Mercosur (the Common Market of the South) was formed in 1991 by Argentina, Brazil, Paraguay, and Uruguay. It is described as a regional integration agreement "characterized by the free circulation of goods, services, and production factors; the establishment of a common external tariff and the adoption of a common trade policy; the coordination of macroeconomic politics and sectors, and the coordination of legislation." Besides the original four countries, Venezuela has signed a letter of membership, and Bolivia, Chile, Colombia, Ecuador, and Peru are Associate States.

President of the Commission of Permanent
Representatives of Mercosur, Carlos “Chacho” Alvarez.

Mercosur’s development has not been easy. It has faced major challenges, both conceptually and in practice: arguments among members, criticism of its commercial focus, differing policies, and bureaucratic sluggishness. In spite of the obstacles, the organization has made progress on some fronts while others languish. The arrival of center-left governments to power brought an emphasis on strengthening South-South ties and building more horizontal forms of regional integration. This gave a renewed impetus to Mercosur but today’s circumstances—marked by the economic crisis and political changes—present new challenges.

In an interview with the CIP Americas Program, ex-vice president of Argentina and president of the Commission of Permanent Representatives of Mercosur, Carlos "Chacho" Alvarez, explains the successes and failures of the regional organization and what it should do in the future.

Laura Carlsen (LC): How are Mercosur’s plans adapting to the crisis and the drop in regional trade? Has the crisis delayed the regional integration plan?

Carlos Alvarez (CA): No, but the financial and economic crisis poses a dilemma for regional integration projects because the crisis in emerging economies has made countries fall back on their national economies. So some of those countries might adopt more protectionist measures to defend their jobs and industry. Those measures could work against what we have achieved in the regional market.

Mercosur has already faced a few incidents and decisions, which are luckily being addressed bilaterally and within the block itself without resorting to the Mercosur Tribunal or the WTO, but there is a certain tendency among Mercosur members to look for solutions in protectionist measures, which could challenge the achievements of Mercosur. Especially due to certain failures in the process of integration and certain limitations of the path chosen; from my perspective, integration took an excessively trade-oriented path that leads countries to compete with each other.

The emphasis on trade relations has two major contradictions. The first is that it locks in competition; the second is that it makes companies the primary actors. That means that rather than communities or diverse social sectors, private sector leaders and companies wind up being the exclusive protagonists.

So we have an unbalanced situation. One the one hand, we have a discourse that speaks of post-neoliberal integration and got its impetus from the changes in government that have taken place in South America and the Mercosur countries, keeping in mind that Mercosur has five progressive presidents: Lula, Tabaré, Lugo, who was the last one in Paraguay, Kirchner, and Chavez in Venezuela. They propose a deeper and more integral form of integration. On the other hand, we have those who want to put trade at the center of integration—a consequence of the neoliberal phase begun in the 90s. However, it is very difficult for us to shift the focus of integration and adapt the project to the new winds blowing in South America. Very profound reforms of an institutional and organizational nature would be required in order to deal with this new situation.

This liberal, trade-oriented character paradoxically weakens the Mercosur project because it makes it vulnerable to economic and financial volatility. Countries are left to the mercy of the fluctuations of free trade, and the fate of the project is very much tied to the growth or decrease of trade as a principle variable, as the core of integration.

So I think that the challenge for Mercosur is more than simply confronting the crisis. In line with the Union of South American Nations (UNASUR, Unión de Naciones Suramericanas) it continues to have an integration agenda that quite rightly tries to take on the social dimension, to work on the scientific-technological level, and to consider as a group fundamental issues such as education, building a knowledge-based society, employment, and also, of course, the integration of production that has more to do with our ability to associate at the level of small and middle-sized businesses of the region.

This would signify a big change in how we think about the complementarity of the development models of the progressive governments in the region and that’s hard because national strategies end up predominating.

