Mercosur, CAN and the EU: How will Venezuela manage foreign trade?

October 24, 2007 16:50 | by Alex Sánchez

As Venezuela's drive to join MERCOSUR weakens, Hugo Chávez flirts with the free traders of the Community of Andean Nations, writes Alex Sánchez.

The possibility that Venezuela will join the Common Market of the South (MERCOSUR) is diminishing because of the reluctance of the Brazilian Senate to vote in favour of Venezuelan membership. Caracas is now flirting with the prospect of returning to the Community of Andean Nations (CAN). Venezuela withdrew from CAN in April 2006 in favour of trying to join MERCOSUR. Subsequently, a paradoxical situation may ensue because of the possibility that CAN, as a bloc, will sign a free trade agreement with the European Union (EU) - a deal that the Venezuelan President Chávez presently vehemently opposes. Despite its oil wealth, Venezuela may find itself to be virtually the only South American country not to participate in economic arrangements if it does not join either of the two evolving major regional trade pacts. During the next few months Venezuela's future in South America's political-economic line-up will be determined, a period which will test Hugo Chávez' capacity to persuade CAN not only to accept Venezuela's return as a member (which CAN most likely will do), but also to deal with the bloc's prospective plans for a free trade agreement with the EU.

Venezuela leaves CAN in part for MERCOSUR

CAN and its members - Bolivia, Chile, Colombia, Ecuador and Peru - has been racked with divisions from its inception in 1969. Seven years later, CAN lost Chile as a full member - downgrading its membership to "observer" status - at a time when the country was in the throes of the Pinochet dictatorship. Chile officially rejoined the Andean Community as an associate member during CAN's June 2007 summit. CAN's Secretary-general, Freddy Ehlers, has reported that Mexico and Panama, having by now gained observer status, have manifested an interest in joining the bloc as associate members.

As for Venezuela, Hugo Chávez led his nation away from the bloc in April 2006 in response to the decision by Colombia and Peru to establish a free-trade agreement with the US. Lima and Bogotá have separately signed Free Trade Agreements (FTAs) with Washington, and their legislatures have ratified them, but they have yet to be enacted into law on Capitol Hill. When Colombian President Alvaro Uribe visited the White House in May, President Bush declared that the FTA with Colombia "is good for the United States. It's good for job creators, farmers, workers." Uribe insisted that the agreement was also good for Colombia. He went on to add that this agreement has strategic implications. "It is very important for this nation to stand with democracies that protect human rights and human dignity; democracies based upon the rule of law." On September 21, an article in Marketwatch reported that the US Senate Finance Committee had put its preliminary seal of approval on a trade agreement with Peru. The 18-3 vote came in a "mock mark-up" of the trade pact, which "gives lawmakers an opportunity to amend the draft of legislation before it is formally submitted to Congress."

In July 2006, Venezuela was accepted as a member of MERCOSUR. The country's entry, however, has not yet been ratified by either Brazil or Paraguay as subsequent tensions between Chávez and the Brazilian Senate put Venezuela's membership in doubt. Chávez's controversial decision not to renew the broadcast license for an opposition TV station triggered a nasty spat with the Brazilian Senate over the issue of press freedom. Added to this was an insulting description of the Senate uttered by Chávez, which resulted in some of the senators vowing to bloc Venezuela's entry into MERCOSUR. In the latest chapter of the now-infamous Chavez-Brasilia row, the Venezuelan president, in reference to the stalling tactics towards Venezuela being allowed to join MERCOSUR, said "we have dignity […] we will not crawl or beg to anyone." In response, Brazilian congressman Alexandre Santos, apparently as an example of the high moral tone of that exemplary body, was quoted by the Spanish news agency EFE as saying "any person that shuts down a TV station cannot live with a Congress like ours, with total liberty." Additionally, Edson Lobao, another Brazilian congressman, reacted by declaring: "I am sorry that he [Chávez] referred to us like he did, we do not like dictators." It is curious that no one had the tenacity to mention anything about the daily revelations of Brazilian legislative or party figures close to the Lula administration accused of being engaged in corruption. Indeed, this has been completely "forgotten."

