INTEGRATION, DEMOCRATIZATION AND EXTERNAL INFLUENCE. José Augusto Guilhon Albuquerque. Professor of Political Science. Director

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1 INTEGRATION, DEMOCRATIZATION AND EXTERNAL INFLUENCE José Augusto Guilhon Albuquerque Professor of Political Science Director University of São Paulo Research Center for International Relations Paper prepared for the workshop Dollars, Democracy and Trade: External Influences on Economic Integration in the Americas Los Angeles, CA, May 18, The Pacific Council on International Policy, Los Angeles The Center for Applied Policy Research, Munich

2 In the present article I shall try to tackle two apparently diverging dimensions of economic integration: domestic democratization and external intervention. This paper is structured around four questions related to Mercosur: (1) To what degree did the interdependence achieved regionally in Mercosur affect democratic transition in its member states? (2) What are the nature and effects of American and European influence on that process in Mercosur and in Latin American states in general? (3) How much the European experience of democratization and integration has been/is significant to Latin America? (4) What are the limits of intervention and non-intervention? Clarifying the integration process in Mercosur Before presenting some hypotheses regarding these interconnected questions, I need to first clarify a number of aspects of Latin America s and specifically Mercosur s current process of integration. 1. Latin American economic integration is not a single continuous process, but comprises a number of complex, diverse models varying in time and by sub-region. First of all, we should distinguish between at least two very divergent models of integration related to periods that are very different in context and in nature. The first one relates to the import substitution model of development, the Eclac s model or the desarrollista model. According to this model, the rationale for economic integration is to create regional interdependence through the development of a regional market -- to make grounds for a common or, at least regionally integrated industrial policy. The most conspicuous cases are ALALC and its successor, ALADI, regional treaties adopted respectively in 1960 and 1980, and tending to 2

3 create an area of free trade (ALALC), and an organization for regional development and integration (ALADI). Both failed one after the other essentially because their member states mostly the bigger countries of the Southern Cone plus Mexico have proved unable or unwilling to negotiate either the reduction of internal barriers or the equalization of external tariffs. The former would supposedly promote regional trade and provide a regional market for the needed industrialization process. The latter would protect that incipient market from extra-regional competition to grant the immature regional industries a more equitable environment for growth 1. Irrespective of the symbolic reference to the EC model of economic and political integration, the Latin American desarrollista integration process was supposed to create interdependence as a stepping-stone to economic development and to political cooperation, not the other way around. It did not aim to reinforce a previously existing interdependence by controlling its negative effects through increasing political cooperation. It did not have to deal with significant historical or potential power conflicts, but rather with mutual political and economic irrelevance among the countries in the region. 2. The very idea (and practice, of course) of common institutions with its implicit need for concessions of sovereignty was (and still is) strange to Latin American constitutional traditions. It is not surprising that Latin American integrationists pledged before the Common Market banner but practiced an ill-implemented Free Trade Area. 1 For a review of pre-mercosur integration arrangements, see Rubens Barbosa, O Brasil e a integração Regional: a Alalc e a Aladi ( ), in J. A. Guilhon Albuquerque (ed.): Diplomacia para o Desenvolvimento. Sessenta Anos de Política Externa Brasileira ( ), vol. 1, Cultura/USP, 1996, pp , and Paulo Roberto de Almeida: Mercosul, Resultados e Perspectivas, S. Paulo, LTR, 1998, pp

4 The Andean Pact constituted a second generation of Latin American integration. Inspired by a new wave of desarrollismo brought upon by the military nationalist regime in Peru, it was supposed to contrast with both ALALC and ALADI. Instead of betting on minilateral negotiations of tariffs and quotas, the Andean countries (namely Peru, Chile, Bolivia, Ecuador, Colombia and Venezuela) put all their hopes in building up common institutions. Common institutions such as a common Secretariat a Common Court of Justice and a Development Bank were supposed to generate common political objectives and common trade and industrial policies. It did not survive the political crises in the region in the 1970 s, when Pinochet s Chile was forced to opt out, nor did it survive the inflation and indebtment crises in the 1980 s, when Bolivia was forced to take a leave from its commitments within the Pact. A new beginning was provided to the Andean Pact by the willingness of some of its members to join Mercosur, namely Bolivia, Peru and Venezuela. Bilateral negotiations between the two trade areas avoided the split of the Andean Pact, which actually achieved in the late 1990s a quasifree trade area agreement among its members, with the exceptions of Peru and Bolivia. 3. Mercosur is yet another generation of the Latin American integration processes, which should be considered together with Mexico s option to integrate with the other Americas and the wish of Central American and Caribbean countries to join the bandwagon 2. To that generation the GATT-plus integration process we should add the current process of 2 J. A. Guilhon Albuquerque, Mercosur: South American economic regional integration aftere the Cold War, in J. A. Guilhon Albuquerque: Economic Regional Integration. Experiences and Processes, S. Paulo, USP, 1992, pp