For example, we are now trying to get the member countries to come together to devise a unified strategy to face the G-20. It was very hard to succeed in having joint meetings so that Mercosur or UNASUR together with Mexico, which is also a member of the G-20, could align Latin American positions. The idea is to create a Latin American political force that participates in the reprioritization of the new international order, which is what we have been struggling to achieve—to move out of the fringes of the world system and become a major player in the global system. Now we have a great opportunity to do this, but I believe that even with processes of integration like UNASUR, Mercosur, the Andean Community (CAN, Comunidad Andina), and the Caribbean Community (CARICOM, Comunidad Caribeña), in the end we can’t really articulate the positions of the countries by taking advantage of these sub-regional structures.

Now we are calling together Mercosur and the Latin American Economic System (SELA, Sistema Económic Latinoamericano y del Caribe) to a meeting of all the integration organizations to look at these issues, to see how the different agendas can complement each other so that there is no imposition of one project over another. We have had a tendency to leave projects unfinished and move ahead to the next. That is to say, we didn’t finish implementing Mercosur before we created UNASUR.

I believe in part that we are superimposing integration projects before we’ve finished evaluating or perfecting the organizations we have already had for many years, as is the case with Mercosur, which just had its 18th anniversary.

And then one has to consider the conflicts between countries: in the case of CAN, now Bolivia, Peru, and Chile faced a border controversy. Of the four countries that make up the CAN, two are involved in a conflict, and within Mercosur there’s the controversy between Uruguay and Argentina over the cellulose factories.

From my perspective, the whole picture demonstrates that we still haven’t taken advantage of this grand political and economic union that we had and still have in South America, because with a majority of the participating governments from the democratic left, we should have seen a more dynamic process of integration, and I believe, more importantly, we should have given a big push to the matter of integration.

LC: And it’s not happening…?

CA: It’s not happening because there continues to be tension, between, as I said before, the situation that these countries are in and the basic integration agendas. Integration requires a vision toward the medium term, more strategic. This creates certain contradictions given the demands and necessities of the current situation that governments face, to respond immediately, on a day-to-day level.

LC: Are there prospects of broadening Mercosur’s vision, which has always had a trade focus, into a more integrated project?

CA: Well, there has to be an institutional change, because we have integration of a sort that is excessively inter-governmental and that has worked against the possibilities of broadening and deepening it.

There are few government officials who have a regional mentality, a community mentality. In Europe, they often question the distance between the bureaucracy in Brussels and national realities. Here we are following an inverse process. Here national issues are everything, and there are few people or officials who have a regional mentality, few who continually think in terms of regional issues. So we would need to have a mini-Brussels, that, by defining some fundamental issues like those we named earlier, would have regional responsibilities in following those policies, while always leaving the decision to the countries themselves—without interfering with national decisions, without trying to move on to a supra-nationality.

We’re not in a position to move toward supra-nationality basically due to the asymmetry among our countries. It is impossible to imagine that Brazil would delegate sovereignty since it represents 70% of the gross domestic product (GDP) of Mercosur, for example. It is difficult to imagine they would want to share sovereignty with Uruguay or Paraguay which have around 1% to 2% of the regional GDP. But yes, one could look for some intermediate means of better coordination, of better inter-governability and in particular, the existence of officials who exclusively follow-up on regional matters.

In Mercosur we are forming an institution to look at the issues of jointly training officials in the medium-term. I believe there is a definite need. This is also going on in the Mercosur Parliament. Each representative is acting within the logic of his or her particular country and it makes it quite difficult for us to create a regional bloc based on shared ideologies. This is a big obstacle.

The other is that the political parties within our countries don’t have the subject of integration on their agendas. The issue of integration is still tied to the technical bureaucracies of the ministries of foreign affairs that follow it on a daily basis. The parties have integration on their platforms, but they don’t want to incorporate it into the daily political debate.

LC: Speaking of this issue, Brazil has spoken a great deal about the importance of integration, however it is also true that they have recently cut their payments to Mercosur.

