Subregional Integration Processes Lag

From Mercosur to Central America, subregional integration efforts are faltering in favor of more traditional bilateral trade negotiations. The conflicts between Argentina and Brazil, even the so-called “solution” of their automotive sector dispute, have put more pressure on publicized attempts to promote a “re-launch” of Mercosur. Uruguay and Paraguay are dissatisfied with the content of the agreement, as well as with their exclusion from the negotiations. Most affected is the next step of the now-minimal process that remains of the common market concept that launched Mercosur more than a decade ago: the customs union. To date, Mercosur has managed only to produce a common internal tariff structure and business facilitation measures. External tariffs are still a sticking point, as are non-tariff barriers, before a customs union can fully take shape.

Chile continues to declare its desire to move slowly with the integration process, although its new government has reiterated its commitment to move from associate to full membership in Mercosur. Chile’s caution is based on its interest in keeping its lower structure of external tariffs, among other concerns. Chile’s single external tariff, currently 9%, is subject to a programmed reduction which will take it down to 6% by 2003. Mercosur has its own common external tariff, but with rates that range from 10% to 35%. This external tariff structure is being put to the test in a series of ad hoc disputes between the Mercosur partners. The most delicate subject continues to be automotive sector duties, despite the agreement negotiated recently.

Chile and Brazil are holding direct trade negotiations with the stated intent of facilitating Chile’s integration into Mercosur. Yet, at the same time, Chilean Foreign Minister Soledad Alvear informed a visiting European Union trade delegation that Chile wished to delink its own free trade negotiations with the EU from Mercosur. Contributing to Mercosur’s unproductive negotiations with the Europeans are the continuing conflicts within the South American trade bloc. Even the Argentine-Brazilian auto agreement has failed to improve commercial relations between the two South American giants; cotton textile and poultry disputes are still raging, along with labor problems and an Argentine tax on foreign truckers that has created chaos at the Brazilian border. Ultimately, these continuing confrontations could provide greater pressure to replace the integration rhetoric with realistic subregional efforts to put Mercosur back on track.

In Central America, the five traditional trading partners have experienced some significant divisions. Guatemala, El Salvador and Nicaragua scheduled a May 2 meeting of their presidents to sign a secretly negotiated trade agreement. The meeting excluded Costa Rica and Honduras, which are involved in territorial and maritime disputes with their neighbors. Honduras has significantly interfered with Central American commerce by complicating customs procedures at its borders in retaliation against Nicaragua, which placed a 35% punitive duty on Honduran goods as a result of border disputes between the two countries. Honduras has also squabbled with Guatemala and El Salvador over maritime boundaries in the Gulf of Fonseca on the Pacific side of the Central American isthmus. The Hondurans then went on to ratify a treaty with Colombia on the Atlantic side, despite objections from Nicaragua. So far, Honduras has reacted calmly to the trilateral initiative between Guatemala, El Salvador and Nicaragua, describing it as just another part of the process of Central American integration. However, confrontations over borders and fishing zones in the region will continue to hinder any real integration efforts.

In this context, it is becoming increasingly apparent that the only steady force for integration in the hemisphere is the FTAA.. The FTAA negotiations continue to move forward in comparative calm after an uneventful Trade Negotiations Committee (TNC) meeting in Guatemala. Questions of accountability and transparency were the only controversial themes mentioned at the TNC president’s press conference, considerations which appeared to include both civil society access and the publication of FTAA documents. The president, Ambassador Horacio Chighizola of Argentina, claimed that the meeting had successfully addressed areas of divergence among the negotiating countries. However, he noted that the issues raised are not due to be considered again until meetings preceding the next Ministerial, in November. Another area of potential conflict is Brazilian discomfort with Mexico’s ambitions to play a leading role in arbitrating any agreement between north and south. Brazil has sought an increased dialogue with the US to compensate for the perception of growing Mexican activism in the region’s trade activities. Both Mexico and Brazil, along with some of their allies, continue to slow key areas of progress in the FTAA and the region.

For more information on the TNC meeting in Guatemala, see the Global Trade Network Website PNL TV at www.pronetlink.com .