Mercosur's summit

Downhill from here

Jul 27th 2006
From The Economist print edition

The expansion of South America's trade block is perverting its purpose

SUMMITS among the leaders of Mercosur, a South American trade group, are usually dull affairs, devoted to worthy rhetoric about economic integration and to small steps toward achieving it. But the July 20th-21st meeting in Córdoba, Argentina was more colourful than most, and that is nothing to celebrate. Venezuela's populist president, Hugo Chávez, sealed his country's membership in the group alongside the founding four: Brazil, Argentina, Uruguay and Paraguay. Cuba's 79-year-old dictator, Fidel Castro, signed a modest trade accord and delivered a rousing speech, quieting rumours that he is too infirm to govern. A “social Mercosur” will “change the world”, he told a throng of thousands.

Venezuela's membership expands Mercosur to 250m people and $1.1 trillion of GDP. But it drags the group further from its original intent to implant European-style integration in South America. The summit made a few gestures in this direction, such as pushing forward a $100m fund that could funnel Venezuelan petrodollars to the group's smallest members, Paraguay and Uruguay. But that cannot compensate for the strain of adding new members that have disparate interests and, in some cases, are hostile toward parts of the rest of the world. Argentina and Brazil invited Bolivia, governed by the fiercely nationalistic Evo Morales, to join the group. His voice would strengthen the stridently anti-American chorus led by Mr Chávez. Mercosur is becoming an anti-imperialist “political block”, says Pedro da Motta Veiga, a trade consultant in Rio de Janeiro. It may now split between a pragmatic camp, led by Brazil, and Mr Chávez's ideological one.

Such prickliness will be especially awkward after the apparent collapse of multilateral trade negotiations, which is likely to encourage trade accords within and between regions (see article). A deal between Mercosur and the United States, already unlikely, now looks even more so. The multilateral mess could sharpen the European Union's appetite for a deal with Mercosur, but the failure to agree on reducing farm subsidies blunts the hopes of achieving one.

Mr Chávez followed up his summit performance by embarking on a two-week world tour, which includes visits to Belarus, a European dictatorship, and to Iran, a nemesis of the United States. In Russia he is expected to sign a deal for up to $3 billion to buy weaponry, including military aircraft. Back in Córdoba Uruguay sought permission from Mercosur to sign separate trade agreements, principally with the United States. If that is not forthcoming, Uruguay could leave the group. Mercosur's membership would then shrink back to four.