Paraguay’s Suspension Clears Way to Mercosur for Venezuela

Sources:

Reuters: Mercosur Welcomes Venezuela, Suspends Paraguay

Rio Times: Mercosur Members Suspend Paraguay

WSJ: Venezuela To Join Mercosur Trade Bloc

Washington Post: Paraguay Suspended from Mercosur for Lugo's Impeachment, but Will not Face Economic Sanctions

On June 29, Argentina, Brazil, and Uruguay suspended Paraguay from Mercosur, a trading bloc that consisted of those four countries as voting members. Shortly after, Argentina, Brazil, and Uruguay also voted to make Venezuela a full member of the trading group.

The shakeup of Mercosur followed the Paraguayan Senate’s decision to remove leftist President Fernando Lugo. The Senate, which Paraguay’s right-wing opposition party controls, believed President Lugo did not appropriately handle a forced land eviction that killed nine farmers and seven police officers on June 15 of this year. Leaders of countries throughout South America condemned this impeachment. Argentina, Brazil, and Uruguay withdrew their ambassadors and claimed the impeachment violated due process (the legal procedures required to make a decision valid) because the Senate provided President Lugo less than 24 hours to present his defense at trial.

The decision by Argentina, Brazil, and Uruguay to suspend Paraguay from Mercosur opened the door for Venezuela, whose full-member status in Mercosur had been blocked for six years by the Paraguayan legislature (but favored by former President Lugo), to join Mercosur. Paraguay’s right-wing legislature had questioned whether Venezuela’s President Hugo Chávez was operating a democratic regime. However, with Paraguay no longer eligible to vote in Mercosur meetings due to the suspension, the three remaining countries quickly agreed to grant Venezuela its long-awaited full-member status.

Venezuela will officially become a voting member of Mercosur on July 31, and its addition will increase the trading bloc’s global influence. Although Mercosur is already a major global grain provider, Venezuela will bring in the world’s biggest crude oil reserves into the trading bloc. Potentially, the addition of Venezuela’s crude oil could give Mercosur leverage in long-discussed free-trade negotiations with China as it will now have energy supplies on its side of the bargain.

Although Argentina, Brazil, and Uruguay decided to suspend Paraguay until it votes for a democratically elected president in April 2013 (the interim President, Federico Franco, had served as Lugo’s vice president and had been critical of former President Lugo), the countries did not decide to impose economic sanctions on Paraguay. The land-locked country of 6 million is already one of the poorest in South America, and economic sanction by Mercosur, such as imposing tariffs (a type of tax) on Paraguayan goods, could have devastating effects because half of its trade is with other Mercosur countries. Moreover, the country has already suffered economically this year because a drought destroyed its soy exports and farmers have slaughtered hundreds of cattle due to the outbreak of foot-and-mouth disease. According to Argentina President Christina Fernandez, who has called the removal of President Lugo a “coup,” economic sanctions would not be productive because “they never hurt governments. They always hurt the people.”

The right-wing members of Paraguay’s Senate did not expect a suspension from Mercosur after impeaching and removing President Lugo. Despite their expectations, Paraguay’s suspension is Venezuela’s gain, and the legislators’ six-year efforts to prevent Venezuela from gaining full-member status have finally been thwarted. However, it is too soon to determine what these developments mean for South America’s economic and political landscape.