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Mercosur as a European Union-based Integration Bloc

Updated on January 14, 2014

In 2012, Paraguay was suspended from Mercosur when its former President Fernando Lugo was impeached by the Paraguayan National Congress. It was readmitted in 20

(Left to right) Presidents Hugo Chavez (Venezuela), Dilma Rousseff (Brazil), Jose Mujica (Uruguay), Cristina Kirchner (Argentina)
(Left to right) Presidents Hugo Chavez (Venezuela), Dilma Rousseff (Brazil), Jose Mujica (Uruguay), Cristina Kirchner (Argentina)

The Long Trajectory towards Integration

As the emerging and developed nations of the world confront the many problems that an inevitably increasing globalized planet is faced with, many groups of countries ranging from diverse regions and continents like Latin America, to Europe, the Middle East, and South-East Asia, more and more countries have begun to see integration as a powerful mechanism to enhance their social, economic and political agendas. Perhaps the most recognized integration bloc that has received the most international attention is that of the European Union (EU), as it has in many ways been able to break various socio-economic and political barriers progressively throughout the years, even amid times of both crisis and prosperity. One can trace its roots of its union throughout its history of conflict and economic and political forces that has led them to integration. Another less known yet equally as important growing bloc is that of Mercosur in South America. While Mercosur certainly could be said to initially have had a more economically-centered agenda, it has nevertheless, just like in the case of the EU, shaped its shorter history with the ability and will to seek political and social cooperation to make the most southern part of the continent a free trade area that stands out the most in the region, in contrast with the European Union, which has been able to achieve great international status that can easily affect markets, and political agendas in almost every corner of the world. The degree of institutionalism of both regional integration blocs, will thus become a key factor in determining the degree to which these blocs shape and execute their economic, social, and political agendas.

In order to better understand how these integration blocs came to be, and why they sought after integration to either tackle problems, or in many cases, enhance their potentials, one has to understand the socio-political realities of each bloc accordingly, and how supranationalism has played a role at the federal levels of each region. The European Union's capability of achieving growing integration in the old continent through voluntary and peaceful ways speaks powerfully of the way that a region plagued by world wars and conflict through many decades and even centuries, has been able to slowly institutionalize through treaties and international agreements, a common socio-economic agenda, amid the clash of various interests and political realities that each member country is confronted with. Its formation, unlike many integration blocs, came out of the ashes of conflict, most notably the second World War: after two world wars in only the first half of the twentieth century moved many founding members in the old continent into action. In other words, years of conflict yielded many countries in the region to find ways of preventing further conflict. Out of this, the European Coal and Steel Community was created in 1952, as French foreign minister declared through the famous "Schuman Declaration" that it would become "a first step in the federation of Europe (Schuman, 1950). Through these means, a careful monopolization of the coal and steel industries, the main resources used to set the stage for previous wars, by the collective action of its founding countries of Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany, would thus almost guarantee that a future conflict of war would be deemed virtually materially impossible in the continent. In 1951, with the ratification of the Treaty of Paris, the supranationalization of a community of countries over the most important and necessary resources of war, would set the stage for what would soon break other social barriers in the years to come. Amid a more secure Europe prepared to expand its coming years of peace, more supranational entities emerged through various treaties and agreements. Among these, (through the Treaty of Rome) emerged the European Economic Community, of which a EU customs union emerged. This would perhaps become the beginning of an emerging economically-centered international purge towards economic integration, that if it was once thought to be limited to a customs union through its common external tariff, it perhaps never envisioned the potential of such strive to also become more towards a free trade area in the continent, that would progressively become also a monetary union that would ultimately ensure the free movement of people, services, and capital across the borders of member nations. This growing trend towards integration would surely open up the dialogue of many international relations scholars of exactly how this multilevel of governance could be established and executed peacefully, democratically, and in representation of the member nations' general populace.