Further contributing to the increasingly tense relations between Chávez and MERCOSUR was the Venezuelan leader's decision not to attend its June heads-of-state summit. Instead, he travelled to Russia where he met with President Vladimir Putin. During his trip, Chávez visited a language institute in Moscow where he met with Russian students who are studying Spanish. While the Russians cheered "Chávez! Amigo! Rusia está contigo!" and waved Venezuelan flags, Chávez chanted back "Rusia! Amiga! Venezuela está contigo!"

Flirting with a Comeback to CAN

The governments of Bolivia's Evo Morales and Ecuador's Rafael Correa, both closely aligned to Chávez, have continuously lobbied to persuade Venezuela to re-join the CAN. All three are members of the Venezuela-sponsored Alternativa Bolivariana para las Americas (ALBA) and are close allies; Bolivia's and Ecuador's position stands to be strengthened with the addition of Venezuela to CAN. On June 15, Xinhua News Service reported that Colombian President Alvaro Uribe urged his colleagues, during the bloc's 17th summit that took place in the Bolivian city of Tarija, to enable Venezuela's return to the CAN. Uribe maintained that "Venezuela's return to CAN was important. Let's seek it … We have to find out what CAN norms must be changed for Chávez to return according to his international trade views." The Colombian leader added that Chávez "should not feel he must go against his economic and political beliefs" by returning to CAN.

A September 3 article in Latin News Daily argues that a potential obstacle to Venezuela's return to the bloc could be Peru. Though the silver-tongued Alan Garcia ultimately won the race for president, the contentious opening of an ALBA office in the Peruvian altiplano town of Puno was equally considered an affront by Lima officials. The Regional President of Puno, Hernán Fuentes, has been harshly criticized for allowing the office to be established, given that Peru has no involvement with the Caracas-based trade agreement.

Garcia, nevertheless, has tried to appear as diplomatic and pro-integration as possible, by declaring that Venezuela's potential return to CAN was "good news." Garcia added that he was glad that Chávez "realized that to be a Bolivarian one needs to be Andean too."

CAN-EU Relations May Affect Venezuela's CAN Membership

The one factor considered crucial in determining whether or not Caracas will eventually return to CAN has little, if anything, to do with the free trade debate. Currently, the Andean Community is taking initial steps to explore a free trade agreement with the European Union. Brussels has demanded that any resulting treaty should be signed with CAN as a bloc, and not with each member separately. A September 21 CAN press release reported that the first round of negotiations between CAN and the EU took place in Bogotá on September 17-21. The release also points out that the agreement that both blocs are presently negotiating is not an FTA, but actually an "Acuerdo de Asociación" (Association Agreement). "The difference is that the Agreement also has a political section to it," the article explains . The second round of the negotiations will take place in Brussels this coming December 10-14.

Chávez is a staunch opponent of free trade, as exemplified by his recent decision to nationalize Venezuela's oil holdings, including those partially controlled by foreign companies like Conoco

and Exxon. Meanwhile, both Colombia and Peru are on their way to signing a free trade agreement with Chávez' nemesis, the US

Free trade, thus far, has become one of the centres of debate in Hugo Chávez' mind over his country's future role in the region. Venezuela's return to CAN and its helping negotiate and eventually sign a free trade pact with the EU is not necessarily beyond question, nor would Chávez necessarily be betraying his ideology. His allies, Correa and Morales, apparently have accepted the notion of an FTA with the EU, so it is doubtful that the Venezuelan leader will be able to gain any kind of backing to thwart the passage of the trade accord.

Venezuela-EU Relations

Venezuela under Chavez' rule has had a somewhat cool, if not distant, relationship with the EU, with the exception of Spain. According to a webpage submission on Venezuela found on the EU's website: "Venezuela announced its intention to withdraw from the Andean Community in April 2006. Until then, relations between the EU and this country were mainly carried out on a regional basis with the [CAN]." Relations between Caracas and Brussels have been carried out within the "framework of the institutional dialogue" between the EU and the Rio Group. The EU is only a medium-sized trading partner for Venezuela. The main products exported to the EU are energy products (around 80% in 2006), and its main imports from Europe are machinery (22%), electrical material (11%) and chemical resources (7.5%). The balance of trade has traditionally favoured the EU, depending to some extent on the price of oil.

