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"A friendship centered on the future" is the title of a joint
article published simultaneously in the newspapers of Brazil and Argentina,
in December 2016, by the Argentine Minister of Foreign Affairs, Susana
Malcorra and her Brazilian counterpart José Serra (see the reference
under recommended reading).
They did so on the occasion of the thirty years since the launch of the
Integration and Economic Cooperation Program (PICE), which started the
road that, five years later, led to the creation of the Mercosur and the
Brazilian-Argentine Accounting and Control Agency of Nuclear Materials
(ABACC), one of the more symbolic and effective instruments of the bilateral
strategic relationship. From what the two Foreign Ministers mention in
the article, these are milestones that show a political will, supported
by the respective societies, to build a space of integration and joint
work of regional scope.
Following the impetus given by Presidents Alfonsin and Sarney and beyond
frequent contextual differences, the successive governments have preserved
in these thirty years, with varying degrees of effectiveness, the support
for the foundational strategic idea, adapting, when necessary, the methods
and instruments of joint work to the changes experienced in the external
and internal circumstances of each country.
In all integration processes between neighboring countries, a continuous
adaptation to the changes in the realities calls for a strong dose of
flexibility. At the same time, this requires a reasonable degree of predictability
to be preserved. Otherwise, the effectiveness of the integration project
can be jeopardized and produce negative effects on the goal of generating
an environment conductive to economic and social development, productive
transformation and job creation for the citizens.
The joint statement by the Foreign Ministers comes at a time when, at
least, three facts are affecting the intensity of the debate on the future
of Mercosur. Moreover, it is increasingly clear that this is a debate
centered on the methodological aspect (how to work together) and not on
the existential one (whether to work together).
If these facts were considered in the next steps that the member countries
must take to advance the construction of Mercosur, it would not be advisable
to presuppose that the environment is the same as it was in the founding
moments or even a few months ago.
The first fact to highlight is, precisely, that of the profound changes
in the international context in which the partners of Mercosur and the
Latin American region are inserted today. The changes are enormous if
compared to what such context was at the founding moment, in 1985 and
in 1990.
Put simply, what is becoming evident is the end of an era of the international
system that began at the end of World War II, and its effects on which
countries were able to decisively influence the creation of rules and
institutions necessary for global governance. (In this regard, refer to
the November
2016 issue of this newsletter on http://www.felixpena.com.ar/).
Among many other effects, such changes make it advisable to review theoretical
approaches, concepts and paradigms related to the design of world trade
order and with its institutions and rules, including those that influence
the approach on how to build a regional integration space. Many are becoming
relatively obsolete. An example are the theoretical contributions made
by leading specialists such as Professor Bela Balassa and his definition
of what he thought a customs union should be (see Chapter 2 of his book
"The Theory of Economic Integration ", Routledge, New York 2011,
especially when referring to the theory of the customs union, on page
21).
A practical consequence of this fact is that, in order to be effective,
the decisions that Mercosur partners adopt to facilitate the adaptation
of the integration process to the new global and regional circumstances
must be the result, on the one hand, of the strategies that each of the
member countries deems necessary, convenient and possible to develop in
their joint integration to the international trading system and, on the
other hand, of the correct interpretation of the leeway resulting from
the rules of the system of multilateral trade, embodied in the GATT and
the WTO.
Therefore, there will be very few constraints arising, for example, from
theoretical manuals on how to develop voluntary processes of integration
between sovereign nations that aspire to remain so, or pressures originating
in the main players of international trade, as was often the case in the
past with the US and the European Union.
However, it will be necessary to know and interpret correctly the scope
of the constructive ambiguities that characterize the international rules
that must be taken into account in this regard and which, among others,
are found especially in Article XXIV, in the GATT Enabling Clause and
in Articles II and V of the GATS.