Mercosur, short for "Mercado Común Del Sur" (Common Market of the South), can better be seen to what is name precisely entails; a more economically-based union centered around trade and development cooperation. Its early roots were brought about the initial and rapidly-expanding reaction to the liberalization and globalization of the world economy brought about in the 1990s. Originally composed of founding members Argentina, Brazil, Paraguay, and Uruguay in 1991, the trading bloc was initially fully committed to rapid expansion of regional markets in between countries, and with the ratification of the Treaty of Ouro Preto, it was successfully established as a customs union, giving it significant international status as a legitimate expanding regional trading bloc of the likes of the European Union (EU), the North Atlantic Free Trade Agreement (NAFTA), and "La Comunidad Andina" (The Andean Community. However, Mercosur has shown to rapidly become an integration engine for regional disputes and even in recent years, attempting to redefine, or more precisely, put an extent of to what exactly entails the economic credentials of a liberal free-market trading bloc, thus "opening up the possibility of an autonomous South American strategy for development". (Carranza, 802) Although amid the hope of a customs union in the southernmost part of the continent mirrored after the European Union's liberal economic trade, Mercosur saw itself in a wide range of internal political disputes, ranging from the impact on market imports brought upon by Brazil's currency devaluation in 1999, to Argentina's dispute with the UK over the Falkland Islands, and its inter-regional trade with the European nation, as well its opposition to the Washington Consensus and its succeeding Free Trade Area of the Americas. Amid trade wars and difficulty over the institutionalization in between countries of policy implementation, Mercosur's economic rise has moved forward with the political integration of left-of-center governments in the region promoting more protectionism on the economic level, while establishing political union on the diplomatic front. In 2012, Venezuela was finally admitted into Mercosur, after Paraguay being the only pending member country to ratify the oil-rich nation into the bloc, was temporarily suspended from Mercosur, leading the way for more expansion of the markets, particularly in government contracts for Brazilian and Argentinean companies in Venezuela's oil wealth. Unlike the European Union which despite its various decades of expansion and evolution, still finds troubles of democratic legitimacy and sovereignty over its member nations, Mercosur's significantly shorter history of union, and in particularity, the fact of it having more underdeveloped member nations, has pushed the South American trading bloc into leading its socio-economic cause into a potential political counterpart to more traditional classical free-market blocs.

However, despite its different agendas and ideals towards the idea of integration, both the European Union and Mercosur have put forward in various ways the manner in which each regional bloc aspires to interact with sub national actors from the perspective of the federalist approach to international relations, and the way in which these blocs put forward the breaking down of socio-economic barriers to enhance a way towards political globalization. On the economic front, the European Union has been able to establish a single-currency monetary union among many member nations, as it has ultimately, been able to integrate 17 nations, making the Eurozone perhaps the most predominant expression of socio-economic integration of goods, services, and capital across borders. The younger Mercosur, for its part, stands at a critical point on deciding how exactly to move forward, as it learns from the mistakes of similar regional blocs (and the effect of fluctuations in the world markets), and attempts to fulfill its interior agenda that speaks directly for their specific social and economic troubles.

One leading example of how Mercosur could deviate from one of the most important economic structures of the European Union, is through its monetary policy. As the BBC news profile of Mercosur reports, "in the longer term, Mercosur aims to create a continent-wide free-trade area, and the creation of a Mercosur development bank has been mooted." Nevertheless, despite lacking a common currency such as the Euro, the way that Mercosur has been structured institutionally is as a intergovernmental organization, as opposed to a supranational one like the EU, much debate has sparked on whether a common currency policy to avoid trade offsets (as it was the case with Brazil's 1999 currency devaluation) or an easier flow of capital in between member countries would prove beneficial to the overall stability of the bloc. The implications of such move are vast and complex; on the one hand, harmonizing a bloc under a single currency would force the member countries to coordinate a common fiscal and budgetary policy that would have to offset the spillover effects of currency crises, as it was the case for Argentina in the early 2000s that endured harsh political and macroeconomic instabilities brought upon the demands of the International Monetary Fund for the Argentine nation to freeze its public spending for four years. While a responsive proposal by then-Argentine President Carlos Menem to transition the bloc's currency under the economic "dollarization" banner for Mercosur now seems highly unlikely and in many ways unrealistic to the social agenda of the member nations, the idea of a common currency has lost some economic momentum, as worries that member nations would "lose their ability to implement economic policies to stimulate effective demand and solve unemployment problems" (Ferrari-Filho, 237) have repeatedly surfaced. The case for a more economic (as opposed to political) union for Mercosur, is perhaps backed by the idea of the degree of equality among member nations; as it can at times not always be completely explained by mirroring its problems and solutions from the European Union alone: the EU formed by developed countries, is an important power broker in the international system. Mercosur, on the other hand, formed by less developed countries is struggling to insert itself further into the international arena, thus, their relationship is asymmetrical in terms of political and economic power, as both blocs organize their priorities for the sake of economic cohesion, and not mere cultural coherence. In other words, regional economic integration, as an idea, is best explained as a harmonization of common interests, not necessarily a common identity. For example, the extent to which giant economic powerhouses in the region like Brazil, and to a lesser extent Argentina, are able to become the inevitable backbones of such a common union of trading countries, would potentially suck-in the bigger and more profitable investments from their fellow smaller Mercosur trading partners. A political spillover of such pattern was shown in two disputes between Argentina and Uruguay, one over Argentina's halt over the permission of ships carrying the Falkland Islands flag over its ports, forcing the smaller nation of Uruguay to permit such transit and investment, and another dispute over the building of pulp mills in Uruguay along its border with Argentina; its biggest international investment, which Argentina sought to strike down amid claims of its potential harm on pollution, tourism and its fishing industry. Lessons of the disparity between larger and more prosperous nations dominating over its smaller partners is not something new seen in integration blocs. This was particularly the case for the European Union in its monetary beginnings, as markets initially were thought to dominate predominantly in richer countries like Germany and France, at the expense of poorer countries in the union like Portugal, Greece, and Ireland. The EU reacted through a common coordination of regional finances, subsidies to the agriculture sector, and other top-to-bottom approaches that ensured competitive stability and market opportunities for less developed nations.

