MERCOSUR: Asymmetry Sets the Agenda

By Marcela Valente

BUENOS AIRES, Jun 26 (IPS) - While they wait for the right time to resume negotiations with the European Union, the member countries of Mercosur are focusing on mechanisms to counterbalance the comparative disadvantages experienced by its smaller economies with respect to its two largest ones.

Ways to overcome the asymmetries are a key topic on the Mercosur (Southern Common Market) agenda, the Argentine Foreign Ministry’s Under-Secretary for Economic Integration Eduardo Sigal told foreign correspondents in the run-up to the Thursday-Friday summit in Asunción.

At the meeting, the six-monthly rotating presidency of the bloc -- made up of Argentina, Brazil, Paraguay and Uruguay, with Venezuela in the process of becoming a full member -- will be handed over from Asunción to Montevideo. With the baton passing between the two smallest Mercosur economies, they are demanding more attention from their powerful partners.

The lack of agreement at the multilateral trade negotiations between the Group of Four (G4: Brazil, EU, India and the United States) this week in Potsdam, Germany, in an attempt to unblock the World Trade Organisation's Doha Round, suggests that Mercosur may resume discussions for a free trade agreement directly with the European bloc.

These negotiations had been postponed until the final results of the WTO round of talks were known. The Doha Round, named for the ministerial conference in the Qatari capital where it was launched in 2001, seems to have reached a dead end.

"It was no surprise to Argentina that the Potsdam meetings were a failure. The developed economies are inflexible on the subject of agricultural subsidies, and the same inflexibility was responsible for the collapse of the FTAA initiative (Free Trade Area of the Americas promoted by the United States)," Sigal said.

"Mercosur is very competitive in the agricultural and livestock sectors, but we don't want to be only that. We are not raising a barrier around the bloc, but we want trade liberalisation along with the potential for development, and without that balance, the outcome will not be any different to that of Potsdam," he said.

However, Sigal said that if the WTO trade talks are suspended, Mercosur would be willing to resume negotiations with the EU, which began more than a decade ago, and depend on reaching agreement about the subsidies European countries pay their farmers for their products.

As an example of the unsatisfactory results of negotiations so far, the under-secretary noted that Mercosur sells 300,000 tonnes of beef a year to the EU, but the EU offer is for just 10,000 tonnes to enter its markets tariff-free, with annual increases until it reaches 116,000 tonnes tariff-free.

"Argentina would be eligible for only 30 percent of the quota of 10,000 tonnes, equivalent to what one of our big supermarkets buys," he quipped.

In an interview with IPS, economist Dante Cica, former Industry secretary and director of the Abeceb consultancy firm, agreed that compensating for asymmetries within Mercosur is "one of the most pressing needs" today, but said that there are different views on how to overcome the difficulties.

Cica said that Paraguay proposed an ambitious project which would require 22 billion dollars in investments to increase its capacity on a par with its partners. Uruguay is requesting incentives, Brazil proposes the adoption of general rules, and Argentina would prefer to allocate quotas for specific sectors, he said.

"This will be a major topic at the summit. The large countries are showing more willingness to make progress, but tensions are bound to arise, and conciliation will be necessary," he predicted.

Sigal announced that Buenos Aires and Brasilia are willing to increase the Structural Convergence Fund created in 2005 to support initiatives that promote development and improve competitiveness in the Paraguayan and Uruguayan economies.

Seventy percent of the Fund is contributed by Brazil and 27 percent by Argentina. In 2006, 55 million dollars were raised for projects. In 2007 it is planned to add another 72 million dollars to the Fund, and over the next eight years 100 million dollars a year will be available. Argentina is now proposing that the contributions be increased even further.

"The problem is that the capacity to put these resources to good use is still lacking. Funds for 2006 are still being used, and we're having to make decisions about what to do with the interest accrued on contributions for 2007 which have already been deposited but not invested," Sigal said.

Sigal emphasised that Uruguay and Paraguay have made detailed reports on the development programmes they are carrying out to put themselves on the same footing with their larger partners, but difficulties have arisen over the approval of projects. The feasibility of creating a stable technical committee to evaluate projects is being studied.

Member countries have also made progress by deciding to subsidise participation by Uruguay and Paraguay on joint Mercosur trade missions, and by creating a fund specifically to support their small and medium businesses, especially those that are part of production chains within the bloc.

IPS asked Sigal whether ways of increasing access of the smaller countries to the markets of the larger partners were being considered, and here he recognised that difficulties remain. "We must improve their access; non-tariff obstacles persist which block access, this is a fact," he admitted.

Finally, the ambassador stated that in Mercosur's international negotiations, the bloc endeavours to obtain the best possible benefits for the smaller countries. For example, he said that the free trade agreement with Israel is in abeyance because of objections raised by Paraguay and Uruguay.

Sigal said that Paraguay is not satisfied with the beef quota it was offered by Israel, while Uruguay disagrees over dairy products. "Argentina and Brazil have no objections, but we will not sign the treaty until all the (Mercosur) countries are agreed on it," he said.

At the summit, the presidents will continue discussions to put an end to double payment of the common external tariff by 2008. Goods imported into one of the bloc countries to be delivered in another are subject to dual tariff payments at present. This problem mainly affects Paraguay, a land-locked country.

To get a head start on this, the countries were to draw up customs regulations and establish on-line computerisation of customs posts. There have been "significant advances" with these two measures in the last few months, but there are "delays" in agreeing how customs income is to be distributed, Sigal said.

At Brazil's request, the summit coordinators have also approved consideration of a draft proposal to increase the common external tariff for imported shoes and textiles, and decided to continue to experiment with using national currencies, instead of the dollar, in trading transactions between members of the bloc.

Sigal confirmed that Mercosur Economy ministers plan to continue discussing the creation of the Bank of the South (Banco del Sur), a Venezuelan initiative that could be set up with an initial contribution of between 200 and 500 million dollars for each member country.