A necessary debate

Mercosur and the European Union (EU) are undergoing complex transition processes towards a new stage in their development. In both cases it would seem premature to venture any forecasts of the results. The outcomes are still uncertain, but everything indicates that in each case the new stage will be different from the previous one.

If the accumulated assets are preserved and previous experiences are capitalized the outcome is likely to be positive. Otherwise, they could face scenarios in which it will not be possible to avoid the term "failure" and its consequences. The long history of relations between nations that share a same region -particularly the European geographical space- indicates that such consequences could be costly.

Beyond the enormous differences that distinguish the two integration processes, as well as their histories and regional realities, the good news is that in both cases there are debates within the respective societies, at times very intense and even harsh, that reflect methodological dilemmas and, increasingly, existential ones. The more encompassing and inclusive these debates become the better for the social legitimacy of the results.

A common element of these debates on both sides of the Atlantic is the growing doubts that arise on the real possibility for the subsistence of a distinction between "us" -be it the EU members or the Mercosur members- and "them" -the third countries-, that reflects a common identity rooted in the respective citizenships. It is as if the idea of "each one for itself" with all its crudeness had started to replace the somewhat more romantic guiding idea of "together until the end". Particularly in Europe the citizens of some countries are incapable of considering the problems of other partners as their own. Thus they are unable to see why they should bear the costs of helping resolve them.

But, at the same time, even those who would seem to be more frustrated - even "outraged" - with the membership of their country to the respective integration process have strong difficulties in bringing forward a reasonable and credible option that is sustainable both at the economic and, above all, the political level. By this we mean an option that has its own social legitimacy within pluralist and democratic societies that does not exceed by far the costs of attempting to correct the deficiencies of the joint work within the current integration processes. If it were true that the member countries -large or small- had no reasonable options to the voluntary integration with their current partners, the debate would then be circumscribed to the methodology of the joint work within a shared geographic space -data from reality- rather than to the existential reasons behind it.

In order to sail through the period of designing a new stage of Mercosur it would seem advisable to deepen a frank and open debate on possible options, combining the perspective of well-defined national strategies and the various national interests at stake within the context of a joint strategic project. As it will also be required in the case of European integration, its design should be based on a correct diagnosis of the deep trends that are operating at the global level, including the assessment of challenges and opportunities that will result from the new geography of power and world economic competition.

Is this the end of a stage of Mercosur?

After the Mendoza Summit, Mercosur has started its transition to a new stage. The stage that began with its creation and which was developed during the last twenty years by the four founding countries can be considered finished. It would be premature to anticipate the duration of this transition and the characteristics of the new stage. What we see so far has all the characteristics of a metamorphosis. As we will discuss later, it will be important for each member country to define how they envision this new stage and what they expect from it.

Beyond the inevitable debate on the legal dimensions of both the temporary suspension of Paraguay in the exercise of its membership and the consummation of Venezuela's incorporation without having complied with the requisites that the members themselves had established, along with solutions that can be found with intelligence and political will, it will be necessary to address the design of the procedures and the scope of the new stage.

Several goals were not achieved during the stage that can be considered closed after the Mendoza Summit. However, much of the progress in trade and economic interaction between the partner countries may be related to the commitments made in the Treaty of Asunción. Furthermore, during this stage there was an affirmation of the strategic idea of cooperation between neighboring nations, beyond the differences in interests and known asymmetries, in order to create a space capable of radiating effects of peace, democracy and political stability in South America. Clearly, much work lies ahead, but much has been learned and now it can be capitalized on the new phase that will be initiated.

It should be recalled that the Treaty of Asuncion involved the completion of a stage initiated by bilateral agreements between Argentina and Brazil. In this case, the transition from one stage to the other did not involve neglecting what had been accumulated in the initial bilateral stage. On the contrary, and this is not a minor detail, the bilateral legal commitments from the Treaty of Buenos Aires of 1988 still subsist and the major trade agreements accumulated were assimilated into the new stage through two operating instruments, one bilateral -Economic Complementarity Agreement ACE No.14- and the other between all Mercosur partners -ACE No.18-, both within the Latin America Integration Association (LAIA) legal framework. It should be noted that ACE No.14 now has 39 additional protocols, mostly signed after the Mercosur stage had started and mainly referred to a key sector of regional integration such as the automotive. At the same time, ACE No.18 already has 93 additional protocols. It is not a minor detail to note that trade commitments that embody the incorporation of Venezuela to Mercosur should then be incorporated into ACE No.18, at least according to the present ground rules.

