571) EU activities and cooperation with Mercosur

MERCOSUR - EUROPEAN UNION COOPERATION:
A case study on the effects of EU activities and cooperation with Mercosur on regional democracy building
Paulo Roberto de Almeida
Ph.D. in Social Sciences, Master in Economic Planning
Diplomat, Professor at Uniceub (Brasilia, Brazil)
[Third draft: June 3rd, 2009]

Contents:
1. Introduction: summary of the paper and overall presentation
2. Institutional development of Mercosur, and EU relevance in that regard, in special in connection with democracy building
3. Main constraints and characteristics of democracy building in Mercosur
4. Policy proposals and some suggestions for democratic strengthening in Mercosur
5. Concluding remarks: time for a new bi-regional agenda
References

Abstract:
This paper discusses Mercosur’s political, economic and institutional development, with special reference to cooperation with the European Union on regional democracy building. A realistic agenda for a joint work is proposed, based on the similarities and the differences between the two blocs.
First, and most important, thing to guide European Union’s policies towards Mercosur is to be completely aware of the different nature of the Southern Cone trade bloc as compared to the historical experience of European integration: Mercosur, of course, is not a carbon copy of the European process, and it will never work in the same way – even if could have the same, or functionally similar, institutions – as the old European Community (let’s say at the end of the 1960s, with an imperfect common market). Besides, Mercosur has no chance to even dream of a EU-like model. There are many structural impediments to a progress of that sort.
Just forget, thus, the “free trade baby”, or the prospective “customs union teenager”, on the way to become a vigorous common market adult character, growing vigorously out of a communitarian baby-food, with a little help from the Commission, and its cooperation devices: the EU simply cannot expect Mercosur to became its little brother, or even a more distant cousin. Mercosur cannot develop in the same way, and does not need to do so to become an economic integrated space within South America, and an important trade bloc in the world trade scenario (in fact, more important politically, than commercially).
Second, the quality of the democratic architecture in Mercosur countries is, obviously, defective and dysfunctional. That is: their democratic regimes, albeit stronger than in the past, have an intrinsic poor quality (generalized corruption, social inequalities, shortcomings in political representation, low growth and difficulties in social development due to excessive State intrusion in economic life and so on), but that is not the main problem of the Mercosur scheme. Democracy, provided that Hugo Chavez does not enter the stage and disturb the whole (and delicate) process of democratic stabilization in South America, is not at stake in the first place.
So, the first priority for the consolidation of the institutional architecture of Mercosur is the possibility of perfecting its free trade zone and achieving the original objective of a full customs union (without considering, by now, the hypothesis of a common market, a more distant perspective). The EU could cooperate with this, by offering a technical consultative mission to establish a diagnostics of the current situation, and trace a road map to complete the tasks set forth in the first article of the Asuncion Treaty.
A second mission for EU cooperation could be its association with Mercosur efforts towards physical integration, that is, infrastructure works and logistics in general, as required to have better conditions for the intra-trade links and also to reduce perceived asymmetries between member countries.
Third task, then, would be to reinforce the democratic requirements of Mercosur membership in order to block authoritarian experiments like those developing in Chavez’s Venezuela nowadays. The current democratic clause of Mercosur (Ushuaia Protocol) is too feeble to guarantee full democratic status inside the block.


1. Introduction: summary of the paper and overall presentation
This paper intends to perform an overall assessment of Mercosur’s integration process, with a brief comparison with the European scheme and history. Despite advances during its first ten years, Mercosur’s drive towards commercial liberalization and the constitution of a unified economic space in the Southern Cone have stalled, and, perhaps, since 1999 at least, even receded. The customs union has no single authority or uniform application, coexisting with too numerous exclusions from the Common External Tariff. Main causes are economic instability and diverging economic policies, but also a reduced political commitment to undertake the necessary reforms to put the existing working agenda of Mercosur in line with Treaty Asuncion’s objectives.
The results are a departure from the economic goals of the Treaty, and a fuite en avant towards social and political objectives not originally conceived as the inner core of the process. Political and technical cooperation with EU was important during the first phase of Mercosur’s itinerary, especially for the discussion and implementation of a democratic clause as an integral element of the group’s institutional architecture, which was crucial at a juncture of recurring political crises in Paraguay. Nonetheless, reversion to a nationalistic stance in some countries, and towards pro-State public policies in others, is challenging the democratic nature of the integration process. Mercosur’s negotiations with the EU, for instance, could be jeopardized by the full admission of Chavez’s Venezuela.
Recommendations include a return to the basics of the integration process – economic opening and trade liberalization, investments in infrastructure and logistics – and the undertaking of the needed reforms, in and every each country, for the consolidation of the political and economic stability of the group. This must be achieved with the full preservation of the democratic nature of the overall process. EU could have a stake in this process, but democracy – building, in itself, is not at the center of the inter-regional cooperation process.

