MERCOSUR Common Market Falters
Hinchberger, Bill
Supporters hail the Southern Cone Common Market as a major step toward the fulfillment of the age-old dream of Latin American unity. Critics counter that Mercosur, as it is known, is...
...The region's heavyweight, Brazil, pales in comparison with the United States, Germany orJapan...
...Business people have to change their closed mentality," says Manuel Herrera, head of UIA international relations...
...In response to the recalcitrance of many domestic businesses, government and business leaders have begun to call for Mercosur's "privatization...
...Trade between Brazil and Argentina rose by some 80% following the modest reduction of barriers in the late 1980s...
...Moreover, even as typically strong Brazilian products, such as textiles and footwear, flow more freely into the Argentine market, some Brazilian industrialists complain that Argentina's overall import liberalization efforts are eroding advantages they previously enjoyed under bilateral agreements...
...Nothing is going to happen unless people are aggressive," he says...
...Meanwhile, the agreement encouraged Brazilian producers of garlic, fish, onions and other goods to lobby for protective measures for their sectors...
...Mercosur was not born of political necessity, with the support of the people," he says...
...And we are seeing evidence in Eastern Europe of how bureaucratic animals die of hardening of the arteries...
...The two countries are slated for complete inclusion by the end of 1995...
...Their Uruguayan colleagues have made tentative contacts as well...
...Progressive observers call integration a mixed bag, not without its positive aspects...
...In general, the labor movement was always sympathetic to the idea," observes Silvia Portella, a sociologist and coordinator of the union policy section of the Unified Workers Central (CUT...
...Such retrenchment is enough to provoke a bout of indigestion in any free trader's stomach...
...Consumer groups have probably been the most active, lobbying for the adoption of legislation modeled on Brazil's strict consumer protection code in the other three countries...
...Indeed all fourcountries that make up Mercosur are in the throes of the worst economic depressions in their modern histories...
...The integration process has been long on diplomatic accords and short on private initiative, says Benedito Pires de Almeida, foreign commerce director for the SAo Paulo Industrial Federation (FIESP...
...At the July summit of Latin American presidents in Guadalajara, Mexico last year, the Bolivian government expressed interest in joining...
...Mercosur is extremely ambitious," Canadian trade official Michael Hart told a group of academics at the University of Sdo Paulo last year...
...Multinationals React By contrast, transnational companies have been quick to respond to Mercosur...
...The Danish biotechnology firm Novo Nordisk cited Mercosur as the determining factor in its decision to expand a plant in southern Brazil...
...Under the current economic adjustment program, the Cavallo Plan, Argentina established average tariffs of 9.6%-less than the 14% that Brazilian imports are to face under Mercosur in 1994...
...In early August, FIESP and the Argentine Industrial Union (UIA) made a joint pledge to stimulate such aggressiveness...
...But as Dreifuss puts it: "There is no transnational labor union structure in the region...
...Following the same timeline, a list of products exempt from the process will be gradually reduced...
...Even so, multinational interest in the region stands at an all-time low, a function of the region's floundering, unstable economies...
...With a total area larger than that of the United States and Mexico combined, Mercosur's four members boast a population of nearly 200 million and a combined gross domestic product of close to $400 billion...
...And with a 40% tariff reduction in January 1991, trade for the first six months of last year leaped by 65% over 1990-Argentina sold $934.5 million worth of goods to Brazil, and Brazil sent $450 million worth southward...
...In Europe, the Common Market had the support of the general population, that was anxious to find mechanisms to avoid a return to the dramatic conflicts of World War II...
...While Argentina relied on intraregional purchases for 26% of its foreign sales in 1990, Brazil sent just 1% of its exports to Mercosur neighbors...
...Those numbers may grow...
...Free trade may also attract otherwise reticent investors...
...Brazilian executives maintain that gradually diminishing tariffs and other changes have not been able to overcome differences in relative exchange rates and growth cycles, elements that traditionally govern the flow of goods within the region...
