The Urupema, a high performance glider manufactured by Embraer, flies, 1971. (Source: centrohistoricoembraer.com.br)
In 1971, somewhere inside a polished set of newly constructed hangars in São José dos Campos, Brazil, you might have found a group of men huddled around the manufacturing blue prints for Embraer’s high performance glider, the Urupema, whose plan to start production ignited in response to an order filed by a club of Brazilian aeronauts. Today, nearly 18,000 employees generate $1.15m USD for Embraer in a competition for representing Brazil as one of the world’s top-performing airline manufacturers. Venezuela’s Hugo Chavez, then, must command a mighty appetite for aeronautical performance, because the country he leads just purchased 190 of Embraer’s winged marvels. Hugo wants to be in the club too.
And now he is.
Thanks to Mercosur’s low tariff policies enjoyed by its members, the $270m USD deal between Brazil and Venezuela will be free of a 35% mark up on goods and services imported from member countries. That’s because after waiting since 2006, Venezuela has finally become a member of Mercosur. Venezuela’s addition makes the trade zone the world’s 5th largest economy in terms of GDP, boosting GDP to 3.3bn USD, according to the Argentina Independent, an English online newspaper based in Buenos Aires.
How the block formed came about in 1991 when a group of South American states ratified a series of trade agreements that Brazil and Argentina had already begun practicing. This was called the Treaty of Asunción and by the final hour of their congress Mercosur was born. Mercosur originally intended to increase the strength of trade amongst emerging South American nations. Its original premise was that member states would act as a group of democracies that encourage liberal trade policies in the region. The idea was that Mercosur would be founded on the same model as the European Union. But now, according to some analysts, the group of states seem to neglect their original purpose for unifying. According to The Economist Mercosur now behaves more like a political union whose policies serve to guard member states against the free trade interests of the US.
Chavez says that the addition of Venezuela is a “perfect equation,” reports La Nación, an Argentine newspaper. Indeed Venezuela’s entrance makes for a nice little financial numbers game. Venezuela is scheduled to benefit thoroughly as it will be able to access sales in Brazil and Argentina for oil, which accounts for 95% of GDP and constitutes 40% of the Venezuela’s budgeted revenue. Trade is not the only motivation, however. Chavez, whose fragile socialist experiment depends almost singularly on oil exports, also looks to Mercosur to bolster his swashbuckling political rhetoric. According to a Reuters report, Chavez announced that “Mercosur is, without a doubt, the most powerful engine that exists to preserve our independence,” referring to a renaissance of Bolívarian nationalism practiced by Chávez and his followers.
Outsiders fear, however, that Venezuela’s membership will only complicate the problems from which Mercosur already suffers, like its flimsy decision-making process, and instead promote further migration away from the group’s original goals. Mercosur faces internal troubles too. According to The Council on Foreign Relations the block still struggles with the question of how to manage unbalanced productivity and dissonant economic policies among participants. Argentina recently blocked trade with several members and even prompted Brazil to respond with its own set of barriers.
For the short term, it looks like Chavez and Venezuela will benefit from the deal in true political fashion by having a new checklist of successes to present to Venezuelan voters come elections in October, 2012.
But for those who view the trade block as a potential boon for commodities like oil and soy, the loose strings that hold together Mercosur’s democratic processes and its clumsily aligned economic policies will only appear to grow more knotted. The reason why Mercosur abandonded Paraguay is because it agreed that Paraguay violated the block’s “democracy clause.” However, admitting Venezuela, who recently backed out of the Inter-American Council on Human Rights, as a replacement doesn’t say much in favor of democracy. Financial Times’ Richard Lapper says that Mercosur’s main duo – Argentina and Brazil – continue to be focused on economic issues. Even if they are, it might be tough to see them clearly through Chavez thick clouds of talk and promise.