Juanson World

BY MARIFELI PEREZ-STABLE

and CHRISTIAN GOMEZ

When established in 1991, Mercosur heralded free trade and regional integration in South America. Argentina, Brazil, Paraguay and Uruguay had already embraced democracy after years of dictatorship. A new day was, indeed, dawning.

Today the Mercosur trade pact, which added Venezuela last year, includes a market of more than 250 million and three-fourths of South America's GDP. Trade within the customs union has increased by $25 billion in the last decade. Mercosur's vast potential has, nonetheless, gone unrealized.

While the trade asymmetries between Paraguay and Uruguay -- in effect, junior partners -- and Brazil and Argentina are not news, the addition of Venezuela has not tempered them. In 2006, despite an export boom, Uruguay tallied large trade deficits with Argentina ($777 million), Brazil ($495 million) and Venezuela ($521 million).

Is it any wonder that Uruguayan President Tabaré Vázquez's government signed a trade and investment agreement with the United States despite opposition within his ruling coalition?

Efforts to give Paraguay and Uruguay greater access to Brazilian and Argentine markets have stalled. At Mercosur's January summit, members squabbled over how to modify the rules to provide preferences for the smaller partners. Néstor Kirchner's government resisted the changes, and Brazil publicly censured Argentina.

Afterward, Finance Minister Danilo Astori said that Uruguay felt ''trapped, a prisoner of the collective wishes of the group.'' Should Uruguay's pursuit of an FTA with the United States materialize, Mercosur would be in a bind. Its rules prohibit bilateral agreements with third parties.

Ideally, Mercosur would grant Uruguay a waiver but, if not, Vázquez has threatened to downgrade his country's membership to associate status. Chile is a Mercosur associate, for example, and has negotiated several bilateral FTAs, including one with the United States. Perhaps Uruguay is upping the ante, knowing full well that trade promotion authority -- which allows the U.S. president a fast track for trade agreements that Congress can approve or reject, but neither change nor filibuster -- expires in July, leaving little time to craft an accord that the Democratic Congress would pass.

Mercosur has also failed the test of conflict-resolution among its members. For the past two years, Argentina and Uruguay have clashed over the largest foreign investment ever in Uruguay: the construction of a pulp mill by the Finnish company, Botnia, on the Uruguay River, which marks the border between the two countries. Argentina claims the mill will cause considerable environmental damage to the river.

By blockading three bridges linking the two countries, Argentine protesters have cost the Uruguayan economy nearly $1 billion. The case, which has been mediated by Spain, was presented at the International Court of Justice in January, which rejected a forced end to the roadblocks. The unwillingness of Brazil to take a leadership role in resolving the dispute underscores Mercosur's irrelevance. Unlike the European Parliament, Mercosur's -- launched last December -- cannot supersede national legislatures, making its function symbolic at best.

Complicating matters is Venezuela's entry, which has so far served to further divide Mercosur. In February, President Hugo Chávez announced the second issue of the Bono del Sur, representing a total purchase of $3.2 billion of Argentine bonds. Kirchner -- miffed at being left off the Bush itinerary -- allowed Chávez to hold a parallel anti-U.S. rally while the U.S. president was being welcomed in Uruguay.

Venezuela has also been courting Bolivia to apply for full membership. President Evo Morales seems, however, reticent to relinquish membership in the Andean Community, which Mercosur mandates. With much fanfare, Chávez bid farewell to the community last year. Were Morales to relent, Bolivia's full membership will only serve the Venezuelan agenda of ''ridding Mercosur of neoliberalism.'' Though moot, it's puzzling why Brazil in particular acquiesced to Venezuela's rushed promotion.

Unless reformed, Mercosur will become further politicized, and the hopes of bridging ideological and economic schisms among its members will fade. The Mercosur Parliament has until 2010 to harmonize national legislation, which is what its European counterpart once did. Brazil should also exercise the leadership befitting its position as the bloc's largest country. Only by putting its house in order will Mercosur live up to the vast potential its founding heralded. A happy ending may be long in coming.

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Marifeli Pérez-Stable is vice president for democratic governance at the Inter-American Dialogue in Washington, D.C., and a professor at Florida International University. Christian Gomez is program assistant at the Dialogue.

# posted by Juanson : 9:59 AM