2. Institutional development of Mercosur, and EU relevance in that regard, especially in connection with democracy-building
Mercosur’s and EU’s integration processes seem to run in parallel for most of the second half of the 20th century. As the integration process in Europe started its long journey towards political union in the Fifties, some countries in South America started to think about their integration: combining Keynesian prescriptions for macroeconomic policies with recommendations for guided industrialization à la List, South American countries formulated the first integration schemes with an eye to the European progresses arising from the Treaty of Rome of 1957. Nonetheless, their integration drive was limited to the very shallow experience of the Latin American Free Trade Association (ALALC - Montevideo Treaty of 1960), which never delivered its promises for general trade liberalization.
The “third wave of democratization” also touched South America, with the return to civilian and elected systems in Argentina (1983) and Brazil (1985), which signaled a new emphasis on economic integration. But the European model was too much ambitious for South American countries, which were in a de facto preferential trade area, with the signing of the second Montevideo Treaty (1980), performing a flexible bilateral trade network among the members of the Latin American Integration Association (ALADI).
Argentina and Brazil decided to establish a full common market within a tem- year period. The two countries signed an Integration Treaty (1988), based on an approach made by sectoral protocols for progressive integration. Notwithstanding, they preferred a ‘Benelux-like’ institutional format, made of intergovernmental schemes, instead of supranational structures. Shortly afterwards, Brazil and Argentina adopted a free-trade area model for the speeding-up of the integration process: the time-frame approved in 1988 for the common market (ten years, up to 1998) was reduced to half by the Buenos Aires Act (July 1990), which also altered the gradual liberalization process for an automatic tariff elimination point to a free-trade area in four years, as the first stage towards a common market by 1995.
A very important move, at that stage, and the one that defined the start of the European cooperation with Mercosur, was the decision to enlarge the process, with the acceptance of Paraguay and Uruguay into the, up to then, bilateral process. The negotiations started upon demands from Chile and Uruguay, and developed for some months until they agreed to a new treaty. Chile, in fact, did not adhere to the Asuncion treaty (March 26, 1991), because of its single tariff, which clashed with the diversified tariff structure wanted by Brazil and Argentina. Paraguay, instead, decided to join after a military coup that ended a four decades -- long dictatorship.
Asunción Treaty made no progress whatsoever towards a communitarian type of integration, modeled upon European institutions; the Benelux scheme was kept in place, even if a common market was aimed at – to be inaugurated in January 1995, after a Common External Tariff and a dispute settlement mechanism could be set up for the ‘transition’ period. European Union cooperation limited itself to technical aspects of building a customs union. An inter-institutional cooperation agreement was signed, in 1992, between the European Commission and ‘Mercosur institutions’ with the objective of establishing the dialogue and technical cooperation between the two. At that stage, the Commission cooperated with the Administrative Secretariat of Mercosur in Montevideo, in the technical cooperation for the accomplishment of some studies focused on the tasks of the transition period.
Despite the strong support by the presidents themselves, the objectives established in the 1st article of the Asunción Treaty were not attained as expected.. The four member countries truly advanced towards the free trade zone, but some exceptions were maintained, notably for sugar (restriction of Argentinian imports from Brazil) and automobiles (where a managed trade agreement was established between the two countries, leaving for an unforeseeable future the free trade in the sector). Also, many national exceptions were substituted for the Common External Tariff, departing upwards or downwards from the official rate.
Despite those shortcomings, the countries proceeded towards the establishment of the customs union, but without big changes in the institutional architecture of Mercosur: the negotiation and signing of the Ouro Preto Protocol, in December 1994, confirmed Mercosur in the ‘Benelux model’. The same tools and mechanisms that were at work during the transition period were confirmed for the new stage of Mercosur. Chile and Bolivia were accepted as associate members in 1996.
From that moment onwards, Mercosur acquired its new status as an entity under international law, which allowed an upgrade in its relationship with EU. After preparatory ministerial meetings all along 1995, the two integration schemes signed in Madrid, December 1995, a joint declaration solemnly establishing a framework agreement of inter-regional economic cooperation with the objective to pursue a political association and render possible trade liberalization among them.
The international environment, though, was not very cooperative. The external shocks starting with Mexico’s insolvency, in December 1994, going through Asian financial crises, between 1997 and 1998, and culminating with Russia’s moratorium and LTCM crash, in July-August 1998, impacted Mercosur countries very seriously, especially Brazil, which had accumulated huge imbalances in its current accounts. The next, and most dramatic stage was the deepening of the crisis in Argentina, between 1999 and 2002, with direct impact in Mercosur’s ability to sustain its pace.
Mercosur still suffers from economic fragilities and, most of all, from protectionist instincts in its two major members. Among those reactions, the most used tools are unilateral safeguards imposed by Argentina against imported products, including those from Brazil, its most important partner. To accommodate Argentinean susceptibilities against ‘disloyal competition’, Brazilian diplomatic authorities agreed on the setting up of a ‘Mechanism for Competitive Adjustment – MAC), a proxy for the monitoring and control of import.
Since the inception of the customs union, in 1995 (at least in theory), no substantive advances were accomplished in commercial integration, and perhaps more restrictions – both inwardly and outwards – were introduced than promises of trade liberalization were realized. The free trade zone among member countries works more or less on the same bases that were put in place during the 1991-1994 period and the customs union started in 1995 probably now covers fever products than was the case at the beginning: according to some observers, less than 10 per cent of imported items within Mercosur is traded under the official rates established by the CET.
Peru became an associate member, and the other Andean countries signed bilateral commercial treaties with Mercosur countries in 2004: all these are limited in the tariff reductions and privileges accorded, and all have too many bilateral exceptions to effectively create new flows of trade among those countries. The Venezuela admission into Mercosur is a case in itself, because it did not follow the normal procedures established by the Asunción Treaty. Under the leadership of controversial Hugo Chávez, Venezuela requested its admission, a decision adopted in 2006; at the same moment, though, Chávez openly said that Venezuela was entering Mercosur to profoundly change its nature, from a free-trade capitalist bloc to an integration system identified with his ‘Socialism of the 21st century’.
During the whole period, EU maintained negotiations in order to conclude trade liberalization and association agreements. The bi-regional Free Trade Agreement between Mercosur and EU, devised to serve as a compensatory relationship in face of the hemispheric negotiations, was derailed as soon as the proposed FTAA was sabotaged by Argentina, Brazil and Venezuela (November 2005), and probably for the same reasons: divergences among the partners in connection with European farm protectionism, and resistance from Mercosur countries in industrial, services and intellectual property matters. Absent the bargain element in this triangular relationship, the bi-regional project has been stalled since then.

