Venezuela’s withdrawal from the CAN (Andean Community of Nations) and its effects on regional integration (II): the impact on Mercosur

Venezuela’s withdrawal from the CAN (Andean Community of Nations) and its effects on regional integration (II): the impact on Mercosur

Theme: Venezuela’s withdrawal from the CAN (Andean Community of Nations) has had other repercussions in the region, starting with the nationalisation of hydrocarbons in Bolivia, the break-up of G-3 and a high level of turbulence in Mercosur.

Summary: As indicated in part I of this paper (available at ARI 54/2006), Venezuela’s withdrawal from the Andean Community of Nations (Comunidad Andina de Naciones or CAN) has had major repercussions in the region, including an impact on the process of Andean integration itself, but also affecting Mercosur. President Chávez’s decision to opt decidedly for Mercosur, confirmed by his withdrawal from G-3 (Colombia, Mexico and Venezuela), raised suspicions in the governments of Brazil and Argentina, which had hitherto been enthusiastic about welcoming Venezuela into their regional integration programme. Nevertheless, Venezuela will be granted full membership of Mercosur at the next regional summit in Córdoba, Argentina, on 20-21 July, despite some outstanding issues regarding regulatory harmonisation and tariff deregulation.

The geopolitical map of the region was complicated by Bolivia’s decision to nationalise its hydrocarbons, with the support of Commanders Castro and Chávez, which had a negative impact on Argentina and Brazil, the two largest buyers of Bolivian gas (this issue will be tackled in the third and final part of this series of papers). The disputes centred on the political and ideological interpretations of the Free Trade Agreements (FTAs) and –as never before in the recent past– the countries in the region conveyed an impression of divisiveness, as made evident at the Fourth EU-Latin America and Caribbean Summit, held in Vienna. Consequently, Bolivia’s future attitude will shape not only the CAN’s fate but also regional balance itself. As for the future, Venezuela’s entry into Mercosur raises a number of questions: (1) how will it affect the talks currently underway with the European Union and those scheduled with the United States?; (2) how will the United States react and how will its reaction affect bilateral relations with Brazil and Argentina?; and (3), above and beyond possible trade advantages for Argentina and Brazil stemming from entry into a market such as Venezuela, will there be domestic reactions to the interference which Venezuela’s presence might imply?

Analysis: Since the most often-used reason for withdrawing from the CAN (Andean Community of Nations) was the desire of the Hugo Chávez government to immediately join Mercosur, it is natural to think that the impact of such a stance should immediately be felt in that regional block. After all, when President Chávez announced his decision to withdraw from the CAN, on Wednesday 19 April, he also sent a poisoned dart to Mercosur, whose member countries were beginning to show concern in regard to the Venezuelan leader’s moves. The announcement of Venezuela’s withdrawal from the Andean Community came at a meeting in Asunción, Paraguay, with the Presidents of Bolivia, Paraguay and Uruguay, the latter two being members of Mercosur. The impact of the meeting was such that a senior government official from Argentina asked: “How can there be a meeting of Mercosur which excludes Brazil and Argentina?” The question was followed by a bitter complaint: ‘There was no-one from our countries. No-one.’

The meeting in Asunción served the smaller members of Mercosur –Paraguay and Uruguay– to express their displeasure at the direction the block was taking and the behaviour of its larger members –Argentina and Brazil– which the governments of Asunción and Montevideo consider to be discriminatory towards their interests. It is no coincidence that there is renewed talk of Argentine and Brazilian sub-imperialism, a term also brandished in Bolivia as a result of the recent tensions with Petrobras. Accordingly, while the Uruguayan President, Tabaré Vázquez, said that ‘Mercosur is not working’, his counterpart from Paraguay, Nicanor Duarte, called for Mercosur to consider ‘the equality of its members’ rights’, in clear reference to the hegemonic role of the big two. And although most complaints from Buenos Aires and Brasilia were addressed to the two smallest members of the block, for their rebellious behaviour, Venezuela’s conduct was by no means ignored, ( see “Pulp Mills Divide the River Plate”, available at ARI 33/2006) and is still pitting Uruguay against Argentina, with the resulting repercussions on Mercosur’s workings. In this regard, one of the possibilities which the Uruguayan government is considering is that President Vázquez might not attend the plenary summit in Córdoba in July. The conflict over the pulp mills has shown up Mercosur’s incapacity to resolve internally and through negotiation and dialogue the disputes between its member countries, which have resorted to other means, such as Argentina’s unprecedented decision to appeal to the International Court of Justice in The Hague.