What does seem clear is that in the second semester of this year some significant definitions should be analyzed and eventually adopted by the partners. Brazil, being in charge of the Pro-Tempore Presidency, will have the opportunity to exercise some leadership in the design process of the new stage. This will put its traditional diplomatic skills to the test.

In this regard, at least three priority issues will shape the agenda of this initial time of transition. How they are addressed and resolved will probably shape the characteristics of the future Mercosur. Even a scenario in which the Mercosur originated in 1991 eventually ceases to exist should not be excluded.

The first issue of the agenda concerns the multiple splits that may result from the decision to suspend the participation of Paraguay in Mercosur institutional bodies. This has originated a situation that has no precedents in this process of integration. Overcoming it successfully will require great caution and wisdom. It is a challenge for the art of politics and diplomacy in which it will be convenient to distinguish the cyclical from the permanent with a clever combination of values and interests. This would seem difficult to achieve given the institutional precariousness that still characterizes Mercosur, in spite of the efforts made to generate independent instances to facilitate the harmonization of national interests. In this case not only complex political and economic realities with multiple legal connotations are at stake, but also the sensibilities and emotions of the citizens of one of Mercosur's founding nations that has a deeply rooted common history with its partners and which has resulted in countless communicating vessels.

The text enacting the suspension of Paraguay and that was signed by the heads of state of Argentina, Brazil and Uruguay, invokes the Ushuaia Protocol on "Democratic Commitment in Mercosur" and dictates to: "1. Suspend the Republic of Paraguay's right to participate in Mercosur bodies and discussions on the terms of Article 5 of the Protocol of Ushuaia. 2. While under suspension, what is provided in subsection iii) of Article 40 of the Protocol of Ouro Preto will occur with the incorporation made by Argentina, Brazil and Uruguay, as per the terms of item ii) of said Article 3. The suspension shall cease when, according to the provisions of Article 7 of the Protocol of Ushuaia, the full restoration of democratic order is verified in the affected party. The Foreign Ministers will consult regularly on this matter". It should be noted that there was no decision made by the Mercosur Council with the scope of a legal act adopted under Articles 2, 3, 8 and 9 of the Protocol of Ouro Preto. According to the approved text, the lifting of the suspension will occur once the restoration of the democratic order is verified in Paraguay and regular consultations are expected to take place on this matter.

The second priority is to complete in all its dimensions the incorporation of Venezuela to Mercosur, agreed in the Protocol of Caracas (2006). The decision taken in Mendoza to proceed with the incorporation of Venezuela is in part a result of what happened with Paraguay. In fact, the Protocol of Caracas could not enter into force because Paraguay had not ratified it. At the time, the Executive withdrew the text from consideration by Congress as it believed it would not be approved. The impasse thus generated is not a minor detail when trying to understand the political climate, at least in some of the member countries, regarding the issue of the incorporation of Venezuela to Mercosur.

In Mendoza the three heads of state decided the following: "1. Entry of the Bolivarian Republic of Venezuela to Mercosur, 2. To convene a special meeting for the purpose of the official acceptance of the Bolivarian Republic of Venezuela to Mercosur for the day July 31, 2012, in the city of Rio de Janeiro, Federative Republic of Brazil, and. 3. To Summon all South American countries to unite, in the current complex international scenario, so that the process of growth and social inclusion experienced in our region in the last decade is strengthened and acts as a stabilizing economic and social factor within an environment of full exercise of democracy in the continent".

Following the decision taken in Mendoza on the incorporation of Venezuela, without having complied with the provisions of Article 12 of the Protocol of Caracas, a political and even legal debate is taking place in the member countries. In this regard, it is relevant to distinguish two different issues. On the one hand, there is the political decision to incorporate Venezuela to Mercosur which was formalized in the Protocol of Caracas. This reflects the clear sovereign will of five countries, expressed by the procedures laid down in the Treaty of Asuncion. Then, the internal constitutional process to ratify it was completed in three member countries. On the other hand, there is the decision adopted in Mendoza to proceed with the incorporation of Venezuela even when the ratification of the Protocol of Caracas by Paraguay has not taken place. It is this decision, its political opportunity and legal soundness, which has opened a debate, at times intense. Even the government of Paraguay took the matter to the Permanent Court of Revision of Mercosur, which considered that the way in which it had been raised had been inappropriate.