5 FTAA negotiations. They all have in common the so-called open regionalism model and share the goal of enhancing the region s competitiveness in a globalized economy after a decade of international economic irrelevance. Mercosur looks very much like a perfect case study in the economic theory of integration, fit to follow step by step the whole series of ever more complex and deeper stages of interdependence. Nevertheless the label of common market (Mercosur stands for Southern Common Market) and the schedule for succeeding degrees of integration Free Trade Area, Customs Union and Common Market should not be taken for more than a symbolic credit that the Mercosur countries are giving to the historic precedence of the EC. Mercosur countries opened their economies simultaneously intra- and extra-regionally. With the exception of Brazil, every member state, as well as Bolivia and Chile, which hold associational status with Mercosur, experienced a neo-liberal adjustment of the economy prior to the adoption of the regional agreement. All followed the path of deregulation, privatization, economic liberalization, currency stabilization, fiscal responsibility, and so on a strategy often associated with the Washington Consensus. As a matter of fact, extra-mercosur trade growth has been consistently higher than intra-mercosur trade, which contrasts with the EC s experience. Trade deficits of Mercosur countries as well as of the region as a whole increased with integration and not the other way around. 4. Mercosur had two beginnings, the first one with the first democratic governments in Argentina and Brazil following authoritarian regimes in 5

6 both countries. Its explicit rationale was the mutual protection of the infant democracies against the risk of new military interventions, especially in Argentina. Argentina s Alfonsin and Brazil s Sarney developed a series of bilateral confidence-building measures between their militaries, especially in the nuclear area, established a series of agreements concerning cooperation in sectoral policies, such as science & technology, transportation, industries of capital goods, etc. and finally signed a protocol aiming at the creation of a Free Trade Area between the two countries, to be achieved in 10 years. A clearly political motivation bilateral protection of democratic institutions and processes intended to enhance economic interdependence. Economic interdependence, in turn, was conceived as the result of common sectoral industrial policies and macro-economic coordination. The Alfonsin-Sarney agreements toward integration in the Southern Cone epitomized Eclac s desarrollista integration in Latin America at its latest sprout Mercosur s second beginning started in 1990 with Argentinean President Menem and Brazilian President Collor, paralleling the adoption by both governments of neo-liberal reforms. Pressed by the announcement of Bush s Initiative for the Americas and joined by Uruguay and Paraguay, the two countries formally created Mercosur in 1991, with a scheduled reduction in all tariff and non-tariff barriers in 4 years. A customs union was to be achieved in the same span of time, with a view toward the adoption of a full-fledged common market with a free flow of all factors of production. The nature and format of Mercosur s institutions were to be negotiated at the same time. 3 See Raul Alfonsín, La cumbre de las Américas y las alternativas de América Latina, in II Foro Mercosur- Nafta, J. A. Guilhon Albuquerque (ed.), São Paulo, Cuadernos del Parlatino no. 6, 1999, pp

7 6. Mercosur s goals were then defined as a general commitment to political and economic cooperation in the region -- to open the member states economies internally and externally and enhance the region s competitiveness in the global markets. Non-explicit goals, however, were much more pedestrian: Argentina s aim was to gather momentum in view of its future integration with the US economy, while Brazil s goals included the prevention of the Brazilian economy from further interdependence with the US economy and the avoidance of isolation in the region in case its neighbors increased integration with the US Even after the deadline of 1995 Mercosur did not adopt common institutions and remained the permanent intergovernmental negotiation process that it was from the beginning. An administrative secretariat with no power and a scarce budget, a consultative Social Economic Forum and a Parliamentary Committee with ill-defined functions and no decision power were added. Every decision in Mercosur, though partly with input from civil society, flows within the Executives of the member states and depends on the final approval of presidential summits meeting twice a year. Nothing could be more distant from the EC model. 8. This intergovernmental or rather inter-presidential permanent negotiation model favors high decision-making flexibility and low levels of implementation. The decision-makers are less concerned with implementation and the bureaucracy is less committed to the policies adopted. The decision-makers are also less committed to the continuity of policies and the bureaucracy less concerned with domestic demands. 4 J. A. Guilhon Albuquerque, U.S. and Brazil Bilateral Relations as a Major Obstacle To Hemispheric Integration, draft paper prepared for the Conference: Una Grán Familia? Hemispheric Integration after the Santiago Summit, Ottawa October

