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Paraguay Out, Venezuela In: What Do Mercosur’s Changes Mean for Brazil?

July 17, 2012

by Lucy Jordan

Late last month, the Mercosur alliance met, suspended Paraguay and ushered in Venezuela as a full member in almost as little time as it took the Paraguayan congress to impeach their former president, Fernando Lugo, the preceding week.

Venezuelan President Hugo Chávez’ bid to join the South American trade bloc had spent the past three years languishing in the Paraguayan congress, where lawmakers cited fears that Venezuela would violate Mercosur’s democracy clause.

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With Paraguay’s new government suspended from the summit as a punishment for its own democratic misbehavior, the other full members—Brazil, Argentina and Uruguay—were quick to invite Venezuela in.

Since then, reports have been circulating that Brazilian President Dilma Rousseff was the driving force behind this decision. Soon after the summit, Uruguayan Foreign Minister Luis Almagro caused considerable diplomatic unease in saying that Uruguay had opposed Venezuela’s immediate entry, and only relented under pressure from Brazil.

Almagro maintained that although Paraguay was suspended, it was not expelled, and therefore retained its right to accept or veto a new member. Uruguayan Vice President Danilo Astori agreed, calling Venezuela’s entry during Paraguay’s suspension “the worst institutional wound” to Mercosur since its inception in 1991. Uruguayan President José Mujica publicly criticized his deputy for this outburst, and insisted that although Dilma had requested a meeting of the heads of state (without their deputies or foreign ministers) the decision to let Venezuela in had been unanimous.

The Uruguayans are not the only ones with misgivings. Paraguay has filed an application with Mercosur’s permanent court that would restore its rights and revoke Venezuela’s inclusion. Here in Brazil, Alvaro Dias, the Senate leader of the Partido da Social DemocraciaBrasileira (Brazilian Social Democracy Party—PSDB), announced last week that the PSDB was bringing charges against Dilma in Brazil’s Supreme Court. They say Venezuela’s entry into Mercosur was maneuvered in a trama (plot or conspiracy), and constitutes “a clear mockery of international treaties signed by Brazil.”

If the reports that Dilma took charge are true, it seems plausible that her decisions surrounding the Paraguayan affair were based less in democratic ideology than in economic pragmatism. After all, if the bloc is successful in tempering Chávez’ restrictive policies, the rewards for Brazil will be significant.

James Bosworth, a consultant working on Latin American issues, points out that Chávez will not simply be able to expropriate companies operating in Venezuela as he has done in the past.

Venezuela’s currency restrictions, which are a substantial obstacle to trade at present, would not be allowed under Mercosur’s rules either. In short, Venezuela’s entry will open up a lucrative export market for Brazil.

“Pretty much everything Brazil can export to Venezuela, it will,” said Bosworth by email last week. “Venezuela has nothing that competes with Brazil.” Venezuela has some 28 million consumers, but the country produces little apart from oil and imports everything else. In 2009 Venezuela imported $38.5 billion in goods, 8.2 percent ($3.16 billion) of which came from Brazil.

“Brazil has already a huge surplus with Venezuela, our third largest, and we sell them mostly value-added goods,” explained Jeferson Manhaes, an aide in the Brazilian delegation to Mercosur’s parliament, by email last week. For Brazil, this path also offers clear strategic advantages: securing a position as a regional exporter of manufactured goods will decrease its reliance on commodity exports—and thus to China—while diminishing the increasing Chinese commercial influence in the region.

Presidential advisor Marco Aurelio Garcia told Folha, “Do we want this giant South American market to be filled with trinkets that are manufactured outside, or products made inside the region?”

Others here have argued that Venezuela, with a GDP bigger than Chile, Peru, Bolivia and Paraguay combined, will provide a much-needed balance to the current power dyad of Brazil and Argentina, and that including Venezuela is a big step forward for regional integration. How much Uruguay—and Paraguay, once it returns next year— will enjoy having three much larger colleagues instead of two remains to be seen.

Venezuela's economy is based on oil exports, and while Brazil, with recently discovered rich pre-salt reserves of its own, has no need for Venezuelan petroleum, its neighbor to the north will make an attractive partner for energy deals.

Even if Chávez does resist economic reform, it is possible that he will not be reelected when Venezuelans go to the polls in October. “Brazil is thinking long term on this,” Bosworth added.

Of course, there are risks to Venezuela’s entry. The Chávez government sees cheap imports as a way to improve his people’s access to food in a country that has already seen scarcities of basic goods this year, and as an opportunity to turn away from dependence on the U.S., which he resents.

But for a few sectors that do produce goods for the domestic market, such as chicken farmers, the move means they have to compete with far larger producers from Argentina and Brazil.

From Mercosur’s perspective, Venezuela’s veto power over any new trade agreements could restrict the alliance in the future.

There is also a chance that the fallout will permanently damage the reputation of Mercosur, and Dilma herself. Many in Brazil have commented angrily on the irony of suspending a country for undemocratic processes, and then taking advantage of their absence to welcome Chávez who, Ives Gandra Martins Da Silva, professor emeritus at the University of Mackenzie, argued in Folha last week, has used “every means possible to silence the opposition and the press.”

This argument gained a little more traction last week, when José Miguel Insulza, Secretary-General of the Organization of American States, announced that Paraguay would not be suspended from the OAS, offering what some analysts see as tacit disapproval of Mercosur’s own suspension.

But, as Manhaes pointed out, Paraguay had committed to the bloc’s democracy clauses, and should therefore have expected retribution for Lugo’s swift ouster.

“If Venezuela is in Mercosur, Brazil will have to push Venezuela to abide by these rules too,” he said. “It is true that Brazil likes to play the guardian of democracy in the region, but there is no evidence that Hugo Chávez has broken serious governing rules and is leading Venezuela without legitimate popular support.

The biggest risk, sources here say, is that Chávez will try to politicize the trade bloc.

“If Venezuela's entry means Mercosur is focused on political rhetoric, it will have less time for real economic integration,” says Bosworth. “Brazil needs to keep a focused agenda at Mercosur to prevent it from being another platform for Venezuela’s noisy but ineffective diplomatic games.”

Manhaes said that there are concerns among lawmakers in Brazil that Chávez could try to push Mercosur into taking a position against the United States. But, he said, Chávez is keen to reap the economic and commercial benefits of joining Mercosur, and knows that Brazil would tolerate no radicalism in its foreign policy agenda.

“We need to keep in mind that Hugo Chávez is a president and Venezuela is a country,” Manhaes said. “The latter is a lot bigger than the former.”

*Lucy Jordan is a contributing blogger to AQ Online. She is a freelance writer based in Brasília, Brazil who covers politics and the environment. Her Twitter account is @lucyjord

Tags: Brazil, Venezuela, Mercosur, Paraguay, International relations

To speak with an expert on this topic, please contact the communications office at: communications@as-coa.org or (212) 277-8384.
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