In a special summit held in Brasilia on 30th July, Venezuela formally became a full member of Mercosur and will officially participate with all rights and obligations in the trade bloc beginning in mid-August.
Mercosur had consisted of the same four, full member nations since the signing of the Treaty of Asunción in 1991, but after Paraguay’s Congress ousted former leader Fernando Lugo from power in a two-day impeachment process, Brazil, Argentina, and Uruguay cited a rupture of the democratic order in the country and suspended its fourth founding member.
Until elections in April 2013— or at least until the full restoration of democratic order in Paraguay— the country has effectively lost its membership privileges in the organisation.
Meanwhile, the ousting of Paraguay provided a convenient moment for Venezuela´s entry— an event the Paraguayan Ministry of Foreign Relations called an “unacceptable outrage” and “a gross violation of the Treaty of Asuncion.”
Venezuela had been trying to join Mercosur since 2004, but Paraguay’s Senate ironically cited a lack of democracy in order to block its full membership, and members agreed upon the country’s associate member status with the Protocol of Adhesion of Venezuela to Mercosur in 2006.
Mercosur: Past and Present
Mercosur, or the ‘Common Market of the South’, is an economic organisation that promotes the free movement of goods, services and people among South American member states. Preceded by the creation and subsequent dissolution of other common markets such as the Latin American Free Trade Association (LAFTA), the current body burgeoned from the Integration and Economics Cooperation Program of Brazil and Argentina, and eventually became a broader agreement between additional regional economies.
Throughout its short history, the organisation has faced a myriad of challenges, such as how to integrate member countries with vastly different economic policies, how to ensure smaller countries have a fair say, or how to manage the economic crises in Brazil and Argentina, with varying degrees of success.
“The emergence of Mercosur was faster and a lot less careful than that of the European Union,” says Ricardo Romero, a professor at the Universidad de Buenos Aires who specialises in Brazilian politics.
Most recently though, the disproportionate economic growth of the region and the organisation’s failure to increase trade with international markets have led some analysts to question its relevance.
Although Mercosur lists the elimination of customs duties and restrictions on the movement of goods between member countries as one of its principal goals, members of the trade bloc have instituted a slew of protectionist measures and failed to normalise trade relations among each other. The Council on Foreign Relations notes that Argentina blocked and delayed imports from Brazil in order to protect its trade surplus, and Brazil retaliated by imposing barriers on imports from Argentina.
Venezuela in Mercosur
The incorporation of the fifth sovereign member, however, significantly alters the composition and modus operandi of Mercosur by reinforcing the inward focus of the trade bloc.
“You will see the strengthening of sectors within a continental framework,” says Romero. “Venezuela´s incorporation signifies a deepening of the internal market and regional consolidation.”
Until now, Uruguay and Paraguay wielded a lesser influence on Mercosur compared to Brazil and Argentina, but the union of Brazil, South America’s superpower, with the agricultural giant of Argentina and the oil titan of Venezuela, significantly increases the likelihood of expanded regional relations and heralds the onset of a new, powerful trifecta.
“Venezuela has the capacity to supply oil to the region, and the region has a need for oil,” Romero also said, while noting the convergence of three fertile basins: Río de Plata, Orinoco, and Amazon.
According to The World Factbook, oil revenues account for approximately 95% of Venezuela´s export earnings, 40% of federal budget revenues, and around 12% of its GDP. As of 2010, the country produced 2,375 million barrels of oil a day.
Argentina and Venezuela have already signed an agreement to explore oilfields in both countries and develop an energy plan between their oil companies, partially state-owned YPF and state-owned PDVSA respectively.
Other agreements extend beyond the region´s natural resources. Before the last Mercosur summit in the Brazilian capital even began, Venezuela agreed to purchase six Embraer 190 airplanes from Brazil.
Greater access to the lucrative markets of each country will enable the bloc as a whole to become more dependent on fellow member states and less reliant on foreign powers. As such, President Dilma Rousseff of Brazil has stated that with the incorporation of Venezuela, Mercosur has become the fifth largest economy in the world, behind the United States, China, Japan, and Germany.
On another level, the political parties of individual member states have historically determined the economic organisation’s agenda and repeatedly put their own interests before those of the region.
Venezuela’s inclusion, however, binds four ideologically compatible countries even closer together and could theoretically provides a plane for the bloc to work towards common goals.”
“From a political standpoint, the changes are extremely clear,” says Alejandro Rossi, a political scientist also at the Universidad de Buenos Aires.
Venezuelan President Hugo Chávez from the United Socialist Party, who has nationalised key energy companies and is a close ally of Cuba, joins the left-leaning governments of Rousseff, José Mujica in Uruguay, and Cristina Fernández de Kirchner, a president who has introduced strong and controversial economic controls in Argentina throughout the past year.
“It is as politically important for Chávez to enter Mercosur as it is for Argentina to find an ally in Venezuela for many of the policies that it is starting to carry forward,” says Rossi. “Argentina is trying, or is at least poised to make, what is called the grand fatherland of South America, and Chávez is a representative of a Latin American thought more independent than that of other international centres.¨
The Future Ahead
Proponents of economic liberalisation fear that the incorporation of Venezuela in Mercosur could isolate South America from the rest of the world, and leads them to question whether the organisation will be able to grow as much as Rousseff would like, since Chávez is adamantly against free trade. Trade disputes between Argentina and Brazil suggest that full members will have to overcome the temptation to protect their individual economies before larger attempts at continental protectionist policies even have a chance to be successful.
Meanwhile, Ecuador and Bolivia have already expressed interest in joining Mercosur as full members.
Since it is an election year in Venezuela though, Hugo Chávez might be winning no matter what happens to the trade bloc.
Click here to find out what Argentines think about Venezuela joining Mercosur.