3. Main constraints and characteristics of democracy-building in Mercosur
The European Union has many linkages with the progress of democracy and of the integration processes in the Southern Cone. It is certain that Europe has promoted democratic integration, or democracy tout court, everywhere and every time, and that those initiatives contributed, sometimes, to the strengthening of democracy in some places, at some junctures in the political history of those countries attained by the ‘democratic activism’ inspired from Brussels. But those initiatives are linked in any special way to the return or the promotion of democracy in Latin America. There were, of course, ‘waves’ of military coups, of authoritarian regimes, and also democratic trends, or sudden reversals to democracy in many of those countries, but each determined by their own political dynamic, or their domestic political processes.
It is true that each advance in the European institutional construction of an integrated political body and a common economic space, has caused a mimetic desire to reproduce the same initiative in Latin America. It is also a fact that periods of democratic stability were, in general, most favorable towards integration that the many phases of authoritarian governments. But even under formally democratic governance, the most usual pattern of economic policies followed in the region – substitutive industrialization, with plenty of protectionist devices and inward-looking specific policies – were, by far and large, inimical towards economic opening and commercial liberalization, thus hindering, any integration initiatives that had been superficially agreed upon among Latin American countries.
It was just after the double democratization process in Argentina and Brazil, between 1983 and 1985, that the most important integration experiment was launched and took impulse, first as a bilateral project for a common market, then as the quadrilateral Mercosur initiative. As in the European model, The democratic principle, was clearly reaffirmed, even if at that initial stage there was no formal and explicit clause requiring democratic institutions to be part of the experiment. That was to arrive later, and much more under pressure of actual events raised by old ghosts of democracy in the region – the menace of a military coup – than by any European political cooperation scheme. The occasion was a tentative military takeover in Paraguay, in 1996, which led the presidents of Mercosur countries to frame a democratic declaration in support of the elective representative system within the bloc. Two years later, by the Ushuaia Protocol, the four member countries and the associates – Chile and Bolivia – adopted a formal democratic clause, requiring the normal functioning of a democratic regime as a condition for membership in Mercosur.
The true test for the democratic clause within Mercosur is currently represented by Venezuela’s candidacy to full member status. The decision, on either side, was completely political in nature, as Venezuela, under the peculiar economic policy of Chavez’s regime, was departing further from the capitalist rules that, in differing ways, governed the integration process in the Southern Cone.
Of special relevance on the economic aspects of this problematic adhesion is the capacity of the current administration in Caracas not only to comply with the many internal requirements of an integration process, but also to follow and accept formal negotiations with prospective partners in liberalization trade agreements or in multilateral talks for trade liberalization at large, like the Doha Round (whose tentative agreement in 2008 was refused by Venezuela, and even by Argentina, under the rejection of reduction of industrial tariffs). On the political side of this venture, many representatives of the legislature in Mercosur countries question whether Venezuela complies, in deeds, with the democratic clause of the bloc, as superficial as it may be. In fact, the clause itself is directed to the formal interruption of the ‘institutional normality’, so it seems to apply only to coups d’État or other breakdowns of democratic regimes. As it stands currently, the democratic clause of Mercosur has no power to exert, in its written form, any kind of pressure against the gradual erosion of the normal functioning of a democratic regime.
Irrespective of the domestic evolution of politics in Venezuela, as well as the economic interests linked to its closer association to Mercosur, the full participation of the Chávez regime in the institutions of Mercosur represent a direct challenge to its economic rationality and the democratic adherence that supposedly guide its construction. Probably, Mercosur’s institutional coherence is less valued nowadays, when governments, in some of the member countries, have but slight allegiance to liberal ideas and instead show a preference for economic nationalism, political progressivism and moderate anti-imperialism.
In Mercosur and elsewhere in South America, actual trends, tend to lessen the emphasis on commercial liberalization and economic opening, and to strengthen policies related to social and political aspects of integration. Having this in mind, it is difficult to foresee an easy negotiating process between Mercosur and the EU, also because differences in economic and trade policies inside the bloc are likely to grow, making policy coordination more complicated.