8 Now I shall turn to the questions related to domestic democratization and external intervention in Mercosur. Democratization and external intervention My first point concerns the impact of sub-regional interdependence on Mercosur s member states. Even before the creation of Mercosur, Uruguay and Paraguay were more circumscribed to sub-regional interdependence than Brazil and Argentina, which like to define themselves as global traders. The degree of interdependence between the two major countries was appallingly low before Mercosur. Transition to democracy in the 4 states developed almost independently of regional or bilateral relations, excluding, of course, a possible demonstration effect. In contrast to the early years of democratic government, the Argentine, Brazilian and Uruguayan civil leaders moved energetically towards cooperation to protect the new regimes. Soon Argentina and Brazil started looking for economic cooperation as a means to increase interdependence, thereby lowering both the level of bilateral disputes and the vulnerability of both countries to domestic instability. In the case of Paraguay, contrary to the three other countries, transition did not mean a return to a democratic, albeit unstable constitutional tradition but amounted to breaking a long-lasting tradition of one-party authoritarianism. For the last 50 years, irrespective of their regime and of their degree of interdependence with Paraguay, Southern Cone countries accommodated themselves painlessly with Paraguayan dictatorship. However, with the growing need to grant external credibility as a stable region, Argentina and Brazil started considering Paraguay s domestic politics more seriously. The extension of Mercosur talks with Paraguay, then a fresh democratized 8

9 government resulting from a coup originated in the inner circle of the authoritarian regime and presided by an Army general, was feared to be a liability endangering the credibility of the new sub-regional arrangement. No later than 1996, the new Paraguayan democratic institutions were challenged by a coup attempt by the Army commander, general Oviedo, who was running for presidential nomination at the forthcoming elections 5. While Mercosur did not officially react, its member states acted immediately and with great efficiency to support the elected authorities and threaten the coup leaders with retaliation. Mercosur leaders feared a blow to the region s credibility that would probably result from a successful breaking of democratic rules and supposedly bear a severe impact on the flow of investments. Paraguay s president Wasmosy successfully resisted the coup attempt, and exactly two months later a Mercosur regular presidential meeting issued a Presidential Declaration of Democratic Commitment in Mercosur adopting a democratic clause. It allowed Mercosur to suspend all membership rights in Mercosur and all bilateral obligations of Mercosur countries to a member state if democratic institutions were disrupted or under the risk of disruption. For two years the long election process opposed pro-oviedo, pro-wasmosy and a third candidate to the nomination of the dominant Colorado Party, in a series of coup attempts from each side. In every occasion, Mercosur s intervention followed fairly identical patterns of diplomatic pressure with considerable success. 5 For a brief account of the coup attempt and an analysis of Mercosur s influence on its failure, see: J. A. Guilhon Albuquerque, Mercosur: Democratic Stability and Economic Integration in South America, in Jeffrey J. Anderson (ed.): Regional Integration and Democracy. Expanding on the European Experience, Lanham, Rowman and Littlefield Publishers, 1999, pp

10 Fair elections eventually occurred in 1998, but the disputes regarding the new president to the Congress persisted. The assassination of vice-president Argaña 6 in 1999 prompted an impeachment process against president Cubas Grau, who was supported by the faction involved in the 1996 Oviedo s coup attempt, and were obvious suspects. Again Mercosur intervened in the same general manner and eventually a constitutional succession was founded following a general compromise among all political forces not involved in the coup attempts, including the Opposition. As we can see in this and other similar cases of risk to political stability in Mercosur and in South America as a whole, sub-regional interdependence has affected the consolidation of democracy by means of protecting democratic institutions and elected leaders from domestic threats. Nevertheless it occurred after the transition to democratically elected governments. This was the case not only in Paraguay, but also in Argentina, Peru, Ecuador and Venezuela. Before that, there is no record of overt or covert regional intervention in the transition process. US and European influences on the transition process Let us now turn to US and European influence on the transition process, its nature and effects. The case of Paraguay as well as other cases, like that of Fujimori s coup in Peru, shows that interdependence both inside the subregion and extra-regionally had a weaker effect on the transition to democratically elected governments than its consolidation i.e. the strengthening of stabile democratic institutions after the transition. 6 Who had been the third candidate to the presidential nomination by the Colorado Party and would succeed the current President Cubas Grau. 10

