By Lucy Jordan, Contributing Reporter
BRASÍLIA, BRAZIL – President Hugo Chávez met with the leaders of Brazil, Argentina and Uruguay in Brasília Tuesday to formalize Venezuela’s entrance to Mercosur – six years after the oil-rich Caribbean nation’s first attempt to join the trade bloc. The decision to let in Venezuela was taken, controversially, without Paraguay’s approval during that country’s suspension for Former President Fernando Lugo’s impeachment.
Paraguay was not invited to the summit and Paraguayan officials on Monday told the BBC they were considering their next steps to legally contest Venezuela’s entry.
It was expected that the countries would discuss the technical points of Venezuela’s entry to the bloc, which was formed in 1991 to enhance regional trade, such as Venezuela’s adoption of the alliance’s Common External Tariff.
Venezuela’s entry will increase the scope of Mercosur considerably, to about seventy percent of the population of South America, and expand its GDP to US$3.3 trillion at current prices, or 83.2 percent of total South American GDP. For Brazil, Venezuela’s entry will mean a huge new market for Brazilian exports, especially manufactured goods that will reduce its reliance on selling commodities to China.
“Brazil has already a huge trade surplus with Venezuela (our third largest) and we sell mostly value-added goods,” explained Jeferson Manhaes, an aide in the Brazilian delegation to Mercosur’s parliament. “Venezuela, which exports mostly oil, would not find in Brazil an attractive market, unless Venezuela manages to sell its oil at a much cheaper price than Brazil’s, which would be difficult given the infrastructure bottleneck Venezuela would find to transport it to Brazil´s economic heartland, the Southeast.”
Venezuela has enormous oil reserves – the largest in the world, according to OPEC – but produces very little else, and imports most of what it consumes. Brazil, with a wealth of hydropower resources and recently discovered pre-salt oil reserves of its own, has no need to buy Venezuelan oil, but an oil-rich neighbor will nonetheless be useful.
“As a regional energy power, Venezuela provides opportunities for energy agreements from natural gas to oil refining,” said David Smilde, Senior Fellow at the Washington Office on Latin America.
There are other significant trade benefits too; the currency restrictions that Venezuela currently has in place will not be allowed under Mercosur’s rules, and Chávez will not be able to expropriate foreign companies operating in Venezuela as he has done in the past.
One risk of Venezuela’s entry is the politicization of the bloc that Chávez may bring, experts say. The Venezuelan president – who faces reelection in October – is notorious for his noisy anti-American rhetoric, which would distract from economic concerns.
“It seems certain that Venezuela will test the rules and it will be interesting to see how much strength and will Mercosur has to reel Chávez in when that happens,” said Mr. Smilde.
Brazil will be hoping that the commercial benefits to Venezuela are enough to temper Chávez’s Bolivarian tendencies, said Mr. Manhaes. “Chávez knows there’s no place for radicalism in Brazil´s foreign policy agenda.”