Brazil helps Venezuela join regional trade bloc Mercosur, but not without ruffling feathers

With the help of Brazil, South America’s largest economy, Venezuela has joined the regional economic alliance Mercosur, once heralded as the continent’s answer to the European Union.

But the addition of Venezuela has angered one of the 21-year-old trading bloc’s founding members, Paraguay, which considers the move retribution for the June impeachment of its president, Fernando Lugo. In addition to Brazil, the other members of Mercosur are Argentina and Uruguay.

Many are also questioning the impact of adding a country led by Hugo Chavez, a staunch critic of U.S. foreign policy and a frequent and capricious intervener in the free-market economy. The 57-year-old Chavez has had three cancer surgeries but says he’s in remission and is running for re-election in October.

Will Venezuela’s addition do little more than provide Chavez with a larger stage and potentially damage Mercosur’s credibility? Or could it be a masterstroke by Brazil to strengthen its regional influence and potentially rein in the unpredictable Chavez?

“It’s already difficult to negotiate with other groups like the European Union because of Argentina. What will happen when Venezuela is at the table?” Sergio Amaral, trade minister to former Brazilian President Fernando Henrique Cardoso, asked in an interview.

Amaral referred to Brazil’s neighbor, which in recent years has been the source of numerous trade disputes.

Mercosur, formed in 1991 with the Treaty of Asuncion, named for Paraguay’s capital, where it was signed, was meant to be South America’s answer to the EU, but it has since struggled for relevancy.

It succeeded in convincing the Brazilian business elite to look to South America at a time when the Brazilians had larger ambitions – important today because the region is now a key importer of Brazilian manufactured goods.

In recent years though, Brazil has been frustrated by Argentina’s import restrictions, as well as its alleged manipulation of inflation and official statistics, something that makes evaluating trade difficult.

Perhaps Mercosur’s largest challenge is the enormous disparity between members. In 2011, Brazil accounted for 75 percent of the trading bloc’s total gross domestic product, while Uruguay and Paraguay each accounted for 1 percent, according to the Buenos Aires economic consultancy Abeceb.

Individual members are also prevented from signing trade agreements on their own. So while non-Mercosur countries such as Chile and Peru have aggressively increased commerce with Asia, Paraguay felt as if it was held hostage by Brazil and Argentina.

The Mercosur summit last month in Mendoza, Argentina, added fuel to the fire.

Brazil, Argentina and Uruguay voted Venezuela into Mercosur as a full-fledged member, a process six years in the making.

They will formalize the decision on July 31 in another meeting, in Rio de Janeiro.

They had suspended Paraguay, the bloc’s fourth original member, from participating after its Congress impeached Lugo, a move criticized for a lack of due process and described by some as a “parliamentary coup.”

The Organization of American States is scheduled to meet Tuesday in Washington to discuss Paraguay and to release findings from Secretary-General Jose Miguel Insulza, who traveled there last week.

Paraguay’s absence in Mendoza allowed Venezuela’s entry. That’s because all four Mercosur countries’ congresses have to approve new members, and Paraguay was the last holdout, objecting because it argued that Chavez’s government violated Mercosur’s “democratic clause.”

While Chavez has won numerous elections monitored by observers and has long held a majority of Venezuelans’ support, he has also stacked the courts in his favor, jailed judges, and stripped an elected mayor of Caracas from his office because he was in the opposition.

Some have questioned if there were a double standard in the treatment of Paraguay and Venezuela.

“If you don’t accept what happened in Paraguay, how can you accept what has happened in Venezuela?” asked Amaral, the former Brazilian trade minister. “Venezuela does not comply with either Mercosur’s democracy clause or free-market conditions.”

Others have criticized Brazil for letting economic interests get in the way of taking a stronger role in speaking out against practices in the region that undermine democratic institutions.

“Mercosur is now a club of accomplices,” said Teodoro Petkoff, a longtime Chavez critic and editor of the Venezuelan newspaper Tal Caul.

Brazil appears to benefit the most from Venezuela’s admission to Mercosur. It sees it as a market for its goods, primarily food and industrial and manufactured products, since it produces little more than oil and imports everything else. In 2011, its exports to Mercosur countries totaled $371 million vs. $4.8 billion in imports, according to Abeceb.

Abeceb’s director, Dante Sica, said that Brazil, which put a lot of pressure on the alliance to add Venezuela, comes away the clear winner.

In the coming months, though, Mercosur’s rules and bylaws will likely determine whether Venezuela shapes it or vice-versa.

That’s where some observers believe that in addition to Brazil’s economic gains, there might just be savvy foreign policy.

“It is realpolitik and not ideology,” says Julia Sweig, senior fellow and director of Latin America studies at the Council on Foreign Relations.

She argues that Brazil’s strategy for some time has been to “pull Venezuela and Chavez into the institutional tent of South America” and “to bring him into the existing institutions of diplomatic and economic integration,” which she contends has already “neutralized Chavez’s Bolivarian vision.”

Abeceb’s Sica shares the savvy Brazil view, saying that joining Mercosur “implies that the countries give up some of their sovereignty and foreign policy.”

“Chavez will lose a degree of the freedom he once had in international negotiations,” he said.

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