4. Policy proposals and some suggestions for democratic strengthening in Mercosur
Mercosur is a factor for the economic and technological modernization of the member countries, as well as for their insertion into the world economy. To these dimensions, one has to add another one, that is, the constitution of a common market in the Southern Cone, which is to form the basis for a free trade area in South America. Needless to say, all these should be based on the fundamental assumption of the continuity of democratic regimes everywhere (a condition which, in some countries at least, is far from assured).
Irrespective of the time frame for these developments, all this is dependent on two or three conditions. First of all, Mercosur countries must consolidate their integration process irreversibly, by accomplishing the objectives set forth in the first article of the Asuncion Treaty, that is, the constitution of a common market. After almost twenty years, Mercosur remains what it was at the beginning: a project for a future single market. Truly, this main goal, which is the very essence of Mercosur, depends also on the coordination of macroeconomic policies among the member countries and the harmonization of national policies in strategic sectors (this also is in the same article). To advance towards these objectives, Mercosur has to strengthen its institutionalization. That is not so simple, as we are touching the very heart of the ‘sovereignty instincts’ of each one of the member countries. The retrenchment into national sovereignty still has a powerful attraction.
Secondly, to allow a smooth implementation of these objectives, Mercosur members have to continue and deepen the structural reforms that are indispensable to carry out the same objectives: tax reform, fiscal and exchange reforms (including currency convertibility), sectoral reforms (industrial and trade policies), labor and administrative reforms, and others. They are needed because otherwise there will be no macroeconomic convergence and exchange coordination: the constitution of a single market would be impossible without them. Some countries are undergoing some of these reforms, but they are taken on purely domestic bases, with no coordination with other member countries. And of course some countries, like Argentina (in industrial policy) and Brazil (in tax reform) are reforming in a direction that is totally contradictory, if not opposed, to Mercosur’s number one objective, namely the common market.
Thirdly, but not the least, these structural reforms have to be accomplished with another objective in mind: economic opening to the world, and continuity of trade and investments liberalization. Since the inception of the CET – which required a prior domestic reform of national tariffs – in 1995, the overall evolution of trade policies in Mercosur and in each of the member countries has taken the road of closure, restriction, tariff escalation and many other restrictive devices, that is, making Mercosur more, not less, protectionist. The average rate of effective protection since 1995 has moved upwards and is slightly incremental as a whole, but is openly protectionist in some sectors (classified as sensitive, but in fact ransomed by lobbies and special interests).
Difficulties erected on the road to a common market – and the continuity of the reform process – in Mercosur could be classified into two groups: structural impediments and contingent factors. Among the later, are the natural limitations of the national processes of macroeconomic stabilization, which are not completely implemented, even after years – or decades, some would say – of hyperinflation, external crises associated with excessive foreign debt, volatility of capital flows, and currency debilitation, as well as low growth or even stagnation, with ensuing political and social crises.
On the structural side, asymmetries between countries are deemed relevant, not only in terms of the proper dimension of each country – with Brazil, for instance, representing some 70% of the ‘atomic mass’ of Mercosur, in GDP figures, external and internal trade, capital and investments flows, etc. – but also as a result of the level and intensity of the industrialization and technological advancement (with big disparities going, again, in favor of Brazil). From those structural features derive differentials in competitiveness and in attractiveness for investment, which raise reactions in each of the other associates and in fact hinder the consolidation and progress of Mercosur towards higher levels of integration, both internally and with the world. There are many other asymmetries, for instance in educational and social indicators, with Argentina and Uruguay performing much better than Brazil and Paraguay but the most important ones are, of course, the aggregate sum of economic capabilities; and that gives an extraordinary ‘power’ to Brazil.
Also relevant enough, this time for institutional reason, is that this enormous differential among member countries does not reflect in the decision-making process. As is very well known, this process is characterized by the perfect equality of duties and obligations among all member countries, and this comprises the vote (and veto) power, giving the same weight to each of them. So, Uruguay, with its 3.5 million inhabitants, has the same capacity in the decision-making of Mercosur – and thus, formally, in the determination of its main policies – than has Brazil, with its 197 million population. This is not all: even Mercosur’s Parliament has the same “proportional” representation for each one of the member countries, 18 designed representatives (they will eventually be elected directly, but in fact they will have no real power over the bloc).

