Year LXV, 2023, Single Issue, Page 25
MERCOSUR: a relaunch proposal
STEFANO SPOLTORE
The election of Javier Milei as president of the Argentine Republic has turned the global spotlight back onto the problems of a country that boasts an unfortunate record: Argentina, in its 200-year history, has recorded more defaults than any other country[1] (a total of nine, including three since 2000). Milei’s extraordinary success at the ballot box took the world’s media by surprise, after the only things that had really caught their attention during his campaign for the presidency were his somewhat bizarre and histrionic antics — he showed up at rallies with a chainsaw (to underline the need for a cut in state spending) — and several rather extreme off-the-cuff declarations — he talked about abolishing the Central Bank, for example, and levelled accusations of communism at both Pope Francis and the Brazilian president Lula.[2]
Argentina Caught in a Labyrinth.
Ever since the 1940s followed by the years of Peron’s first presidency (1946–1955), Argentina has been dreaming of returning to the good times of the past. Those were, in fact, years in which Argentina, as pointed out by H. Herring, was able to grow rich in the wake of the global conflict, given that it had accumulated vast monetary resources in London and also had the meat and grain that Europe so badly needed.[3] This is not the place to go over the events in Argentina’s history. All we need say here is that this was the period that saw the birth of the populism of Peron and his partner Evita, who, exploiting their ability to appeal to union leaders, managed to influence and win the support of much of the less affluent section of the population.[4] Ever since that time, Argentina has clung to the mythical idea of the man or woman of destiny, as was evident in 1973, when Peron returned to power after a long period of exile, hoping to recreate Argentina’s golden years. On his return, Peron was once again flanked by a woman, this time Isabel Martinez, who sought to imitate the language and gestures of the unforgettable Evita. The Argentinian people deluded themselves that Peron would usher in a return to stability and wellbeing in the country, but they were just chasing a fantasy. Peron’s second government proved short lived; it was overthrown by a brutal military dictatorship, a tragic turn of events that in turn ended with the disastrous Falklands War. Since then, Argentina has re-embraced democracy, although, rocked by continuous financial and political crises, it remains in the throes of a perpetual identity crisis. Marcos Aguinis describes the sensation that Argentina has slid into a labyrinth where darkness reigns, leaving the country on the brink of despair.[5]
For over 50 years, Argentinians’ lives have been affected by constant political instability linked to a series of factors: an insane financial and economic policy which has allowed the governors of the federation’s member states[6] to squander public money through clientelism; a monetary policy that drives the country’s central bank to print paper money, thereby depreciating the value of the local currency; rampant corruption in the public sector; a flight of capital from the economy; recourse, also by private citizens, to the dollar, deemed the safest safe haven asset, a behaviour that has in turn fuelled the black market; constant requests for financial aid through the IMF; and runaway inflation.[7] As a result of this combination of factors, the Argentinian people have lost faith in not only their ruling class but also their very country. This lack of faith, and inability to believe in their country, explains why they seek a “man of providence”. And yet, Argentina, whose huge mineral resources and rich agricultural production rightly make it a full member of the G20, actually harbours great potential.
In this context of general instability, there is however one element that has guaranteed, and continues to guarantee, the defence of democratic principles in the country, namely its membership of Mercosur, the regional integration project. It is certainly no coincidence that, like a sort of domino effect, the fall of the Videla dictatorship in Argentina was followed by the collapse of the ones in neighbouring Paraguay and Uruguay. At around that time, an integration project was started between Argentina and Brazil which eventually led to the 1991 establishment of Mercosur: ever since then, democracy, albeit sometimes in markedly populist forms, has been a key principle binding its member states. Indeed, its founding treaty contains a so-called democratic clause stating that any member state failing to respect democratic principles will be excluded from the work of Mercosur until democracy is restored within it.[8] This clause led to the temporary suspension of Paraguay in 2012, while Venezuela’s 2016 suspension has yet to be lifted, particularly given the disputed elections in 2019 which confirmed Maduro as president. Mirroring Europe’s experience, the start of this South American integration process had the effect of encouraging the defence of democratic principles within the Mercosur region, leading to the longest-ever period of democratic governments in the history of South America.
When discussions between the future founder members of Mercosur (Argentina, Brazil, Paraguay and Uruguay) began at the end of the 1980s, the model they looked to was, in fact, the European one. And thus, in line with Europe’s experience, peace and development in the region have favoured the expansion of the project over the years since. In 2012, the four founding member states were joined by Venezuela, which was followed by Bolivia at the end of 2023, while Chile is currently an associate member and participates as an observer in the work of Mercosur.
