Mercosur

Ruling the World: MERCOSUR Since its genesis in 1957 as the European Economic Community, the European Union has spurred not only scholarly interest in regional integration through the abundance of integration theory but also has become a template for a political objective achieved through economic means. Less developed countries, in particular those with a historical relationship with Europe, are attempting to model their own supranational institutions of regional integration after the European Union (Rueda 2). MERCOSUR or the Common Market of the South is one such attempt by Southern Cone countries of South America. In light of numerous theories of regional integration, Lloyd Gruber’s ruling the world theory has provided a comparable account of how the European Union came to be through the go-it-alone power of France and Germany. Thus, if MERCOSUR is using the EU as a template, then it would be reasonable to suggest that they too can find success within Gruber’s framework. Yet, there has been consistent stagnation among the organization in regards to the complete economic and monetary policy coordination that has made the European Union the example of successful regional integration it has become. Hence, the question becomes where is MERCOSUR going wrong' I will dissect the formation of MERCOSUR utilizing three of Gruber’s theoretical components--- go it alone power, threat of exclusion and winners and losers— then assess their current mistrials under the theory’s assertion of the importance of domestic successors to coalition durability. Lastly, I will enumerate on the coalition’s future outlook. In Ruling the World: Power Politics and the Rise of Supranational Institutions, Gruber asserts that “… two states [A and B] ---the ultimate beneficiaries of cooperation---encounter an exogenous shock of some kind… In the wake of this shock, our two prime movers---neither of which had previously been inclined to coordinate its policies with the other---observe that they now have certain interests in common and thus could benefit, potentially a great deal, by structuring their future interactions in accordance with a common set of mutually agreed upon rules. The two states… believe they will be able to pursue their joint interests more effectively than would otherwise be the case.” The enacting coalition, countries A and B, can pursue their joint venture without the participation of other actors and reap its benefits. Yet, countries C and D want to join A and B’s venture once it seems likely that they are to establish it, which is “something they would do if they were destined to be their only members.” The other actors conclude that being left out of a coalition that could lead to gains would be worse than joining (6-7). It is this fear of exclusion as well as the prospect of utility gains that further fuels countries A and B go-it-alone power. The enacting coalition becomes the winners of this cooperation game being that they have the power to control the institutional agenda and design thereby rigging the system in their favor. Countries A and B “… do not need to take account of their current partners’ institutional preferences” but still do so as a way to ensure the new institutions survival (Gruber 42, 81-82). In the case of MERCOSUR, Gruber’s theory provides a formidable explanation for its beginning. The exogenous shock came with the return to democracy in Argentina and Brazil in 1979 while still under military rule (Gardini 806). The military fascist dictatorships of the Southern Cone had “indulged in economic wastage” and “since there was little or no effective democratic control, these regimes ran up major international debts” creating a 1982 debt crisis. There was an absolute decline in economic growth among the region between 1982 and 1986 (Coffey 4). Thus, in 1985, Argentina and Brazil “announced their commitment to integration” and initiated the Program for Economic Integration and Cooperation (PICE) in 1986 to liberalize trade in capital goods (Gardini 806; Weintraub 8). In 1988, the Treaty for Integration, Cooperation and Development---the most significant precursor to MERCOSUR---was signed as a Argentine-Brazilian bilateral agreement to phase out tariff and nontariff barriers between the two countries and to start coordinating their macroeconomic policy in the hopes of achieving a common market by 1995 (Weintraub 8; Coffey 4). In light of these regional developments, the threat of exclusion arose in other future MERCOSUR Member States. Uruguay had participated in the Argentine-Brazilian process as an observer and obtained associate status in the PICE treaty since it too had a return to democracy in the 1980s (Gardini 819; Coffey 148). Also, Paraguay, under the new democratic regime of General Andrés Rodriguez, had high expectations for the country’s participation in Southern Cone integration but attempted to test the go-it-alone power of the Argentine-Brazilian alliance. In the summer of 1989, an external consultant delivered a report on the positive and negative aspects of a prospective Paraguayan accession to the Argentine–Brazilian scheme and recommended the adoption of the “different treatment” approach of the LAIA, based on the size and the different degree of development of the