...Officials admit the likelihood of some short-term sectoral crises and a round of business failures initially, but Rene Dreifuss, a researcher with the Southern Cone Alternative Policy Institute in Rio de Janeiro, predicts that business will profit from the advantages of scale and rationalization, while consumers will enjoy a wider selection of higher quality, cheaper products...
...In January 1991, the first of regular progressive tariff readjustments took effect, with zero duties set for December 31, 1994...
...Dreifuss chides the Left for not mobilizing around the integration issue...
...In part, lack of opposition is rooted in the pan-Latin American ideology that most progressives, including labor activists, share...
...Meanwhile, Mercosur is actively courting a reluctant Chile...
...As a result, Pfizer postponed projected investments of $80 million in Brazil this year...
...Down Side of the Deal Skeptics point out that government officials are bending over backwards to facilitate business (including multinational) input in negotiations, while fending off the handful of labor and other activists who want places at the table...
...Thus far, criticism from labor and environmentalists remains muted, in contrast to organized, if diffuse, oppo- sition to the North American Free Trade Agreement among labor and other activists...
...Even with the recent boom, Argentina just barely makes the top ten...
...The hard part-and, many observers believe, a prerequisite for success-is macroeconomic "harmonization": the coordination of exchange rate, monetary, trade and other policies...
...In either scenario, Mercosur is an earnest attempt by the governments of Brazil, Argentina, Uruguay and Paraguay to fit their increasingly square economic pegs into evermore round international holes-as a world of emerging trade blocs threatens to relegate South America to the sidelines...
...Potential benefits from joining Mercosur are tempered by Chile's desire to parlay its goodwill abroad into a bilateral trade deal with the United States...
...That country's long-standing trade liberalization program and low inflation rates transformed it, along with Mexico, into a darling of the international business community...
...Diplomats are setting a stage they hope will be filled by economic actors -- entrepreneurs who, emboldened by VOLUME XXV, NUMBER 4 (FEBRUARY 1992) 1Ifewer restrictions, will follow a script of burgeoning trade and cross-border joint ventures by "binational" firms.The plan, say government officials, encourages specialization where comparative advantages already exist-Brazilian capital goods, Argentine wheat, Uruguayan rice, and Paraguayan cotton-thereby increasing efficiency and strengthening the region's clout in world trade...
...With its already cut-rate tariffs, Chile has little to gain from participating in Mercosur until custom duties are similarly trimmed elsewhere in the region, observes Andre Franco Montoro, a veteran Brazilian politician and president of the Latin American Institute in Sgo Paulo...
...The U.S...
...Brazilians, though, seem occupied elsewhere-which makes sense in light of overall trade figures...
...What took the European Community decades of preparation to accomplish, Southern Cone leaders hope to compress into a Bill Hinchberger is a freelance journalist based in Sdo Paulo...
...Between 1970 and 1987, Argentina failed to break into the list of Brazil's top 25 trading partners...
...Workers won't necessarily profit," Dreifuss says...
...Three-quarters of Brazilian trade is with the developed world...
...Yet regional statistics are not insignificant...
...He is associate editor of the alternative yearbook Third World Guide 1991-1992...
...But if widespread, such support is slim-a potential weakness not lost on astute officials...
...The pharmaceutical company Pfizer announced that, with the advent of Mercosur, it plans to centralize production...
...Where there is a redundancy of units, the least competitive will be closed," Jorge Rosas, chief executive officer of Du Pont's South American operations, told the Brazilian business magazine Exame...
...If that happens, he predicts, Chile will sign on...
...Nevertheless, prospects for increased regional trade look good...
...Unions and political parties have been following the process from a distance," he says...
...Social issues, when addressed by Mercosur, are relegated to the nebulous sphere of joint government committees charged with drawing up "technical norms...
...In 1987, Brazil's leading polling firm, IBOPE, reported that 88% of those questioned reacted positively to Latin American regional integration...
...Brazilian business leaders complain they cannot compete with European producers under these terms...
