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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Filed under MERCOSUR, Paraguay, Venezuela

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