At least three possible scenarios can be envisaged in relation to Mercosur's future development. Of course, these are not the only ones, nor are they all desirable. Also, other possible scenarios that are difficult to imagine in a world characterized by unpredictability, should not be ruled out.

A first scenario would be the reaffirmation of the commitments made when the Treaty of Asunción was signed, which means understanding the customs union as the necessary basis for the gradual construction of a common market. It would certainly imply adjusting many of the steps that would need to be taken from now on to achieve that objective. These might even require agreeing on modifications or complements to the Treaty of Asunción, but preserving the fundamental features for building a customs union and a common market. In our opinion, this is the most desirable and convenient scenario for the four Mercosur member countries.

A second scenario could be that we are reaching a situation that might be described as "the beginning of the end of Mercosur", at least in the perspective of what was created and promoted when the Treaty of Asunción was negotiated and signed in 1990-1991.

A third scenario would be that of a member country opting to withdraw from Mercosur, as explicitly provided for in Articles 21 and 22 of the Treaty of Asunción. Given the size of their respective markets, it would be difficult to imagine that Mercosur could survive as a credible and meaningful project if either Brazil or Argentina, or both, decided to denounce the Treaty.

The current decision-making process related to the common external tariff and, in particular, to the so-called "flexibilization" of Mercosur, should be viewed from the perspective of these three scenarios. In this regard, it should be noted that a proposal to make Mercosur's external trade negotiations more flexible has been formally introduced. It follows a suggestion made by the Argentine government to the Uruguayan government, in order to be able to make a collective decision of the four member countries based on a good understanding of what is being sought when proposing to "make Mercosur more flexible". A simple reading of the proposal would lead to the conclusion that it would not be necessary to modify the Treaty of Asunción. At least there is no explicit reference to this. However, at the same time, a second conclusion could be drawn from the disclosed text, and that is that the proposal is still unfinished.

In light of Mercosur's current problems (see, among others, the March and April 2021 editions of this newsletter), at least three scenarios can be envisaged as possible with respect to its future development. Of course, they are not the only ones, nor are they all desirable, nor is it possible to rule out others that are difficult to imagine today, since at global level and in the Latin American region the conditions seem to be in place for the development of unforeseen situations that may have an impact on processes such as Mercosur. Uncertainty about its future is therefore a dominant note that may be with us for some time to come.

A first possible scenario would be the reaffirmation of the main commitments assumed when the Treaty of Asunción was signed, that is, to understand the customs union as a necessary basis for the gradual construction of a common market. It would imply, of course, adjusting many of the steps that would need to be taken in the future to achieve that objective. It might even require agreeing on modifications or complements to the Treaty of Asunción, but preserving the fundamental features of a customs union and a common market.

This scenario is therefore in line with what formally, at least, continue to be the central items of Mercosur's current negotiating agenda. Above all, it is a scenario in line with the original idea that led to the Treaty of Asunción. In our opinion, it is the most desirable and convenient scenario for the four Mercosur member countries.

Because of the flexibility resulting from the commitments undertaken, it is a scenario that opens up many options as to how to achieve the complete development of its fundamental goals and also the deadlines for achieving them. It does not exclude the possibility of differential treatment for some sectors, using one of the instruments of the Treaty of Asunción (sectoral agreements); or that the specific situation of smaller countries and countries with a lower degree of relative economic development be taken into account. But it explicitly excludes the possibility of a member country seeking to negotiate, for example, bilateral preferential trade agreements with third countries and, especially, with those with large markets, that contradict what has been agreed in Mercosur. Specifically, it excludes any policy aimed at "liquefying" the fundamental trade commitments entered into by the members when Mercosur was created, particularly with regard to the preservation of the preferences previously agreed upon.

A second scenario would be that we have reached a situation that can be identified as "the beginning of the end of Mercosur", at least in the sense of what was promoted when the Treaty of Asunción was negotiated and signed in 1990-1991. It would be a scenario of "dissolution" of the commitments already undertaken.

Specifically, at the founding moment, it was understood that it was feasible and convenient to begin a path that implied the creation and development of a common market. To this end, the four countries that created Mercosur explicitly committed themselves to take the steps deemed necessary to make the elements of a customs union a reality, as a basis for the construction of this common market. Thirty years later, these steps have not been fully developed. The customs union formally exists, even if it is far from being perfected and the commitments made in the Treaty of Asunción still remain in force.

However, what can be observed at present are signs that fuel doubts as to whether the possibility or the willingness to comply with the commitments really exist, at least in all the member countries. For the moment, there do not seem to be any clear signs in any of the partners that they might eventually prefer to formally set aside the commitments made in the Treaty of Asunción. But neither could we rule out behaviors that could actually lead to " liquifying" what has been agreed upon. An example of this could stem from the scope given to those approaches aimed at making more flexible the objective of a "customs union" in such a way that, in fact, it is transformed into a "free trade zone". In such a case, each of the member countries could eventually consider entering into bilateral preferential trade agreements with third countries, especially those with large markets, such as, for example, the United States, China or Japan, among others.

