What came first, the chicken or the egg?
Paraguay’s flirtations with the United States — including a highly contentious visit by Defence Secretary Donald Rumsfeld — have incensed the other Mercosur members and triggered all sorts of accusations that Asunción, tempted by a dubious carrot at the end of an American stick, may “betray” its friends and cause the regional trading bloc to collapse.
Many are aiming their rhetorical guns at Washington’s “divide and rule” tactics — the White House, the reasoning goes, is acting under the premise that it can wrest a lot more concessions from Argentina, Brazil, Paraguay and Uruguay if it takes them on one by one rather than as a group.
But all experts agree that a trading bloc that 14 years after its creation has proved unwilling or unable to consolidate its stance on most key issues, and whose partners continue to go at each other’s throat over every single little aspect of market access is a sitting duck with no chance of escaping the hunter.
“As an imperial nation the United States has always sought to divide in order to better rule,” economist José Luis Espert told The Buenos Aires Herald. “But it’s also true that it has found very fertile ground in Mercosur’s failure — it has failed to generate sustainable growth for its members, and it has failed to generate trade.”
Earlier this month Argentina’s Foreign Minister Rafael Bielsa openly admitted Paraguay’s dissatisfaction with Mercosur after Asunción declared it was seeking a trade deal with Washington. He warned: “Paraguay has the right to go into a negotiation outside of Mercosur — but that would also have historic consequences.”
Paraguay’s announcement was preceded by Rumsfeld’s visit, which set off all sorts of irate speculations in Brasilia, Buenos Aires and Montevideo that the decision to boost joint war games with the United States could be a prelude to allowing a permanent US military base in Paraguay. The presence of US troops there is “a slap in the face of Argentina and Brazil,” said Uruguayan Sen. Eleuterio Fernández Huidobro, chair of the upper house’s Defense Committee.
While adamantly denying that his country was considering quitting the bloc, President Nicanor Duarte Frutos warned: “We are not corseted into Mercosur — we’re free. Paraguay is a small but dignified country and has been independent since 1811.”
His foreign minister, Leila Rachid, later put it all down to a big misunderstanding. Everyone was assuming that Asunción was seeking a free trade deal with Washington, whereas all it was after was a less ambitious trade preferences agreement, she explained. “Paraguay will not leave Mercosur. Nothing could be farther from the truth,” Rachid stressed.
Regardless of whether her soothing words will suffice to put off the diplomatic fire, the latest flare-up exposes deep-rooted, perhaps insolvable problems.
“All this is happening because Mercosur is taking too long to reach maturity,” economist Aldo Abram told The Buenos Aires Herald. “While it purports to be a common market, it doesn’t even qualify as a free trade agreement. Yes, it has common external tariffs for some products, but its members are far from having reached full integration.”
One of the big problems, experts agree, is that Brazil and Argentina spend too much time and energy defending their own sectorial interests. Common issues take the passenger front seat, and smaller partners’ interests ride in the back.
Both Brazil and Argentina, but mostly Argentina, are too prone to cave in to special interests — household appliances, shoes, textiles, and automobiles are some of the industries that continually manage to successfully lobby the government to shield them from imports, Abram said. And these demands dovetail with the Kirchner administration’s imports substitution policies.
The result is a flurry of quotas, tariffs and other trade and non-trade barriers, as well as a disregard for Asunción’s and Montevideo’s demands for a better deal. “When rhinos fight, the ants around will be stomped on,” said Abram.
Trade expert Beatriz Nofal agrees. The latest incident should be a wake-up call for the group’s leaders, she argued. “It’s a serious warning about the current state of Mercosur. There’s a paralysis in the process of integration that’s making investment benefits go to the bigger members” of the bloc, she warned.
But while this state of affairs is leading smaller partners to seek better opportunities outside of Mercosur, there are no guarantees that they will manage to make any substantial gains when dealing on their own with trading heavyweights, the experts agree.
Neither are there assurances that a wake-up call will be heeded. Brazil’s President Luiz Inacio Lula da Silva, until recently a staunch champion of Mercosur, has of late been shifting his attention elsewhere. “Brazil is being more and more lured by the G-7,” said Espert, referring to the Group of Seven richest nations. “It will be sitting at their next meeting. Nowadays, Brazil and Argentina are on different vibes altogether.”