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LATAM-EU: Divided Mercosur Heads to Summit

Mario Osava

RIO DE JANEIRO, May 11 2006 (IPS) - A divided Mercosur trade bloc is taking part in the EU-Latin America/Caribbean summit in Vienna, but it is not only circumstantial problems that are standing in the way of integration between the two regions, according to Brazilian analysts.

Progress on “any issue” is unlikely at Friday’s summit in the Austrian capital, because Latin American countries and trade blocs have “different, and sometimes conflicting, interests,” while the European Union (EU) “is a supranational state in formation,” Luiz Alberto Moniz Bandeira, a retired University of Brasilia professor, told IPS.

Recent rumours of Uruguay’s possible withdrawal from Mercosur (Southern Common Market), which were later refuted by Montevideo, hurt the bloc’s image, but not its economic clout, said the expert, who now lives in Germany.

Argentina and Brazil account for 96.1 percent of the bloc’s combined gross domestic product, in terms of parity of buying power, while the two smaller members, Paraguay and Uruguay, make up the rest.

“Mercosur’s main problem” – according to Moniz Bandeira – is that it incorporated the smaller partners, “which lack productive structures,” before integration between Argentina and Brazil had been achieved.

The original bilateral project, which was based on the capital goods industry, became instead “an experiment in trade liberalisation inspired by free-market neoliberal principles,” he said.

The analyst predicted that progress would not be made towards a Mercosur-EU free trade agreement as long as Europe “insists on the same rules on investment, government procurement” and other issues like international dispute settlement between governments and private companies that led Argentina and Brazil to reject the U.S.-driven Free Trade Area of the Americas (FTAA)

In Moniz Bandeira’s view, accepting such rules, “that go beyond free trade,” would destroy industry in Brazil as well as Argentina’s plans for reindustrialisation.

Brazilian President Luiz Inácio Lula da Silva will take part in Friday’s EU-LAC summit in the midst of harsh criticism for having taken “too soft a stance” – according to his critics – towards the Bolivian government’s May 1 decision to reassert state control over that country’s energy resources.

As the biggest investor in Bolivia’s natural gas, Brazil’s state-owned oil giant Petrobras was hit hardest by the decision.

Lula recognised that Bolivia has the sovereign right to make decisions on its natural resources. He also played down the initial threats issued by Petrobras to cancel investment plans in that country.

Opposition leaders, retired diplomats, the press and experts in international relations have all attacked the position taken by Lula, describing it as mistaken and overly lax.

But Theotonio dos Santos, professor of international economy at the Federal Fluminense University, believes the decision announced by Bolivia’s leftist President Evo Morales “will reinforce future integration,” which is only possible “among strong governments that defend the interests of their citizens,” and not between countries that lack sovereignty over their strategic assets controlled by foreign capital.

On Thursday, Morales announced that Bolivia would not pay compensation to foreign companies that refused to renegotiate their contracts within the next six months, and that had already recovered their investment.

But in dos Santos’s opinion, despite the appearance of divisions in Latin America, the conditions are currently good for Latin American integration and closer ties with the EU, particularly because of the unpopularity of U.S. policy in the region. “The Europeans could achieve excellent results, taking advantage of the situation,” he remarked to IPS.

Many Latin American countries have strong financial and trade surpluses, like Brazil, Chile, Venezuela and even Argentina – which recently pulled out of a severe crisis – and are experiencing a growth in popular and indigenous movements, he said.

Political divisions are transitory and will not block the trend towards integration in South America, said an optimistic dos Santos. For example, it is impossible to imagine Uruguayan President Tabaré Vázquez of the leftist Broad Front actually turning his back on Mercosur to sign agreements with the United States, he argued.

The fact that Vázquez was in Washington last week negotiating an agreement to bolster trade between Uruguay and the United States was assigned little importance by Clovis Brigagao, director of the Centre of Studies on the Americas at a university in Rio de Janeiro.

“Everyone wants to expand their exports to the world’s biggest market,” he stated.

He also said the Vienna summit would have little to offer, because of the widely divergent economic interests. Mercosur is pushing for an opening of the European market for farm products, which does not look feasible in the short-term, while it refuses to make concessions to the EU on industrial goods and services, noted the analyst.

In international forums, Mercosur “negotiates as a united bloc,” partly because it is only Argentina and Brazil that have a real voice, given their economic weight, said Brigagao.

Nor will another factor that has caused divisions – a conflict triggered by Argentina’s environmental concerns over the construction of two paper pulp mills on the Uruguayan side of a river that forms part of the border between the two countries – affect Mercosur at the Vienna summit, he said.

It is an important problem, especially for Uruguay, but it will not weaken the foundations of Mercosur in international relations in which broader economic questions prevail, like the size of markets, overall economic interests and the future potential for integration between large economies, Brigagao added.