Thursday, January 03, 2013

MERCOSUR at Middle Age: Welber Barral on Current Challenges

Welber Barral is the former Brazilian Secretary of Foreign Trade (2007-2011) under President Lula da Silva, has recently written about the future of MERCOSUR, the Common Market of the Southern Cone. He has recently written an essay about the future of MERCOSUR that si worth careful consideration.  Welber Barral,  El Mercosur y la predicción maya, La Nación (Argentina) , Jan. 2, 2013.  MERCOSUR serves as a model of the potential and the potential irrelevance of regional trade organizations in this century. Anachronism, basis of strong regional political-economic integration, instrument to amplify state interests, these are the critical questions for this century.

(Pix from MERCOSUR, La Jeringa, Aug. 10, 2012)

Mr. Barral starts with the suggestion that as it enters into its third decade of operation, now would be a good time to think about the form that this organization ought to take as it matures. ("Al completar 21 años, es tiempo de pensar qué podrá ser el Mercosur en su madurez." Ibid).  He reminds us that MERCOSUR has been a study in fantasy, hard reality and cyclical crises that do not necessarily suggest either continuity, a coherent set of institutional objectives or culture--except perhaps in the minds of academics.  
 "De hecho, llama la atención la evolución errática de la integración regional. En sus diversas fases, el Mercosur ha tenido metas imposibles en Asunción, choque de realidad en Ouro Preto, crecimiento en los 90, apocalipsis en 2000, retrocesos e imprevisibilidad después de 2008." (Ibid. ("In fact, it calls attention to the strikingly erratic evolution of regional integration. In its various phases, Mercosur was given impossible goals in Asuncion, suffered a reality shock in Ouro Preto, benefited from growth in the 90s, met apocalypse in 2000, and faces unpredictable declines after 2008.") 
It appears to have served more as an idea (and ideas are important in Latin America) and as a chess piece in complex political strategies both among the MERCOSUR members, and between them and powerful outsiders, notably the United States (and especially in its now failed efforts to dictate a Free Trade Area of the Americas (Área de Libre Comercio de las Américas (ALCA))). For a useful discussion see Fernando Lorenzo and Marcel Vaillant, "Exploring the Link Between Decentralization and Democratic Governance, in MERCOSUR and the Creation of the Free Trade Area of the Americas 1-28 (Fernando Lorenzo and Marcel Vaillany, ed., (Washington, D.C:: Woodrow Wilson International Center for Scholars, 2005).

Where does that eave MERCOSUR today? For optimists, Mr. Barral suggests, MERSUR remains a political project justifiable by its successes in reducing the potential for regional conflict, especially between Brazil and Argentina. Moreover, it might be viewed as a means of accentuating and making more relevant the economies of MERCOSUR's minor players, especially Paraguay and Uruguay. That, Mr. Barral muses, is what people thought possible in 1991. "Para los optimistas, el Mercosur sigue como un proyecto político justificable ya que fue el mecanismo responsable de reducir el potencial de conflicto regional, sobretodo entre la Argentina y Brasil. Además, la integración regional podría ser el camino para acrecentar la relevancia de las economías menores de Paraguay y Uruguay. O, al menos, era lo que imaginábamos en 1991." Welber Barral, El Mercosur y la predicción maya, La Nación, supra).

But the reality is that integration hasn't brought much integration. And indeed, the last twenty years has highlighted the most impossible task of harmonizing Argentine and Brazilian trade cultures, much less of bringing sustained and coherent trade cultures among the most powerful members of the MERCOSUR group. ("La verdad es que más allá de las dificultades innatas a las democracias presidenciales y su recalcitrante concesión de competencias, nunca se logró en el Mercosur un consenso sobre el proyecto de desarrollo regional. Mientras la Argentina cayó en los espejismos ultraliberales de los 90, Brasil mantuvo una torpe intervención en los mercados. Cuando Brasil hizo intentos de liberalización comercial, la Argentina volvió a discursos precepalinos de industrialización por coerción." Ibid ("The truth is that beyond the difficulties innate in presidential democracies and their reluctance to cede authority, Mercosur was unable to achieve consensus on the project of regional development. While in the 1990s Argentina listened to the siren song of ultraliberal policy, Brazil maintained a clumsy interventionist policy in markets. When Brazil attempted trade liberalization, Argentina reverted to talk of coerced industrialization.").

