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Diplomacy and the Crossroads in South American Unification
By Eduardo Gudynas
It's possible to postulate that these days the integration
of the countries of South America finds itself at a crossroads.
Different strategies have converged to the point where the
large trade blocs find themselves at a standstill and turn
into political forums. The new attempts are centered on energy,
and from there new proposals arise. Brazil has sought to lead
by consensus but has not been willing to pay the economic and
political price of this position, while Venezuela is exploring
another avenue by sharing energy projects and resources with
other countries.
The large blocs of South American unification, the Andean
Community of Nations (CAN) and the Southern Common Market (MERCOSUR)
have had different histories but today they find themselves
in similar situations. Trade problems persist and governments
seem to accept that many of these difficulties will not be
resolved in the near future, so these blocs continue to exist
more and more as political forums. There exist some areas where
advances seem possible and among them energy stands out as
a central axis for new attempts at integration. But from here
new avenues are opening where there are at least two perspectives:
one is represented by Brazil's position illustrated by the
role of its state oil company Petrobras, and the other by Venezuela
and the joint agreements articulated around PDVSA, the Venezuelan
state oil company. They are demonstrating two distinct integration
proposals, that in some ways conflict.
Energy Diplomacy
Since the beginning of 2007 a series of meetings and presidential
summits have taken place at a dizzying rate and in many cases
energy has played a central role.
Let's begin by recalling that in March the
president of the United States, George W. Bush, visited Brazil,
Uruguay, Colombia,
Guatemala, and Mexico on the trip called "the ethanol
tour." His presence fed the idea of a major partnership
between Brasilia and Washington, especially due to trade in
biofuels. Bush reinforced this idea still more by inviting
Brazilian president Luiz Inácio Lula da Silva to visit
him on the grounds of Camp David a few weeks later. As a reaction
to these meetings, first of all the president of Venezuela,
Hugo Chávez, launched a "counter-tour" in
opposition to Bush, and later, joined by Fidel Castro, began
to critique the role that biofuels will play.
In this context, on April 16-17 the South American
heads of state held a meeting on the island of Margarita
(Venezuela),
with the presence of Chávez of Venezuela, along with
Nestor Kirchner of Argentina, Lula de Silva of Brazil, the
Bolivian Evo Morales, Nicanor Duarte of Paraguay, Rafael Correa
of Ecuador, the Chilean President Michelle Bachelet, Alvaro
Uribe of Colombia, Vice President of Uruguay Rodolfo Nin Novoa,
Prime Minister of Guyana Sam Hinds, and Prime Minister Delegate
of Surinam Gregory Rusland.
The energy summit presented objectives that
all would share, such as that energy integration, "should be utilized as
an important tool to promote social and economic development
and the eradication of poverty," or to "involve as
principal actors the State, society, and industry businesses" without
omitting the classic calls for "technical cooperation." But
this type of generic agreement has been a recurring theme in
presidential declarations for many years.
The most concrete agreements were the creation of the Energy
Council of South America made up of the energy ministers of
each country. This council must develop a continental energy
strategy, an action plan, and a proposal for a South American
Energy Treaty. The presidents again recognized the importance
of joint undertakings, mentioning specifically the Venezuelan
plan Petroamerica. But it also needs to be recognized that
the Margarita Declaration does not include any concrete measures
toward other energy integration in the sense of sharing these
resources beyond interconnections or the buying and selling
of oil or gas.
On other issues disagreements between the countries also recurred.
There were no agreements in support of the idea of an international
organization of countries that export natural gas. Nor did
they agree to support the great Gas Pipeline of the South as
a collective undertaking, and for now its progress continues
in the hands of Venezuela, Brazil, and Argentina. Biofuels
were the object of long discussions between the delegations,
especially because of Brazil's self-defense, until ultimately
the final declaration accepts them as a mark of the diversity
of energy sources (Bolivia maintained its disagreement on this
point). Nor did they reach an agreement to launch the Bank
of the South, especially promoted by Venezuela, Argentina,
and Ecuador. Brazil resisted this proposal and made it a condition
for its incorporation that all the points be discussed again.
The other countries acceded and new discussions are currently
taking place.
The Venezuelan proposal to call the South American
Community of Nations the "Union of South American Nations" (UNASUR)
was accepted. This union will have its headquarters in Quito
and the creation of a council was announced. Although this
decision was surrounded by optimism, no plan of action was
agreed upon. Remember that this is the third name given to
the attempts at South American integration, which began in
Brasilia in 2000 as a continental free trade region, and in
2004 in Cuzco (Peru) was named the South American Community
of Nations.
