no laws or principles. In the name of solidarity or political enmities, [they are] acting without the constraints of law. Neither has the principle of nonintervention been left standing. From now on, anything goes.”

What Sanguinetti is getting at is a much deeper systemic problem with inter-American affairs and a central remaining challenge to total democratic consolidation in the region. Elections are an important part of democracy, but their significance is limited when you have an attitude in the political class that because they are in charge they can do whatever they want.

The operating concept here is what Guillermo O’Donnell called ‘horizontal accountability‘, the idea that there are rules, procedures and institutions that restrain the arbitrary actions of the state in a clear and predictable manner. There are clear signs from Argentina and Brazil, let alone Paraguay, that elected leaders at all levels have not quite internalized the idea that in a fully consolidated democracy there is a system of checks and balances that restrain executive caprice. Indeed, the big story right now in Brazil is about the mensalão corruption scandal, which charges that political advisers around Lula were running a ‘cash retainer’ system to buy votes in congress to get the get governmental legislation through.

The short-shrift given to regulatory and legal restraints by some political actors is amplified when we turn to the international arena. The open secret in inter-American affairs is that most issues are settled through presidential diplomacy, hence the large number of regional summit meetings. Legal and institutional structures are not put in place to effectively govern bilateral and multilateral relations (for example, what is the institutional and juridical strength of CELAC and Unasur?), and when they are in place, they are either ignored or marginalized. This latter case is exactly what we see happening in Mercosur. We don’t have the bandwith to list all of the unresolved intra-Mercosur trade spats that have blithely ignored the bloc’s internal dispute resolution and juridical mechanisms. Suffice it to say that member-countries have had to either threaten or go to the WTO dispute body to get satisfaction. Sanguinetti’s point, which is particularly problematic for a small country like Uruguay, is that the legal frameworks for important groupings such as Mercosur have become just so much window dressing in the face of presidential want and desire in big countries such as Brazil.

There is also an important foreign policy point in Sanguinetti’s comments. Brazilian diplomats are very clear that the international sovereignty norm is sacrosanct — one state may not intervene in the internal affairs of another state. Yet, this is precisely what has happened in the Paraguayan case. Indeed, the deeper irony is that while the historical case was that the political right pushed hardest for regime change, the tide has now shifted and it is the left that has the most pronouncements and interventions for its neighbours. This has been particularly evident in the Brazilian case where the willingness of Brazilian presidents and presidential advisors to make direct intervention in the internal political developments of other regional countries has been rising since 2003.

Taken its totality, the critique leveled by Sanguinetti goes a long way to explaining why the increasingly technocratic and regulatory sound states of Chile, Peru, Colombia and Mexico have bound together to for the Pacific Alliance rather than tying themselves more tightly to the ever-more politicized groupings such as Mercosur and even the now predominantly political Unasur. Why to the expense and pain of negotiating and signing onto rules and norms when they are unlikely to have any impact?

–Sean Burges

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Filed under Analysis, Argentina, Brazil, Democracy, Foreign Policy / Diplomacy, MERCOSUR, Paraguay, Uruguay

Paraguay rejects Venezuela’s membership in Mercosur

The Paraguayan senate must be feeling a bit like the caged lions and tigers currently stuck in customs limbo on the border with Argentina. It was holding the power of entry or exclusion over Venezuela’s membership application to Mercosur, but lost it after a remarkably opportunistic impeachment of president Fernando Lugo earlier this year. Now, like a big cat trapped in a cage, it is roaring through the bars of its political confinement, finally voting on and rejecting Venezuela’s application to join Mercosur.

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Franco reportedly governing Paraguay well; election set for April 2013

Irrespective of your personal take on what happened in Paraguay to oust Fernando Lugo from the Palacio de López, it does appear that his successor Federico Franco is taking the job of president very seriously. Boston.com is reporting that Franco has succeeded in pushing through a number of key policy items that have alluded previous presidents.