country. However, Argentina and Brazil did not recognize the “different treatment” principle and stressed that, if the common market had to be enlarged, this would be done among equals, sharing gains and burdens of the enterprise. Thus, for Paraguay, “the price of exclusion was far higher than that of accession” (Gardini 820). In 1991, the dream of a common market was realized with the Treaty of Ascunción which gave birth to MERCOSUR with Argentina, Brazil, Paraguay and Uruguay as its Member States and by 1996 associate membership had been extended to include the Andean Communities (Coffey 7). From Gruber’s winners and losers perspective, the objectives of MERCOSUR as whole as opposed to those of the enacting coalition demonstrate that the prospective utility gains would not be mutual especially in the case of Brazil. Initially, the bilateral agreements between Argentina and Brazil were intended to alleviate political and security tensions and to bolster support for their fledgling democracies. Once their agreement became a formal supranational institution and expanded across the region, the collective objective became to enhance the international, political and economic profile of the Southern Cone through creating a large internal market with a common external tariff (Aggarwal 25; Coffey 10). They wanted to build a more attractive environment for both domestic and foreign investments in the hopes of improving their international negotiating power--- particularly with trade issues (Peña 1; Coffey 10). As a whole, the Common Market of the South has become the second largest customs union in the world with the majority of tariffs removed between Member States and a common external tariff imposed for many products. Additionally, the organization has become an important actor on the world stage (Carranza 325; Coffey 17). With that said, substantial growth in intra-MERCOSUR trade has mainly been between Argentina and Brazil, a goal they two had from the beginning (Coffey 15). Argentina desired access to Member State markets, in particular Brazil, to secure exports for its agriculture (Coffey 9). Brazil influenced the organization’s economic pattern to increase the other Member States dependency on its enormous consumer market (Aggrawal 26). Politically, Argentina has gained significant bargaining power with the United States which it has sought after since becoming a democracy (Aggarwal 30). Brazil has achieved international recognition as the regional leader in terms of political stability and economic growth (Kohm 351). Its place in the organization is compared to that of the United States and NAFTA. MERCOSUR has always held political and strategic importance for the country (Aggarwal 26). Furthermore, when it comes to agenda setting, MERCOSUR has afforded Brazil the opportunity to lead numerous trade negotiations with the United States and European Union in spite of the desires of the other three Member States. The Ouro Preto Protocol at the end of 1994 endowed the organization with a legal status so that they could negotiate internationally (Coffey 11). Since then, Brazil “uses Mercosur as a political and economic alliance to confront other powers” (Klom 352). It has been heavily involved in stalling the 1994 proposal of a Free Trade Area of the Americas which it views as a deliberate attempt by the USA to consolidate its hegemony in the western hemisphere. Brazil favors sub-regional integration over hemispheric and wants to continue concluding MERCOSUR’s series of FTA’s in South America (Carranza 320). Brazil's stable and growing economy means it has less to fear from an FTAA stalemate (“Chopping Block”). Yet, the other three Member States’ desire to move forward with negotiations but they are “constrained by the reality of the Brazilian position” (Weintraub 41). Likewise, Brazil has been pushing for a future FTA with the European Union in hopes of consolidating the region’s historical trade and cultural partnerships in Europe (Aggarwal 28). The EU has been both the principal trading partner and source of foreign capital investment for MERCOSUR countries (Coffey 275). In 1995, MERCOSUR and EU members signed an interregional framework cooperation agreement in Madrid which “covers trade and economic matters, cooperation regarding integration and other fields of mutual interest” in preparation of a free trade agreement (Klom 353; Coffey 276). In regards to institutional design, Argentina has called for deeper-institutionalization based on the European Union model but Brazil has been reluctant to agree on measures that would impinge on its sovereignty. Deemed “a triumph of minimalism,” Brazil insists that MERCOSUR should be a union of nation states, with a minimum of supranational institutions, and decisions taken by consensus. However, in accordance with Gruber, its desire to see the continuation of the coalition has led it show some flexibility. It did not insist on a weighted voting system, agreed to compromise on a lower common external tariff than it originally wanted and has acquiesced as its former trade surplus with its MERCOSUR partners has become a deficit (Reid). Currently, the institutional framework includes the high governing body of MERCOSUR Council, the decision making bodies of the MERCOSUR Group, the Trade Commission