Later on, the incorporation of Venezuela to Mercosur was formalized in the presidential meeting held in Brasilia on July 31. It remains to be seen how compliance with the provisions of the Protocol of Caracas regarding the application by Venezuela of the trade liberalization program is fulfilled, including the cessation of the effects of the rules and disciplines of ACE No.59 within the scope of LAIA (articles 5 and 6 of the Protocol) and later with regards to the incorporation of Mercosur rules and, in particular, the Common Tariff Nomenclature and the Common External Tariff (articles 3 and 4 of the Protocol).

With the precise knowledge of the tariff profile resulting from the full incorporation of Venezuela to Mercosur, each member country will be better able to assess the specific economic effects particularly in relation to the competitiveness of goods and services originating in Mercosur with relation to those from third countries, including the U.S., EU, China or the Andean countries. It will then be known with greater accuracy which is the added value that results from the incorporation of Venezuela in relation to the preferential treatment in the trade of goods and services, investments and government procurement that already exists, in particular as a result of ACE No.59.

As mentioned earlier, another step will be the affiliation of Venezuela to Partial Scope Agreement No.18, which incorporates the Treaty of Asuncion to the legal framework of LAIA. Its practical importance stems from the fact that it is the legal basis for applying preferences between partners resulting from the commitments made in Mercosur, without spreading to other LAIA countries. For some of the Mercosur partners, such incorporation could be essential to ensure the legality of the tariff liberalization that is agreed with Venezuela. Its Article 15 provides for the accession of other LAIA members through an Additional Protocol to ACE No.18.

Linked to the above issue of Venezuela, it will also be important to note what will be the terms and scope of the incorporation of other South American countries to Mercosur. In Mendoza, the way was opened for the incorporation of Ecuador. However, the idea seems aimed at giving Mercosur a South American scope. This is something that was contemplated in the Treaty of Asunción. This will very likely accentuate the need for Mercosur to have, in its new phase, a design that combines a reasonable degree of legal certainty with variable geometry and multiple speeds in its commitments. The possibility of merging Mercosur with UNASUR has even been mentioned.

The third priority is that resulting from the points made by Wen Jiabao, Premier of China, especially in the video conference on June 25, from Buenos Aires, with the participation of the Presidents of Argentina, Brazil and Uruguay. He suggested making a feasibility study on a possible free trade agreement. He also raised the goal of doubling reciprocal trade in four years. In the measure that progress were made in the initiative of a possible free trade agreement between Mercosur and China it can be assumed that, due to its magnitude, this would have and impact on Mercosur's trade negotiations with other countries and regions. Especially, it would have an impact on the delayed Mercosur-EU negotiations. With regards to these negotiations, it will still require much political oxygen as well as conceptual and technical flexibility if Mercosur seeks to achieve an agreement that opens a long-term process that is, in all its stages, balanced and ambitious.

Conditions for the design of a new stage of Mercosur

Reflecting on the conditions that allow for the development of integration processes in regional geographic spaces, so as to generate a predictable picture of mutual gains for the participating countries, has strong practical relevance.

This is true for Europe and much more so for South America. The transition of Mercosur to a new stage with still uncertain institutional profiles and work methods increases the need to reflect o how to enter, based on the acquired experience and capitalizing on the accumulated assets, a new stage of the process of integration in which the benefits that are generated can be perceived as advantageous by the different countries and, in particular, by its citizens.
This will not be easy. Since its creation in 1991, the experiences and assets that have been accumulated have value in terms, for example, of relatively guaranteed preferential access to the respective markets and a budding productive integration. At times Mercosur was even perceived as a success. However, many frustrations have also been accumulated. These stem from the inherent difficulties of a joint work undertaking that requires combining very different national interests within a context of numerous asymmetries, especially in the relative economic dimension of the involved countries.

It must be recognized, however, that such frustrations can also be explained by the relative tendency to produce media events -at the time described as "historic" by the respective protagonists- that have resulted in an image of "showcase integration" (paralleling the expression of "modernization showcase" used at the time by Fernando Fanjzylber, the well-remember economist from ECLAC) in which appearances would seem to prevail over realities. These frustrations may account for the indifference or even the rejection of the idea of regional integration by sometimes broad sectors of some of the involved countries.

The suggested reflection needs to be done taking into account the context of the profound changes that are taking place at a global scale. It also requires placing Mercosur within the institutional architecture of the South American region (UNASUR), the Latin American regional space (LAIA and SELA), and the broader Latin American and Caribbean (CELAC). Articulating any cooperation initiatives that may be developed through the array of existing institutions is today one of the explicit priorities of the countries that form part of them. This articulation, in an idealized version, could evoke the Russian matryoshkas, as one is comprised in the other and, at the same time, each one reflects a different dimension of reality.

