Consequences of the Meeting of Latin American Presidents in the City of Córboda

At the end of July, a meeting took place in the Argentine city of Córdoba in which several Latin American Chiefs of State participated: the four of Mercosur {Argentina, Brazil, Uruguay and Paraguay} and those of Bolivia, Chile, Cuba and Venezuela, plus the Foreign Minister of Mexico. The central theme of the event was the process of economic integration of the countries of the region, the most important aspects being the admission of Venezuela as a full member of Mercosur and a trade agreement with Cuba.

During the first years of operation of Mercosur, the prevailing opinion among officials, economists and businessmen was that it would continue to be improved. The result was a strong increase in trade; but then the erroneous idea came to be accepted within governments that it was possible that these positive results could continue side by side with a growing failure to abide by the contractual commitments. Thus, instead of submitting each violation of the Treaty to the panels created to solve controversies, it became the accepted practise to postpone their solution indefinitely. Also, as the statistics show, along with the disregard for what had been agreed, there grew among businessmen a feeling of skepticism about the firmness of purpose of the governments, and therefore investments and trade fell.

The generalized violations of the agreements reached in the Treaty of Asunción were expressed in ways as serious as the maintenance of quantitative trade restrictions; the failure to harmonize technical, sanitary, plant health, and investment standards; multiple gaps in the Common External Tariff; the maintenance of the repayment of some import duties, of temporary admissions, and of standards of origin; the failure to suppress double taxation on goods imported from third countries; the maintenance among member countries of the granting of fiscal and financial stimuli for exports; and other violations, too many to go into in detail.

When a country decides to become part of a free trade area or a customs union, it should be realized that some businesses and sectors of the economy will suffer the competition from products imported from member countries without payment of duties, but nevertheless, the agreement was made because it was believed that this would be outweighed by benefits to other sectors. These are the circumstances which justify the making of such agreements, since they are not “zero-sum”; in other words, the gains for each member will outweigh the sacrifices, and all member countries will enjoy benefits.

The problem in Latin America is that, once an agreement is reached, each country receives benefits but holds back as much as possible ib conceding advantages that result in sacrifices, even when this violates the rights of its partners. Such conduct leads to a succession of crises that, in the end, lead to the failure of the agreement. This is what happened to LAFTA {Latin American Free Trade Area}, the Andean Group, LAIA {Latin American Integration Association}, and what is now happening to Mercosur.

The foreign trade statistics confirm this evolution, since in 1990, the year before Mercosur was created, the exports among the four initial member countries amounted to 9% of their total exports; and as proof of the success of the process of integration, by 1997 this proportion had risen to 25%. Nevertheless, the abandonment of the agreed-upon rules led to a reduction to only 13% by 2005.

The four governments continue to insist on their intention to remain associated, and frequently approve measures to avoid a collapse; but since these do not attack the causes of the decline, they do not reverse it. These measures include:- the creation of an appeal tribunal to resolve controversies; the expansion of the functions of a Mercosur Parliament; the adoption of a common currency; and the harmonization of macroeconomic policies. All these projects are very ambitious, but either they are impossible to accomplish or they don’t go to the root of the problem.

The entry of Venezuela into Mercosur fits into this type of “escape to the future”, since, even though the country’s economy is important, its entry further diminishes respect for the standards of the Treaty. The main reason is that Venezualan imports are dependent not only on tariffs, but also on the importers being able to obtain from the Venezuelan Central Bank the foreign exchange necessary to make the payments. They are faced with a system which is different from a market economy. If the countries of Mercosur accept the continuance of the Venezuelan standard, Venezuela will possess an instrument to limit imports which is more efficient than the “safeguards” that Argentina achieved in a bilateral agreement with Brazil, which is also in violation of the letter and spirit of the Treaty.

The Mercosur Trade Agreement with Cuba has more of a political rather than an economic meaning, since, although it increases to 2700 the number of products which can enter Cuba without paying tariffs, its economic system is much farther from a market economy than Venezuela’s, which means that the effectiveness of the agreement will always depend on the will of that island’s government.

When in 1957 six countries formed the European Economic Community, the model which was the initial inspiration for Mercosur, its constitution was a Treaty which contained policies and standards that all member countries had to follow. The United Kingdom, which was one of the initial proponents of the Treaty, did not agree with the part of the plan by which member governments delegated some sovereignty to the (executive) Commission, which resulted in the UK staying out of the Community. Much later, in 1973, this position was reversed, and the UK joined, accepting the policies and standards. Today, the European Union consists of 25 countries, and all the new members have, as a prior condition to admission, had to modify many of their laws to adapt them to those in force in the EU.

As pointed out above, the countries that form Mercosur have had little respect for the provisions of the Treaty, and therefore have little authority to demand the compliance of Venezuela. For this reason, it can be said that the Córdoba meeting has only created still another problem for the operation of the process of integration.