Mr. Barral looks at this organization, now in its "twenties" and sees its fundamental weakness--the failure of consensus about its project. ("Un proyecto de desarrollo de integración demanda, antes que nada, de ese consenso sobre intervención, velocidad de liberalización y consolidación institucional. " Ibid. ("An integrative development project demands above all, consensus over intervention policy, the speed of liberalization and institutional consolidation. )). But, Mr. Barral notes, MERCOSUR was above theory, focusing instead on the emotionally charged and uncharted (and perhaps satisfying) paths of constant improvisation. ("En el Mercosur no llegamos a pensar en esa teoría ya que siempre estuvimos involucrados en los emocionantes caminos desconocidos de la improvisación constante. ")

But what Mr. Barral describes as MERCOSUR's weakness, may in fact be its greatest strength within the context of the realities of Latin American politics. Mr. Barral is absolutely right in his judgment, if one is to take MERCOSUR literally and formally. It is an organization that appears formally structured to serve as a nexus point for the consolidation of national policy at a supra national level--e pluribus unum--at least with respect to trade and eventually perhaps economic policy. The model, everyone's model since the 1980s, being the European Union. The product of this model, and the eventual role of organization like MERCOSUR, was to serve as a supra-national and consolidating administrative unit where matters that affect the community of its members could be resolved, and thus resolved, applied uniformly by national legislatures, throughout the MERCOSUR zone. But Mr. Barral is even more correct to point out that this dream, woven into the formal organization, and especially the rhetoric, of MERCOSUR, was unrealistic from the start.  
It might be more useful to measure MERCOSUR's success from a functional perspective, one grounded in the premise that MERCOSUR's real purpose was to meant to serve as an instrument of national policies, rather than as an institutional mechanism for integration.  It's fundamental organizational structures, grounded in a jealously guarded inter-governmentalism, ensured that MERCOSUR would serve state interests rather than develop its own organized and coherent transnational (or regional) interest.  It remains an association of states, rather than an instrument of integration, and its utility is best measured by its ability to serve as a vehicle for expressing, in an organized way, state interests, within a small group of states who share a common desire to sort their relations among themselves. More importantly, MERCOSUR is at its best when it serves as a vehicle to unite MERCOSUR states against common outside competitors-- traditionally the United States, but now increasingly China. In these aims and characteristics it shares a lot with that other politically useful regional trade association--ALBA. See, Backer, Larry Catá and Molina, Augusto, Cuba and the Construction of Alternative Global Trade Systems: ALBA and Free Trade in the Americas (May 20, 2009). University of Pennsylvania Journal of International Economic Law, Vol. 31, No. 3, 2010. It might be useful to gauge the success of MERCOSUR assessed against these more modest, or at least different, objectives.

Indeed, Mr. Barral notes that MERCOSUR appears to be making little effort (that is the MERCOSUR states appear to have little appetite) to use the organization to achieve greater integration rather than as a forum where the traditional games of border barriers is played. ("En los últimos años, el proyecto de integración se volvió todavía más lejano frente a barreras injustificables y a las retaliaciones generadas en consecuencia." Welber Barral, El Mercosur y la predicción maya, La Nación, supra). What should be troubling is that these border barrier games are being played against evolving systems fo globalization and sytriong networks of bi-lateral trade and investment regimes, that may make regulatory organizations like MERCOSUR obsolete, or at least inefficient actors to project state interests in a world clogged with public and private regulatory and market players. Throwing in new powerful hybrid entities, sovereign wealth funds for example, and the role and utility of limited purpose organizations like MERCOSUR becomes more difficult to justify (except perhaps, as I suggested above) from a functional and specific objective perspective. Backer, Larry Catá, Sovereign Investing and Markets-Based Transnational Legislative Power: The Norwegian Sovereign Wealth Fund in Global Markets (November 18, 2012). Consortium for Peace & Ethics, No. 2012-11/11.

