Economic Freedoms; MERCOSUR, WTO, and International Law

Within the realm of economic integration, the freedom of movement of goods is considered an essential element forming the economic constitution of a competitive market economy-oriented.²⁶⁰ To attain such freedoms, it takes more than just eliminating customs, as in fact any other direct or indirect trade restrictions need to be eliminated so called the removal of non-tariff barriers.

256 Ibid, p. 75.

257 Ibid.

258 Susani, Nadine; p.80; referring to Artice 228(2) EC.

259 Ibid, p. 85.

260 Fuders, Felix. “Economic Freedoms in MERCOSUR.” The Law of MERCOSUR, p. 88; referring to “PC Mueller-Graff, ‘Vorbemerkungen Art 28-31 EG.”

Article 1 of the TA sets out the fundamental concept of a common market in the southern cone and compared to the EU treaty, it has a general connotation concerning the free movement of goods, persons, capitals and services (production factors). According to the art.1 and 2 of the TA, such economic freedom is established through: 1-The elimination of Customs duties, 2- Non-tariff trade barriers, and 3- by provisions of equal impact.²⁶¹ Moreover, Article 1, paragraph 2 of the Treaty of Asuncion plays a key role as a component that is in support of macro-economic policy.²⁶²

Even though freedom of movement of workers is not explicitly mentioned in the TA, Article 1 of the Treaty however, is addressing all the production factors of the required free movement including both capital and labor. The freedom of movement for workers is not very developed in case of MERCOSUR which is not a surprise, because even in the case of the European Union there has been only some recent achievement over true freedom of cross-border movement of workers.²⁶³

Article 5 of the TA sets out in more details “the Trade Liberalization Program” managing the tariff cuts and harmonization of macro-economic policies among the states parties. Article 5 of the TA is in fact an attempt “to establish a common market by the means stated in article 1 of the Trade Liberalization Programme” that encompasses “the abolition of customs, non-tariff trade barriers and measures having an equivalent effect” while adding a fourth obligations that is: “the abolition of all other restrictions amongst Member States.”²⁶⁴

Some policy suggestions caught my attention for such economic freedom including “the alignment of education systems” as a common education policy among the members that can contribute to the realization of the freedom of labor mobility within MERCOSUR. Even though the economic freedom is emphasized through the treaty of Asuncion (TA), maintaining the “Public Order” is among the exemption priorities which are stressed in Art. 50 of the Treaty of Montevideo (as also recognized in Art. 14 GATS).

Samantha Moura Ribeiro in her article²⁶⁵ points out that despite the Doha Development Round and the Uruguay Round (establishing the WTO) the subject of development as stated in the Preamble of its Constitutive agreement, which should be in the core of attention, has been rather forgotten concerning the developing countries in the day-to-day practice of the world trade system. Furthermore, such provision is

261 Fuders, Felix, p. 88.

262 Ibid, p. 101.

263 Fuders, Felix. “Economic Freedoms in MERCOSUR.” The Law of MERCOSUR, p. 106.

264 Ibid, pp. 88-89.

265 Ribiero, Samantha S. Moura. “MERCOSUR and the WTO: A Review of the Relations in the International Trading System.” The Law of MERCOSUR, 2010. p. 131

not practically sufficient for promoting fundamental rights and/or enhancing development.²⁶⁶

Generally speaking she is referring to the conflicts that exit between multilateral and the regional agreements and in particular between the WTO and MERCOSUR. On the one hand, since there is no hierarchy in international law, such agreements should all have the same weight and as such, regional arrangements exercise some degree of autonomy, yet on the other hand, the fact that such regional agreements have to be approved by GATT/WTO, gives the impression of subordination relation with respect to WTO which is supreme (two approaches which reminding the dualist and monist approach in International Law and Relations). Nonetheless, the Protocol of Olivos (PO) has a choice clause in article 1(2) which allows a member state “to resort to the MERCOSUR system for the settlement of disputes or to a different mechanism to which it is a party²⁶⁷…”

However, when it comes to dispute settlement mechanism, in practice WTO has in fact compulsory and exclusive jurisdiction to rule on complaints that evoke WTO law, and this gives a more definite nature to the Dispute Settlement Body (DSB) of the WTO. By explaining two case studies among MERCOSUR member states, Ribeiro is trying to show this conflict between the WTO’s DSB and that of MERCOSUR’s as there is a weaker enforcement mechanism in the latter compared with the former.

Accordingly, in these two instances, WTO Dispute Settlement Body adopted a position of supremacy with no deference or respect towards MERCOSUR ruling and this can be problematic for MERCOSUR development (Case 1: The Poultry Disputes, and Case 2: The Retreaded Tyres Disputes).

