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The new realities of world economic power and the effects of the current
global crisis on international trade are circumstances which highlight
the importance of a key issue, both within the scope of the World Trade
Organization (WTO) as well as within the regional scope of Mercosur. This
relevance is emphasized by the fact that both constitute international
ambits with a strong bearing on the development of Argentine foreign trade.
The issue being referred to is that of the relation between the requirements
for adaptability and flexibility of trade regulations and economic integration
and the essential collective disciplines to guarantee every player - be
they countries or businesses - the necessary degree of predictability.
Due to its relevance, this topic has been discussed in previous editions
of this Newsletter (see June 2007 and August 2008 editions).
In the case of Mercosur in particular, it becomes an indispensable issue
for the creation of the required environment for productive investment
in compliance with an expanded market. In fact, a low degree of certainty
in the rules of play as a consequence, for example, of the tendency towards
a de facto malleability of the agreed commitments when an economic emergency
arises, is likely to cause a decline in the investment plans to expand
or create new production capacity in those markets with less relative
economic weight. To make provisions for the continuous adaptation to new
realities and the necessary flexibility to face contingencies, becomes
then an essential requisite for the efficiency of the ground rules originated
by international trade agreements and for the work methods implemented
in their respective institutions and decision-making processes.
Otherwise, the dynamics of the deep transformations and the recurring
crises, either global or regional -such as the current ones- may alter
the balance of the national interests which uphold each agreement and
their regulatory frameworks. Such balance is at the root of the respective
agreements and would account for their origin and ground rules. In short,
the principle of reciprocity of rights and obligations, which is at the
foundation of the legal architecture of the Asuncion Treaty (Article 2),
may be eroded. As a consequence, this erosion may have obvious legal and
practical implications.
It has been rightfully pointed out that the associative link between
nations which are willing to cooperate in the area of international trade
or through the integration of their economies, is supported by the reciprocity
of interests which envisages mutual gains for those involved. To maintain
a dynamic balance through time is the key to the success of these international
agreements. On the contrary, the disruption of the necessary balance results
in a gradual but persistent erosion of the efficiency and social legitimacy
of the corresponding institutional ambits.
It should also be noted that Mercosur currently suffers from a condition
of growing deterioration. Its precarious ground rules and the constant
breaches have contributed to this situation. Nobody has expressed this
in a clearer way than José Mujica, the presidential candidate from
the Frente Amplio party in Uruguay, who pointed out that "Mercosur
is lame and in misery". This is not an isolated opinion even though
it is seldom expressed in such a candid manner.
The fact that the recent Asuncion Summit and, especially, the Common
Market Council Meeting failed to obtain significant results -in particular
in relation to the issue of developing the customs union- (see the information
on the approved decisions on www.mercosur.int), leads us to ponder on
the future of regional integration in the light of the new international
realities.
However, not all the experience accumulated by Mercosur turned out to
be negative. Both in the political and economic planes there are concrete
results that neither countries nor businesses would be willing to give
up. Yet, in spite of this fact, the prevailing feeling is that of frustration.
This could be the counterpart of the propensity towards narratives that
give rise to high expectations. The excess of media and special effects
diplomacy can lead, sooner than later, to feelings of failure when the
actual outcome is compared with the promises that had been made.
Referring back to Mujica's statement, we may conclude that the new international
reality does not allow any margin for wasted opportunities and, in this
sense, Mercosur -as the space for joint work between countries and businesses
of the region- can not afford to continue "lame and in misery".
Such as was pointed out in our previous Newsletter, in order to overcome
this state of affairs it might be useful to get acquainted with the proposals
from those who, at present time, actively participate in the commercial
exchange and in the productive investments that take place within this
common space, oftentimes due to the commitments previously assumed by
countries.
The opinion of businessmen on regional integration in the new international
scenario was one of the issues recently discussed at the II Industrial
Colloquium of Cordoba, held on July 27th and 28th, and whose main topic
was "The industrial model required by Argentina in the forthcoming
years" (for information on the Colloquium and the corresponding presentations
go to http://www.uic.org.ar/pagina.asp?id=1080).