CA: Well, that has been reversed. I believe that Brazil is committed, especially Lula. I think that if the PT (Partido dos Trabalhadores, Workers’ Party) doesn’t continue in power, (regional) integration processes could suffer a setback. That is to say, a political change in the region—in Argentina, Brazil, Chile, or Uruguay—would mean a setback.

For example, in Uruguay there was a big debate two years ago, in 2006, over the possibility of signing a Free Trade Agreement with the United States. That would have led to conflicts with the Mercosur accords. The opposition party to the Broad Front (Frente Amplio) in Uruguay, the National Party, has suggested already that if they win, they are going to move forward with the U.S. Free Trade Agreement. That would necessarily diminish the importance of the Mercosur accords.

In the case of Argentina, opposition political forces are very critical of Venezuela. They confuse the government and the state, and since then they don’t agree with Chavez, they underestimate the fact that Venezuela as a state and as a country must become a full member of Mercosur.

These three cases show that if an alternate policy emerges as a result of electoral processes, integration could suffer a setback. For example in Brazil, members of the PDSB—the party of Serra and Aecio Neves, governor of Minas Gerais, both possible oppositional candidates—they propose making Mercosur a free-trade zone … these are the difficulties that confront these processes.

LC: Speaking of Venezuela, what is the schedule for Venezuela’s entry? What impact will it have on Mercosur?

CA: One can see that, looking at governments conceptually, to have a Venezuela that looks to the south is very significant because that has never happened in the history of Latin America and South America. Venezuela has always looked toward the Caribbean and the United States. With Venezuela focusing on the south, the creation of a Caracas-Brasilia-Buenos Aires axis is a real possibility. This alliance would facilitate the integration of South America.

So the integrating Venezuela (in Mercosur) has strategic importance. It would complete the equation in terms of productive systems and articulating the resources the region has. This is a country rich in agricultural production, minerals, and biodiversity. The incorporation of Venezuela, with its energy and oil, would complete the resource base that enables us to sustain a more autonomous and sustainable model of development. We could become more independent in a more interconnected and more interrelated world. We will become more autonomous if we succeed, because we can create a complementary resource base among our countries.

If we are a food-producing powerhouse and you add being an energy powerhouse, you have strategically resolved matters of food and energy security, and it will improve the relative autonomy of South America. To articulate visions, timelines, necessities, and demand in each of the countries is a very complex process but you have to be patient where matters of integration are concerned. If you look for daily progress you can be overcome by skepticism—you have to have middle-term optimism.

LC: You’ve mentioned UNASUR a few times. Are Mercosur and UNASUR parallel, complementary, or conflicting?

CA: One would hope they are complementary. If they are in conflict, we lose. For example, UNASUR has done well to choose some matters that are not on either Mercosur’s or CAN’s agendas. For example, the Regional Defense Council was formed to unify national defense strategies so that the armed forces complement each other, that they share common hypotheses of potential conflicts, that there is some regulation of armaments in the region, so that confidence will develop among the different armed forces. It is a very important issue: move toward a strategy of common regional defense. In this context UNASUR plays a very important role because it unifies all 12 countries.

It’s very difficult to imagine that UNASUR could really progress on social policies if Mercosur and CAN can’t do it in their small sub-regional units. It’s very difficult to do in 12 countries what you’ve haven’t been able to do well in five—like integrating production or scientific-technological integration. But, for example, the subject of energy is one that can be considered a South American issue, as well as the issue of interconnectedness and the matter of infrastructure. I believe that there are three major areas for UNASUR to focus on: infrastructure, energy, and regional defense.

LC: And the other issues?

CA: I believe we have to take a few issues and deal with them effectively. One habit we Latin Americans have is that we superimpose structures on existing structures and we want to bite off much more than we can chew. We want to leap 500 meters before we’ve even managed to leap one. The other problem we have is that we talk a lot about integration, but there’s a gap between discussion and implementation.

These three issues are what we have to combat: excessive rhetoric about integration, the superimposition of structures or projects, and taking on too many issues while failing to define the fundamental issues that need the member countries’ complete attention and effort.

