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SOUTH AMERICA: Brazil Outshines Regional Bloc

Analysis by Mario Osava

RIO DE JANEIRO, Jul 24 2009 (IPS) - The enthusiasm for Brazil today on the economic front and the lead role played by its government in the international arena are in stark contrast with the inertia dogging the Southern Common Market (Mercosur), the regional integration project and trade bloc that has been one of its priorities since the 1980s.

The bloc’s relevance has waned in the light of wider processes like the global economic crisis, while Brazil has become a respected leader in other settings, like the Group of 20 (G20) rich and emerging nations, the BRIC (Brazil, Russia, India and China) alliance of emerging economies and the IBSA (India, Brazil and South Africa) forum for South-South cooperation.

The six-monthly Mercosur summit, held Friday in Asunción, has no advances to celebrate, but is bogged down in old disputes. The bloc “is not going through a good period,” said Marcos Azambuja, who was head of Brazil’s diplomatic representation in Argentina from 1992 to 1997, when integration was growing apace.

Mercosur is made up of Argentina, Brazil, Paraguay and Uruguay, with Venezuela in the process of joining as a full member.

Added to the “low performance” of the bloc, the incorporation of Venezuela is a matter of dispute, and Brazilian relations with its partners continue to be affected by emergency trade measures in Argentina and Paraguayan demands in relation to the Itaipú hydroelectric station which it shares with Brazil, Azambuja told IPS.

Argentine trade barriers against Brazilian industrial products, which in the past were settled after lengthy negotiations, have been stiffened as a result of the global economic crisis that broke out last year.

The measures adopted by Buenos Aires, which suspended automatic import licences, mean that Brazilian exports like car parts, textiles and cell phones are delayed for several months in customs.

The Confederaçao Nacional da Indústria, which represents the Brazilian industrial sector, sees little point in further negotiation and has asked the government to take the matter to the World Trade Organisation – a tacit admission that Mercosur lacks mechanisms capable of solving internal disputes.

The barriers also affect exports from other countries in the bloc, like Uruguay. To make matters worse, Brazil has taken similar measures to protect its market from exports of Uruguayan dairy products.

For five years, members of the bloc have been trying to eliminate duplication, due to passage through more than one Mercosur country, of the common external tariff payable on imported goods. The present system expires this year, but agreement appears to be a long way off owing to objections raised by Paraguay, the only landlocked member country, which would lose out on significant tax revenue.

The issue of greatest economic and political importance to Paraguay is bilateral, but it also affects Mercosur as a whole. Paraguayan President Fernando Lugo was elected last year on a platform of renegotiating the 1973 Itaipú Treaty in order to obtain a better price for the surplus energy that it exports to Brazil.

Paraguay owns half the electricity generated by the Itaipú power station, but only consumes about five percent.

Under the Treaty, Paraguay is prevented from selling its surplus electricity to any other country, and Paraguayan governments have long complained that Brazil’s state company Electrobras sets the price at well below market levels, thus depriving Paraguay, one of the smaller members of Mercosur and the poorest country in the bloc, of billions of dollars in accumulated earnings.

In parallel to the Mercosur meetings in Asunción, Brazil and Paraguay are negotiating ways of compensating the landlocked country. One possible option is for Paraguay to sell a growing portion of its electricity on the open Brazilian market, where prices are higher than those set by Electrobras, which has so far had a monopoly on purchases.

Mercosur “will continue to move forward in the midst of its differences and conflicts,” like the trade disputes between Brazil and Argentina, which “have always existed, even before the integration process began, and have always been overcome,” said the more optimistic Luiz Alberto Moniz Bandeira.

The European Union also experienced internal disagreements when some countries rejected its draft constitution, and divisions arose over the war against Iraq, the historian pointed out to IPS. There are no “monolithic” blocs, especially when there are sharp asymmetries within them, said Moniz, the author of a number of books on Latin America and its relations with the United States.

But now, added to the issues of economic and geographical asymmetries is that of global pre-eminence. Brazil was invited to the recent meeting of the Group of Eight (G8) most powerful countries in Italy, and is establishing itself as a global actor in its own right.

“Mercusor has contributed little” to Brazil’s ascendancy on the world stage, although it has provided a boost to many economic activities, according to Azambuja.

At present, “the game is for the big players,” and Brazil, with its enormous land area and a population of over 189 million people, has the qualifications. But Mercosur is stuck “in the waiting room,” without a major role to play, he concluded.

“The coming era belongs to the giants,” like the United States, China, India and the EU, said Moniz.

That is why “the economic and geopolitical integration of South America is inevitable,” he said, recalling that Argentina and Brazil were on close terms in the 1980s, hoping to form a hub of integration for the whole region, not just Mercosur.

The “enormous weight” Brazil has “in global terms” due to the size of its economy, which represents 70 percent of Mercosur’s, would be much greater as part of an integrated South America, which the smaller countries need in order to survive, Moniz concluded.