  • Paraguayans earning more than US$4,000 a month are now going to have to pay income tax, which is a major change for a country that previously had no personal income tax in place.
  • Vague suggestions of progress on land reform and security provision in the north are mentioned.
  • Franco is also pushing talks with Rio Tinto/Alcan to build an aluminum smelter.

While Yves Engler has deplored the aluminum project as an example of something akin to Canadian imperialism, these sort of reactionary ideological readings fail to account for Paraguay’s abject failure to use its hydroelectric potential for national development. The $3.5 billion project represents the first serious attempt to use Paraguay’s massive electricity surplus from the Itaipu dam as a boon to national development rather than as a de facto gift to Brazil. Fox News (yes… a right wing ideological network as a counter to Engler is possibly not good form, but look at the data points in the link, not the invective, or try UPI for something similar) is reminding us that under the Itaipu treaty Paraguay has to sell from the dam that it does not use to Brazil at the very low rate of $25/MWh. Paraguay gets 50% of the binational project’s output, but only uses a scant 14%. Although Engler is right that the price being floated to Rio Tinto / Alcan is still low, but at $43/MWh is nearly twice what Paraguay is earning now. More to the point, the smelter project offers a possibility of industrial development and economic expansion that has simply failed to appear after two decades in the trade bloc Mercosur. This is the same bloc which suspended Paraguay’s political rights after Lugo’s impeachment, but left trade (and presumably energy trade) rights in place.

What Franco is doing is an important step for Paraguay. The aluminum project is a Major deal for Paraguay and a significant headache for Brazil, which relies on cheap Itaipu surplus electricity to keep the lights on in São Paulo. Even so, Brasília will likely happily deal with this headache if it will help bring further stability to Paraguay.

The stability and democratic consolidation question remains the big one in Paraguay. A presidential election date of 21 April 2013 has now been announced. More importantly, Franco has been crystal clear that he will honour the constitution, which precludes a president from ever running for reelection. So far there are no indications that Franco will follow some other regional leaders and look for favourable readings of the constitution or new magna cartas to allow a reelection bid. This leaves the question of whether or not Franco will use his position to ensure that the 2013 vote takes place without any of the explicit and implicit spending sprees and manipulations that have formed the backdrop to ballots since Andrés Rodriguez was quickly elected in 1989. We will be watching.

–Sean Burges

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Filed under Analysis, Brazil, Democracy, Development, Foreign investment, MERCOSUR, News brief, Paraguay

Venezuela into Mercosur: devil in the details and hints of a Paraguayan push-back

Although Venezuela appears to be quickly on its way into Mercosur thanks to the suspension of dissenting Paraguay’s political rights in the bloc, things may move more slowly than desired. A report from Brazilian business daily Valor Econômico points to the devil in the details. Political declarations need to be translated into bureaucrateeze, which in this case means that Venezuela has to sort out how to translate its trade coding terminology into the Common Mercosur Nomenclature. Brazil is apparently looking for five days of negotiations a month until the end of the year to ensure progress. Such an aggressive approach is perhaps necessary to keep focus if we look back to the problems of the Lula/Chavez-brokered PDVSA-Petrobras refinery and the collapse of the anel energetico South American gas pipeline ring.

Paraguay’s congress also appears to be pushing back on its Mercosur castigators, threatening to finally vote on Venezuela’s petition to join Mercosur. They reputed promise is to deny the petition. So far the vote has not taken place, which is perhaps a judicious decision given the increased presence of Brazilian anti-contrabanding and drug interdiction forces in the tri-border region as part of a likely strategy to pressure Paraguay’s illicit elites, which may well be leaning on the nation’s political representatives.

