Today I attended an event put on by the Americas Program at CSIS that was very provocatively called “Paraguay- Leaving Mercosur?” where the Paraguayan ambassador the United States Fernando Pfannl Caballero spoke. The short answer, is that, no Paraguay is not going to abandon Mercosur. However, the underlying subtext of his comments is that while Paraguay isn’t eager to leave, it also isn’t all that committed to the project and is deeply frustrated with its co-member states.
Paraguayan ambiguity regarding its membership is threefold. Legally, Paraguay feels—justifiably—that it never should have been suspended in the first place. Ambassador Pfannl complained that, notwithstanding the fact that Fernando Lugo’s impeachment was carried out within the constitutional framework and therefore not a constitutional breach, Paraguay was not given a chance to defend itself in the process whereby it was suspended from Mercosur. Moreover, while Paraguay was suspended for violating the democratic clause, a far more egregiously undemocratic regime in Venezuela was allowed in as a result of removing Paraguay and thereby negating its two-year refusal to ratify Venezuela’s entrance. The Paraguayan government feels that the whole process was illegal under international law, and feels that, as a small country in a club of big countries, it needs assurance that there are legal processes that will protect it in the future before it rejoins.
Economically, Paraguay perceives Mercosur as not providing enough economic benefit to justify the restrictions it puts on its ability to conduct bilateral and multilateral economic policy outside of the organization. Since Mercosur’s bylaws technically restrict member states from negotiating trade agreements outside of Mercosur, Paraguay is hamstrung in its ability to expand its trading options. In theory, this shouldn’t matter, as Mercosur would be actively perusing these types of agreements as a unit. However, in practice, Brazil and Argentina have been intransigent in these processes, particularly as protectionist impulses have gained prominence within each government. In this light, Paraguay sees its suspension as a way to explore other avenues economically and perhaps gain leverage to carve out exceptions for itself upon returning, in a similar way to Uruguay being allowed to negotiate a free trade agreement with Mexico. So far, this has manifested in trade talks with Mexico and observer status in the Pacific Alliance.
Finally, there is a large degree of nationalism at play in Paraguay’s behavior. Though largely unknown outside Latin America, the War of the Triple Alliance, which devastated Paraguay, remains salient to this day and Paraguayans are extremely sensitive to any perception that Brazil, Argentina and Uruguay might be ganging up on them. On top of that, Paraguayan relations with Venezuela are extremely tense. Paraguay has accused Venezuela of supporting terrorist groups in Paraguay’s northern departments through its connections with the FARC and Nicolás Maduro was declared persona non grata by both houses of the Paraguayan Congress following the Lugo impeachment, when he was filmed speaking with Paraguayan generals and accused of encouraging the military to step in on Lugo’s behalf. In effect, Paraguay feels deeply wronged by Brazil, Uruguay and Argentina, in a way that evoked painful memories of the War of the Triple Alliance and also allowed a country that Paraguay has accused on meddling in its internal affairs into the group.
All of this reinforces the points I already made about Mercosur last week. Namely, it is an organization with a clear goal—to establish a customs union on the path toward creating a common market—whose most important members are ambivalent or worse toward that idea. There are tremendous economic gains from liberalizing within the bloc—something that Paraguay in particular, and Uruguay to a lesser extent seem eager to pursue—yet the trend is away from liberalization, with an institutional framework that prevents member states from striking out on their own. The fact that the poorest member of the bloc—who presumably had a lot to gain from access to Brazil and Argentina’s giant markets—is dragging its feet on returning to Mercosur says a lot about how effective it has been.