Now, however, more than 30 years since its establishment, the Mercosur integration project is stalling and, in some cases, seeing its prerogatives challenged. Some governments object to the Mercosur-imposed restriction on the definition of trade agreements with third countries. The desire to change this Treaty clause, under which it is Mercosur that negotiates and signs agreements with third countries, has in the past been expressed by former Brazilian president Bolsonaro’s government, for example, and by the government of Uruguay, while more recently, albeit only during the electoral campaign, Milei threatened to take Argentina out of the Mercosur common market. In recent years, the Council of Heads of State of the area opted not to proceed with the direct election of the Mercosur parliament (Parlasur, based in Montevideo) on the basis that those who participate in its work are, in any case, elected to their own country’s senate or parliament in national elections.
Indeed, even though the principle of parliamentary elections by universal suffrage, as held in the EU, was accepted in the 1990s, recent years have seen their introduction postponed and ultimately rejected.[9] This radical decision forced Paraguay to cancel an electoral law that had been approved specifically for purpose of electing the country’s Parlasur parliamentarians. What remains, therefore, is the sense, reinforced by the persistence of barriers and customs duties on some goods imported or exported between the Mercosur member countries, of an integration project only partially completed. Many take Mercosur’s inability to complete the planned trade agreement with the EU after over twenty years of negotiations as a sign of the political fragility of a bloc heavily influenced by European politics. In actual fact, though, Mercosur bears much of the responsibility for the failure to ratify the agreement.[10]
In what is today an extremely difficult global scenario characterised by increasing tensions and conflicts and the need to safeguard the environment in the face of the climate crisis that is engulfing the entire planet, how can Mercosur guarantee itself a future? The only possible answer is by forcefully reviving the integration project through new proposals for its relaunch, and this means abandoning the nationalistic visions that can only undermine the progress made to date by its member countries.
A Proposal: the Creation of a Water and Energy Community (CERE).
The birth of Mercosur was inspired by the political and economic experience of the then European Community, and Europe can today again provide a model, this time to inspire the organisation’s revival. The European integration process began at the start of the 1950s with the creation of the European Coal and Steel Community (ECSC). Europe at the time needed an economic policy that would favour the rebuilding of the continent, which WWII had left in tatters. The energy source at the time was coal, while steel symbolised the rebuilding of infrastructure. Six countries (France, Germany, Italy and the Benelux countries) set the integration process in motion by creating the ECSC, a body whose role was to decide the production policies and oversee the free circulation and pricing of these two essential commodities. This step led to the birth of the first common institutions, whose existence subsequently favoured the creation, in 1957, of the European Economic Community (EEC) and therefore the European Common Market (ECM), the first stage in the integration process that was to lead to the current European Union (EU). The model that might inspire a relaunch of Mercosur belongs to the early part of the European integration experience.
Peace and development are essential for the defence of democratic principles. To date, Mercosur has managed to guarantee economic development and therefore democracy. It has reduced poverty and allowed the region’s countries to enter the ranks of the world’s major powers: it is in fact the fifth largest economy in the world. Two of its founding countries (Brazil and Argentina) are members of the G20, and this is in spite of the problems that beset Argentina.
When considering the suggestion that Mercosur might be broken up or downsized, it is important to appreciate that the cause of the bloc’s failure to develop lies in the obstacles that individual governments place in the way of a strengthening of its community institutions. Europe knows a similar kind of problem, and in Europe’s case it is pure illusion to think that the individual nation states can, by themselves, address the major issues it faces, like environmental protection, migration and the protection of peace. The uncertainty created in situations like these, and this applies the world over, stokes fears that populists exploit, presumptuously claiming that national “solutions” are an adequate answer to problems that have now taken on global dimensions.
The five Mercosur member states share a vast and valuable resource that, because it generates wellbeing, deserves to be preserved, protected and also developed. One of the huge challenges of our times is to defend the environment, an objective that requires huge investments and reconversion of many production activities. One key asset for development and wellbeing is water. There are some parts of the world, such as Africa, where water is in short supply. Others, on the other hand, such as Europe and Asia, now experience, as an effect of climate change, long periods of drought alternating with violent storms bringing flooding and devastation. Water is an absolutely indispensable resource and South America is the part of the world with the highest concentration of rivers, particularly in the Platense region (see map).