There are many processes or structural features that seem to be determinant in the future course of Mercosur, in its proper, ‘domestic’ dimension, or in connection with external factors. They can be summarized as follows:
1. Domestic changes in institutional politics and economy, in member countries, without discontinuity in their pluralistic and democratic regimes;
2. The willingness of their political leaderships to continue to push towards integration, in spite of the social costs, that in some sectors would be inevitable;
3. The establishment of a realistic work agenda, coordinated for the best among member countries, pointing to the joint overcome, in the short term, of contingent obstacles, and, in the medium term, of the limitations and structural hindrances for the full integration of the markets; that is of course the most difficult question,;
4. The preservation of economic growth and external competitiveness, in order to maintain the attractiveness to foreign capital and reciprocal investments in Mercosur countries (Brazil being already one of the main capital exporters);
5. The continuity of macroeconomic reforms and in specific sectors (like taxation, industrial and trade policies), with the adoption of an ‘integrationist outlook’ in the various aspects of this process, including standards and technical regulation, the coordination of legal systems and the integration of regulatory policies;
6. The preservation of the economic stability, and of political and social peace in the region, as this reflects on the external relationships of Mercosur, in especial regarding the consolidation of the agreements already concluded with Andean countries (CAN), as well as the continuity of other schemes for the physical and political integration in the continental context (currently within the framework of the Unasur, the South American Union of Nations);
7. Due conclusion of the multilateral trade negotiations (Doha Round, of the WTO), heavily dependent on a success in the farm and industrial sectors, besides services and intellectual property;
8. The extension and deepening of the ‘minilateralist’ trade liberalization agreements that are being negotiated by the US and EU, with many partners in the region, as they represent a real big challenge for Mercosur, either as means to attract of new investments or in terms of market access to those huge markets;
9. The resumption and conclusion of an association agreement between Mercosur and the EU, not only on traditional WTO grounds, but equally important as a political and institutional device for the consolidation of the integration process and the internal dynamic of Mercosur’s evolutionary trend.