11 During the entire transition period, that is, in the late 1970 s and early 1980 s, while the US was very active pressuring Latin American authoritarian governments to uphold human rights and the rule of law, European countries were rather absent. European investments in Mercosur fell to almost zero during the 1980 s and only started to flow to the region again mostly in Argentina and Brazil - in the early 1990 s, that is, not as a consequence of democratic transition, but as a response to monetary and exchange stabilization and to debt settlement. As a matter of fact, political and economical links with Europe were only renewed after the creation of Mercosur. Moreover, paralleling the most assertive US human rights policies addressing Latin American countries, in the mid-1970 s, the GFR started an ambitious program of nuclear cooperation with Brazil, then one of the most conspicuous targets of US pressures. In a sense, Latin America interdependence regarding Europe was positively affected by the transition process in the region, and not the other way around. As for the US influence on the transition process, in the case of Brazil, where US power diplomacy in the mid 1970s involved the linkage of human rights to non-proliferation, US policies clearly had a negative effect on a military government already engaged in the transition to democracy and already committed to limiting local attempts to human rights. It all resulted in reinforcing the hardliners arguments and in prolonging military rule. As for the vulnerability of new democratically elected governments, as well as for governments with a longer democratic tradition, like Colombia and especially Venezuela, the US has been very active all along the 1980s. It has pressed for the respect of elected governments and the rule of law. In all South American cases, such as in Peru (Fujimori s coup), in Paraguay (both 11

12 Oviedo s and Wasmosy s coup attempts) or in Venezuela (Chavez coup attempt against President Perez), US action emulated regional initiatives, such as the intervention of the OAS in Peru and Paraguay, Mercosur s pressures in Paraguay and regional and sub-regional concerns voiced in the case of Venezuela. A similar pattern is under way in the case of Venezuela s reforms after the election of Chavez and the waning of its traditional political system: The US seems to be coordinating efforts with Venezuela s neighbors, especially with Brazil to avoid a thorough failure of democracy in that country. Regarding the nature of that influence, the case of Paraguay (a long series of coup attempts against an elected government), Peru s recent presidential elections (the risk of electoral fraud), and that of Brazil (a de facto embargo on the transfer of science and technology linked to human rights protection and non-proliferation measures) suggest that direct intervention and threats of retaliation have different probabilities of success as compared to warnings about the cost of isolation. Paraguayan leaders gave into external pressures not because they feared direct retaliation or military intervention, but because a public remonstrance from Mercosur would affect, not its freedom of movements, but its credibility -- and loss of credibility means loss of investments. Trade, especially regional trade, depends on more or less objective factors, including commercial networks. Capital flows depend to a large degree on the perceptions of investors and risk- assessment experts. US warnings in combination with regional pressures are very capable of affecting these perceptions. 12

13 European integration as a model to Latin American integration Third, let us turn to the European experience with democratization and integration. From an intellectual point of view, the theory of democratization in Latin America was strongly affected by similar experiences in the Mediterranean countries of Europe. Many political scientists and even intellectually minded political leaders in Latin America were more familiar with the paths to democracy in Spain than with the recent political history of their own countries. This intellectual influence occurred ex-post: the example of the transition in Spain was sought rather as a means to grant more stable institutions, stronger political coalitions and compromising social forces to support newly elected democratic governments than as a blueprint for the succession process from authoritarianism to elected leadership. In brief, while the transition was generally accomplished without a strategy of the democrats, now that the elected governments were facing the challenge of reality with its diverging interests and goals, they had to look for a strategy to strengthen and consolidate democratic institutions. In that capacity, the US had nothing but theory to offer, and US theory was dependent on Europe s experience. As for integration, one could say that Europe s experience, especially in the cases of Spain, Greece and Portugal, was regarded as a strong motivation for democratizing, and not the other way around, since democratization was a requirement for integration in the EC. The impact of integration in the EC on the strengthening of democracy in those countries appeared ex-post and was not considered by the Latin American leadership as having been sought per se in the process of joining the Communities. 13

14 Final remarks In conclusion, we can say that the new generation of Latin American economic integration, of which Mercosur is the most conspicuous example, developed pari passu with democratizing reforms and neoliberal policies. Moveover, an important factor favoring successful regional integration is supposed to be the external credibility of such arrangements and particularly of their member countries in all the criteria put forward by the Washington consensus, plus good democratic performance. The general effect of regional integration then is to enhance the probability of successful deepening of democracy or, at least, successful resistance to threats to democratic institutions and to elected leaders. As for external intervention, successful democratizing effects seem to vary from an actual strengthening of democratic institutions and practices, to strengthening resistance from hardliners. Success seems to depend on the degree of interdependence between the country where democracy is at risk and the intervening country or countries and on the importance of external credibility for the countries involved in that process. 14