A third scenario would be that a country opts to withdraw from Mercosur, as is explicitly provided for in Articles 21 and 22 of the Treaty of Asunción. Due to the size of their markets, it would be difficult to imagine that Mercosur could survive as a relevant and credible project if Brazil or Argentina, or eventually both, denounced the Treaty. Nothing indicates that such a possibility is today explicitly being contemplated by any of the partners, but it would not be reasonable to rule it out as a possibility either.

The current decision-making process related to the common external tariff and, in particular, to the so-called "flexibilization" of Mercosur, should be viewed in the perspective of these three scenarios.

In this regard, it should be noted that a proposal to make Mercosur's external trade negotiations more flexible has been formally introduced. It follows the suggestion made by the Argentine government to the Uruguayan government, so that the four member countries are able to make a collective decision based on a clear understanding of what they are aiming for when they propose to "make Mercosur more flexible" (see last April's edition of this newsletter).

Such knowledge is required since, sometimes, the approaches aimed at achieving the so-called "flexibilization" have been related to its transformation from a customs union to a free trade zone. In its most extreme vision, such an idea would imply setting aside the common external tariff explicitly foreseen in the Treaty of Asunción and, therefore, the construction of a common market.

The proposal was made last April 26 by the government of Uruguay, on the occasion of the extraordinary meeting of the Mercosur Council (see in this regard, the reference to our article published in the Foreign Trade Supplement of La Nación newspaper of May 13, 2021, listed as recommended reading at the end of this newsletter). The member countries will now have to take a decision on the matter. Due to the relevance of the issue, governments should consult with their respective societies before adopting it and, especially, with the business and social sectors most interested in actively participating in the integration process within the framework of Mercosur. This is so because, depending on the final content and scope of the decision, it could have concrete effects on the development of Mercosur and, eventually, even require a modification of the Treaty of Asunción.

Four elements stand out in the recitals of the Uruguayan proposal. They can even be dealt with separately within the Mercosur decision-making system, even though, due to their contents, they would need to be analyzed and evaluated jointly.

As pointed out in the recitals of the proposal, the first refers to the Common External Tariff, which "constitutes a central element for the consolidation of the Customs Union among the States Parties". A second element is the negotiation of tariff preferences with third markets, be they countries or groups of countries. The third element refers to the need to evaluate the international insertion strategy "with a view to making participation in Mercosur compatible with bilateral economic negotiations, in order to allow a competitive insertion in international trade and economy". And the fourth element points to the need to re-examine "the priorities of Mercosur's external negotiation agenda and appeal to more flexible mechanisms that allow its member states to take full advantage of the benefits of international trade".

The development of the mentioned elements is included in Articles 1, 2 and 3 of the proposal, which refer to the Common External Tariff (first element); in Articles 4 and 5 on external trade negotiations "in which tariff preferences are granted" (second element); in Articles 6 and 7, on the preparation of the External Negotiations Plan (third element); and in Articles 8, 9 and 10, on what could be called "differentiated trade negotiations" (fourth element).

A simple reading of the proposal would lead to the conclusion that it would not imply the need to modify the Treaty of Asunción; at least there is no explicit reference to this. At the same time, a second conclusion could be drawn from the published text because, in fact, the disclosed proposal is still incomplete, that is to say, it does not develop some aspects that can be considered as fundamental to understand its real scope and, in particular, to support the idea that a modification of the Treaty would not be required.

In this regard, it would seem advisable to explain the scope of two articles included in the proposal. Firstly, when the text of Article 7 explicitly states that "in the case of joint negotiations between two or more States Parties carried out by Mercosur with third countries, including those already initiated, and in order for them to reflect the interests and times of the States Parties and not hinder their progress, the States Parties may move forward on the basis of...individual offers...differential deadlines...different negotiation rhythms". Secondly, when the first paragraph of Article 8 reads as follows: "If the priority assigned or the non-inclusion in the External Negotiations Plan of a third country or groups of countries is not satisfactory to one, two or three States Parties, those States Parties may initiate tariff negotiations with those counterparts, either as a group or individually". It is also unclear the actual scope of what is proposed in Article 9 in the event that the External Negotiations Plan is not approved.

Clarifying the points mentioned in the previous paragraph would help to better understand and revalue the scope of the proposal made by Uruguay on an issue that is central to the credibility of the development of Mercosur.

The uncertainties currently observed with respect to Mercosur as an attractive area for new productive investments are many and varied. That they are many should not be surprising, since the new international environment, aside from the impact of the current pandemic, has increased the degree of uncertainty with respect to many economies, especially developing ones, and not only those of Mercosur or Latin America. That they are varied should not be surprising either, since sometimes they have political roots, other times economic ones, and, most often, both simultaneously.