This area is home to one of the world’s largest inland shipping networks which grants states with no sea ports, but many river ones, access to the Atlantic Ocean.[11] The complexity of this river network makes it essential to ensure that these waters, which cross and define the borders of a number of different nations, are well managed, in a coordinated way. This is necessary both during heavy rains and during periods of drought.
When river flows are reduced as a result of the creation of dams for hydroelectric power plants, there can be less water available for downstream countries, a situation that can seriously impact agriculture and water supplies to cities. The hydrographic characteristics of South America’s rivers make them navigable for thousands of kilometres. They in fact serve as veritable highways capable of facilitating the transport of goods even from landlocked countries. Bolivia and Paraguay, for example, can transport their goods along the Pilcomayo River or the Paraguay River (hence the name of the country), and, as these flow into the Rio de la Plata, on to the sea ports of Buenos Aires (especially) or Montevideo.
This complex river network has created numerous problems over the years, and in 1993 a privately run and foreign (mainly Belgian) owned company was founded to manage a long stretch of the Rio de la Plata. Today, there is still some debate over whether it is right that this company, called Hidrovía Paraná-Paraguay, be managed by private capital rather than state capital. However, there is one aspect that unites the entire region: all five Mercosur member states, for more or less long stretches, make use of this network made up of their waterways that flow into the Rio de la Plata. All five enjoy and exploit the wealth of their rivers for commercial, economic and energy purposes, and this fact alone should be enough to ensure that all five take part in, and take responsibility for, their management. This extraordinary natural resource favours the development of a large part of the sub-continent and therefore cannot and must not become a source of tensions. On the contrary, if managed jointly, it could be used to promote greater wellbeing in the area.
So, given that all the Mercosur member states use these waterways, why not turn this resource into a jointly managed asset? Why not create, along the lines of the ECSC, an Economic Community for Water and Energy (Comunidad Económica de Ríos y Energía - CERE)? This body could improve the management of the waterways and at the same time start a new stage in the region’s integration process. The importance of a community managing the area’s water assets is underlined by a further consideration. In 2011, the Centro de Estudios Estrategicos para la Defensa[12] (CEED) drew up a dossier underlining the need for political and military protection of the continent’s natural assets, particularly its water resources, against possible external aggression. The CEED report predicted that, within two decades, the global water shortage would trigger a general rush to find and secure water supplies.[13] Although, fortunately, this prediction has so far not been realised, there is no doubt that the problem of identifying and guaranteeing water resources for the section of the world’s population that lacks them is an increasingly pressing issue.
The management of waterways for navigation purposes generates a range of costs: for riverbank maintenance, for cleaning up after floods, and for improving the ports that lie on them. The annual costs of managing the final stretch of the Rio de la Plata before the Atlantic Ocean are high, amounting to around 20 million dollars a year. Thus, at the start of 2023, the Argentine government, in order to at least partially cover its dredging and signalling costs, imposed a toll — 1.47 dollars per ton transported — on all ships transiting the long stretch that crosses the country. The decision created strong tensions with neighbouring countries and even led to the seizure of a barge that had failed to pay the charge. There followed an unprecedented diplomatic dispute, with Paraguay even threatening to cut off electricity supplies to Argentina, and to start legal proceedings against Buenos Aires for its “failure to respect the Treaty of Asunción, which guarantees free trade and free navigation of our rivers”.[14] The threat to interrupt energy supplies was made for a reason. Large rivers are an opportunity to generate hydroelectric energy. These South American waterways as well as being used to transport goods have also allowed the construction of massive power plants. The most famous is certainly the Itaipú one built in Brazilian territory, but at the point where the waters of the Paraná flow in from Paraguay. A bilateral agreement between the two countries decrees that any energy produced in excess of their needs can be resold to third parties or even to each other; Paraguay in fact sells Brazil part of its share of the energy produced under the agreement.[15] Another important hydroelectric power plant is the one built on the border between Argentina and Paraguay, again exploiting the waters of the Paraná.
The production and exploitation of hydroelectric energy in this region would lend itself to management at community level, through the creation of a common distribution network that could be integrated with renewable electricity produced by Uruguay. But the government of Uruguay has for years preferred to focus on the construction of power plants that exploit other sources of renewable energy, while new hydroelectric power plants are instead being built in Bolivia.[16] The construction of new power plants actually raises other environmental problems, given the need to divert water courses or to flood entire areas of forest land, which thus means displacing local populations. These are clearly huge political and social issues.
