16/01/2023

Mercosur in Search of an Author

On January 1st Lula became the head of the Brazilian bureaucratic apparatus facing formidable political, economic, and budgetary challenges in the fields of education, health, environment, culture and, last but not least, in the foreign domain. One such challenge is the unresolved political issues within Mercosur.

Following Argentina's example, the new government appears to be willing to reopen negotiations with the European Union to review certain decisions on the participation of industry.

Will the other countries agree? The European Union has a twofold concern before the agreement comes into force: to ensure compliance with the provisions on trade and sustainable development while not delaying the already lengthy ratification process before the European Parliament. To this end, the possibility of a phased approval of the agreement is under evaluation: the economic and trade clauses could be implemented immediately, while the environmental provisions could be assessed in more detail. It is worth noting that the EU has approved restrictive measures on Mercosur agricultural products as part of the legislation on deforestation and the decarbonisation of European companies (CBAM).

Without prior consultation with its partners, and within the context of the so-called flexibilisation of Mercosur, Uruguay took two initiatives that triggered negative reactions from the other members of the sub-regional group: it initiated bilateral talks for the signing of an individual agreement with China and is now asking to join the former TPP agreement, which includes eleven Asian countries led by Japan (the US has withdrawn and China is currently contemplating a request for accession). Uruguay's initiatives, often promoted by minister Paulo Guedes, would not have been possible had Brazil not abdicated its leadership of Latin America and Mercosur. With Brazil's return, as the newly elected president said, the two proposals will be somehow subsumed and are not to be pursued. Given that Asia is our main trading partner, especially China, in the case of the former TPP, it would be worthwhile for us to examine the matter more closely and perhaps make the request for Mercosur's collective accession. This request would be diplomatic and require some time for the eleven countries to respond. There would be no trade negotiations for at least a year.

In addition to ongoing border projects with Paraguay, the new government will have to face some tough issues in its first year in office: the renegotiation of Annex C of the Itaipu Treaty (not the treaty itself) regarding the prices of energy generated by the hydroelectric plant, after having paid off the debt incurred for its construction in 2023. At the same time, the Paraguayan government is pressing the Brazilian government for the construction of a dam to enable full navigability of the Paraguay river, facilitating and expanding the transit of goods, agricultural and mineral products to the ports of the La Plata Basin.

On the other hand, Venezuela has been suspended from Mercosur on the grounds of the Democratic Clause, with no provision for a full return. In turn, ever since Dilma Rousseff took office, Bolivia's request to join Mercosur has been at a standstill in the National Congress. The new Brazilian government will have to make decisions on these issues in accordance with its own interests and regardless of ideological or partisan considerations.

As far as the European Union is concerned, it would be neither advisable nor in our interest to reopen negotiations on the agreement, which would further postpone its enforcement. Splitting the agreement would speed up its ratification and would position Mercosur in the complex international arena as an alternative for the expansion of regulations and bilateral or regional trade. The Additional Protocol on environmental commitments will not raise major problems unless it goes beyond what is provided for in the agreement.

With regard to Venezuela's suspension and Bolivia's accession, the mere discussion of these matters will have strong implications for Brazil's domestic politics and it would be inappropriate to rush any decision that promotes the full participation of the two countries before addressing democratisation and the safeguarding of human rights.

Furthermore, the return and accession of the two countries should not put trade negotiations on the back burner, nor revive the political and social Mercosur experience of the previous PT administrations.

The Mercosur presidential meeting held in Montevideo added little to the trade discussion and also exacerbated the tension between Uruguay and Argentina due to the threat of a breakdown and Argentina's President's reported criticism of the Uruguayan president over the TPP.

Previously published in the Uruguayan newspaper El País.

Rubens Barbosa is the President of the Institute of International Relations and Foreign Trade (IRICE). Former Brazilian ambassador in London and Washington