According to the EU portal, the last high-level meeting between the two sides was a February 2007 visit of the Venezuelan Vice-Minister for Foreign Affairs Rodrigo Chávez to the European Parliament and the European Commission. In addition, the EU sent a mission to monitor presidential elections in Venezuela last December. In a December 7 press release, the EU (then under the Finnish presidency) reported that: "the elections of 3 December 2006 took place in a peaceful and transparent atmosphere, thus providing a good basis for the further development of democratic institutions and political dialogue in Venezuela." While the EU mission did mention there were some irregularities in the voting process, they found that the overall event was transparent and peaceful.

As for Chávez, he has not been completely successful in resisting taking the occasional jab at the EU. In a speech delivered at the opening of the XII G-15 Summit in 2004, the Venezuelan leader said: "I want to tell you - and this is true and verifiable - that each cow grazing in the European Union receives in its four stomachs $2.20 dollars a day in subsidies, thus having a better situation than 2.5 billion poor people in the South who hardly survive with an income less than 2 dollars a day." Also, in early May of this year, Venezuela's RCTV director, Marcel Granier, met members of the European Parliament to seek support against the non-renewal of his station's license. In response, a May 10 article in The Independent cites Alejandro Fleming, Venezuela's ambassador to the EU who told his audience: "Europeans would never allow a channel on their televisions to incite violence, support coups, or break the constitutional order."

In what is very much a Chávez-trademark, the Venezuelan leader is inclined to generate action wherever he goes. In late August of last year, it was reported that Chávez had agreed with London's mayor, Ken Livingstone, to provide that city's buses with cut-price oil under a deal worth up to $32 million. The Financial Times reported that, in return, Venezuela will receive a proselytizing mission of London officials to advise their counterparts on traffic management and urban planning.

At some point the question might be raised whether Chavez' reluctance to join a free trade agreement with the EU is based on his personal apathy to free trade in general, or if he has a particular issue with the EU or one of its members. The departure of British Prime Minister Tony Blair has made the EU somewhat less US-friendly than before, which in theory is what Chavez had hoped for. However, the Venezuelan leader still appears to remain cool to Brussels, and instead of trying to befriend it through some type of oil diplomacy (as was done with Beijing and then London), he seems to prefer to play cautious when it comes to Europe.

Venezuela's Relations with its Neighbours

The recent $10-billion treaty between Venezuela and the People's Republic of China to explore the South American nation's oil-rich Orinoco belt caused a stir in the international oil market, just as the total, approaching $10 billion (some give a figure of twice that amount) in various deals between Caracas and Iran has not gone unnoticed in Washington. Last year, Venezuela's purchase of Russian military equipment, valued at $3 billion, made news around the world. Deals amounting to billions of dollars have certainly made Caracas a welcomed friend in Beijing and Moscow. However, in the quest to make Venezuela a global player, Chávez may not have taken care to maintain close enough ties with some of his South American neighbours. Attempting to rejoin CAN and to mediate the freeing of hostages in Colombia who have been taken and held by the guerilla movement FARC, could be seen as an effort by Caracas to try to generate goodwill. These efforts may also help explain Chávez's motivation to rejoin the Andean family, even though his move risks the embarrassment of seeking to restore relations with the economic bloc months after breaking from it. Venezuela's quest for MERCOSUR membership, at least for the time being, appears to be a lost cause, although some last minute action to reverse course is still a distinct possibility.

The Andean Community is certainly willing to welcome Venezuela back as a member. However, a situation is likely to emerge in which Venezuela waits to see if CAN achieves a free trade agreement with the EU. Chávez can, with no doubt, live with the idea that two fellow CAN members, Colombia and Peru, have already signed FTAs with Washington. Yet, it is a different issue altogether if Chávez himself has to personally sign an FTA with the EU. It appears inevitable that some kind of agreement between Venezuela and CAN would need to be reached before we see how well CAN is able to negotiate with Brussels. The question is whether it is Caracas, or CAN capitals, or Brussels, that give in to the others' demands.

This analysis was provided by COHA, for which organisation Alex Sánchez is a Research Fellow.

See also: http://www.spectrezine.org/LatinAmerica/bassi.htm