Venezuela’s contentious entry into Mercosur

 XLIII Mercosur Head of States Summit in Mendoza Argentina on 29 June 2012 (Photo: Fernanda LeMarie - Ministerio de Relaciones Exteriores, Comercio e Integracian, Argentina)

By Antonio Sampaio, Research Assistant, Survival and the Armed Conflict Database

When Paraguay’s President, Fernando Lugo, was thrown out of government last month  in an impeachment process that took less than two days, the leaders of neighbouring countries denounced an attack on democracy. In an almost equally speedy process leaders of Brazil, Argentina and Uruguay summoned an emergency meeting of Mercosur, - a free trade bloc consisting of  the three countries and Paraguay – in Mendoza, Argentina, where they suspended Paraguay until new elections take place. However, the absence of Paraguay opened the door for infighting and the invitation for a divisive regional player to be brought in, increasing Mercosur’s isolation from the other power centres of Latin America.

The chaotic political scene and economic imbalances in Mercosur are gradually creating an east-west rift in South America, with Brazil and its Mercosur allies on one side and the countries of the Pacific Alliance - formed by Chile, Peru, Colombia and Mexico -  on the other. The latter bloc is increasingly looking toward Asia-Pacific. Although all South American countries remain united in the Unasur political bloc, the east-west rift can have important impacts on economic integration and on Brazil’s regional influence.

With Paraguay suspended, the last obstacle was removed for Venezuela’s entrance in Mercosur along with its controversial leader, Hugo Chavez. The Paraguayan Congress was the only one in the four-nation bloc still denying Venezuela’s acceptance. Immediately after denouncing a democratic breach in Paraguay, Mercosur promptly ignored the serious allegations of authoritarianism involving Chavez and announced that Venezuela would finally join Mercosur after six years of slow-moving negotiations. What started as a proposal to correct a democratic crisis in a member country turned into an institutional crisis within the bloc. Paraguay saw its suspension as a convenient arrangement for remaining members to welcome a country ideologically aligned to Brazil and Argentina, but whose  democratic and economic performances may harm, rather than benefit, Mercosur. As a result,  Paraguay’s new president, Federico Franco, and business sectors are openly talking of leaving Mercosur for good  to join the emerging and potentially powerful Pacific Alliance.  The new bloc, which intends to gradually remove the remaining trade barriers between the four outwardly-looking Pacific economies, was officially created on 6 June during a presidential summit in Chile, just a few weeks before Mercosur’s decision.

Brazil is increasingly concerned about the strength the Pacific Alliance is acquiring in the region and the shadow this is casting over the lacklustre pace of Mercosur expansion. Chile, Peru and Mexico have also joined negotiations for the Trans-Pacific Partnership (TPP), an area of free trade involving Asia-Pacific economies including the United States. These countries are among the fastest growing in the region (in comparison to Brazil’s modest 2.7% GDP growth last year) and have adopted a much more aggressive foreign trade stance. Chile and Peru have trade agreements with China. Meanwhile,  Mercosur’s rules include a common external tax of 35% for imported products and forbid individual countries from negotiating bilateral trade agreements, making trade with the bloc less appealing than with other South American countries. Moreover, Argentina has asked for hundreds of exceptions to the free trade agreement, arguing that its industries are not able to compete against Brazil. With Mercosur in shackles, Brazil perceived Venezuela as a quick and easy way to expand and show it is not losing momentum against the Pacific countries.

The bonds that formed on the Pacific side of South America while Brazil was sleeping have acquired both political and macro-economic dimensions. As they look increasingly towards the West and less at their giant neighbour to the East, the Pacific countries are moving away from Brazil’s influence in its own immediate territorial vicinity. By doing so, they are increasing their autonomy and their ties to each other, China and the US, rather than to Brazil. This can have an impact in future international negotiations,  regarding  trade, environment or at the UN, in which Brazil traditionally adopts a linked strategy with other emerging countries. Chile, Colombia and Peru merged their stock markets in May, creating the second largest bourse in Latin America after Sao Paulo. ‘We are taking an irreversible step toward profound integration’, said Peru’s President Alan Garcia earlier this year. The message is clear: the Pacific countries are moving ahead with integration and openness, strengthening their combined power in the face of an inward-looking Brazil. If the Pacific countries continue to drift toward more economic openness with the West and North, while Mercosur remains unable to solve its internal imbalances and its fear of outside challenges, some level of polarization is likely to  emerge between East and West in South America.

The decision to welcome Venezuela into the region’s largest economic bloc has only made this polarization more likely. While it is certainly a short-term benefit to Brazil’s exporters, given Venezuela’s dependency on imported  manufactured goods, the move shows an inconsistent approach towards democracy. One of the main reasons why Venezuela’s acceptance into Mercosur took so long is that lawmakers throughout the region, including Brazil but especially in Paraguay, had serious concerns over Chavez’s authoritarian measures,  his attempts to control the country’s institutions and measures against critical media outlets. These concerns were greatly increased following Lugo’s ouster in Paraguay, when the new government accused Venezuelan authorities of inciting the Paraguayan military to stage a coup. Paraguay’s new defence minister, Maria Liz Garcia de Arnold, accused the neighbouring country’s foreign minister, Nicolas Maduro, of meeting military leaders in Paraguay in an attempt to convince them to intervene in order to stop the impeachment process. Shortly after being sworn in, Federico Franco, the new president, reshuffled the country’s military leadership. While Chavez is an old ally of Brazil’s governing Labour Party, the Pacific countries in South America do not enjoy the same proximity and might be put off by Venezuela’s ideologically charged discourse, especially against the US, which happens to be a key member of the TPP.

To make matters worse, Uruguay’s foreign minister, Luis Almagro, expressed a dramatic turnaround in the country’s position toward Venezuela’s entrance in Mercosur, saying the decision was imposed by Brazil during the meeting in Mendoza. Brazil’s insistence ‘was decisive in this story’, said Almagro, adding that Venezuela’s entrance might be legally challenged in the near future. With its eastern neighbours drifting toward a parallel integration process, Brazil saw in Venezuela a quick route toward putting Mercosur back into movement. This move, however, may well result in Brazil’s isolation, rather than increase its regional influence. Two of the four current Mercosur countries – Paraguay and Uruguay – are now challenging Venezuela’s entrance, and such an internal mess is likely to make the Pacific countries even more determined to strengthen their own alliance and Pacific identity.

This article originally appeared in JForward


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