But suppose, for a moment, that MERCOSUR is worth saving and reforming so that it might meet its loftiest goals, as expressed in 1991. To that end Mr. Barral proposes sensible goals. The most imortant goal is to develop a comprehensive and binding set fo rules to create a coherent and regionally effect set of policies and rules in forms that suggest the forms of the integrative project of the E.U. ("No es necesario ser un estadista para comprender que la integración regional solamente existirá si hay previsibilidad de reglas. De hecho, la inversión -que genera escala de producción, un mercado consumidor integrado, marcas regionales y logística competitiva- huye de la imprevisibilidad y de la posibilidad de costos de transacción no programados, cómo son las licencias, declaraciones, burocracia y coimas." Welber Barral, El Mercosur y la predicción maya, La Nación, supra).  ("One need not be a statistician to understand that regional integration can only exist if there is predictability of rules. In fact, investment-generating economies of scale in production, integrated consumer markets, regional brands and competitive logistics-avoids the unpredictability and the possibility of unanticipated transaction costs, in the form of state licenses, forms and declarations, bureaucracy and bribes."). MERCOSUR provides a mechanism for simplifying the movement of factors of production, from transport to investment. ("Así, el justificativo económico para el Mercosur es volver a simplificar el tránsito de factores productivos, desde el transporte hasta la inversión. Hay sectores con excelentes perspectivas, como petróleo y gas, en los cuales los acuerdos empresariales están pendientes de menor burocracia y reglas más transparentes de compras públicas en los países de la región." Ibid).

This brings Mr. Barral to the heart of his argument, and to the expression of the quite real fear of the protectionist consequences that may follow abandoning the hortatory (if impossible) initial objectives of MERCOSUR (in the form of economic integration and the elimination of trade barriers).
Ojalá tengamos en 2013 adquisiciones e inversión green field que involucren a empresas y capitales de la región. Para eso, parece cada vez más claro que la estrategia de limitar las ventas a la producción doméstica -una tendencia peligrosamente presente en los discursos políticos- no potencia la escala de producción regional. En consecuencia, el proteccionismo que intenta justificarse teniendo la reindustrialización como objetivo, sólo logra en la práctica alejar la inversión. (Ibid.) ("Hopefully we will have in 2013 acquisitions and green field investments involving companies and capital in the region. T that end, it seems increasingly clear that the strategy of limiting sales to domestic production, a trend dangerously present in current political discourse-will not enhance the economies of scale of regional production. Accordingly, protectionism that seeks to justify itself within the rhetoric of re-industrialization reindustrialization as its objective will in achieve in practice only the alienation of investment.")
Coupled with unease is frustration.  Brazilian investors have ceded the field to the politicians and bureaucrats.  Mr. Barral explains that for these individuals and organizations, MERCOSUR will be worth investment only when it achieves it potential, but of course it cannot achieve its potential without the investment of these stakeholders. For the moment, though, MERCOSUR is viewed, and perhaps realistically, as an institution through which political influence is used to obtain economic favors grounded in gaming borders that are as porous as the particular eocnomic environment permits. 
Hablando con inversores brasileños es frecuente escuchar el argumento de que invertir en el Mercosur sólo es realista cuando existen cadenas productivas y economías de escala. Sin estos factores, la producción a largo plazo no es sostenible, y ocurrirá simplemente para aprovechar un grado exagerado de protección (y, por ende, de precios). (Ibid., (Talking to Brazilian investors one often hears the argument that investing in Mercosur is only realistic when there exists production chains and economies of scale. Without these factors, long-term production is not sustainable, and just happen to get an exaggerated degree of protection (and therefore price).))
Mr. Barral concedes that these problems exist. More importantly, he also concedes that the institutional logics and cultures that have brought MERCOSUR to its present condition will be unlikely to be changed in significant ways by instrumental interventions absent substantial changes in the cultures of the most powerful members of the trade organization. ("Aunque estos problemas existan, el final del Mercosur es tan probable como la supuesta predicción maya del fin del mundo. El Mercosur seguirá su curso y nos corresponde buscar alternativas para que su consolidación sea más rápida." Ibid. ("Although these problems exist, the end of the Mercosur is as likely to occur as as the Mayan prediction of the end of the world. Mercosur will run its course and it behooves us to seek alternatives faster consolidation.").  But that ought not to prevent people from trying.  Here there is a role for the non-state sector, and the organization of mass cultural demand for the benefits of a revamped form of regional trade organization,  The more such organizations remain the province of technocrats, veiled in the language of macro-economics and state practice, the harder it will be to generate the sort of mass political demands that, at base, are the fundamental lubricant for the changes Mr. Barral would see for a more effective




Mr. Barral currently serves as the Chairman of the Brazil Industries Coalition (BIC), an independent organization established in 2000 to represent the Brazilian private sector in Washington, and a senior consultant with Barral M Jorge & Associates, a consulting firm in international trade and government relations, with offices in Brasilia and São Paulo. In addition, he is a Professor of International Trade at the Brazilian diplomatic academy for the Instituto Rio Branco.

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