Of course, the coordination of such economic policy could only be achieved through the institutionalization of a common and accountable political body that enabled disputes between countries, and balancing the line between cooperation and conflict, and sovereignty and intervention, while at the same time being able to thrive without an illegitimate democratic deficit, as it has particularly within the EU hampered its credentials. It is here that a more comparative approach to the examination of these trading blocs is thoroughly applied. While the EU has accomplished a successful institutionalization of various bodies of government to rule over many aspects of European civil society, with the likes of structural entities such as the European Court of Justice, the European Parliament, and the Council of Ministers, Mercosur's attempts at institutionalization can at best be expressed through mere optimism over the long run. Its current entities are limited to its Parliamentary Commission, which unlike its EU counterpart, does not rule over the sovereignty of nations, leaving the thought of a regional parliament to future prospects. This falls in between the idea of horizontal (intergovernmental) and vertical (supranational) relationships towards power, as Mercosur has at least for now opted for the former, and the EU with the latter. At this point of the IR debate over integration blocs' relation to the many subdivisions of power, there seems to be growing consensus that Mercosur seems to be moving towards neofunctionalism as a basis for power and legitimacy. "According to this theory, regional integration is an intrinsically sporadic and conflictual process in which, under democratic, and pluralistic representation, national governments are increasingly entangled in regional affairs, and eventually resolve their conflicts by giving more authority and more power to regional organizations that they themselves have created." (Malamud, Schmitter, 4) Some regional organizations that the South American trading bloc has been reliant in achieving pluralistic representations amid conflicts and disputes are with the OAS (Organization of American States) and more directly attached to Mercosur, the Common Market Council, and the Common Market Group; " which implements policies and monitors compliance with the council's decisions." Particularly within Mercosur, this has served as a way of establishing the political power of the member countries' ruling governments, even as internal and ideological politics take place, to enhance their interests. This is yet another way that Mercosur has moved away from its free-trade credentials in order to become more politicized. The clearest and most recent example came in 2012, as Paraguay's left-leaning president Fernando Lugo, was impeached by Paraguay's Senate over a confrontation between farmers and police men. The impeachment was a messy, yet constitutional process, and in reaction, the remaining left-wing governments in Mercosur applied its "Democracy Clause" to temporarily suspend Paraguay as an active member, in order to complete the final ratification of pending Venezuela as a member. Venezuela's entry into Mercosur was welcomed by its member countries of Argentina, Brazil, and Uruguay with little opposition at both their political and economic level. The other member countries may have found economically convenient to have the oil-rich nation applying for membership in their market. It has become no secret after all in Latin-American politics that the current Venezuelan government has at times given free and subsidized oil to allied countries, many argue, for political interests, so one can only understand why Mercosur countries found a few good reasons to admit Venezuela as a member. Another reason why Mercosur countries had little opposition to Venezuela's entry is because of their view of expanding markets, and selling goods to Venezuela may just as well be helpful for their markets and their political forces. Of course, the way that neofunctionalism has been applied within Mercosur, differs from the way that the European Union has made solidified political institutionalization of political forces, and this might be in part due to its more relative degree of equality and development among its member nations, and its relative general consensus towards free trade. Along with its intergovernmentalism, the EU's vertical institutional relation towards supranationalism can be exemplified in the manner that ultimately, most member states have compromised state interests over common good, as the stability of the whole economic bloc in recent years depended upon the bailout of collapsing economies with large budget deficits such as Greece, Spain, and Portugal, as "its administrative bodies are given the power and authority to make decisions above the level of the member states, and in the interests of the EU as a whole" (McCormick, 23) Considering this latter example, of course, the underlying distinction that the two comparing integration blocs have operated under, have to do with the way that their institutional foundations reacted to a political crisis, as in the case of Mercosur, and an economic crisis in the case of the EU. Simply put, the extent to which an integration bloc can deal with its political and/or economic crises lies in the amount of leverage it has been able to build up as a legitimate, representative institution and the effectiveness of its bureaucracies and institutions.