It should be noted that the abovementioned process of deterioration may
happen in the case of the WTO as well. Even when today this idea may seem
remote, it would be dangerous to underestimate such possibility. Thereof
the importance of ensuring the success of the next Ministerial Conference,
to be held in Geneva at the end of November, and the progress in the conclusion
of the Doha Round. The upcoming informal ministerial meeting, to be held
on September 3rd and 4th in New Delhi and where thirty-six WTO member
countries have been invited to participate, as well as the G20 Summit,
which will take place in Pittsburg, Pennsylvania on September 24th and
25th (see http://www.pittsburghsummit.gov/),
will provide the opportunity to assess if there is sufficient political
willingness to overcome the ongoing obstacles in order to achieve the
goal announced at the L'Aquila G8 Summit, which took place last July,
of concluding an ambitious and balanced Doha Round by 2010.
Within the WTO system, the previously mentioned dialectic tension between
realities and regulations is made manifest particularly in two situations.
One of them refers to the transformations resulting from the shift of
relative economic power between the member countries of a trade agreement,
which may take years to become evident but, once they do, they alter the
maps of international economic competition and trade negotiations. This
is what is happening now at the global level with the visible re-emergence
of China and India as relevant players in world trade, a condition that
has also been achieved by other emerging economies. The fact is that WTO
regulations and work methods were designed for a world that is rapidly
disappearing. The same can be said in the case of Mercosur, given the
changes that the world and the region have experienced since the time
of its creation (on this subject, refer to the October 2008 edition of
this Newsletter).
The other situation shows up during periods of economic crisis, either
internal or international. During such periods one or more member countries
of a trade agreement need to adopt defensive measures to protect their
interests, which can eventually clash with the rules currently in use.
The insufficient safety valves in the corresponding agreement -such the
case of the WTO- or the complete lack thereof -such the case of Mercosur
(these are only contemplated at the bilateral level between Argentina
and Brazil, with the so-called mechanism of competitive adaptation, or
MAC, which is still not in effect)- may then lead to situations of blatant
contradiction between the emergency measures adopted and the international
commitments undertaken. Even in such situations, if the emergency measures
employed by member countries are numerous, it is probable that the mechanisms
for the settlement of disputes are rendered useless. Thence, the soundness
of the choice of the main topic of the recent WTO report on world trade
(see the reference in the Recommended Readings Section). In its foreword,
Director General Pascal Lamy pointed out that "The choice of topic
for this year's World Trade Report is highly relevant to the challenge
of ensuring that the channels of trade remain open in the face of economic
adversity. Well-balanced contingency measures, designed primarily to deal
with a variety of unanticipated market situations, are fundamental to
the effectiveness and stability of trade agreements. The Report explores
this proposition from a variety of angles".
Specifically, the report discusses the issue of the necessary adaptability
of the agreed rules as "special measures" (the safeguards, anti-dumping
measures and countervailing duties, the renegotiation of tariff commitments,
the increase of tariffs to their maximum legal levels -binding- and the
use of export taxes) in order to contemplate the different contingences
originated in the evolution of the international economy.
The report leaves the reader wanting more. There are questions that would
be convenient to address in preparation for the upcoming November Ministerial
Conference. One that merits particular attention, considering the protectionist
tendency that can be observed, is the following: Are the safety valve
mechanisms foreseen by WTO rules sufficient enough given the effects of
the current global crisis, particularly on developing countries? The report
fails to mention other special measures that may be required to facilitate
strategies for the competitive insertion of developing countries in international
markets (such as those suggested by Dani Rodrik in his book "One
Economics Many Recipes", Princeton University Press, Princeton and
Oxford 2007). Certainly, the issue of the adaptation of the WTO system
to the new global realities, in view of the changes in relative power
between the main players in world trade, is not included among the objectives
of this report.
It would be necessary then to adapt the ground rules of international
trade to the new realties and grant them more flexibility to face contingencies,
in order to preserve the balance of the national interests which sustain
them. The WTO now holds an initial technical assessment, at least in regards
to the issue of flexibility. In addition, it has planned a forum in which
the countries will be able to debate how to approach these courses of
action. We are referring to the previously mentioned Ministerial Conference,
which will take place in Geneva at the end of November. Nothing similar
can be anticipated in the case of Mercosur. However, a thorough debate
on the adaptation and flexibility of its ground rules, not just limited
to the scope of governments, would seem essential in order to rescue an
integration project still imbued with a deep strategic significance.
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