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On his first foreign trip since undergoing cancer treatment in Cuba earlier in 2012, Venezuelan President Hugo Chavez hailed his country’s welcome by fellow South American leaders into a troubled regional trade bloc on 31.07.2012. With Venezuela’s addition, Mercosur will be the “the fifth world power,” with a combined economy of $3.3 trillion, 83 percent of South America’s economic output and 270 million people, he said.
Ignoring criticism that Venezuela’s entry could eventually cause greater dysfunction among the Mercosur trade bloc’s members, Chavez cast the event as a continuation of his self-styled revolution and a sign of greater ascendance for South America as a whole.
Mercosur
Mercosur Trade Center – M.T.C. – is a South American Trade bloc with an important operating network specially in Argentina, Brazil, Chile, Uruguay and Paraguay – which offers specialized services in international trade aiming that our customers could get a higher increase in their business, profitability, risks spread and better competitive conditions. Founded in 1991 by the Treaty of Asunción, which was later amended and updated by the 1994 Treaty of Ouro Preto.
Mercosur originated in 1985, when Presidents Raúl Alfonsín of Argentina and José Sarney of Brazil signed the Argentina-Brazil Integration and Economics Cooperation Program or PICE (Portuguese: Programa de Integração e Cooperação Econômica Argentina-Brasil, Spanish: Programa de Integración y Cooperación Económica Argentina-Brasil). The program also proposed the Gaucho as a currency for regional trade.
Full membership for Venezuela became effective on 31 July 2012, after the suspension of Paraguay on 22 June 2012 for the violation of the Democratic Clause of Mercosur (reference to Impeachment of Fernando Lugo)]. Beforehand, Venezuela had signed a membership agreement on 17 June 2006 but its accession was blocked by the Senate of Paraguay.
The founding of the Mercosur Parliament was agreed at the December 2004 presidential summit. It should have 18 representatives from each country by 2010, regardless of population.
Bolivia, Chile, Colombia, Ecuador, and Peru currently have associate member status.
Observer status is given to Mexico and New Zealand.
Official Language – Among the many languages and dialects used in Mercosur, it has 3 official and working languages: Portuguese, Spanish and Guaraní. .
Role and potential
Some South Americans see Mercosur as giving the capability to combine resources to balance the activities of other global economic powers, especially the North American Free Trade Agreement (NAFTA) and the European Union.The organization could also potentially pre-empt the Free Trade Area of the Americas (FTAA).However, over half of the current Mercosur member countries rejected the FTAA proposal at the IV Cumbre de las Américas (IV Summit of the Americas) in Argentina in 2005.
The development of Mercosur was arguably weakened by the collapse of the Argentine economy in 2001 and it has still seen internal conflicts over trade policy, between Brazil and Argentina, Argentina and Uruguay, Paraguay and Brazil, etc. In addition, many obstacles are to be addressed before the development of a common currency in Mercosur.
In 2004, Mercosur signed a cooperation agreement with the Andean Community of Nations trade bloc (CAN) and they published a joint letter of intent for future negotiations towards integrating all of South America.The prospect of increased political integration within the organization, as per the European Union and advocated by some, is still uncertain.
The bloc comprises a population of more than 270 million people, and the combined Gross Domestic Product of the full-member nations is in excess of US$3.0 trillion a year (Purchasing power parity, PPP) according to International Monetary Fund (IMF) numbers, making Mercosur the fifth-largest economy in the World. It is the fourth-largest trading bloc after the European Union.
The working of Mercosur has not met with universal approval within interested countries. Chile has to a certain extent preferred to pursue bilateral agreements with trading partners, and there have been calls from Uruguayan politicians for this example to be followed.
Paraguay opposes Venezuela’s inclusion
The Paraguayan Senate was the only legislative of the Mercosur full members not to ratify the incorporation of Venezuela.
A release from their Foreign ministry says that “Paraguay sustains and will sustain in all instances” that the incorporation to Mercosur of Venezuela “is an abuse unacceptable to all the specific institutional framework and norms currently effective in the regional block”.
The Paraguayan Executive “reaffirms and reiterates it will continue in the battle for the defence of its rights in all instances and pertinent forums”, adds the release.
Paraguay was formally suspended from Mercosur 29 June for the “democratic rupture”, which according to Argentina, Brazil and Uruguay took place with the removal of Fernando Lugo as president, a week earlier, by the implementation of a political impeachment by the Paraguayan Senate.
On that same day and meeting the other three full members of the block agreed in the Mendoza summit to incorporate Venezuela which was formalized on Tuesday with the attendance of President Hugo Chavez.
The release added that a presidential statement “does not constitute a valid juridical act in the institutional framework of Mercosur and therefore it lacks legal support and efficacy”
Venezuela’s inclusion without the presence and conformity of Paraguay is “a gross violation of the Protocol of Adhesion of Venezuela from 4 July 2006” which demands the ratification of all the other full members.
Therefore, “until the Republic of Paraguay, as founding member of Mercosur does not deposit the pertinent ratification of Venezuela’s incorporation done without complying with this requisite, the whole action is null and void”.
Politial theater?
But a reality check into the grandiose claims made by Chávez and the other presidents at the Brasilia ceremony shows that Mercosur, far from a rising economic giant, is threatened with following in the steps of previous ill-fated Latin American free-trade groups, such as Alalc in the sixties, and Aladi in the 1980s.
To begin with, trade among Mercosur members has been dropping steadily in recent years. According to the United Nations Economic Commission for Latin America and the Caribbean, intra-Mercosur trade has fallen from 25 percent of the group-member countries’ worldwide trade at the peak of the group’s success in 1998, to 15.2 percent last year.
The decline is not only due to the fact that Mercosur members have dramatically increased their trade with China, but also because they are placing growing trade hurdles up against each other. Argentina earlier this year added nearly 200 goods — including laptops and motorcycles — to its list of worldwide imports requiring non-automatic import licenses, blocking dozens of imports from Mercosur countries.
Brazil retaliated by blocking automatic imports of several Argentine products, including wines and potatoes. Trade between Brazil and Argentina, the trade bloc’s biggest members, is expected to drop by 10 percent this year.
As for Chávez’s claim that with Venezuela’s addition Mercosur will be the “fifth world power,” the fact is that Brazil alone is already the world’s fifth- or sixth-largest economy.
Asked whether Venezuela’s entry into Mercosur will give the group a new lease on life, most trade experts are very skeptical.
They say that after 12 years of disastrous Chávez economic policies, oil-rich Venezuela has been left with virtually no competitive manufacturing industries and must import about 70 percent of its food. Therefore, it has almost nothing it could possibly export to its fellow Mercosur members.
For most experts, Mercosur’s expansion is mostly “political theater.” Venezuela’s state-run economy is so out of step with Mercosur’s rules that the document Chávez signed contains hundreds of exemptions.
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