There are several possible options for the design of a new phase. As with the European case a unique formula dos not exist. One of the lessons to be learned from the accumulated experience in these and in other regions is precisely that the design must be tailor made to fit well diagnosed realities. As once held by Jean Monnet, it is essential to find formulas that are adapted to each historic circumstance. It is here where the right combination of political and technical imagination will be needed.

One option might be to conceive Mercosur as a network of bilateral and plurilateral agreements, including sector and cross-sector agreements of productive integration, connected together. It would require flexible variable geometry and multi-speed mechanisms. The European Union itself has some experience in this regard. This would not entail setting aside the commitment of building a customs union as a step towards a common economic space. It could be done through additional protocols to the Treaty of Asuncion, or through parallel non contradictory legal instruments. The bilateral agreements between Argentina and Brazil are a precedent to consider. Among other regions, Central America is a reference in this regard.

This option would enable to include the possibility of relaxing, under certain conditions, the conclusion of commitments made within the framework of preferential agreements signed by one or more member countries with third countries or groups of countries. Of course, this would mean agreeing collective disciplines among Mercosur members whose fulfillment could be supervised and evaluated by a technical organ with effective competencies. It does not have to fit the stereotype installed with the equivocal concept of "supranational". The model of the role of the Director-General of the WTO may be useful in this regard.

It is important to note that there are many conditions that may be necessary for the construction of a regional space characterized by the ideas of integration and cooperation, that is, of joint work between the nations that form it. These conditions result, in particular, from some of the main features of these multinational undertakings, such as the voluntary nature of the participation of each nation -nobody is forced to become a member of any given integration agreement-; the gradual nature of the process in the sense that it may require a long time to achieve the objectives, especially the most ambitious ones (and even maybe these are never fully reached); and the adaptation to the continuous changes experienced in the circumstances which led to the founding instances.
In the case of Mercosur as it stands now, at the end of one stage and transitioning to a new not yet precisely defined one, there seem to be three important conditions that will be required in order to take a leap towards a stronger and more effective construction that has the potential to capture the public interest due to its ability to generate mutual gains for each of the participating countries, while taking into account the diversities that characterize them.

Such conditions include the strategy for development and international integration of each participating country, the quality of institutions and ground rules and the productive articulation of transnational scope.

It would seem advisable that these three conditions are present in the necessary national debate that each country interested in remaining a member, or willing to become one, should encourage in order to clearly define the strategies and methods of Mercosur's new stage.

The joint work between nations that share a regional geographic space, especially when expressed through agreements and institutions with ambitious and long term goals such as the case of Mercosur, presupposes that each participating country knows what it needs and what it can obtain from the association with others. This means that it has a strategy for development and international integration designed according to its own internal characteristics and to the goals that are most valued by its society. A strategy that, on the other hand, should not be limited only to the region. Today more than ever, the goals at the regional level should be thought out in relation to the goals of global scope.

How such a strategy is developed and expressed depends of each country. The fact is that the consensual construction of a multinational region, whatever its objectives, modalities and scope, is based on the national interests of each participating country. In this regard, it has been rightly pointed out that countries associate at a regional level not based on any hypothetical supranational rationality but because of concrete and sometimes even pathetic national rationalities. It is the sharing of national interests around a common strategic vision what characterizes this type of voluntary joint work between sovereign nations that aspire to continue being so.

Hence, honesty is required in the sense that if a country did not have such a strategy or if it were unrealistic (for example, if it overestimated its value and its ability to negotiate with the rest of the world and particularly with partners), it is difficult to imagine that other countries would fully contemplate its interests -beyond the rhetoric-. This is what Ian Bremmer crudely expresses in the title of his recent book on the current world situation: "every nation for itself". He adds, even more crudely, that there will definitely be "winners and losers" (in "Every Nation for Itself. Winners and Losers in G-Zero World", Portfolio-Penguin, New York 2012). The message to be drawn is thus clear: in a global context without a central power -and without a directory of credible central powers (G-0)- each nation must defend its own interests and, in order to do so, it must know what it needs and what can be obtained. Indeed, in this transition to the world of the future there will be winners and losers. It is a valid message for each one of the regional geographic spaces and most certainly for South America.

