Integration Pacts of the Americas

Mercosur, or the Southern Common Market, during its Plenary meeting, has decided to reincorporate Paraguay — one of the original countries that signed the free trade agreement. The nation’s prior exclusion occurred after the Paraguayan congress ousted President Fernando Lugo.

Lugo, a former Roman Catholic priest, had close ties to Venezuela’s Hugo Chávez and in general with the South American populist leftist ideology. He governed with a fragile coalition that broke following a serious incident in which people were killed and wounded, forcing Lugo to face a political trial and subsequent removal in June, 2012. The ouster — completely attached to the Paraguayan Constitution — was fast and its speed served as an excuse for the other members of Mercosur to exclude Paraguay, claiming that the process did not allow Lugo a proper defense.

However, the true reason behind Mercosur’s drastic resolution was that the Paraguayan Senate had opposed the incorporation of Venezuela and its chavismo to Mercosur. Setting aside Paraguay allowed remaining members to give Venezuela permanent membership status.

With the recent election of Horacio Cartes as president-elect of Paraguay, the situation has been somewhat alleviated. However, the root problem remains intact that while Paraguay may be able to rejoin Mercosur — which in addition to Venezuela integrates Brazil, Argentina, and Uruguay — the Paraguayans have said that they do not accept Venezuela’s participation in the alliance and in fact will not re-enter Mercosur while Venezuelan leader Nicolás Maduro is acting as the temporary president of the group. They do not want Venezuela — a country of overtly socialist policies — to continue as a member of the organization.

The above facts serve to clearly demonstrate that this block of nations puts political considerations ahead of the needs of economic integration. Rather, they condition the permanence of some of its members based on circumstantial reasons of convenience.

Inequalities among the different economies ranging from Brazil’s giant network to the much smaller Paraguayan system has affected trade policies in that they are marked primarily by Brazilian interests, and to a certain extent Argentine interests. Mercosur holds high common external tariffs and countless exceptions for a varied range of products, making the pact more of a guarantee of collective protectionism, rather than a true initiative to favor free trade. It derails commerce, as economists would agree, instead of developing or diversifying it.

The agreement also differs greatly from the recently created Pacific Alliance — which currently includes México, Colombia, Perú, and Chile — focused on determinedly lowering custom barriers and promoting international trade, especially with Asia. The Alliance is not a political club like Mercosur; it has no inclination toward protectionism and could soon integrate Costa Rica, Panamá, Guatemala, and possibly other countries. It is not certain that they will maintain their positive goals in the long-run, but the Alliance has given significant steps towards becoming a point of reference to almost all of Latin America. Brazil, without doubt, certainly looks with some misgivings to the emergence of a challenger to Mercosur’s dominance.

The contrast between the two intergovernmental organizations leads us to remember the way in which, over the past few decades, many initiatives for integration have failed and prospered. One of the best-known is the European Union (EU), which began as an open trade pact among six nations and today includes 28 countries. Regardless of the limitations and the difficulties it faces currently, the EU has achieved a stable and profound integration among its member states.  Another successful example is the North American Free Trade Agreement (NAFTA) which has measurably increased trade between its three partners: Canada, USA, and México. And given its less spectacular but positive results, one should also mention the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR).

This has not been the fate of other agreements shipwrecked under the blasts of extreme politicization and underhanded protectionism. These policies sought to open trade on some lines, but in reality their practice closed commerce to the most important areas. Such was the case of the so-called Andean Pact — now under the pompous and inconsequential name of the Andean Community of Nations. As well as the case of the General Treaty on Central American Economic Integration, that ended in the 1960s with the war between Honduras and El Salvador.

The conclusions here are evident. Integration is not possible when there is a will to defend the interests of industrial groups or local farmers, or when agreements are used as launching platforms for political agendas. In contrast, when tariffs are lowered and border restrictions are eased, that allows a free flow of goods, capital, and people, which in turn promotes rapid and sustained economic growth. Free Trade, when understood as the true freedom to make economic transactions beyond borders and bureaucracies, is the best leverage nations have for progress.

It has been that way from ancient times, and following reasons that economic theory has pinpointed centuries ago.

Subscribe free to our daily newsletter
Sign up here to get the latest news, updates and special reports delivered directly to your inbox.
You can unsubscribe at any time