“Suitcase Without A Handle”: Brazil’s Expression, Mercosur’s Fate?

Brazilians have an expression they like to use to describe people, things or events that become a nuisance, or cause more trouble than they’re worth. The expression is “suitcase without a handle” – because a suitcase that has no handle is obviously hard to lift and carry around. More and more, the expression is being applied to what many observers consider that Mercosur is fast becoming, in spite of upbeat remarks to the contrary that keep coming from regional leaders.

It should be noted that I belong to the “Mercosulian” generation – those who have always believed the regional trading alliance would provide the best path toward integration of its member countries in the global economy. And since its launch in 1991, Mercosur has indeed brought closer together nations that, for decades on end, confronted one another politically, economically and even militarily.

During Mercosur’s first five years, trade and investment between members grew at an impressive pace, despite problems that stemmed from the alliance’s limited size, relatively speaking. Still, the arrangement – regionalism open to the world – was the ideal instrument for Mercosur to eventually compete more efficiently at the global level.

The alliance found itself on the road to greater integration as of 1994, when Mercosur simultaneously coordinated negotiations surrounding two very ambitious agreements: the proposed Free Trade Area of the Americas, and the bi-regional accord between Mercosur and the European Union.

The first crisis surfaced when the lack of alignment between macroeconomic policies among Mercosur member countries began to cause discrepancies, particularly when it came to the continued existence of two radically different currency exchange systems in Brazil and Argentina – Brazil had already adopted a more flexible approach, while Argentina insisted on retaining its one-for-one system, with the peso pegged to the U.S. dollar.

The past three years actually brought improved perspectives for the advancement of the unified trade alliance, such as the adoption of floating exchange rates in the region and the election of presidents highly committed to Mercosur. But as it turns out, there is still no sign that a unified customs package for member countries will be put in place, and the existing free trade zone itself is spinning its wheels.

Successive and arbitrary interferences, imposed almost on a product-by-product basis by Argentina, have affected shipments of Brazilian-made stoves, refrigerators, washing machines, television sets, shoes and automobiles. Brazil’s leniency with these abusive restrictions by Argentina has served only to further debilitate, not strengthen Mercosur.

In fact, Argentine protectionism is even affecting outside coordination of Mercosur, as Argentina insists on rejecting more agressive trade policies designed to integrate the region more quickly with the rest of the world. In the past decade, Argentina has stood out because of extremes – from careless liberalism during the Menem era, to the rebirth of ECLAC-inspired* protectionism in the Kirchner era.

After FTAA negotiations were recently frozen, given the incompatible agendas proposed by the United States and Mercosur, it now appears as if integration with the European Union could be the newest victim of the lack of a long-term pro-integration vision within Mercosur. There are clear signs that negotiations on that front are marching toward an impasse this month, and with that, yet another opportunity to create vital outside incentives for the consolidation of Mercosur could be lost.

Because they’re fully aware of these facts, and of the meagre results obtained so far on other regional negotiations, I believe Brazil’s representatives – external affairs minister Celso Amorim, agriculture minister Roberto Rodrigues, and industry, trade and development minister Luiz Fernando Furlan – have done their best to try and complete the first step in the integration process with the European Union by the end of 2004. However, European bureaucracy and Argentine resistance have managed to harm the latest round of talks.

I’m convinced that most of Brazil’s industry wishes to expand the country’s level of integration with the global economy, even more so following the rapid expansion of Brazilian exports observed in recent months. Brazilian industry only asks that integration be accompanied by institutional improvements and corrections to public policies, especially where excessively high interest rates and an unfair tax burden are concerned. In other words, Brazilian industry is simply asking for adjustments that guarantee an equal playing field with more developed economies – a more than fair demand, that could be induced by the need for economic integration.

It so happens though, that within the Argentine industrial sector, the prevalent viewpoint favours isolation. And this is clearly illustrated by Argentina’s growing restrictions against Brazilian exports, and the conservative position being adopted by Argentina at various negotiating tables – all of which can harm Brazil’s trade with the rest of the world, because it affects any hope for integration we still have.

This is easily supported when one considers Mercosur positions exposed on various negotiating fronts, which always have as their starting point the worst possible individual position by one of the member countries. For example, if Argentina refuses to open its inefficient sugar sector, Mercosur automatically worsens its bargaining position involving this sector, thus harming the interests of sugar exporters in Brazil – the biggest and most efficient sugar producing nation in the world.

The fact is that the economic cost of a “political” Mercosur is becoming excessively high for the majority of Brazil’s industries. There’s no doubt that political will is a key ingredient for the desired integration we still envisage for the peoples of South America. But without clear economic and institutional incentives, business leaders are not going to invest in the integration of their productive chains.

We might better explain things by resorting to a favourite analogy among our leaders, based on a football match: players can’t play if the rules of the game are not clearly established and respected. And so far, the main “rule” in place within Mercosur goes something like “when the going gets tough, it’s every country for itself”.

So, if in fact Mercosur is a priority, and our inevitable collective “destiny” as trumpeted by successive federal administrations, it is paramount that a definitive date in the near future be set immediately for the completion of negotiations to establish the Mercosur free trade zone, introduce a common external tariff system, and set up a quick and efficient mechanism to resolve commercial disputes. Macroeconomic and sector-specific policies adopted by member countries must also be effectively coordinated.

If we can’t agree on a common market, negotiators should at least produce a feasible date for the conclusion of the free trade zone that’s been promised since 1991. That would put an end to the absurdities involving specific sectors we’ve witnessed between Argentina and Brazil in recent months. It is also impossible to avoid the need for a new methodology, determining how countries might define trade policies that also allow for advancements in negotiations with larger economies.

What’s at stake because of the sequence of impasses we’ve seen over the years isn’t just the possible demise of Mercosur, since no specific government will accept the political responsibility for that gesture. The real danger is that Mercosur will become increasingly irrelevant, as it transforms into a small but very heavy suitcase that is impossible to lift...

For now, Mercosur has already managed to become the proverbial “suitcase without a handle” we mentioned at the start. And here’s a strange but telling linguistic coincidence which we hope doesn’t become reality: the word for handle, in Portuguese, is alça... so right now, one could say we’re one cedilla away from stating that Mercosur has indeed become a suitcase without ALCA too.