An overall evaluation of these decisions shows
that many presidents really are seeking mechanisms for regional
unification, and
that they have ceased to be mere promoters of exports to the
global markets. It is also evident that energy has become a
central issue, and that based on that, they are seeking bilateral
or regional agreements. But, on the other hand, it again lapses
into the publicity arena when they launch the idea of the "South
American Union" in spite of the serious internal problems
inside the Andean Community and MERCOSUR, and while the South
American Community of Nations has barely taken its first steps.
Therefore, while it's true that the opportunity
for discussion continues—and it is correct to recognize progress on
some points—they should admit the difficulties in order
to arrive at concrete agreements in many aspects related to
the economic and productive articulation between countries,
despite clear discrepancies that persist on various issues.
That's how these meetings end up as political forums.
A few days later on April 27-28 the fifth presidential
meetings of the countries participating in ALBA (Bolivarian
Alternative
for the Americas) took place, and in this case Chávez,
Morales, Daniel Ortega of Nicaragua, and Cuban Vice President
Carlos Lage, as well as observers from Haiti and Ecuador among
others, attended. There they signed a series of agreements,
including an "ALBA Energy Treaty," with important
innovations like shared access to an area of oil exploitation
in the Orinoco River basin that assures the other countries
of access to these reserves for the next 25 years. They announced
the creation of joint ventures for the utilization of natural
gas and they will aim to increase each member's refinery capacity.
Even though these are still generic goals, an ALBA Energy Council
made up of the ministers of each country was created to put
them into effect.
But the most outstanding aspect was the presentation
of the concept of the "great national" company (as an alternative
to the transnational companies). In the energy agreement they
announced a "great national" energy company that
will encompass wide sectors such as oil, gas, refining, petrochemicals,
infrastructure development for storage and transportation,
electrical energy, and alternative energies. The treaty establishes
that the new "great national" company will be composed
of the State-run companies.
Brazil and Bolivia Say Goodbye
Shorly after these presidential meetings what appears to be
the final solution was reached in the disputes between the
Bolivian government, Petrobras, and the Brazilian government.
These disputes are a clear example of the true distance between
the declarations of the summits and the concrete relations
between the countries. Since in May 2006 Morales initiated
state actions to control the extraction and sale of hydrocarbons,
there have been disputes with the Brazilian petroleum company.
For Brazil, Bolivian natural gas is a key contributor to
its energy matrix, and for many long months they disputed
its price. Immediately afterwards they added to the negotiations
the transfer of Petrobras' refineries to the Bolivian state
petroleum company YPFB. An outside observer might be surprised
to find conflicts between two governments that define themselves
as leftist, but the truth is that they were defending commercial
interests and national political goals without being able
to agree on true energy unification.
The many arguments at play cannot be summarized in a single
article, but two facts can be mentioned as an example of their
complexity. First, one must recognize that Petrobras did not
keep its promises to process hydrocarbons inside Bolivia, and
therefore, there was no real contribution to Bolivian development
beyond the sale of gas. This is an example of energy interconnection
without productive integration.
Secondly, it is also important to recognize
that Lula's government managed to counteract the strong internal
pressures of the
conservative and business sectors that wanted to practically
crush the Bolivian nationalization of its hydrocarbons. These
groups presented the dispute as the "Gas War," alternating
wounded nationalism with claims of retaliation.
Lula's government sought a solution to the conflict for various
reasons, ranging from the need to end the internal debate within
Brazil, to avoiding future accusations of causing the destabilization
of Morales. Finally Petrobras accepted US$112 million for its
refineries in Bolivia. The Bolivian government celebrated this
arrangement, although it is a very big gamble given the limitations
that it faces and taking into account the technical capacity
and resources needed to manage the new facilities. In some
way, Brazil has abandoned Bolivia to its own fate, with a clear
distancing between the two presidents. Petrobras will maintain
its contracts to buy natural gas until they end in 2019, and
it announced that as of that date it will buy no more Bolivian
gas.
While Brazil takes its leave of Bolivia, Morales' government
sought support in other countries. The clearest examples are
the agreements with Venezuela, including technical assistance
from PDVSA, as well as new oil explorations in the northern
part of the country. Also it procured a long-term agreement
for the sale of natural gas to Argentina in order to reduce
its dependence on Brazilian sales.