When properly interpreted, these can provide certain leeway that may
not necessarily result from the theoretical concepts, such as could be
the case of the concept of "customs union". A good reading of
Article XXIV leads to question the validity, at least from the perspective
of the GATT rules, of the distinction between "imperfect" or
"perfect" customs union. Let us remember that Mercosur is often
considered an "imperfect" customs union. However, this would
not seem to hold, at least according to the text of paragraph 8, Article
XXIV, of the GATT, if read in full and incorporating what Professor Bela
Balassa discarded in his previously mentioned work. Indeed, in citing
paragraph 8 of Article XXIV he leaves out (censors?) the part of the text
that renders flexible the requirement of eliminating tariffs for substantially
all the trade between the constituent territories, stating that this must
occur "at least" for products originating in such territories.
Moreover, interpreting a text such as this requires knowledge of the history
of the regulation (a good example of the review of the history of a legal
text can be found in an article by professor Kerry Chase, published in
2006 under the suggestive title "Multilateralism compromised : the
mysterious origins of GATT Article XXIV", on http://people.brandeis.edu/).
Also to be taken into account are the differences that have become evident
between the four Mercosur founding partners and Venezuela. These often
involve the existential dimension and, therefore, are not limited only
to the methodological.
We will not discuss here the differences in political and economic conceptions
that, at times, are influencing the climate of the relations between the
five countries. Neither will we address the differences raised in relation
to Venezuela's Pro-Tempore Presidency of the Mercosur bodies, which we
have previously analyzed in the August
2016 issue of this newsletter (see http://www.felixpena.com.ar/).
We will focus on the issue of the commitments made in Venezuela's Protocol
of Accession to Mercosur and the decision taken in this regard by the
original member countries.
The Protocol of Accession was signed a little more than ten years ago,
on 4 July 2006. The first paragraph of Article 3 established that "The
Bolivarian Republic of Venezuela shall adopt the current normative body
of Mercosur, in a gradual manner, no later than four years from the date
of entry into force of this instrument. To this end, the Working Group
created in Article
11 of this Protocol, will establish the timetable for the adoption
of said legislation "(http://www.sice.oas.org/)
(translation ours)..
A little more than ten years later, and quite beyond the deadline agreed
with Venezuela for the incorporation of the rules in force, on December
2, 2016, the Foreign Ministers of the original Mercosur member countries
notified the Venezuelan Foreign Minister, "the Bolivarian Republic
of Venezuela's rights inherent in the status of Member State of Mercosur
have been suspended…the adopted measure will remain in force until
the signatory Member States of the Treaty of Asunción agree with
Venezuela on the conditions for the restoration of the latter's exercise
of rights as a Member State" https://www.mrecic.gov.ar/)
(translation ours).
The precedent of such a decision was the "Joint declaration on the
functioning of Mercosur and the protocol of accession of the Bolivarian
Republic of Venezuela", of September 13, 2016, on (https://www.mrecic.gov.ar/)
(translation ours).
Two considerations of that Joint Declaration need to be highlighted in
order to understand the legal basis of the measure adopted on December
2, referring to the cessation of the exercise of rights. The first consideration
states that: "Article 2 of the Treaty of Asunción provides
that Mercosur is based on the principle of reciprocal rights and obligations
among Member States; that Article 10 of the Protocol of Accession of the
Bolivarian Republic of Venezuela vested Venezuela with the status of Member
State participating in Mercosur with full rights and obligations, in accordance
with Article 2 of the Treaty of Asunción and the terms of such
Protocol". From the beginning of the Mercosur this was a central
consideration to interpret the scope of the commitments assumed by the
partners, in the sense that the fulfillment of the obligations is what
allows the exercise of the rights that correspond to a member country.
And the second considerations points out that: "the signatory Member
States of the Treaty of Asunción have verified that the Bolivarian
Republic of Venezuela has failed to comply with the provisions of the
Protocol of Accession with regard to the adoption of the normative corpus
in force in Mercosur; that, in addition, the Bolivarian Republic of Venezuela
has not adhered to Partial Scope Agreement on Economic Complementation
No. 18 (ECA 18)."
One of the main commitments not fulfilled by Venezuela was precisely
that of the adhesion to the Economic Complementarity Agreement No. 18
of the ALADI. An even superficial knowledge of the history of Mercosur
allows us to bear in mind that ECA 18 was considered by the founding partners
as a fundamental legal instrument in order to make Mercosur compatible
with LAIA rules and, in particular, with the most favored nation clause
(http://www.aladi.org/).
