The final days of Mercosur

13 September, 2021

Mercosur Headquarters. Montevideo, Uruguay. The only institution related to the "Patria Grande" that has been sustained for 30 years.
Mercosur Headquarters. Montevideo, Uruguay. The only institution related to the "Patria Grande" that has been sustained for 30 years.

Mercosur is living its final moments. The trademark may be recovered at some point, but the rupture of the former tariff union is a fact. Uruguay is going to sign a free trade agreement with China outside the founding agreement and the institution cannot follow it: one of the members, Paraguay, still recognizes the government of Taiwan as the only legitimate representative of China as a whole. The end of the bloc that never was tells us a lot about the nature of South American national capitals and states and what the future of the region will look like.

Table of Contents

Chronology of a reform that resulted in a liquidation

President Lacalle briefs parliamentary parties on the FTA with China and the subsequent terminal crisis of Mercosur.
President Lacalle briefs parliamentary parties on the FTA with China and the subsequent terminal crisis of Mercosur.

In April this year Brazil and Uruguay presented their proposal for a Mercosur reform. It was a liquidation presented as a reform and it was easy to see that. The Lacalle government, breaking with the traditional Uruguayan position, was paving the way for the Brazilian presidency of the bloc in July, which was expected to be the final one for the tariff union.

The Uruguayan government then announced that it was beginning to negotiate on its own with outside powers. It was a ticking time bomb. Unless the bloc was reformed before and in the manner proposed by Bolsonaro and Lacalle, Uruguay would simply break the treaties. And as was made clear in the very takeover of the regional presidency by Bolsonaro and his team, Brazil, the real center of mass of the tariff zone, would immediately follow. As Guedes, the Brazilian economy minister, was in charge of pointing out, Argentina had every right to claim the validity of the treaty, but no matter what it did it would not preserve more than an empty name.

But the final straw would come in August, and paradoxically from the trading bloc theoretically most interested in the development of a South American internal market: the EU.

Brussels unilaterally modified the conditions of the agreement signed with Mercosur to include animal welfare. The measure had no serious practical implications should the agreement be implemented. The beef that Irish, Finnish or French farmers fear and that Argentina, Uruguay and Brazil export is not even housed. But Brussels wanted to send a message: under no circumstances, with or without Mercosur in place, will it allow Chinese mega-farms to establish themselves in the region to use it as a springboard to Europe.

In September Macron went much further and announced that France would prevent the final signing of the EU-Mercosur association agreement. It was no news. After the fires in the Amazon the Elysée had commissioned an expert report on deforestation in Brazil and Paraguay and a battery of analyses and opinion columns had paved the way for the French president – supported by Ireland and Finland– to dress up tariff protectionism as environmental protectionism.

Now he refined the argument. The Mercosur-EU treaty “is not compatible with our climate agenda,” he declared. The new stage of the European Green Deal should make trade policy a battering ram for extending the energy transition…. generating markets for European technologies and large European investors. Either Argentina and Brazil do a U-turn under European conditions or they will not be able to access the continent’s markets no matter how much Spain kicks up a fuss in Brussels.

But the final straw was bound to come from within the bloc. Last Tuesday Lacalle announced that it was about to sign a free trade agreement with China amending its conditions of Mercosur membership, i.e. ending the tariff bloc. The first Argentine reaction was to dismiss Uruguay’s claims as “delusional”. Uruguay -asserted Kufas, the Argentine Minister of Productive Development- should “decide between China and Mercosur“. Lacalle’s response was blunt: Uruguay had been secretly negotiating other free trade agreements and an imminent signing would be announced shortly. It wasn’t “China or Mercosur,” it was “Mercosur or the world.”

Bolsonaro meanwhile signed a decree spelling the non-renewal of the maritime transport agreement with Argentina. The Argentine bourgeoisie will even lose its position in the transport of grains and components to Brazil. Mercosur, the common tariff structure upon which a unified market was intended to be created, had -literally- its days numbered while waiting for a formal ratification of the Sino-Uruguayan FTA.