Which ones, among these many factors, would be relevant in terms of political and economic cooperation between Mercosur and the EU? Of course, in terms of democracy-building, there is no immediate danger in the Southern Cone, other than the doubts associated with Venezuela’s full membership, under the current political leadership, as already mentioned above (but that is beyond the capacity of any political cooperation between Mercosur and EU, and depends entirely on the internal dynamics of the political evolution in Venezuela). Democracy-building in Mercosur is too complex a process to be influenced by external forces, albeit the pressures and inducements of the political cooperation with the EU represent a positive, while feeble, factor in the consolidation of that process.
One important aspect to be counted, in the framing of technical and political cooperation between the two blocs, is the fact that Mercosur will continue to have a kind of ‘Benelux pattern’, that is, it will preserve – at least depending on the willingness of its most important member country – its intergovernmental institutional architecture, and will refuse, consequently, any ‘supranational’ or communitarian ‘jump’ towards full integration and its evolution towards a single market. That is a contradiction, in practical terms, but it is also a reality that the policy planners of the European Commission have to consider in their assumptions regarding the future of bilateral cooperation.
From the very start, in 1991 and 1992, during the transition period, up to nowadays, bilateral cooperation between the Commission and Mercosur institutions covered only technical and administrative sectors, with a preferential inclination towards technical standards, adaptation of economic sectors to the internal liberalization process – that is, reconversion and adaptation schemes –, human resources and technical training in the Secretariat in Montevideo, and many other social and communications projects with emphasis on the public acceptance of the integration endeavors. And the same time, Mercosur national leaders, probably inspired by the European example, decided to engage in compensatory mechanisms, modeled upon Convergence Funds and the structural devices for cohesion policies, a very bureaucratic specialty in the EU (and a very difficult issue within Mercosur).
The problems here are connected with the so-called question of asymmetries, which are seen as absolute impediments to the achievement of full integration. While it is absolutely correct that there are many differences among member countries – the size of their economies, availability and quality of natural and human resources, levels of industrial development and technological sophistication – it would be more appropriate to allow the ‘correction’ of these asymmetries by market forces – opportunely supplemented, here and there, by adequate public policies, but just to support trends already at work in the economic realm. The bureaucratic attempt to insulate entire branches, or regions, from those uneven market forces, can create other disequilibria, whether mediate or immediate, beyond the budgetary impact of the establishment of costly financing programs without a real cost-benefit analysis.
Needless to say that the introduction of such programs requires the existence of a generous net contributor, who, in the case of the EU, was Germany, a role inadequately represented in Mercosur by Brazil (with per capita social and economic indicators less favorable than those of other member countries). By voluntarily assuming that role, Brazil is contributing with some 70% to a structural convergence fund for Mercosur and has promised to double its investment in this program, primarily directed to the small countries of the bloc. It is noteworthy that statistical and empirical assessments of the constitutional funds constituted for the correction of such asymmetries in Brazil – regional programs for depressed or undeveloped regions – have clearly shown a negative overall balance of those experiments. State financing, in any case, is insufficient – at less than 1% of Mercosur’s total GDP – to correct the structural imbalances, which should be gradually overcome by the Ricardian specializations and comparative advantages of each one of the member countries, as they are, in the last resort, the true basis for regional and international trade flows.
Few, if any, of the cooperation projects of EU with Mercosur touch the question of democracy-building, and this should remain as it is, for there are many other important areas for regional technical cooperation, such as the environment, technical standards and regulatory policies, as well as capacity-building, either in member countries or inside the Secretariat in Montevideo. There are many ongoing projects – in communications and information equipment, public relations, statistics, education, biotechnology, macroeconomic monitoring, and many others – for which financing from the EU is as high as 80% of the total costs.
In some areas, the return for this bilateral financing is doubtful, for instance, in the case of Mercosur’s Parliament, whose competence for the inner core tasks of the integration process is superficial, to say the least. In other areas – such as dispute settlement mechanisms, sustainable production, infectious diseases or sanitary measures – practical returns can be higher, but the bureaucratic obstacles and delays, on either side, are also burdensome, as is usually the case with large organizations (compounded by the intergovernmental nature of Mercosur). EU has been as generous as possible towards an experiment in which European authorities perhaps see a kind of community en puissance, putting aside its many shortcomings and the persistent lack of definitions regarding the very core of Mercosur’s integration and institutional building.