and, at a secondary-level, a parliamentary commission composed of representatives of the four parliaments. Lastly, there is a modest secretariat (Coffey 11-12). Yet, with all this progress, compromise and gain, there still is a consistent amount of stagnation towards complete economic and political integration resulting in the possibility of MERCOSUR’s demise. According to Gruber, the issue of regime durability comes down to the incentives of its domestic successors (9). South America is facing a rise in nationalism with its recent return to leftist governments that could possibly bring about structural conflict in cooperation (Christensen 139). Analysts have divided the recent leftist governments into two types: the pragmatic, sensible and realist regime that focuses on substance and the achievement of concrete development results and moderates the anti-Americanism of the Latin American left wing like that of Lula’s Brazil and the more aggressive anti-American administration that wants to gain more power and espouses populist rhetoric like Chavez’s Venezuela (Christenson 141). Nationalism has lead to high degree of unilateral protectionism among the Member States. Thus, there is a growing amount of dispute among Argentina and Brazil. In 1999, Brazil devalued its currency leaving both itself and Argentina in recession and led to accusations from Argentina that Brazil was deliberately upsetting trade. In response, Argentina made claims for compensation for the damages it occurred as a result of the currency devaluation and suspended some of Mercosur's common import tariffs (“Sticking Plaster”). Also, in the same year, Brazil cut its own trade deal with the Andean countries despite the fact that under the customs union it is suppose to maintain a common foreign trade policy (“Sour Mercosur”). Moreover, the different foreign policy goals of these governments--- especially in terms of relation with the United States--- have complicated their coherence. Argentina has sought to maintain its long sought after relationship with United States through an alliance with NATO while Brazil wants to obtain a permanent seat on the United Nations Security Council (Weintraub 4, 28, 60; Sao). With the possible addition of Chavez’s Venezuela to full membership, who sees the United States as its chief political adversary, political coherence becomes questionable (Shifter 90). Gruber goes on to say that the “benefit stream” of the enacting coalition must continue on to their domestic successors (9). Therefore, the enacting coalition has a stake in finding a way “to discourage one another’s internal successors from abandoning the international agreement” (9). Obviously, MERCOSUR has not been abandoned by each Member States’ new regime and among all of its issues has remained strikingly resilient. Since it is a ‘strategic alliance’ with a political dimension, its formal commitment of member states to preserving democracy in the sub-region has led to it being a significant contributor to regional political stability. Brazil and Argentina played a key role in defusing a coup attempt in Paraguay in 1996 (Carranza 325). The region has reached a higher level of interdependence where what happens in one country effects another through market integration (Peña 4). In times of economic crisis such as that in the Argentina from 2001 to 2002, MERCOSUR retained political solidarity and even began talks of moving towards a common currency and even eliminated trade conflicts between Argentina and Brazil through the devaluation of the Argentine peso (Carranza 326). As far as institutionalization, Argentina and Brazil have reached an agreement on how to solve disputes by assembling a duty roster of judges (“Mercosur’s Trials by Adversity”). It seems that the leaders of this institution, while at times may appear disloyal, are reluctant to abandon it. In consideration of this, one can say that MERCOSUR has been quite a successful regional integration effort. Through the go-it-alone power of Argentina and Brazil, it has not only achieved their initial goal of forming an customs union but has also developed a sense of community among its members, promoted democracy in the sub-region and projected itself as an important actor in the international arena. While it has not achieved the economic and monetary coordination nor the level the institutionalization of the European Union which it model’s itself, the outlook for continued cooperation among Member States is positive since Brazil and Argentina are on their way to macroeconomic convergence (Carranza 327). Per Gruber’s suggestion, the enacting coalition found a way to discourage abandonment by their domestic successors through creating some level of interdependence. With anticipation, MERCOSUR will be able to recreate the surge in intra-regional trade that it experienced from 1994-1998 through the compromise and cooperation that has resulted in its existence. Works Cited Aggarwal, Vinod K., Ralph H. Espach, and Joseph S. Tulchin. The Strategic Dynamics of Latin American Trade. Washington, D.C.: Woodrow Wilson Center Press, 2004. Carranza, Mario E. "Mercosur and the end game of the ftaa negotiations: challenges and prospects after the argentine crisis." 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