Its importance transcended the legal aspect. It penetrated deeply into
the political necessity of preventing the rest of the Latin American countries
from perceiving the creation of Mercosur as a rupture of the broader and
more deeply rooted idea of Latin American integration. At times, it is
difficult to understand that those responsible for the Latin American
policy of the Venezuelan government would not have appreciated in all
these years the symbolic and, therefore, political importance of the ECA
18.
Finally, the third of the facts refers to whether it is necessary to
introduce more flexibility to the Mercosur regulations that affect the
possible trade negotiations of a member country with other countries or
groups of countries and, if so, how to do it.
In this respect, two options are mentioned more frequently. The first
is to modify Mercosur's constituent legal instruments -for example, by
eliminating the common external tariff (CET). This would require amending
the Treaty of Asuncion. The second option is to make the most of the potential
flexibilities offered by the constitutive rules that are in force, without
affecting the predictability necessary for Mercosur to be perceived as
a favorable environment for productive investment and, therefore, for
the creation of jobs.
What is essential in relation to the second option is to take into account
that the Treaty of Asunción, which is the main source of contractual
linkage between Mercosur member countries, only refers to the common external
tariff on two occasions. The first, with a more programmatic scope, is
in Article 1, when stating what a common market implies and includes the
reference to a common customs tariff and the adoption of a common foreign
trade policy, together with the other instruments to help achieve the
sought objectives. The second, with binding scope, is in article 5, which
contains the statement of the main instruments to be enforced during the
transition period, including explicitly the reference to "a common
external tariff, which encourages the foreign competitiveness of the States
Parties ".
The fact that there was an explicit reference to the common external
tariff in the constitutive agreement, without going into further details
on its scope, supports the hypothesis that the inclusion of such an instrument
could be explained by the need to avoid the eventual temptation of any
partner to opt for a bilateral negotiations with the United States, which
had just announced its intention to advance in the establishment of a
hemispheric free trade zone. It is like a pact of mutual guarantee not
to individually negotiate preferential trade agreements, especially Argentina
or Brazil, the major Mercosur economies, which in the past had had conflicting
options in their trade relations with the US and the UK. This issue is
still relevant today.
Later on, Article 9 of the Protocol of Ouro Preto (1994) when stating
the powers conferred to the Trade Commission explicitly refers to the
"customs union" (a concept that is not present in the Treaty
of Asuncion), to foreign trade policy and to a common external tariff,
but with a statement of institutional competencies and not of new commitments
among member countries.
The current common external tariff was established by Decisions of the
Mercosur Council (see the Council Decisions establishing and amending
the CET, at http://www.mercosur.int/).
Its flexibilities and exceptions stem from Council regulations and do
not reflect any explicit rule of the Treaty of Asuncion or of its Protocols.
Even the much-cited Decision CM 32/00 was established by the Council and
may be deleted or modified by it. The only thing that has the status of
constituent rule incorporated to the Treaty of Asunción is the
commitment to have a common external tariff. This may be modified but
not abolished without changing the Treaty itself. Politically, this is
not a minor fact. Nor do they have an impact on this issue what in theory
have been considered to be a customs union or the common external tariff.
What does have an impact is the definition of a customs union of paragraph
8, Article XXIV of the GATT, where the "constructive ambiguities"
previously mentioned become evident.
A preliminary conclusion of the previous analysis is that the flexibilities
that may be required for Mercosur member countries to undertake in1dividual
preferential trade negotiations with other countries or groups of countries
would have to be agreed within the framework of a Mercosur Council Decision
and would not have to ignore the CET instrument. On the contrary, they
would have to be a result of the flexibilities that the current regulations
in Mercosur and in the GATT-WTO would allow to introduce in the CET. It
would seem advisable that such flexibilities have a limited scope and
perhaps, even better, that they relate to specific sectors and specific
tariff positions, for example in the framework of sectoral agreements.
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