These disagreements between Brazil and Bolivia
are possibly the most well known, but others exist that are
very similar
and less publicized. For example, Paraguay is demanding changes
in the old contracts for the sale of electrical energy to Brazil
from the Itaipú dam that the two nations share; and
Argentina has re-initiated the intermittent suspensions of
gas exportation to Chile, in spite of the contracts and agreements
between the two countries.
The Shadow of Corruption
Another real problem that is becoming evident in the energy
sector is the return of the shadow of corruption, in both
the private and public sectors.
The most alarming case is unfolding in Argentina, where after
repeated accusations, irregularities in the payment of taxes
by the Swedish company Skanka, in charge of natural gas transportation
projects, were confirmed. As the investigation continued, evidence
showed a scheme of overcharging more than US$5 million for
the work ordered by the Argentinean government.
The case has some shocking aspects, such as the accusation
that the plan to overcharge came from high government officials,
who themselves set up the mechanism the funds came from. The
projects were financed by an enormous Argentinean governmental
trust set up to finance works of infrastructure, and exists
without parliamentary control. Contributions to this fund come
from both the Argentinean treasury and the Brazilian National
Bank for Economic and Social Development (BNDES). The progress
of the investigation caused President Kirchner to remove from
office various high officials, including the manager of the
state trust as well as the president of the recently created
national gas company. The investigations have expanded to other
companies (Techint and Odebrecht), and to undertakings in other
countries on the continent (like Peru).
Almost simultaneously, in Brazil, a political investigation
discovered a bribery scheme established by construction companies
that involved top figures in both federal and state governments,
legislators, and business people. The case resulted in the
resignation of the energy minister, Silas Rondeau.
All these are bitter blows to the attempts to achieve a greater
presence of the State sector, whether by means of State companies
or by means of greater regulation of private companies. Many
of the energy integration agreements are turning into juicy
deals, very difficult to control, that require new processes
for transparency.
Interconnections and Integration: Two Distinct Concepts
Even though energy appears time and time again to be the axis
of the new efforts at integration, it is necessary to point
out that in many cases what is called "integration" is
really "interconnections," such as gas pipelines,
oil pipelines, or electrical networks. These undertakings
are important, but they are only connections that permit
the commercialization of energy. A large part of the optimism
comes from considering the agreements for interconnection
as advances in unification, but in reality they are not synonymous
since there is still a need to agree on common strategies
regarding access to resources and the ways that they will
be used.
This distinction between "interconnection" and "integration" allows
us to understand how two countries as interconnected as Bolivia
and Brazil still don't make progress in the process of energy
integration. The same situation applies in the case of the
problems between Paraguay and Brazil, or Argentina and Chile,
already mentioned.
In the same way, the difference between "interconnection" and "integration" also
explains the progress in the energy negotiations between Colombia
and Venezuela, in spite of the ideological differences between
the two governments. Indeed, these countries have carried out
projects like the Ballenas-Maracaibo binational gas pipeline,
that carries Colombian gas to Venezuela and includes a possible
expansion to Panama and the rest of Central America, as well
as the Venezuelan investments in Colombia for such works as
the construction of a fertilizer plant in Cartagena. Uribe
and Chávez do good business, but they don't build common
energy policies; it is an example of business without integration
between two politically distinct regimes. In the same way ,
in the Southern Cone, there exists an intricate network of
electrical and gas interconnections between Argentina, Bolivia,
Brazil, Chile, and Uruguay, but they have not achieved a common
energy platform within MERCOSUR.
In the last few years, the confusion about infrastructural
interconnections, both in highways and waterways and in energy,
has been one of the pillars of defense of an optimistic version
of the progress of linking South American countries. Nevertheless,
these connections in almost every case still depend on conventional
commercial interests anchored in the import and export of energy
and guided on some occasions by business goals of making a
profit and on others by classic nationalistic postures. Since
they are business ventures, whether they are private or public,
the shadow of corruption enters in. Meanwhile, in the presidential
summits, like the one in Cartagena, they try to find a common
energy strategy, but they still haven't found effective actions
that will lead to real integration.
Perspectives at Play
Today we can distinguish two principal perspectives in the
proposals for energy linkage. The first one can be described
as a strategy based on classic commercial agreements for
the buying and selling of energy, dependent on market demands,
where the businesses involved (whether public or private)
seek to maximize their profits and their benefits in these
sales. It's in this way that the conventional international
agreements have functioned and that the transnational companies
in the Northern hemisphere operate.
