Power and Regionalism in Latin America: The Politics of MERCOSUR

Chapter Six: Failure to Relaunch

125 Chapter six Failure to Relaunch The 2001 Conflict After more than a year of ongoing tension, Brazil and Argentina agreed in 2000 to “relaunch” MERCOSUR. Together with their two smaller partners, Uruguay and Paraguay, they pledged to work jointly in the resolution of sectoral disputes and in the completion of the customs union. Yet in the first quarter of 2001 commercial and diplomatic friction reemerged between Brasília and Buenos Aires, triggered by Argentina’s decision to introduce unilateral changes in its tariff levels, which clearly violated common external tariff (CET) agreements. The controversial public statements against Brazil and MERCOSUR made by the recently reappointed economy minister Domingo Cavallo further exacerbated bilateral tension. In contrast to its conduct in the previous conflicts we have examined , Brazil’s response to this new instance of Argentine unilateralism was cooperative. In April, Brazilian officials agreed to grant Argentina a temporary “waiver” to apply the new CET exceptions until the end 126 Power and Regionalism in Latin America of 2002. More importantly, toward the end of the year, Brazil formally agreed to consider the establishment of a system of temporary safeguards to compensate for economic asymmetries within the bloc. The onset of the Argentine crisis in December 2001 interrupted negotiations over the design of this mechanism. However, the two partners made significant progress in identifying common positions regarding the need for greater flexibility in the process of integration. We begin by examining the determinants of each partners’ position during the conflict. As in previous case studies, we will evaluate the empirical relevance of the different types of domestic constraints and systemic incentives identified by the framework developed in chapter 3. A fundamental goal of our analysis will be to shed light on the factors accounting for the shift in Brazil’s position that resulted in a preliminary agreement on safeguards mechanisms within the bloc and a more balanced distributional outcome. The Conflict The “Relaunch” of MERCOSUR The unrelenting tension between Argentina and Brazil during 1999 raised serious concerns regarding the bloc’s economic and political sustainability . Indeed, the crisis led to a rethinking and reassessment of the strategy of regional cooperation and its implications for each country. As discussed in chapter 5, in Brazil this exercise focused national preferences for integration. It also shed light on the issues that needed to be addressed in order to make the bloc functional to Brazil’s economic and political interests. Aware of the political constraints faced by the weakened administration of Argentine president Menem, the Brazilian government decided to delay any new initiatives until the new president, Fernando de la Rúa, came to office in December 1999.1 From the onset, the new administration in Buenos Aires pledged its support for MERCOSUR (Vizentini 2001; Medeiros 2000). In fact, Argentine officials initially tried to distance themselves from the previous government’s emphasis on sectoral Failure to Relaunch 127 compensation and emphasized instead the importance of macroeconomic coordination.2 The new economy minister, José Luis Machinea, supported regional cooperation significantly more than his predecessors. In his view, however, successful integration depended on the ability of partners to coordinate their macroeconomic policies. During the first half of 2000, Argentine and Brazilian negotiators met repeatedly to discuss the issues to be included in the relaunch agenda. At a regional summit held in April 2000 in Buenos Aires, smaller partners Uruguay and Paraguay formally stated their support for the initiative. The four countries thus agreed to work together to harmonize macroeconomic indicators and establish specific targets for macroeconomic coordination. The establishment of this “Little Maastricht” arrangement had a strong political and strategic rationale. With it, the governments of Argentina and Brazil sought to signal their strategic commitment to the strengthening of the bloc and to mobilize diplomatic efforts away from their current focus on commercial friction and toward the goal of consolidating MERCOSUR (Azambuja 1999). As would soon become clear, however, the two partners lacked the political will to make real progress in implementing commercial commitments . Despite the enthusiasm surrounding the relaunch negotiations, Argentina and Brazil maintained incompatible positions on several of the issues included in the new agenda (Rattner 2002). To Brazil’s disappointment , the change in administrations in Argentina had not resulted in a significant shift in that country’s position toward cooperation. Like their predecessors, economic officials in the de la Rúa government soon began demanding compensation mechanisms to manage competitiveness asymmetries within the bloc. They also questioned the Brazilian government’s extensive use of financial...