As mentioned above, this time Chávez –in addition to announcing Venezuela’s withdrawal from the CAN– asserted that the country would enter Mercosur, but ‘a new Mercosur’, since ‘if Mercosur has to die for true integration to be born, then so be it’. He also warned its members that if Mercosur did not undertake a profound restructuring, laying greater emphasis on social issues, it might endure the same fate as the CAN. Although it is true that the volume of foreign trade in Mercosur is larger than in the Andean Community, Venezuela’s chances, especially in its manufacturing sector, of competing with Brazil and Argentina are far from evident. Another controversial aspect is the Venezuelan government’s head-on opposition to the FTAs, based on the argument that they are neoliberal tools which do nothing to help a country’s people. This is the same argument which the Venezuelan government used when it left the G-3, an integration group which emerged in 1989, although it became officially active in 1995.

In regard to the FTAs and Mercosur there are two major issues to consider. First, the provision in the Mercosur bylaws preventing its members from negotiating free trade agreements individually. This means that it must be the block which negotiates on behalf of its members. And while Venezuela is not yet a fully-fledged member of Mercosur, since it must first bring its legislation into line with the provisions of the block’s various agreements, fast-track procedures for full membership are already beginning to yield rewards. Consequently, the question raised now is what will happen if the Doha round of WTO talks concludes and, as a result, negotiations with the EU are unblocked. Who will prevail? Venezuela, which is radically opposed to the agreement, or Argentina, in favour of it? At the same time, it is the known intention of the governments of Paraguay and Uruguay –who feel discriminated against by the larger members of the block, Argentina and Brazil, and who think that they are not receiving all the benefits from Mercosur to which they are entitled– to request authorisation to separately negotiate an FTA with the United States. This would be, on the one hand, a tough blow to the Mercosur philosophy, which always insisted in its talks with both Washington and Brussels on the 4 + 1 formula, and, on the other hand, it would undermine Venezuela’s philosophical premises, which oppose free trade. Will Venezuela really be able to impose its will, despite not being fully integrated? Or will the more pragmatic position of Brazil and Argentina (who will not want their brainchild dismantled) prevail?

Secondly, it is worth recalling that Chile, which enjoys observer status in Mercosur, has signed 15 FTAs, including agreements with the US, EU, China and Korea (it is currently in the process of negotiating others, among them with India and Japan). The Bachelet government’s relations with Chávez are paradoxical, since for strategic reasons Caracas has so far decided to maintain good relations with the Chilean President (Chávez has even declared himself to be a fervent “bacheletist”), leading him to tread carefully over any criticism of the agreements Chile has signed. What will happen when Venezuela becomes a full member of Mercosur? Will it demand Chile’s withdrawal or, on the other hand, will it relinquish its place in the block in view of the fact that there are already countries with FTAs signed? In the same situation as Chile –an associate member of Mercosur– are Colombia and Peru, whose FTAs were theoretically what drove Venezuela out of the CAN.

Lula’s position in regard to the international role of Brazil is quite clear. That is why he said that countries must avoid ‘making ideology out of our political and trade relations’. And while Argentina and Brazil did not openly oppose Chávez’s stance against the FTAs, at the various meetings between leaders and between Chávez, Lula and Kirchner, there were moments of tension deriving from this situation. Lula even told Chávez, during the Puerto Iguazú meeting on 4 May, three days after the announcement of Bolivia’s decision to nationalise its hydrocarbons, that Chávez was harming not only the South American gas pipeline project, but also regional integration itself. According to Marco Aurelio García, Lula’s main foreign policy advisor, Brazil is not in favour of dismantling Mercosur. Not only that, the Brazilian Foreign Affairs Minister, Celso Amorim, during a Senate hearing to account for the measures implemented by his government in relation to the Bolivian situation and the manner in which Brazilian interests were affected, stated firmly that ‘Mercosur does not have to adapt to Venezuela, it is Venezuela which has to adapt to Mercosur’, since, otherwise, no agreement will be reached.