...On this front, discussions have made little progress thus far...
...The CUT and its Argentine counterpart, the General Workers Confederation (CGT), elicited the support of the European Labor Confederation to help develop strategies for participation...
...By then, officials also hope to have a unified set of external tariffs in place...
...They also note that the plan envisions a capitalist utopia unfettered by guarantees for working people...
...Diplomats are beginning to admit that the common market plan is too ambitious in the short term...
...For researcher Rene Dreifuss, the lack of popular dialogue distinguishes Mercosur from the European Common Market...
...Critics counter that Mercosur, as it is known, is a meager, hastily drawn reproduction of the European Community that is bound to fail...
...This outlook, dating from Sim6n Bolivar, was strengthened by solidarity among Latin American exiles who fled the dictatorships that once dominated the region...
...The Argentine business community is buoyant...
...When Argentine pulp and paper imports from Brazil, subject to a low 5.7% tariff, shot up 1,300% over 1990 levels, pushing Argentine companies to the threshold of bankruptcy, diplomats-worried about the negative political falloutconvinced Brazilian producers to "voluntarily" reduce exports by the end of 1991...
...Political clout is something you earn, if you have the will...
...they now acknowledge that a more realistic goal is to forge a functional free-trade area...
...Domestic companies are focussing more than ever on Brazil," reports the specialized weekly BusinessLatinAmerica...
...If citizens do not participate in Mercosur's destiny, we are merely creating a bureaucratic animal," Marcos Castriotto Azambuja, Brazilian secretary general for foreign policy, told Argentine business leaders, the Brazilian newspaper Gazeta Mercantil reported...
...their exports continue apace...
...In the interim, transnational corporations appear to be the only sure winners...
...The Demoskopia Research Institute in Buenos Aires found four of five Argentines to be pro-integration...
...The easy part, roughly akin to the North American Free Trade Agreement, is dismantling trade barriers among member countries...
...Because no single country dominates Mercosur like the United States does the North American Free Trade Agreement, benefits and losses will probably be less regularly distributed, according to country, locality and sector...
...In the Southern Cone, there is no rivalry...
...But interest is growing, she says...
...A June 1990 agreement between Brazil and Argentina consolidated an earlier sector-by-sector integration process launched in 1986...
...gross domestic product is $5.7 trillion...
...The net effect on employment remains unclear, since plant closures could be offset or eclipsed by new investment...
...Brazilian industry sources argue that this artificial accord was doomed to failure...
...few short years...
...The Southern Cone Common Market is the only serious attempt to form a trading bloc not anchored in one of the world's leading economies...
...Opposition is more evident among business sectors likely to suffer, such as Brazilian agriculture and Argentine REPORT ON THE AMERICASpaper products...
...Mercosur countries are also shying away from the harsh consequences of economic rationalization on business sectors long accustomed to protection from outside competitors...
...Disinvestment is possible with or without free trade...
...And trickle-down benefits cited by Mercosur's advocates have long been promised by self-serving elites...
...A four-part treaty signed in March 1991 awarded membership to Paraguay and Uruguay...
...For example, Argentina's zero tariff for petrochemicals undercuts a previous bilateral preference...
...Automakers including Autolatina (Ford and Volkswagen's holding company in the region), Scania, Mercedes-Benz and Fiat are leading the charge to benefit from regional parts sourcing and more flexible trade in a sector long controlled by the government in Brazil and Argentina...
...Portella admits labor has paid scant attention to the potential effects of Mercosur-save for a handful of isolated initiatives, notably by the Metalworkers Union, representing auto workers, and small farmers and farm workers in the south of Brazil...
...Integration will bring benefits for some companies, and problems for others...
...Du Pont, with factories in Brazil, Argentina, Venezuela and Colombia, has reduced its personnel by unifying its continental management structure, and plans to become even leaner as borders are pried open...
...Chile signed a free trade deal with Mexico last year...
Vol. 25 • February 1992 • No. 4