Behind the liquidation of Mercosur: the agro-exporting bourgeoisie

Lacalle and Fernández face to face in a videoconference of Mercosur presidents.
Lacalle and Fernández face to face in a videoconference of Mercosur presidents.

Since the formalization of the Uruguayan-Brazilian proposal, the political-economic battle opened up.

The most important thing to emphasize is that this is not a struggle between national capitals but between blocs of social classes and interests within each national capital. That is why already in June, while the industrial and financial bourgeoisie began their “final charge” against Bolsonaro, its representatives approached the Argentine diplomacy in order to coordinate actions. The subsequent diplomatic processes, which prevented the meeting of foreign ministers and the advancement of the Uruguayan-Brazilian proposal, were part of a delaying strategy aimed at buying time for the “internal front” in Brasilia.

In July this alliance between the Casa Rosada and the Brazilian industrial employers association and trade unions to avoid the accelerated dismantling of Mercosur became explicit; while in Uruguay the alternative “Mercosur or China” was decanted by the main parties. The agrarian factions, with the White Party at the head, chose China without hesitation. Those with a capital city base, that is the Frente Amplio (heir to the Batllista state capitalism model) and the last core, the most traditional, of the Colorado party (industrial and financial right), held with more or less energy the goal of prioritizing the construction of a regional bloc.

In reality, what is presented as an alliance between Brazil, Paraguay and Uruguay is nothing more than the coincidence in political power of forces that express the needs of landowners and agro-export capital at a time when they are willing to rupture the ruling class if necessary in order to impose their interests within each national capital.

These interests are the ones that form Bolsonaro’s main support vis-à-vis Brazilian financial and industrial capital and the ones that try to keep him in power no matter what. They are the ones who make up the traditional “colorado” core of the Paraguayan oligarchy. They are the Rural Society and the Argentina of the polo and the ranch in permanent struggle against the export taxes which maintain the structure of the state and the local industry. And evidently, they are the White Party in Uruguay.

Since independence and for a century, these parties and their rivals – Uruguayan Colorados (not to be confused with the Paraguayan ones), Argentine centralists and Brazilian liberals – merged and intertwined in their struggles for power shaping the borders of half a continent, turning Uruguay into an independent nation – but not Rio Grande do Sul– and wrecking, with the sole opposition of Uruguayan white party members, the first Paraguayan industrial development.

In the 20th century both contending groups tended to merge into a single conservative current in each country but became relatively separate between countries, as each national capital undertook its own transformation and accommodated itself -conflictually- under different forms of state capitalism.

All in all, the process had remarkable parallels, not only among the Mercosur countries, but also in Bolivia, Chile and other Pacific Rim countries. In the end, the state capitalism that would end up finding its most characteristic expression in the forces identifying themselves as left-wing in the region today – Kirchnerism, the Uruguayan Frente Amplio, the Brazilian PT, the Paraguayan Frente Guasú – and that in more than one case –the MNR in Bolivia, Peronism in Argentina, the Chilean DC- had their origin and context in the “fascist option” of the 1930s and 1940s.

Read also: Bolsonaro and the self-coup d'état, 9/7/2021

The arguments of the agro-exporting bourgeoisie against Mercosur

Cows grazing in the Uruguayan countryside
Cows grazing in the Uruguayan countryside

The arguments of the agro-exporting bourgeoisie and its political spokesmen are clear, concise and coincidental: according to them -and they are right in most cases- what is left of the eternally protected and subsidized industry characteristic of the semi-colonial countries, will not recover.

Accordingly, they consider themselves the “productive” part of national capital and argue that Mercosur’s internal market for agro-industrial products does not compensate for the cost of not being able to access markets in other regions. The additional destination surcharges that exports have in the buyer countries slow down the agri-exporting sector’s development and will continue to do so unless free trade agreements are signed, which will necessarily require access to the Uruguayan market for industrial goods.

