Cono Sur

The Common Market of the South: the long and difficult path to integration

Ariel Noyola Rodríguez, Ulises Noyola Rodríguez

31/08/2014

Opinión

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In March of 1991 the Argentine Carlos Menem, the Brazilian Fernando Collor de Mello, the Paraguayan Andrés Rodríguez and the Uruguayan Luis Alberto Lacalle Herrera signed the Treaty of Asunción, the document that served as the basis for the establishment of the Common Market of the South (Mercosur). In a first phase, the initiative, made up of large and medium-sized economies, was motivated by the effort to consolidate a South American economic space based on an open regionalism. Nevertheless, in a second stage, the crises of Brazil (1998) and Argentina (2001) provided evidence of the pernicious effect of indiscriminate opening of trade and capital accounts. Thus the economic debacle on the one hand, favoured the ascent of governments opposed to the policies of the Washington Consensus, and on the other, led to a redefinition of the role of the State in the processes of integration, in the face of the challenges resulting from the capitalist globalization already underway.

With all this, more than two decades have hardly sufficed to make Mercosur an authentic economic community, characterized by the free mobility of goods, capital and persons. The rules of this process of integration work through hierarchies that deepen the asymmetries between its members and bolster the regional hegemony of Brazil and its predominant enterprises (the Andrade Gutiérrez Group, Vale, Odebrecht, Embraer, JBS Friboi, etc.). Meanwhile, Paraguay, Uruguay and more recently Venezuela and Bolivia must face numerous customs barriers to the introduction of their industrial goods into the markets of Brazil and Argentina, a circumstance that favours the commercial surpluses of the latter. For example, as of 2011 Argentina decided to apply special licences to the importation of 600 products. In this way, industries from the rest of the bloc are subjected to the granting of permits from the government of Cristina Fernández.

In mid-2014, Brazil and Argentina agreed to reduce the Flex coefficient from 1.95 to 1.5 points, that is to say, for each 3 dollars of Brazilian exports to Argentina, Brazil should import 2 dollars in order to increase the participation of vehicles and auto parts in the two markets. Anything in excess of this is subject to duties. Definitively, the industrial power of both countries puts limits on policies for reducing asymmetries within the six-party bloc. The Fund for Structural Convergence of Mercosur (FOCEM), established to finance investment projects in the minor economies (Bolivia, Paraguay and Uruguay) has a budget of only 100 million dollars. Of the 44 projects approved from 2007 to mid-2013, only three were successfully concluded. In addition, the Mercosur Guarantee Fund, whose objective is to provide credit to small and medium enterprises (SMEs) has yet to be implemented.

In spite of all this, everything indicates that the process of integration has gained strength during the 46^th Ordinary Meeting of the Common Market, which took place at the end of July in the city of Caracas. Among other resolutions, a Complementary Economic Zone was created between Mercosur, ALBA, CARICOM and PETROCARIBE. The goal is to establish a Latin American and Caribbean union with a basis in complementarity, solidarity and cooperation in order to encourage integral development, and to tackle poverty and social exclusion. The participating States will meet within 60 days to conclude commercial negotiations and the legal details of the agreement.

With respect to the establishment of mechanisms of regional financial cooperation in the face of the worsening of the crisis, emphasis was put on the importance of activating the Banco del Sur as an alternative financing mechanism to the International Monetary Fund (IMF), the World Bank and the Inter-American Development Bank (IADB). Brazil, Argentina and Venezuela will bring four billion dollars each; Uruguay, Paraguay, Bolivia and Ecuador will join forces to provide 8 billion dollars in order to make up the 20 billion dollars of capital authorized. The headquarters of the new development bank will be in Caracas and two branches will operate in Bolivia and Argentina. Through its joint declaration at the end of the meeting, Mercosur expressed its disposition to join forces with the BRICS development bank in order to take advantage of joint potentialities and opportunities. The Banco del Sur is likely to begin to function in less than six months.

The onslaught of the vulture funds against the Republic of Argentina and the weakening trend of the global economic cycle, make it a matter of urgency to move forward on the establishment of a South American financial architecture. In the last analysis, the critical situation of the world economy has revealed the decisive character of the processes of regional integration in the strengthening of political, economic and financial sovereignty of the countries of the South.

Ciudad Universitaria, Coyoacán, August 28 2014.

(Translated for ALAI by Jordan Bishop)

- Ariel Noyola Rodríguez is a member of the Economic Observatory of Latin America (Obela) in the Institute of Economic Research of the Autonomous National University of Mexico (UNAM). He is a columnist with the journal Contralínea (Mexico) and a collaborator with the Red Voltaire (France). Contact: anoyola@iiec.unam,mx

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