The Mercosur Crisis Deepens

Published on Tip News’s website, July 10, 2012.

The past month of June has seen some political developments that reveal in a trenchant way the increased institutional difficulties the South American trade bloc, Mercosur, is now facing. Indeed, the deposition of Paraguay’s president, Fernando Lugo, on June 25th, and the resignation of Mercosur`s high commissioner, Ambassador Samuel Pinheiro Guimarães, on June 28th, show dramatic, but different facets of the same problem.

President Fernando Lugo`s deposition, after a 24 hour impeachment process (sic), is an indication of the democratic challenges still existing in the bloc in general, and in Paraguay, in particular. The same factors and interests that compromise the rule of law inParaguay are obstacles for the upholding of the legal structure of Mercosul, as it is widely perceived domestically that the country has more to gain from the violation of the treaties than from observing them.

On the other hand, the renunciation of Ambassador Pinheiro Guimarães, the most qualified person to occupy the leadership position of Mercosur since its inception, is indicative of the difficulties in finding a compromise within the widely asymmetric economies of its Member States and lack of effective integration policies.

In his report to the Council of Ministers of Mercosur, dated June 28th, Ambassador Pinheiro Guimarães stated that the lack of legislative harmonization increases the political tensions within the bloc. Those, we know, are chiefly caused by trade and investment patterns.

The resigning High Commissioner is right in the diagnosis of the source of the political tensions and of the political failure in attacking their economic causes. Throughout the years, the numerous exceptions to the common market rules that were made so as to accommodate different demands have completely compromised the nature of the original initiative.

Whilst a political forum is still desired for the South American countries, Mercosur as a trade bloc is now defunct and has become an obstacle to the generalized prosperity of its member-states. These would do much better with bilateral trade agreements with each other, where the idiosyncrasies could be accommodated without much harm.

Such an approach would free the member-states to enter into trade agreements with other countries or operating common markets, for considerable gain of each individually. At the moment, all lose from the chaotic framework of Mercosur.

This could be done alongside with much needed internal macro-economic and legislative reforms in all the member-states to deal with taxation and labour issues. In some countries, laws on consumer protection, environment and competition law remained undeveloped in order to enhance artificially their competitiveness within Mercosur. Other countries would have to address serious macro-economic issues and normalise relations with the international voluntary markets.

The time has arrived for the leadership of the member-states to accept that, if serious internal reforms are already extremely difficult in each country, consensus on the matter within Mercosur has become impossible.

It has thus become opportune for Mercosur countries to find a manner in which to preserve the excellent political forum, but to get rid of the failed common marked, that has become an obstacle for the generalised regional prosperity.