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Filed under Brazil, Foreign Policy / Diplomacy, MERCOSUR, Paraguay, Venezuela

Prizes and prices for Venezuela’s entry into Mercosur

As expected, Venezuela was formally admitted to the South American trade bloc Mercosur yesterday despite concerns from Paraguay, which is politically suspended from the bloc on charges of being anti-democratic. Indeed, Paraguay is thinking challenging Venezuela’s entry through a judicial review of the decision using the Mercosur institutional frameworks and may (being very optimistic here) get the newest member kicked out. Don’t hold your breath.

It does look like Chávez is moving quickly to settle his debts with Dilma over his admission to Mercosur. He arrived (fashionably late) in Brasíila for the summit meeting with signed contracts in hand. What was the initial payment on his account? Six Embraer 190 aircraft priced at US$271.2 million, with an option to buy 14 more for a total cost of US$904 million. One of the interesting sidelines to this deal will be the US reaction, who may be able to block the purchase through its control of licensing on key parts of the aircraft systems such as navigation aids. This is precisely what the US did when it blocked the sale to Venezuela of 24 Super Tucano prop fighters in 2006.

More to the point, Brazil is getting set to move quickly to take advantage of this new market. Buried at the end of a story on Brazil’s industrial policy is the strong hint from Minister for Development, Industry and Foreign Trade Fernando Pimentel that an August mission to Venezuela is in the works to explore the new opportunities opened by Mercosur’s enlargement.

Speaking of enlargement, the Brazilian foreign ministry Itamaraty noted that Venezuela’s entry might prompt other observer countries to think about becoming full members, which would fulfill ambitions from as far back as the 1980s to create some kind of a viable South American trade bloc centered on Brazil. In all likelihood Itamaraty planners were thinking of Bolivia and Ecuador as the next entrants, but it is interesting to note that the other observer members are Chile, Colombia, Mexico and, the surprise, apparently New Zealand.

Finally, the prize for neatly working a trenchant editorial line into upstanding newspaper journalism goes to O Estado de São Paulo. A major story on Venezuela’s joining of Mercosur started with the line: “Quatro presidentes anunciaram nesta terça-feira, 31, em Brasília que o Mercosul agora tem cinco integrantes,” which translates to “This Wednesday the 31st in Brasília four presidents will announce that Mercosur now has five members.” Never has Paraguay had such a loud voice in Mercosur deliberations.

–Sean Burges

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Filed under Analysis, Brazil, Ecuador, Foreign Policy / Diplomacy, MERCOSUR, News brief, Paraguay, Trade

News Brief: Venezuela on for Mercosur; Air Dilma ready to launch in Brazil?

Brazil appears set to hold course and bring Venezuela into Mercosur at a special meeting of the bloc at the end of July. Venezuelan president Hugo Chávez has reportedly tweeted that Dilma has invited him to the Merocsur meeting.

 

Meanwhile, Dilma’s recent lengthy voyages appear to have caused her to loose patience with the ‘Air Lula’ Airbus A319 that bought shortly before Lula started his globe-trotting presidential foreign policy ways. Apparently four different sources have told Reuters that Dilma is talking to Boeing about buying the same sort of 747 as used for Air Force One. Dilma’s gripe is that she will be undertaking at least one trip a year to India and China and that Air Lula lacks the legs to do the trip with anything less that two refueling stops. This wastes time and, worse for the nervous flyer Dilma, requires more take offs and landings.

The wider story flagged by Reuters is that Dilma’s talks with Boeing might be a sign that the US aircraft maker is going to crack the Brazilian market and might also show that it has a leg up on the competition for the Brazil’s long-delayed FX-2 fighter contract. Of course, it could also become a consolation prize if the lucrative air force renovation project goes to the French or Swedish bidders. This particular soap opera has being going on since the dying days of the Cardoso administration.