Using the rivers in this area for commercial purposes, or to create the energy indispensable for its development, requires a regional form of management. This is where Mercosur finds itself with a role to play, in creating an ad hoc Community. At present, the only agreements that exist are bilateral ones set up as a means of managing and/or solving problems related to navigation or energy production. The role of an Economic Community for Water and Energy (Comunidad Económica de Ríos y Energía - CERE) would be to manage the “exploitation” of the waterways for both commercial and industrial purposes. Initially it could be structured along the lines of the ECSC, and thus given a High Authority (an advisory body serving to facilitate the work of the Council) which could for example be composed of 11 members, i.e., two per state plus a further member, chosen from among the five founding countries, in order to allow majority voting; a Common Assembly, i.e., a forum for approving laws and discussing the developments of the Community itself (this would give the existing Parlasur a political role); a Council of Ministers (one per country); and a Court of Justice to resolve any disputes (like the current one between Paraguay and Argentina, which has seen Paraguay threatening to resort to international arbitration), thereby solving Mercosur’s current lack of such a court.
While the organisational structure is an important aspect, in the initial phase the basic question remains political. Which of Mercosur’s five member states has the courage to support the creation of a Community responsible for the management and development of the region’s waterways? Although any of the member states could promote such an initiative, in the current setting, Argentina is showing itself to be the country that could and should take on this leadership role, thus emerging from its labyrinth and giving itself a broader framework of action.
Argentina is the country where all the waters of the great South American rivers converge in the Rio de la Plata, and it is the one with the greatest responsibility for river traffic in the final stretch of this waterway. On a political level, the new Argentine president, who has criticised Mercosur on several occasions, could steer the region’s efforts at integration in a new direction, by giving his imprimatur to the new Community. As pointed out by the presidents of all the member states, this would imply a rethinking of the role and functions of Mercosur as a whole. This region’s problems cannot be resolved through national solutions or simple bilateral agreements, but only through the sharing of common policies that make greater integration necessary. This would not be the first time that step-by-step integration has been proposed as an approach designed to lead to the political union of this region. This was, in fact, the dream of the Libertadores Bolívar, San Martín and Artigas who, in leading the fight for independence from Spain, were the first to write about the need for a federation of the entire Latin American world.
[1] Argentina has been independent since 1816.
[2] The new president is profiled by A. Iglesias, Il fenomeno Milei, L’Unità Europea, n.6, (2023).
[3] H. Herring, Storia dell’America Latina, Milano, Rizzoli, 1972, p. 1067. A state of relative wellbeing in the immediate post-war period also favoured the economies of Uruguay and Brazil.
[4] The so-called descamisados.
[5] M. Aguinis, L’atroce incanto di essere argentini, in M. Chierici (ed.), Non piangere Argentina: tornano i peronisti, Rome, L’Unità, May 2003.
[6] Argentina is a federal presidential republic.
[7] For example, declared inflation stood at 38% in January 2022, while in the same month of 2023 it was already at 70%, and reached 150% by the end of the year.
[8] Protocolo de Usuhuaia sobre compromiso democrático, 24 July 1998, and subsequent amendments.
[9] For a more in-depth analysis of the crisis gripping Mercosur and of the Parlasur’s lack of political weight, see: S. Spoltore, Mercosur: a Future in the Balance, The Federalist, n. 6 (2020), Single Issue, p. 107.
[10] Negoziati UE/Mercosur rinviati a fine 2024, Ultimahora.com, 21 February 2024. Or Boletin Parlasur, 21 February 2024. The umpteenth postponement of the signing of the agreement is also an effect of protests by the European agricultural world, which generally speaking is opposed to it. In this regard, see: S. Spoltore, L’Accordo UE-Mercosur tra ipocrisie e rilancio, L’Unità Europea, n. 4 (2023).
[11]There are around forty river ports along the Paraguay River which allow Paraguay to have a veritable naval fleet, and the same applies to Bolivia which sees its shipping concentrated in particular in the port of Busch along the Paraguay river before it enters Paraguayan territory.
[12] The Centro de Estudios was established in 2011 as an independent research centre supported by UNASUR (Union of South American States). It is based in Buenos Aires.
[13] See: S. Spoltore, Brasile e Argentina al bivio nel Mercosur, Il Federalista, 54 n. 3 (2012).
[14] See: www.corriere.it/NewsletterCorriere/mondo-capovolto, Newsletter America-Cina, 14 September 2023.
[15] For further information on the shares of energy produced and their cost, see: Boletin Parlasur, Buenos Aires, Telam, 15 January 2024.
[16] Bolivia, progetto idroelettrico tra Bala Gorge tra natura e indios, Il Caffè Geopolitico, 3 March 2017.