This is a realistic perspective, but we also should note that when one goes to a meeting today in South America, one sees a very strong climate of political understanding among the presidents that has allowed for important advances. There are good things happening in the region in areas that seemed very difficult to deal with before, such as the consolidation of democracy in the region, and the issue of how the region resolves its own conflicts. For example, the resolution of the conflict between Colombia and Ecuador, how the Río Group acted, the understanding that exists among the presidents.

These are very important advances, but they appear insufficient given the closer ideological views and the historical stage we’re at. I remember the Mercosur summit in Córdoba (in 2006), the last one that Fidel Castro participated in as his last public meeting, in which Venezuela joined the organization. The presidents of each of the 12 countries were there and there was a climate of extraordinary political optimism.

LC: To what extent has this optimism been lost?

CA: The atmosphere was very sympathetic on a political level and politics are a central ingredient in driving the process. But other ingredients are also necessary. Politics through ideological affinities alone can’t succeed. There has to be organization, there have to be more institutions, you have to generate processes that aren’t easily reversible.

LC: Under the Bush government, the strategy of bilateral free trade agreements was employed after the failure of the FTAA (Free Trade Area of the Americas).

CA: The mini FTAA broke down. The bilateral agreements were successful in Peru, but that stage already passed.

LC: Do you expect to see some change with the new government in the United States?

CA: I believe there must be a new relationship based on two premises: 1) U.S. acceptance that South America will resolve its own problems, that the United States doesn’t have to have a paternalistic-interventionist vision in the region, and 2) that the relationship has to be based on the region’s development agenda.

The global agenda that the United States puts forth, with its central focus on issues such as international terrorism and framing it (now less with Obama) as "a conflict of civilizations," deals with issues that don’t exist in South America. What South America needs is a relationship with the United States based on development strategies and the issue of inequality. Unless the United States recognizes the priority of these issues, it will not be a good relationship.

LC: Do you believe there will be a better relationship?

CA: I am one of those who believes that it’s better not to be among the United States’ priorities; that it’s not bad that we’re not on the U.S. radar … We propose for a region that is denuclearized, where there is no arms race, that doesn’t have international terrorism, that doesn’t have huge ethnic conflicts, in which conflicts are manageable and are manageable by the governments themselves. Here we don’t need the United States with its paternalistic or interventionist vision.

We do need a restructuring of the international financial order that collaborates in a developmental model distinct from that of the Washington Consensus phase, a restructuring that is not just orthodox adjustment of economies.

LC: The production integration project, is it advancing?

CA: We created a small and middle-sized business fund that issues guarantees. We created a forum where the secretaries of industry of each country participate. In my opinion, it is slower than what we are capable of.

LC: Have you succeeded in changing the model to a more sustainable one?

CA: Not yet.

LC: Because of national policies?

CA: Because of the difficulty of moving from national policies to a complementarity between models of development, and because of political tensions; for example, the conflict between Uruguay and Argentina. Due to the paper factories, ties have deteriorated, which has made things more problematic.

LC: And now with the trade issues between Brazil and Argentina?

CA: One only has to know how to approach the issue. Brazil is disposed to understand the needs of Argentina in industrial development. There can’t be a strong agro-industrial Brazil and a merely agricultural Argentina, and in fact, Brazil understands this. So there are many possibilities for agreement and dialogue in resolving this matter. The Argentina-Brazil relationship is good, and that’s important.

LC: What are the main achievements of recent years?

CA: The main success has been the consolidation of democracy in the region. I believe that the integration projects helped with this, because they knocked down the supposition of conflict that caused countries to permanently confront each other. The major assets we have are that we are a much more confident region, much more predictable, and we are a region where 99% of the governments are democratic.

The issue we’re making progress on now in Mercosur is taking into account the asymmetries among the member countries. Creating the Fund for Structural Convergence was very important in this. The fund has to be implemented, but to already have a fund where the countries with bigger economies contribute to the development of the smaller economies is a very important advancement.

And the other subject is that we have become aware of the importance of the social dimension of integration as the key issue in our region.