5. Concluding remarks: time for a new bi-regional agenda

> First task: Mercosur has to complete its customs union project, starting by achieving the free trade area; this is not an easy task.
Any sensible recommendation for a work agenda regarding EU-Mercosur cooperation, focused as much as possible on a realistic bilateral relationship, should be able to tackle the most important issues, that is: first things, first. The question in Mercosur is that the real ‘first things’ touch upon the very core of the matter, that is: the unfinished business of the customs union, to say nothing about the promised common market. If Mercosur wants to succeed, it has to go back to its most important foundational principle: just a customs union.
A first approach could consider this an easy task, taking into account that the ‘old’ European Community took less that the scheduled twelve years time frame to arrive at its customs union, exactly in 1968. Thus, a ‘realistic’ view could conclude that the first task in the bilateral cooperative agenda between EU and Mercosur should be the progressive, but unstoppable construction of a real customs union. But that is too ‘heavy’ a task, even for an organizational ‘elephant’ such as the EU, as the accomplishment of the (nowadays incomplete) scheme of a customs union in the Southern Cone is well beyond the limited capacity of the bilateral technical and political cooperation between the two blocs.

> EU should consider taking a consultative role in developing this project, but it should not be modeled on the European experience; its mission is to serve as a technical (and financial) support in devising as many options as possible for the specific needs of the Mercosur scheme, in accordance with its own possibilities.
This agenda will remain subject to the national political and economic interests of Mercosur’s member countries, and, as such, should not be impacted or influenced by any kind of ‘external examples’. From a realistic Mercosur perspective, the EU model is an impossible dream, at least in the foreseeable future. However, at least a serious investigation by EU consultants and specialists, including active officials – acting with the agreement of Mercosur authorities, under the framework of a technical mission – could arrive at a realistic report, stating clearly if a customs union is ever possible in Mercosur, under current circumstances and taking into account foreseeable conditions for institutional building in the Southern Cone bloc. That would have the merit to clarify the matter, and prepare the ground for new decisions by the political leadership in the next few years.
One possible conclusion could be a recommendation for a new departure in terms of institutional choices between a strong free trade zone and an incomplete and unmanageable customs union. A technical mission from the EU could have a dispassionate view on that matter, and make appropriate recommendations. That would be the first thing.

> The democratic clause of Mercosur should be strengthened so as to make it not a passive device (‘curtail democratic ruptures’) but an active tool for the proper functioning of State institutions based on a sound democratic concept.
The other question is, of course, cooperation in democracy-building, from an European perspective. The fact is that – with the exception of the ‘Bolivarian states’, starting with Chavez’s Venezuela, and possibly also Bolivia as an associate member of Mercosur – there is no such a thing as a ‘democratic question’ within Mercosur. Despite populist temptations, and ‘normal’ political demagoguery, the four original member countries seem well immunized against a return to authoritarian regimes. The possible ‘feeble link’ in the chain, Paraguay, served as theater for some frustrated experiments in military oversight, and opened the way for the two Mercosur instruments against democratic breakdowns and this kind of control: the San Luis Declaration (1996) and the Ushuaia Protocol (1998).
Here, also, the political cooperation between EU and Mercosur could have an important symbolic impact, in trying to strengthen Mercosur’s democratic clause, in order to push for a further step into the definition of a substantive content of a full democratic regime: as it stands now, provided that Chávez does not resorts to a coup d’État himself, he can continue indefinitely the process of erosion of the democratic institutions in Venezuela, without being sanctioned by any political resolution by other Mercosur leaders. Out of the experience of last few years in Venezuela, it is very clear that there is a real danger, in Mercosur, of a gradual contamination of ‘Bolivarian’ spurious elements in its fragile institutional building.
Even considering the possibility of a partial backward move, in the context of growing institutionalization process of the representative presidential system in the region – under hypothetical caudillo-like political leaders – democratic regimes seem fully established in the Southern Cone. The real question is rather the ‘quality’ of the democratic institutions, than the democratic system itself. As is well known, there is a widespread malfunctioning of the democratic regimes in the region, with widespread corruption and patrimonialistic practices everywhere. So, the main task should be the betterment of the State apparatus, rather than democracy-building. However, perhaps an agenda like that is much more domestic than focused on regional integration. Even so, EU cooperation could cover also some studies on the ‘deepening’ of the democratic process in Mercosur decision-making, as it could be a means to reinforce good governance throughout the integration build-up.