Recently various countries have acted in this way (like the
pacts to buy and sell gas between Argentina and Chile, and
Bolivia with Brazil), and so have regional companies (the clearest
example is Petrobras). This posture is not opposed to the promotion
of energy interconnections since these connections are indispensable
in order to permit the commercialization of the products. But
energy integration, in the sense of having common energy resources,
elaborating joint undertakings, and helping shared productive
initiatives, does not exist.
The second strategy is much more recent and still in the initial
stages. It also includes commercial agreements and promotes
interconnections, but it offers the novel idea of trying to
share energy resources and to link them to joint productive
projects. This stance is promoted by the Venezuelan government,
whose principal agent is the state petroleum company PDVSA.
It operates by means of joint projects or joint ventures between
PDVSA and a local partner, usually a governmental company.
But at the same time it permits this local partner to participate
in oil enterprises inside Venezuela. Thus, there are monetary
payments, but they can also resort to other procedures such
as payment in local products that they export to Venezuela.
In many cases, there is an obvious imbalance in the prices,
and Venezuela is contributing more than it receives.
From the first perspective, joint projects of this type are
not carried out, and countries do not share their hydrocarbon
deposits in this way, instead keeping them for direct exploitation
or concessions under classic trade rules. A good example has
been the role of Brazil and Petrobras, since the controversies
with this company have not only taken place in Bolivia, but
also in Ecuador, Peru, and Argentina. In all these cases, the
Brazilian company has acted like any other transnational corporation,
seeking to maximize its earnings without promoting local development
and with a poor social and environmental performance.
In the meantime, the Venezuelan enterprise PDVSA has spun
a web of agreements in many other countries. For example, it
has signed agreements with the state companies of Ecuador (Petroecuador),
Colombia (Ecopetro), Paraguay (Petropar), Uruguay (Ancap),
YPFB (Bolivia), among others, and even with Petrobras itself.
The agreements are of different types; some involve Venezuelan
investments in national refineries to adapt them to the extra-heavy
crude oils of that country (for example, in Paraguay and Uruguay);
in others there is shared access to oil fields (for example,
Venezuela permits Ecuador's co-participation in the Orinoco
Belt, while Ecuador gives Venezuela priority to access the
large oil reserves of Ishpingo-Tambococha-Tiputini). They reach
agreements in which Venezuela agrees to receive products as
compensation (for example, the agreement with Uruguay's ANCAP
grants participation in Venezuelan oil fields, but Venezuelan
crude must be processed in Uruguay and they accept as payment
Portland cement and other Uruguayan products under advantageous
conditions), while in other cases there are also important
components of direct support, such as what we see in Bolivia.
Although Brazil presents itself as a regional leader, one
must admit that it has not followed this type of path and has
not been willing to cover the costs of agreements that promote
productive enterprises between neighbors. Furthermore, its
state companies, not just Petrobras, but others like Odebrecht,
have acted unilaterally in neighboring countries. This is not
a problem exclusive to Brazil, since similar things have taken
place between other important countries in the region, such
as Argentina and Chile, who have not tried to promote further
regional unification either, and whose state companies have
repeated business practices and entrepreneurial traditions.
The difference stems from Brazil's attempt to position itself
as a regional leader whereas other nations do not seek this
position.
At a Crossroads
The series of cases and examples presented throughout this
article permit us to offer an analysis of the current trends.
It is possible to state that in the last few years there
have existed two types of linking processes between South
American nations.
The European model of unification, based on a common market
that develops parallel to a political structure, was represented
by MERCOSUR. This effort clashed with the impossibility of
taking the necessary step to supernationalization, and Brazil
in particular would not accept this measure. Because it is
also the largest economy in the region, it could have attempted
a substitute or palliative measure to permit certain levels
of asymmetrical trade that would benefit the smaller neighboring
countries. But Brazil was not willing to pay that price either,
and on the contrary, its conduct in Bolivia did not manage
to change the entrepreneurial logic of maximizing competitive
advantages and profits. The only substantive concession was
granted to Argentina, accepting a commercial agreement with
protection of vulnerable sectors, reducing friction with Argentina
at the cost of increasing the disenchantment of Paraguay and
Uruguay. In the situation, MERCOSUR advances and retreats regarding
trade problems that it cannot resolve since it lacks a supernational
normative framework, and, therefore, continues to stagnate
under a very incomplete customs union. This explains why the
block operates mostly as a political forum. Currently the relevant
fact is that there appears to be an acceptance (mixed with
weariness) of this situation among the partners of MERCOSUR.