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Filed under Brazil, Foreign Policy / Diplomacy, MERCOSUR, News brief, Venezuela

Paraguay’s suspension from Mercosur: Implications for Australian trade policy

ANCLAS Senior Associate Sean Burges has just had a short analytical article published by the site The Conversation looking at what impact Paraguay’s presidential disruptions might have on Australian trade policy in the region. His conclusions are that there could be problems:

“Brazil’s enormous internal market and large economy is the real prize for Australian trade policy, with Uruguay being a pleasant addition. The catch is that any trade agreement with Brazil or Uruguay would have to come through a deal with the entirety of Mercosur. Venezuela’s full membership in Mercosur makes a deal with Australia as likely as a 2014 repeat of Uruguay’s 1950 World Cup defeat of Brazil in Rio de Janeiro’s Maracanã stadium.”

The full article, entitled “Paraguay’s ‘coup’ puts a dent in Australian-South American trade dreams” can be seen here.

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Filed under Brazil, Democracy, MERCOSUR, Trade, Uruguay, Venezuela

Brazil being a forward thinker by pulling Venezuela into Mercosur?

Dilma Rousseff’s government in Brazil has been heavily criticized by a large number of internal and external critics for cynically branding Lugo’s ouster in Paraguay a coup. This was promptly followed by the decision, along with Argentina and a reluctant Uruguay, to suspend Paraguay’s political rights in Mercosur, thereby negating the Paraguayan Congress’s veto over Venezuela’s  accession to the South American trade bloc. Uruguay’s justified complaints of marginalization aside, Venezuela’s entry into the bloc raises serious questions about the economic rationality of the grouping. Hugo Chávez is likely to be a huge barrier to a further widening of the bloc and a successful tackling of the myriad internal economic contradictions plaguing the trade arrangement. The chief complaint is that the Dilma/Cristina decision has effectively killed the economic logic of Mercosur and turned it into little more than a political plaything.

A quiet riposte to this critique is being whispered into the ether by Mercosur country officials (posted outside Australia). Their argument is that Brazil took a long view on Venezuela’s membership in Mercosur. Venezuela has become a good export market for Brazil, and officials not only hope it will continue to grow, but also will grow faster in the post-Chávez era, whenever that is.

Does this make sense?

The quick answer is perhaps, but you need to be a little bit optimistic. While Venezuela is not an insignificant market for Brazil, it is a bit of a volatile one thanks to the vagaries in oil prices.

Drawing on trade data from the Inter-American Development Bank Trade and Integration unit we get a picture of Venezuela as generally being under 2% of Brazil’s exports over the last decade. More to the point, we don’t really see any sustained growth past the 2007-2008 spikes in oil prices which predated the most aggressive period of the Brazilian real’s appreciation against global currencies.

Perhaps of more interest to Brazilian policy makers is  Venezuela’s share of exports from Brazil’s value-added industries. These are the economic sectors that create wider spread employment.

First, the total value-added export picture.

Over the last ten years Venezuela’s share of Brazilian value added exports has oscillated between 1.3% and 5.4% of the total, but in general has been fairly flat and in decline since 2007.

The picture is pretty much the same if we look at Brazil’s market share in Venezuela.

Brazil’s share of Venezuelan imports is relatively stable, experiencing a rise in share from when Lula was elected to the presidency in Brazil, but then entering into a period of sustained, if mild decline.

The significant point is that in the Chávez era the spikes in value-added exports from Brazil closely follow oil prices.

Again, the picture is rather mixed. Exports to Brazil as a percentage of total Brazilian exports vary with shifts in oil prices. But, what matters for Brazilian exporters struggling with competition from China is the rising importance in sectors such as textiles and ceramics.

There are two problems with this rosy spin. First, Venezuelan imports appear to be tightly tied to oil prices and are in decline.

The second is that Brazil appears to be losing value-added market share in Venezuela.

The overall message from the IADB/Intal trade data is that while the Venezuelan market matters for Brazil, it is not nearly as important as Argentina, Europe or the US. Clearly the hope behind the whispers is that this will change with Venezuela’s full accession to Mercosur. Of course, this leaves the question of how the bloc’s internal trade spats are going to become easier to manage with the entrance of another member, and a decidedly vocal and anti-capitalist member at that.

