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Roundup: 10th Anniversary of Mercosur Passes Without Fanfare
The 10th anniversary of the founding of the South American Common Market (MERCOSUR) passed without fanfare earlier this week, as the most important regional trading bloc in Latin America, of which Chile is an associate member, does not have much cause for celebration at the moment.
In particular, the economic crisis in Argentina, which is threatening economic stability of the whole region, reveals fundamental weaknesses in MERCOSUR, some observers said.
The recently-appointed Argentine economy minister, Domingo Cavallo, announced this week the measures to improve the economic situation in Argentina. Cavallo plans to reduce the tariffs applicable to foreign investment capital and raise taxes on imported consumer goods, even though these measures contravene MERCOSUR's rules on common tariffs.
The announcement once again confirmed the view of many analysts that member countries will always give their national economies priority over MERCOSUR integration, and that the region is not yet ready for common tariffs and shared macroeconomic policies.
Argentina, Brazil, Paraguay and Uruguay are full members of the economic bloc, while Bolivia, in addition to Chile, is an associate member.
"MERCOSUR is a customs union, which means it should have common external tariffs and some sort of arrangement on internal tariffs. However, the aim of total integration is too demanding given the current situation and past experiences, and has led to an absurd situation in which the member countries are unable to adhere to the union's terms," international economist Francisco Garces said.
There is also a huge disparity between the state of the MERCOSUR members' economies, which makes it extremely difficult to find policies suitable for the whole bloc. Not since 1997 have all four full member countries recorded positive economic growth in the same year. In 2000, for example, Brazil's gross domestic product grew by an estimated 3.9 percent, while Argentina's GDP contracted by 0.5 percent, and Uruguay's by 3.2 percent.
By raising awkward questions about the viability of MERCOSUR as a trading bloc, the Argentine crisis has further weakened the likelihood of Chile requesting full membership in the organization in the near future.
The Chilean authorities were reportedly surprised that Cavallo chose to consult with the Brazilian government before making his announcement, rather than with all the countries involved in MERCOSUR, as members are supposed to coordinate their economic decisions rather than acting unilaterally.
The Chilean government was also extremely disappointed with Argentina's decision to raise tariffs on imported consumer goods to 35 percent, a measure that will effectively make Chilean exports to its neighbor twice as expensive for consumers. This is likely to hit Chilean exports hard, as Argentina is Chile's second largest market for manufactured goods after the United States.
Juan Luis Cavallos, president of Chile's Exporters Corporation, described the Argentine proposals as "not in-keeping with the spirit of our agreement and our interest in becoming a full member of MERCOSUR."
As an exporter country, Chile was already reluctant to give up its freedom to negotiate trade treaties and set tariff levels, and the Chilean government is now wondering what if any real advantages it could derive from associate membership in MERCOSUR, given that its neighbor, Argentina, has resorted to protectionism to solve its own internal economic problems.
The Chilean government is also aware that MERCOSUR's role in promoting regional trade could be superseded by the proposed Free Trade Area of the Americas, which enjoys the support of U.S. President George W. Bush and which will be discussed by the continent's heads of state at a summit to be held in April in Quebec, Canada.
However, the influential Chilean economist Ricardo French Davis has warned his compatriots against dismissing MERCOSUR on the basis of the events of recent weeks.
"MERCOSUR is only a few years old, and it took the European Union 40 years to get where it is today. Therefore we shouldn't rush decisions, because they could end up being a step backwards," French Davis said.
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