Uruguay as an exporter. During the thirty-something years that the agreement has been in force, much has happened, and little has been to the benefit of Uruguay [=its agri-food exports]. [Today we import from China everything that can be imported, despite the existence of the Common External Tariff. The little industry that was left was taken by imports from China. In other words, it doesn’t matter if there is an agreement with China or not. This situation is not going to change.

However, Uruguayan agro-industrial exports are punished with surcharges at destination. These surcharges are not applied to other Uruguayan competitors in the same sectors, such as Australia or New Zealand, which also have the advantage of being closer to the destination ports, so freight rates are lower. It is said that agribusiness pays approximately US$ 200,000,000 in tariffs at destination.

Therefore, no loss is seen in a trade agreement with China.

Mercosur or China“, today’s editorial in Montevideo’s El País newspaper.

That is, the incentives to stick with Mercosur and strive for it to become a real single market are not enough. What little really exists of the old “Patria Grande” project is a burden for what really makes capital profitable in a semi-colonial country: the export sector.

The end of Mercosur is a historical recognition of the impossibility of getting out of the semi-colonial status

Allegorical mural of the "Patria Grande" with a selection of national heroes at the Casa de la Cultura, Buenos Aires.
Allegorical mural of the “Patria Grande” with a selection of national heroes at the Casa de la Cultura, Buenos Aires.

This is the trap of the semi-colonial countries and the key to understanding South America. The continent does not constitute a real economic unit. The countries of the region are a collection of states and national capitals under the same model… but in no country of the region do the rest of the countries represent the majority of its total exports. That is why there has not been a continental war involving more than two countries since the Triple Alliance War. Moreover, the only total war of the 20th century between two continental countries, the Chaco war (1932-35), can hardly be considered as an expression of the interests of their respective national capitals.

However, the structural similarity between the economies (= models of accumulation) product of a common origin, which are summarized in the “export” or semi-colonial model, has produced the illusion of an identity among national capitals sustained by the parallelism between the interests generated in the different factions of the dominant classes.

The paradox is that it is in fact the non-existence of a continental market that allows the conflict in South America to be defined not by national capitals, but around two transnational currents that depart from each national capital.

Of course there are frictions and conflicts of imperialist interests between neighbors, this is inevitable. But these consistently occur around extra-continental markets and alignments with larger imperialisms outside the region. That is why the illusion of common identity prevails among forces that -even within the same current of interests- are aligned around different global options in each country. Let us recall the Americanism of the Uruguayan Frente Amplio governments coexisting with the anti-imperialist rhetoric of the Kirchner years in Argentina on one side, and Bolsonaro’s Sinophobia hand in hand with Lacalle’s urges for an FTA with Beijing.

This deceptive common identity has been the basis that has allowed part of the national bourgeoisie to always keep open the project of a unified continental market as a way out of the semicolonial status, the so-called “Patria Grande”, whose only real materialization had been until now Mercosur.

We are now witnessing the dismantling of the only structure that could support this project. The historical importance of this fact is comparable to the emergence of the corporate model in the 40s and 50s or the destruction of the import substitution industry in the 80s and 90s. Movements that shook, albeit in different ways, practically all the countries of the continent during the 20th century.

The two previous moments marked profound crises both in the composition of national capital and the organization of the state as well as in the relations between classes, but at least they proposed an alternative model to reach a more or less independent development of national capital, which is the great goal of the South American bourgeoisies. But now there is no industrializing alternative at all.

If this is finally imposed and the industrial and financial sectors accept it willingly or unwillingly, it would mean, nothing more and nothing less, than the renunciation of the South American bourgeoisies to any strategic project beyond the search for better markets for the agro-export and mining sectors. It would be a historical recognition of the impossibility of overcoming the semi-colonial status and reindustrializing beyond the primary sector.

Read also: The "Patria Grande" in view of Mercosur's failures, 7/14/2021