The spoiler in the negative analysis presented here is an account of business that Brazilian construction companies are doing in Venezuela and FDI flows, both of which are extremely difficult to track with any accuracy. Although exports in services (i.e., engineering services) do not show through the IADB trade stats, the transport equipment line in the last chart gives a sense of the importance of service exports — Brazilian firms have played a major role in projects such as expansion of the Caracas subway system.

Still, trade flows are not overwhelming and do raise questions about why there was suddenly a need to rush Venezuela into the bloc over the objections of Paraguay’s congress. Asunción’s beef was with Chávez (partly as a proxy for Lugo), not Venezuela, presumably making it likely that the Paraguayan Congress would have removed its veto fairly quickly once Chávez is out of office. Maybe Brazilian policy makers feel they can capture markets and contacts before the post-Chávez era begins. Of course, links to Chávez of any kind could be a major handicap should there be a major political change in Venezuela.

At the moment the whisper’s slipping into the ether are a tempting, but not quite a convincing explanation.

–Sean Burges

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Filed under Analysis, Brazil, Foreign Policy / Diplomacy, MERCOSUR, Trade, Uncategorized, Venezuela

Good OpEd from Canada on events in Paraguay

Michael Harvey, president of the Canadian Council for the Americas and one of the top minds on Latin America in Canada, has just published an OpEd on events in Paraguay in Embassy Magazine, a weekly publication focusing on Canadian foreign policy and the diplomatic community in Ottawa. An earlier version of Michael’s OpEd is below.

Paraguay: Worse than a Coup d’état, a Blunder
Michael Harvey, President, Canadian Council for the Americas

In Paraguay on June 22, 39 Senators of 43 voted in favour of impeaching President Fernando Lugo. The day before, 76 Representatives of 77 did the same. With such a clear vote, strictly complying with Paraguay’s constitutional requirements for impeachment, why are countries like Venezuela, Argentina and Brazil claiming there has been a coup d’état?

The root of the current crisis was a confusing incident between police and peasants who had occupied land. 11 peasants and 6 police officers died, with accusations about who fired first not leading to much clarity. However, this bloody incident was simply an excuse that allowed Congress to remove the President under Paraguay’s rather vague constitutional grounds of “poor performance of his functions.”

The Congress took only 30 hours between beginning to deliberate and declaring Lugo “guilty” of being a bad President. Worse, they gave him only 2 hours to prepare his defence. What some refer to as a “kangaroo impeachment” was imprudent and far from serious, but was it “illegal” or a “coup d’état,” meriting the invoking of democracy clauses that call for the suspension of non-democratic countries from bodies such as the Organization of American States (OAS)?

I would argue that it was not illegal, much less a coup. There was no violence. The military was not involved. Former President Lugo is not in jail, nor being expelled from the country. The Vice-President took over. The Supreme Court said the proceedings respected the constitution, which was expressly drafted to give Congress greater control over Presidential actions (not surprising as the country was coming out of the bloody Stroessner dictatorship).

Impeachment is not criminal law. It is political. Richard Nixon was impeached, and Bill Clinton was not, in hearings that did not exactly meet the standards of serious criminal law.

In the end, the legality of the issue hardly matters when it comes to international response. The Paraguayan Congressmen should have remembered the legendary reaction of Talleyrand when he learned of the murder of the Duc d’Enghien by Napoleon I. “It was WORSE than a crime, it was a blunder!”

The Paraguayan Congress has created a major crisis with its country’s neighbours. Brazil and Argentina are by far the most important external actors in Paraguay and are leading the charge to exclude new President Federico Franco from participating in the meetings of the South American Common Market (Mercosur) and the South American Community of Nations (Unasur). They are being egged on by others, especially Venezuela, Bolivia and Uruguay. These countries have argued that Lugo’s right to due process was violated, making this a “legislative coup d’état.”

