Brazil & Southern Cone - January 2009 (ISSN 1741-4431)

The Southern Common Market (Mercosur in the Spanish acronym) - comprising Argentina, Brazil, Paraguay and Uruguay, with Venezuela about to become the fifth full member - is facing two problems. Its first, and more serious, difficulty is that Brazil has outgrown the organisation. The second is that the organisation has become unable to resolve trade issues and is now seen by businessmen as just a platform for foreign policy posturing. 

The smaller Mercosur countries' fears moved up a notch when Brazil and the EU held a second bilateral summit on 22 December in Rio de Janeiro. Pointedly, the summit was not a Mercosur-EU summit even though it followed a new Caribbean and Latin American Development and Integration Summit in Bahia, Brazil on 16 December.

The main feature of the Brazil-EU summit was the publication of a new Brazil-EU Joint Action Plan.This plan highlighted Brazil's foreign policy ambitions: security, energy and the environment all featured well ahead of trade. More importantly Brazil and the EU committed themselves to a joint position at the forthcoming G-20 summit on the financial crisis in London and to restart the Doha trade liberalisation round. Both these policies go against policy positions staked out by President Hugo Chávez of Venezuela and President Cristina Fernández of Argentina.

More importantly, the Brazilian private sector has made it clear that Brazil should choose a deal with the EU over continuing membership of Mercosur. The EU's negotiations with Mercosur over a free trade agreement stalled in 2004 and since then the EU has made it clear that it is really only interested in a deal with Brazil and, perhaps, Uruguay. In 2007, under pressure from Uruguay, Brazil promised that it would not negotiate a bilateral deal with the EU, but Brazilian businessmen now want the government to renege on that commitment.

The government of President Lula da Silva has not yet decided what to do. The Brazil-EU summit did mention the resumption of negotiations with the Mercosur, but the wording was tepid: “both parties [i.e. Brazil and the EU] expressed their willingness to resume negotiations for an Association Agreement between the Mercosur and the EU."

Brazilian businessmen argue that the arrival of Venezuela as a full member of the Mercosur will complicate any trade deal with the EU. After the Brazil-EU summit, Armando Montero Neto, the president of Brazil's influential Confederação Nacional de Industria (CNI) said that Brazil must adopt a more “ambitious" position regarding trade agreements with the EU. His call was endorsed by Luiz Furlan, president of one of Brazil's most successful companies, Sadia, a meat processor.

Furlan gave an interview to O Estado de São Paulo on 24 December which pulled no punches about Mercosur. Furlan said that “Mercosur has become partly paralysed and the feeling is that Brazil is shackled [by the group]_ Brazil must reach bilateral agreements. Mercosur's time is up, long overdue." Furlan was Lula's minister for development, industry and trade from 2003 to 2007, so his views carry weight. 

Paraguay is also annoyed because Mercosur failed at the December summit to resolve two pressing issues: the double tariffs levied on some imports from outside the region and a common code for customs categories. Both issues are particularly important to Paraguay, the poorest country in the group, which has no direct access to the sea and thus has to import goods through its neighbouring partners, which levy their own import tariffs on goods destined for Paraguay.

• Uruguay
  Uruguay has most to lose if Brazil goes it alone with the EU. Uruguay was thwarted in its effort to start negotiations about a bilateral free trade deal with the US in 2008, but it is still interested in a deal with the EU because it trades more with the EU than it does with the whole of the Mercosur.