But the flexibility for member countries to address different modalities of preferential trade agreements with other countries would be only one of the aspects of Mercosur's functioning that require priority attention. What is important, therefore, would be a simultaneous approach to the set of issues that, eventually, would imply modifications to what was agreed 30 years ago.

In addition to the above-mentioned issues, other relevant ones are on Mercosur's agenda today and will sooner, rather than later, require an approach at the highest political level. One of these refers to the joint approach taken by the industrialists of the four countries, which would involve developing policies to move from primary economies to the manufacture of value-added products. It places the issue of trade negotiations to be developed by Mercosur in this perspective. The proposal was made recently by the presidents of the industrial business organizations of the four countries within the framework of the Mercosur Chamber of Industrialists. (http://www.ciu.com.uy/).

Among other priority objectives, this approach is aimed at making Mercosur more attractive for the adoption of productive investment decisions by companies. In its conclusions the industrialists' document states that, in this regard, "without a strong and competitive industrial sector that exports to the region and to the world, Mercosur will not be able to create the quantity and quality of sources of employment it needs".

Recommended Reading:

• Büthe, Tim; Mattli, Walter, "The New Global Rulers. The Privatization of Regulation in the World Economy", Princeton University Press, Princeton - Oxford, Princeton NJ. 2011.
  
• Crowley, Roger, "Conquerors. How Portugal Forged the First Global Empire", Random House, New York 2015.
  
• Elizondo, Marcelo, "Importaciones; porqué la otra mitad del comercio exterior hace crecer la inversión", Foreign Trade Supplement, La Nación newspaper , May 6, 2021, p. 3.
  
• Elliot, John H., "Imperios del Mundo Atlántico. España y Gran Bretaña en América Latina (1492 - 1830), Taurus historia, Penguin Random House - Barcelona 2017.
  
• Fariza, I.; Rivas Molina, F., "Europa cede paso a China en el Mercosur", El País newspaper, Madrid, May 25, 2021, p. 40.
  
• Guadagni, Alieto, "Asia consolida su liderazgo económico y educativo", Opinion Section in La Nación newspaper , May 25, 2021, p. 31.
  
• Hudec, Robert F., "Developing Countries in the GATT Legal System" (with a new introduction by J.Michael Finger), Cambridge University Press, Cambridge -New York 2011.
  
• Ierardo, Esteban, "Stefan Zweig. Un escritor sensible a las tensiones del alma y de la historia", Ideas Section, La Nación newspaper, May 22, 2021, pp. 8 and 9.
  
• Menem, Eduardo; Corach, Carlos (comp.), "Los Noventa. La Argentina de Menem", Sudamericana - Penguin Random House, Buenos Aires 2021.
  
• Nolde, Boris de, "Droit et techniques des traités de commerce", Recueil des Cours -3-, Academie de Droit International, La Haye. Vol.II, pp. 291-462.
  
• Origlia, Gabriela, "África. Desafíos de un mercado de 1300 millones de habitantes", Foreign Trade Supplement, La Nación newspaper, May 27, 2021, pp. 4 and 5.
  
• Ossona, Jorge, "La Argentina ¿solo una fugaz aventura colectiva?, La Nación newspaper, Opinion Section, May 8, 2021, p. 37.
  
• Peña, Félix, "Cómo llegar a un acuerdo para lograr la flexibilidad que demanda el Mercosur", Foreign Trade Supplement, La Nación newspaper, March 4, 2021, p. 3.
  
• Peña, Félix, "Condiciones para un Mercosur que atraiga más inversiones productivas",Foreign Trade Supplement, La Nación newspaper, April 8, 2021, p. 3.
  
• Peña, Félix, "La iniciativa para flexibilizar el Mercosur es una propuesta todavía inconclusa", Foreign Trade Supplement, La Nación newspaper, May 13, 2021, p. 3.
  
• Ricupero, Rubens, "Rebuilding Confidence in the Multilateral Trading System: Closing the "Legitimacy Gap", in Sampson Gary P. "The Role of the WTO", 2001, pp. 37-58.
  
• Sampson, Gary P., "The Role of the World Trade Organization in Global Governance", The United Nations University, UN.University Press, Tokio - New York 2001.
  
• Thucydides; Xenophon; Bury, J.B., "The History of the Peloponnesian War. According to Contemporary Historians Thucydides and Xenophon", Musaicum Books, OK Publishing, 2020.
• Wolf, Martin, "What the World Needs from the Multilateral Trading System", in Sampson Gary P. "The Role of the WTO", 2001, pp. 209-222.
  
• Wunderlich, Jens-Uwe; Bailey, David J. (editors), ""The European Union and Global Governance. A Handbook", Routledge, London - New York 2011.
  
• Zeng, Ka, "Chinese supply chain prove resilient to global shocks and pressure", East Asia Forum, May 27, 2021, http://www.eastasiaforum.org.