IS IT TOO LATE?

 

In all likelihood, Brazil’s recent devaluation will have a negative impact on its bilateral trade with Argentina, not least because the Argentine authorities are sticking to a monetary policy which tends to have different exchange rate objectives. It is interesting to note that most commentators are referring to “bilateral trade” while, in theory, it would be more appropriate to discuss the impact on trade within Mercosur rather than on the more limited bilateral dimension. But this seems to be a new proof that Mercosur continues to lose significance in the region.

The number of voices which are claiming that it is “game over” for Mercosur, and that new alternatives should be examined, is on the increase. In Brazil and Argentina, these voices come from the business sector. By contrast, in the cases of Uruguay and Paraguay, the two smaller original partners, there are a number of politicians who speak out their criticisms. But their Argentine colleagues still seem to be tied up by a political correctness which bans questioning the existence of Mercosur in the name of the sanctity of Latin American brotherhood.

By contrast, UNASUR’s relevance seems to be on the increase. True, it has a larger membership. But perhaps the reason is that UNASUR is — essentially — a political mechanism. Even more importantly, UNASUR’s decisions depend exclusively on the political will of its member governments. And such decisions rarely have more than a very limited — if any — economic and social impact.

Mercosur’s case is exactly the opposite. The recent controversy over the automotive trade between Argentina and Brazil had an impact not only on businesses but also on employment and, consequently, on trade unions. Decisions on Mercosur require the governments to reach some sort of consensus from the private sector or, alternatively, to be able to impose such decisions on businesses and unions.

The question is what will happen with Mercosur. It is a far cry from the dreams of those who created the block. Twenty years have passed since the Ouro Preto Treaty and the hope of a vigorous block with an impact on the global economy remains a dream. So much so that, for whatever reason, the different players blame each other — even the agreement with the European Union is still a draft. Moreover, Argentina has recently reached a strategic agreement with China that has — apparently — overlooked Mercosur.

Whether you believe that Cristina Kirchner’s China deal is right or wrong, just imagine, by contrast, what would happen in the EU if one of the big members entered a similar agreement ignoring its European partners. The fact that there were no visible consequences in Mercosur seems to indicate that none of the partners care too much or, alternatively, that they have given up any expectations they had about the bloc.

The global context has changed dramatically since the birth of Mercosur. Trade patterns, business alignments and growth rates — not to mention technology — are very different from what they were back in 1994. And change continues at increasingly higher speed. Mercosur is clearly falling behind. And, if it is to survive and have anything more than a merely formal existence, it will have to change radically.

However, as things stand now, the governments of the two biggest partners seem to be so immersed in other problems that thinking they can focus on Mercosur seems an optimistic dream with little chances of success.

Sadly, one possible option is that Mercosur will silently fade away — as it has happened with similar Latin American mechanisms in the past. Its meetings will be attended only by junior officials. In terms of money, it will continue to use a few pennies from governments’ budgets to pay salaries and provide a comfortable job for not-too-ambitious political cronies of the different parties. But it will only have a formal existence.

There is, however, some room for twisted optimism. It so happens that both Uruguay and Paraguay have more need of Mercosur than their bigger partners. And there are — in both countries — a number of voices pointing out that Mercosur is not delivering, so other options should be examined.

Some kind of trade agreement with the US features first on the list of possible alternatives. True, it would require courage from the government of a smaller partner to unilaterally bid farewell to Mercosur. Even more so if it means entering a partnership with the US. But sometimes need breeds valour, and such a possibility should not be ruled out. If such a thing were to happen, it could — but not necessarily would — trigger a reaction from the rest of the governments in terms of seriously examining ways and means to make Mercosur work. Provided, of course, that it is not too late.

@andresfederman

CREDITS: BUENOS AIRES HERALD