In the concrete case of Mercosur in its current crossroads, it would be convenient for each member country to ponder about their real, not theoretical, options. If a country were not satisfied with Mercosur and visualized other reasonable options that would allow a better outlook for its insertion in the region and in the world, that is, if it thought it had a better alternative plan, it could then be reasonable to abandon the joint undertaking. Chile did so at the time with the Andean Group and later on by not accepting the invitation to form part of Mercosur as a full member. Venezuela did it too when it decided to renounce its membership to the Andean Community of Nations. If, on the contrary, such country were unable to visualize a reasonable alternative plan from a political or economic perspective, it would be convenient for it to ponder, from its own perspective, what should be the scope of the future Mercosur stage in the light of the constituent pacts and of the methodological options that could be imagined. However, such considerations would be sounder in the measure that they reflected the objectives defined in the corresponding strategy for national development (the "home grown plan" as per the well-known work of Professor Dani Rodrik). It would seem reasonable to imagine that this plan would include an assessment of what the country needs and of what it may obtain form its global and regional context.

A second condition is related to the quality of the institutions and the ground rules. This includes the process of decision-making, the rules that are approved and the mechanisms for the implementation of regulations and for the settlement of the disputes that may arise between the member countries in relation to the compliance of the agreements. It includes both the national and multinational aspect of Mercosur institutions. Again, it can be argued that institutional quality begins at the respective national level, is later expressed at the multinational level -whatever the composition of the corresponding body and its voting system-, and is finally re-expressed at the national level, where what is agreed is implemented or not.

The intensity of the participation of the civil society in the internal front of each member country is a key factor to ensure the institutional quality of an integration process. It requires a culture of transparency that is reflected, in the national and the multinational, through the quality of Web pages loaded with useful information for the management of the competitive intelligence by all the protagonists.
Precarious rules with a low capacity to become effective and efficient, especially if they are the result of deficiencies in the process of their creation, tend to erode the efficacy and legitimacy of the integration process itself. They do not favor the countries of smaller relative dimension and are not taken seriously by those who make the decisions for productive investments. In Mercosur, the precariousness of the institutions and of the ground rules, even the insufficient transparency and weak participation of civil society -shown by multiple examples-, are a major cause for the deterioration experienced by the integration process. Perhaps it is a kind of virus that comes from the integration experience, first in LAFTA and then in LAIA, where we often observed a prevalence of the culture of anomie, in the sense that the rules were met only to the extent that it was feasible and that the information necessary to make decisions was not readily available. The history of the exception lists on this regard would deserve to be reconstructed. It is a culture that, both at the internal level in a society and at the international level, tends to favor those who have the most relative power.

Reconciling flexibility with predictability seems to be crucial if the next stage of Mercosur aims to include other South American countries, which would increase the asymmetries and the diversity of interests. This will require the use of variable geometry and multi-speed methodologies. Without quality ground rules these methodologies could accentuate tendencies towards the scattering of efforts and lead Mercosur to new frustrations.

The third condition is related to regional productive integration. The issue of productive integration has an important place in Mercosur's agenda. Actually, it comes from its founding moment when the concept of sector agreements was incorporated to the Treaty of Asuncion and Decision CMC 03/91 was approved. It is based on the experience gained during the period of bilateral integration between Argentina and Brazil. Its precedents are manifold. They can be traced back to the founding moments of European integration and also of what constituted the Andean Group.

Aside form generating mutual gains between the participating countries, productive integration through transnational value chains enables to develop what Jean Monnet called de facto solidarities in his foundational layout of European integration. They can be, in this sense, a strong factor to reduce the risks of reversibility of the commitments made by member countries. This is so because they contribute to link the different national productive systems and its players, generating strong incentives to preserve and expand a process of multinational integration. It requires, in each of the countries, companies with aggressive pursuits and the capacity for international projection.

The three abovementioned conditions are closely linked with each other. Added together they help us imagine a realistic strategy of trade negotiations with other countries and regions. Without a national strategy, it will be difficult for a country to benefit from the decisions that are made to guide an integration process and to generate its ground rules. Without ground rules that are effectively enforced, it will be difficult to gain flexibility and encourage companies to make productive investments based on the expanded market. Without productive investments, especially in the context of cross-border value chains, it will be difficult to generate the stable benefits that can be expected from an integration process, especially those of greater social impact due to their effects on job creation and on the identification of citizens with the idea of a shared region. It will be harder still to establish international trade negotiations that contribute favorably to the development and productive transformation of each country in the region.