The hypocrisy of this position is quite impressive. Mercosur’s Presidents have invited Venezuela to join the organization, despite the fact that Venezuelan “democracy” features a judiciary that takes orders from the President, and a National Assembly whose powers are regularly transferred to the President as well, behind a very thin constitutional facade.

What role should Canada play in this sad affair? Rather limited. Has the Paraguayan Senate overstepped the limits of the acceptable? Yes. Has Mercosur overreacted, with considerable hypocrisy? Yes. Nonetheless, the other members of Mercosur are Paraguay’s peers, and most important partners. Canada does not even have an embassy in Paraguay.

Ironically, the OAS, whose Secretary General Insulza has flown to Paraguay to investigate the situation, has been handed a bit of an opportunity thanks to Paraguay’s neighbours’ overreaction. Insulza should report back to member states that Paraguay’s Congress went too far to avoid criticism but constitutionality is not at issue. He could usefully point out that democracy entails a balance between the executive, legislative and judicial powers and that Paraguay is not the only country in the Americas grappling with these issues. Canada could take advantage to draw attention to the glass houses inhabited by some of the most eager stone throwers.

Unfortunately, no quick solution is in sight. Unless Paraguay’s neighbours go so far as to invoke sanctions, which is unlikely as it would cause real pain to themselves, Paraguay’s new President Franco should be able to wait out the storm and run the country normally until elections take place next year. In the end, not being invited to the profusion of Latin American summits may turn out to be more of a relief than a punishment.

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Lugo’s ouster in Paraguay — the Mercosul implications viewed from Uruguay and Brazil

More details are starting to come out with respect to last week’s Mercosur summit meeting and the decision to suspend Paraguay’s political rights. The online newspaper Mercopress has a series of fascinating reports on Uruguay’s reaction to the whole process, which can be summarized as follows:

Story #1 — Uruguay agreed to Venezuela’s July 31 entry into Mercosur as part of a negotiation to prevent Argentina and Brazil from imposing economic sanctions on Paraguay. Why? The political class staged the disruption so why punish the people, mused Uruguay.

Story #2 — There was not a unanimous agreement between the three remaining Mercosur presidents (Dilma, Kirchner, Mujica) that Venezuela should join the bloc, although Argentina and Brazil contest this.

Story #3 — Brazil and Argentina will benefit most from Venezuela’s accession to Mercosur. Brazil has a large trade surplus with Venezuela (and its firms get paid with regularity).

Story #4 — Uruguay vice president Astori is calling the outcome of the last Mercosur meeting a major blow against the already fragile institutional framework of the bloc.

Story #5 — Uruguay is claiming that it was Brazil that pushed so hard to bring Venezuela into the bloc. (This fits with much of the sustained pressure from various presidential advisors in Brasília.)

Story #6 — Former Mercosur cheerleaders and ex-Brazilian diplomat, Rubens Barbosa is now publicly worrying that Argentina is going to kill the trade bloc. Barbosa is currently head of the foreign trade council of the São Paulo Federation of Industrial Entreprises (FIESP), one of Brazil’s most important business groups.

Story #7 — The opposition in Brazil’s congress is complaining that the Dilma government is reducing Mercosur to little more than a political plaything. The bloc was once a critical part of Brazil’s foreign economic engagement strategy.

 

Rapid Analysis: Mercosur is not really in any more trouble than it has been for the last several years. The difference with this latest instance is that the internal discord and contradictions are now becoming very public. Ultimately, it will take a political decision from Brazil that trade deals with other countries are critical for things to move in Mercosur. Argentina matters and Paraguay and Uruguay have demonstrated they can exercise a veto, but none of these countries, or Venezuela for that matter, will be willing to block a major shift in Mercosur policy direction if it is something that Brazil really wants.

–Sean Burges

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Filed under Analysis, Argentina, Brazil, Foreign Policy / Diplomacy, MERCOSUR, News brief, Paraguay, Trade, Uruguay, Venezuela