In the wake of Venezuela’s announcement of its withdrawal from the CAN, at a mini presidential summit, and in view of the subsequent events –which are all somehow interlinked–, there was a significant increase in the number of meetings (bilateral and multilateral) between South American presidents, and a flurry of ministerial trips. This is a clear indication of how serious the situation is, above and beyond the good-natured smiles at photo sessions, and proves the impact of Venezuela’s exit from the CAN. On 24 April, Lula met President Uribe, and although the meeting had long been scheduled (initially it was to have been held on 7 March), it enabled Uribe to ask for Lula’s mediation with Chávez and to request that he prevent the CAN’s break-up. Lula later received a visit from Kirchner and the very next day both leaders met Chávez. Then came the Havana Summit (Castro, Chávez and Morales) and the many informal meetings during the EU-Latin America and Caribbean Summit in Vienna. And the final touch was President Chávez’s visit to Bolivia, together with Cuban Vice-President Carlos Lage, to launch a barrage of cooperation projects, clearly evidencing the increasingly central role which Venezuela is playing in Bolivia, a country that was previously off limits to it.

The meeting in São Paulo between Presidents Lula, Kirchner and Chávez served not only to discuss the continental gas pipeline mega-project, but also to tackle the CAN crisis and Venezuela’s position in Mercosur. To the Argentines and Brazilians, the meeting between Chávez, Morales, Tabaré Vázquez and Duarte Frutos was clear evidence of an incursion into issues which they had hitherto considered their own. At first glance one might say that the current situation contrasts with the one some months ago, when both Lula and Kirchner were anxious to have Chávez as a partner to reinvigorate Mercosur, and especially considering its sizeable oil reserves. However, direct pressure from Chávez on the other Mercosur presidents to accelerate Venezuela’s entry into the block has yielded good results and could point to a different scenario. It should not be forgotten, though, that from the standpoint of Brazil and Argentina, with both presidents up for re-election, although at different times (Lula in October 2006 and Kirchner one year later), an open conflict with Venezuela would be suicidal. However, improving Chávez’s relations with Paraguay and Uruguay could be more complicated, in view of these two countries’ intention to negotiate an FTA with the United States. Yet, since Venezuela is a new arrival and has only just left the CAN, Chávez may not object too much to the Montevideo and Asunción governments’ projects.

From the announcement of Venezuela’s plan to join Mercosur, some events have raised concerns in both Brasilia and Buenos Aires, since they could negatively impact on already-strained relations with the United States. First among them was Chávez’s defence of the Iranian nuclear programme alongside Cuba and Syria. Chávez not only said that any country was entitled to have access to nuclear technology but that Venezuela would also aspire to it. Indeed, he also opposed moves to address this issue by the Security Council, of which Argentina is currently a member. Secondly, were the pressures (some open, others covert) by Venezuela on other Latin American governments to aspire to a seat on the Security Council. In 2005, Venezuela and Iran signed trade, industrial and agricultural cooperation agreements as part of their closer bilateral relations. Although this is not called into question by Brazil and Argentina, what is not clear is the nuclear aspect of the programme. Thirdly, Chávez’s increasing radicalism, plus his strengthened presence in Bolivia, have caused alarm bells to sound in Itamaraty and San Martín –the Foreign Ministries of Brazil and Argentina, which had promised Washington they would try to moderate Chávez–. An example is Chávez’s threat to blow up all Venezuela’s oil fields in the event of a US invasion.

Conclusions: Hugo Chávez’s decision to take Venezuela out of the CAN came at the same time as his announcement of a fast-track incorporation into Mercosur. However, in his bid to accommodate the various different regional integration projects in Latin America to his own ideological position, his proposals have a certain foundational air about them. He has talked of creating a new Mercosur if necessary, and his intention to launch a Bolivian Andean Confederation to allow the political, economic, social and ‘even military’ integration of Bolivia, Peru, Ecuador and Venezuela should be seen in the same light, although from his standpoint the future of Colombia is not clear. A similar problem arises with South American Unity (Unidad del Sur or Unasur), since no-one has yet clarified whether it is compatible with the South American Community of Nations. All of these moves by Chávez should be examined as part of his attempts to change, by his own admission, the geopolitical map of Latin America. For this purpose, he prefers the so-called ‘Southern Cross’, whose vertical axis would be Caracas-Buenos Aires and whose horizontal axis would be La Paz-Brasilia. For now, faced with all these initiatives, starting with Venezuela’s entry into Mercosur, even stretching legal deadlines, the governments of Argentina and Brazil have opted for a laisser-faire approach. The main question now is what they hope to gain from this policy, which threatens to undermine real and potential leadership positions in the Southern Cone.

Carlos Malamud
Senior Analyst, Latin America, Elcano Royal Institute