Welcome to the Club Chavez

Mercosur Nation Leaders Induct Chavez

There is something so satisfying about being initiated into a special group.  From masonic enclaves to the Safeway Club Card to economic customs unions, receiving that magic tap of acceptance lights a fire of pride in our eyes.

In June, Venezuela’s Hugo Chavez finally gained full membership into the Southern Common Market (Mercosur), a trading bloc comprising Brazil, Argentina, Uruguay and the now suspended Paraguay.  In this arrangement, club members agree to lower their nation’s trade barriers with each other, while setting a common tariff toward non-member states.

The Waiting List

Chavez had been on the Mercosur waiting list for six years, hanging on as an associate member.  Every time the vote for full approval rolled around, Paraguay’s conservative congress raised its hands in objection – nay!  However, on June 21, that same congress decided to oust Paraguay’s left-leaning president, in a less-than democratic impeachment.   In a few words: they got their ass suspended from Mercosur.  How does that democracy clause taste?  Kind of like embargo doesn’t it.

With Paraguay out of the picture, Brazil, Argentina and Uruguay gladly inducted Venezuela into their club.

Clubhouse Rules

While Chavez and his bigs might have been delighted by the prospects of fresh oil, Mercosur’s club house rules may complicate Venezuela’s own rules. Through subsidies and price controls, Chavez has made food cheaper for Venezuela’s poor.  Unfortunately, these measures have made it difficult for farmers to breakeven.  Outside the oil industry, Venezuelan producers, both large and small have struggled under the high cost of doing business and a low return on investment.  This reality makes crude oil Venezuela’s only trading card.

Now enter into a free trade agreement with South America’s two largest economies, which happen to be agricultural giants. The prospects for Venezuelan producers go from miserable to plain non-existent.  A flood of duty-free staples from Brazil and Argentina is likely to outcompete strictly controlled Venezuelan alternatives.

Or maybe the food subsidies run so deep, covering 60-80 percent of the good’s original cost, that even South America’s agricultural powerhouses will have to look elsewhere.

Yet, Chavez remains optimistic, referring to the rules of Mercosur as ‘flexible.’  “Brazil isn’t an empire. Brazil is a brother… as is Argentina, and also Uruguay and Paraguay,” he said.  But will the face of imperialism, so often embodied by the US, simply don Brazilian and Argentine masks?

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