While social, political, and economic integration surely has both various limits and expectations to live up to, Mercosur's younger history as a free trade area might just ultimately mirror that of the European Union's progressive evolution to a growing necessity towards the common good. While Mercosur did not necessarily evolve from necessity, as it was for the original European Coal and Steel Community's necessity to prevent war, it certainly appears that in the end, its fate will be tied towards understanding that the need for a common good among all member states, will rise from the ashes of future economic and/or political crises. And the manner in which this trading bloc structures its institutions and monetary and trade policy, will eventually lead the South American trading bloc to possibly leave behind its recent move towards protectionism, and ideological struggles, as it moves in its own Latin American way to lead a strategy towards development that in many cases will mirror after the EU, and in many other ways deviate completely from it.

Bibliography/Sources:

Bajo, Claudia Sanchez. "The European Union and Mercosur: A Case of Inter-regionalism." Third World Quarterly 20.5 (1999): 927-41. JSTOR. Web. 27 Feb. 2013. <http://www.jstor.org/stable/3993604>.

Carranza, Mario E. "Clinging Together: Mercosur's Ambitious External Agenda, Its Internal Crisis, and the Future of Regional Economic Integration in South America." Review of International Political Economy 13.5 (2006): 802-29. JSTOR. Web. <http://www.jstor.org/stable/25124103>.

Ferrari-Filho, Fernando. "Why Does It Not Make Sense to Create a Monetary Union in Mercosur? A Keynesian Alternative Proposal." Journal of Post Keynesian Economics , Vol. 24, No. 2 (Winter, 2001-2002), Pp. 235-252 (n.d.): n. pag. M.E. Sharpe, Inc. Web. <http://www.jstor.org/stable/4538775>.

Malamud, Andres, and Philippe C. Schmitter. "The European Integration Experience and the Potential Integration of Mercosur." Desarrollo Economico (Apr. - Jun., 2006 Vol. 46.No. 181 (2006): 3-31. Instituto De Desarrollo Económico Y Social. Web. <http://www.jstor.org/stable/4151099>

McCormick, John. European Union Politics. Houndmills, Basingstoke: Palgrave Macmillan, 2011. Print.

"Mercosur RIP?" The Economist 14 July 2012: n. pag. Comeback Kid. Web. 26 Feb. 2013. <http://www.economist.com/node/21558609>.

"Mercosur Trade Integration Insufficient to Guarantee Free Circulation, Claims EU." MercoPress. N.p., 12 Apr. 2011. Web. 27 Feb. 2013. <http://en.mercopress.com/2011/04/12/mercosur-trade-integration-insufficient-to-guarantee-free-circulation-claims-eu>.

Mukhametdinov, M. "Mercosur and the European Union: Variation Among the Factors of Regional Cohesion." Cooperation and Conflict 42.2 (2007): 207-28. Sage. Web.

O'Keefe, Thomas A. "Economic Integration as a Means for Promoting Regional Political Stability: Lessons from the European Union and Mercosur." Vol. 80.1 (2005): 187-287. Chicago Kent Law Review. Web

"Profile: Mercosur - Common Market of the South." BBC News. BBC, 15 Feb. 2012. Web. 26 Feb. 2013. <http://news.bbc.co.uk/2/hi/americas/5195834.stm>.

Stuenkel, Oliver. "As Europe Struggles, Mercosurâs Supporters Need a New Lodestar." Post Western World RSS. N.p., 5 Dec. 2011. Web. 26 Feb. 2013. <http://www.postwesternworld.com/2011/12/05/as-the-european-project-falters-mercosurs-supporters-need-a-new-lodestar/>.

The Expansion of Trade

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How the European Union Works

The Rise of Mercosur

© 2014 Juan A. Misle

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      Howard Schneider 3 years ago from Parsippany, New Jersey

      Mercosur sounds like a very positive step for South America. Closer economic relations are always a net positive for a region and promote peace and stability. Great Hub, Freeeyou.

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      Juan A. Misle 3 years ago from Houston, Texas

      Thank you HSchneider! I couldn't agree more, maybe Mercosur was not born out of the need for peace stability like it was the case for the EU, but it surely will create the institutional framework to work towards those ideals. Cheers

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