Another model was based on an important opening
to international markets, both those of neighboring countries
as well as those
on other continents. It is an extreme form of "open regionalism" that
was followed by Chile, and more recently by Colombia and Peru.
These countries have not been able to articulate a more in-depth
unification process within CAN, since their goal is the opening
of trade and they did not expect to reach other agreements,
such as, for example, common productive policies. Contrary
to what happened with MERCOSUR, where they still maintain certain
levels of trade protections, in the CAN they opt for a strong
liberalization; but at the same time, the Andeans abandoned
attempts at supernationality and even those at having a customs
union. Therefore, the CAN also wound up being a political forum,
although for different reasons and by a different route than
MERCOSUR.
We find ourselves facing two different paths that for different
reasons now meet at a crossroads in a similar situation, where
the commercial and economic aspects are stagnated and the blocks
continue as political forums. This explains in large measure
the reasons why the attempt at South American unity, whether
under the name of Community or Union, also expresses itself
as a political forum.
In this situation, the role of Brazil is key. In recent years,
it has maintained a more or less defined idea of a regional
unification project. Its proposal, initiated in the year 2000
under the F.H. Cardoso administration, was adapted by Lula
da Silvas's government, keeping the central nucleus and giving
it some nuances of its own. Its position is that of exercising
regional leadership by consensus, or a benevolent leadership,
where it seeks to promote a certain amount of regional unification,
but is not willing to assume the cost of this leadership, whether
in the economic or the political realm.
Furthermore, Brazil has announced that it will carry out negotiations
separately from the rest of MERCOSUR by means of a strategic
agreement with the European Union, while it keeps alive the
idea of joining the OECD (Organization for Economic Cooperation
and Development, the organization of industrialized countries).
Although it is considered different from a trade agreement,
this distinction may be a mere difference in terminology since
it will involve mutual commitments and concessions. That step
will be a hard blow for MERCOSUR, and will be invoked by Paraguay
and Uruguay to seek in turn an agreement with the United States.
Accordingly, the business lobbies inside Brazil that promote
free trade agreements will be strengthened.
In this way, in Brazil there exists a strong tension between
the desire for regional integration and the costs and obligations
that this task requires. This type of tension is not present
on the path of open regionalism nor in the positions taken
by Chile, since its essential goal is trade liberalization.
The most relevant recent change is Venezuela's
stepping forth with a different idea on regional unification.
Its position
points to a closer relationship between South American nations
and a more active disconnection from globalization in order
to gain greater autonomy. These ideas, contrary to the Brazilian
perspective, are currently much more diffuse—in some
cases imprecise, at times contradictory, and they are under
construction.
Under some circumstances, the government of
Caracas seems to opt for strengthening regional unification
but in others
it would seem that it obstructs it: it abandoned the CAN and
requested admission to MERCOSUR, and although it is taking
its first steps there, Chávez has already said that
this block is not working in its current state. Then it opts
for the South American Community of Nations and then proposes
to rename it Union of Nations, but immediately reinforces its
own program under ALBA.
This makes the Venezuelan stance seem at times contradictory
and it generates a lot of controversy. But beyond these arguments,
one must recognize that it offers a key difference in opposition
to the previous proposals: Venezuela is willing to assume for
now the political and economic costs of its integration proposal.
This is based not only on the great availability of funds owing
to the oil profits, but also reflects another political stance
with regard to neighboring countries. In this case there are
no tensions with regard to a supernational goal or wounded
sovereignties, since a shortcut based on joint ventures with
the participation of various countries has been reached. Joint
projects of state companies, especially the co-participation
in the Venezuelan oil reserves, have indubitable economic importance,
but they also form a network of help and support to try out
another integration process.
Eduardo
Gudynas (egudynas(a)adinet.com.uy) is an analyst at CLAES
D3E, a center for the investigation and promotion of sustainable
development (www.integracionsur.com) and collaborates monthly
with the Americas Program, www.americaspolicy.org. The
opinions expressed are solely those of the author. Translated
by Patricia Black.. Petroleumworld
not necessarily share these views.
Editor's
Note: This commentary was originally published byAmericas
Program, Center for International Policy (CIP) americas.irc-online.org
, onJuly 24, 2007 Petroleumworld reprint this article in the
interest of our readers.
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