Hence, she is well encouraging the ‘Solange method’ as was created by the German Federal Constitutional Court (BVerfG) and used in the EU at times to maintain this balance and respect. This model, as she believes, contributed to the protection of Human Rights within the EU and might play a positive role in contributing the citizenry rights in accordance with the rule of law while rendering a constitutional protection of participatory, deliberative and cosmopolitan democracy. This as an example also reveals as to how law can serve the purpose of establishing a social contract. As such, the Solange method by which -German Constitutional Court was in fact acting within judicious bounds- is arguably part of the international rule of law.

All this is to re-emphasize that beside WTO Preamble and article XXIV GATT, the values and principles of the rule of law and human rights ought to be taken into consideration as well as the application of the

266 Ibid, p. 132.

267 Ibid, p. 135.

Vienna Convention on the law of Treaties (i.e. its Preamble), along with the UN Charter (i.e. article 1).

Such kind of balancing of trading preferences and exceptions should also be foreseen for the MENA region even though it looks difficult at the first glance yet certainly feasible in a long run.

Unlike Ribeiro who was looking at the nuts and bolts of the disparity between WTO and MERCOSUR, Franca Filho is of the belief that “regionalization and globalization are two convergent and complementary phenomena.”²⁶⁸ To support his argument he refers to the rising number of regional trade agreements notified to the WTO in recent years. Although I agree that regionalism can be a “stepping stone” for further global partnership, I don’t see these two phenomena necessarily symmetrical as for example the founders of MERCOSUR were seeking for a united front against the liberalization and globalization era of 80’s and 90’s as their initial objective. Such stepping stone in their view has been in contradiction with that of globalization pattern as we go along. Yet, I acknowledge that the mutual interaction between regionalism and globalization is necessary and constructive for both to progress effectively.

From the point of Public International Law, MERCOSUR was endowed with the legal personality in accordance with article 34 of the Ouro Preto Protocol while detailing its rights and duties under international law according to art. 35 and 36 (Chapter II of the Protocol) enabling the bloc to enter into external relations with a legal capacity.²⁶⁹ As the result, Filho refers to such relations extended to other economic blocs including the EU. Nonetheless, he also points out that the political trends in the EU-MERCOSUR negotiations have been bearing the opposite perspectives and thus hindering the expansion of relationship. Such slow progress with the EU, lead to the diversification of trade relations with other partners around the world including the Cooperation Council for the Arab States of the Gulf (GCC), ASEAN, as well as the ALADI²⁷⁰ Member States, along with the deepening of South-South diplomacy establishing better ties with and within developing countries. We will cover more on the EU-MERCOSUR agreement in the following sections (4.1.4).

Moreover, two main reasons are detected which hampers the progress of new partnerships in the international sphere for MERCOSUR. One can be stressed as MERCOSUR’s lack of institutional development and second the excessive intergovernmental structure of MERCOSUR that politically

268 Filho, Marcilio Toscano Franca. “External Relations.” In The Law of MERCOSUR, p. 147.

269 Ibid, p. 148.

270 The Latin-American Integration Association (ALADI) is an intergovernmental organization that continues the process started by the Latin-American Free Trade Association (ALALC) in 1960 and promotes the integration expansion in the region, in order to guarantee its economic and social development. Its final goal is the establishment of a Latin-American common market.

prevents the separation of the will of MERCOSUR from that of the individual member states. In other words, unlike the EU, such a structure hinders reaching a supranational institution within MERCOSUR.

And this would weaken the position of the bloc as a relevant actor or global player on the international scene beyond any sheer factor of economic nature.²⁷¹

And, on development as the main goal that multilateral and regional organizations aim to promote, I would like to argue that this idea of MERCOSUR Fund for Structural Convergence (FOCEM),²⁷² which has proved to be a successful and helpful scheme, can furnish a good example for the MENA region. As suggested by Shahrokh Fardoust, a mini-marshal plan is needed to give a jolt for the development as an effective movement towards deeper economic integration in the MENA region.

In case of MERCOSUR, FOCEM is designed to foster the development and structural convergence of less favored regions within the bloc. Such idea was successful in the EU too, because they pursued a higher and exquisite aim to establish a common market that is to achieve a harmonious development of economic activities within their region; whereas in MERCOSUR, reaching the common market was the main goal expecting it to bring development and social justice; a sheer idealistic approach.

In FOCEM, larger countries are responsible for a bigger share of the budget (i.e. Argentina and Brazil 27 and 70 percent respectively); an idea that can be considered for the asymmetries in MENA. Yet, as mentioned, a successful model for such movement would be the European Regional Development Fund (ERDF) which had a prominent role in the EU project of integration and can provide lessons for the experience in MERCOSUR as well as MENA. Having such fund of support would be important because in such a scheme the correction of the regional imbalances would be considered to help the continuation of the regional integration and achieve its success. Therefore, establishing such Fund would be necessary or effective for completing the integration project.