> State institutions and state companies in Mercosur (as in the EU) are permeable to corruption practices, with very few exceptions; there are spaces for cooperation in government procurement practices, and for monitoring devices in connection with activities financed and sponsored by central authorities.
It is very complicated to direct bilateral cooperation efforts towards a concentration on the basics of the integration process – that is, economic opening and trade liberalization, intra and extra-bloc. Therefore perhaps a renewed focus on the mechanics of the integration process itself could serve as a lynchpin in a new phase of this relationship. What every country certainly needs is concentrated effort towards infrastructure works and logistics (transports, communications, even energy), because they will serve the cause of the integration. These tasks also encompass domestic reforms, especially regarding the regulatory framework for those huge undertakings, which involve public procurement and attraction of foreign direct investment. In so doing, the dynamics of cooperation should strengthen the political and economic stability of each country and within the bloc itself. The EU has vast expertise in the coordination of mechanisms – financial, engineering, administration – linked to infrastructure works, and that could also be put on the cooperative agenda.

> EU should resist the temptation to offer itself as an example to Mercosur: there will be no repetition of history and no transfer of ‘integration technology’.
One last recommendation could be a sensitive warning: EU should not view the integration process of Mercosur as a mimesis of its own itinerary and should refrain itself from offering ‘communitarian solutions’ to Mercosur problems. Mercosur is not, and will not be, a mirror of the European integration process, either in its economic foundations or in its political institutions. Correction measures for existing asymmetries, for instance, or convergence mechanisms for under-average per capita income, as done in the Feder, for example, should better be tackled by market forces within Mercosur, rather than by centralized bureaucratic schemes (modeled upon Brussels’ labyrinthic travails). Just to mention one possible ‘temptation’ of that sort, a ‘common agricultural policy’ in Mercosur would be a complete foolishness in economic terms, and a political disaster for the bloc itself, for the region at large, as well as for other developing countries and the world trade system.
In conclusion, EU and Mercosur could and should be ‘strategic partners’, and not only for ‘democracy-building’, but essentially for the intensification of any kinds of political links and material flows that interest economic agents as well as leaders in each bloc. Conditions and requirements for establishing a common agenda should take into account not only the similarities – much more in intention than in the respective institutional architecture of the two blocs – but also, especially, the structural differences and differing historical paths them, in the two continents. A realistic assessment of the possibilities for strengthening this relationship is probably needed when a global crisis is threatening every economy in our interdependent world.

> Of course, no cooperation in any prospective field should insulate the two regional blocs from the world at large, as there are no substitutes to the multilateral trade system: real trade liberalization and total opening to investments of an MFN basis should be the common objective of both schemes.
As the two most important contemporary integration experiments, based on market economies and on democratic regimes, Mercosur and the EU have to face the new challenges. Among the prospective fields for bilateral cooperation are: energy, agricultural development, industrial technology, technical education and professional training, health and sanitation measures (human, animal and food products, in general), transport and communications, administration and public governance, and many others. Of course, financial and commercial cooperation are to regain their relevance, too. Answers, on each side, will probably not be the same, but some common ground is possible to be found, as the overall objectives are certainly shared.


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[First draft: February 2nd, 2009; revised: February 16, 2009;
Final revision: June 3rd, 2009]