ASUNCION, Paraguay (Dow Jones)--Presidents at a summit of the Mercosur trade bloc here were flush with optimism about the prospect of deepening ties in South America before entering the U.S.-sponsored Free Trade Agreement of the Americas, but they failed to implement any concrete measures that would lead to greater integration.
Their expressions of solidarity were enough to convince observers that Mercosur is being revived and the U.S. will need to grant bigger trade concessions if it hopes to seal the 34-nation FTAA by the official 2005 target, yet leaders acknowledged they need to do more to improve trade flows and economic policy coordination within the customs union.
"People are expecting much more from Mercosur than what it has managed to do until now," Brazilian (news - web sites) President Luiz Inacio Lula da Silva said at the conclusion of the two-day summit on Wednesday. "We've never had such an important chance for integration in the history of South America," said Lula, who added he's working to ensure the discourse of integration doesn't remain just " sentimental."
Brazil and Argentina lead Mercosur, which was founded in 1991. Uruguay and Paraguay are also full members, while Chile and Bolivia are associates.
Chile, which earlier this month raised questions about its commitment to the bloc by signing a bilateral trade deal with the U.S., strongly backed greater political integration in the region. "We have distinctly different economic realities," Chilean President Ricardo Lagos said in reference to the bilateral deal. "But commerce and politics are different things."
Greater political integration would involve broadening the group. Though Brazil and the U.S. co-lead FTAA talks, Lula and his recently-elected left- leaning counterpart Nestor Kirchner of Argentina are spearheading calls to expand Mercosur.
Lula and Kirchner said they would welcome the entry of oil-rich Venezuela into the bloc, but it may take several years of negotiations. Their inclusive stance could hurt Kirchner and Lula's relationship with Washington as Venezuelan President Hugo Chavez is a close ally of Cuba. Lula is meeting with President Bush Friday during his first state visit to Washington to discuss issues related to the FTAA and Mercosur.
One of the summit's bright spots was the signing of a so-called framework trade agreement with India that will lead to the conclusion of a preferential trade deal in August. That accord should boost trade between Mercosur and India by about $3.0 billion over the next five years. Current trade flows are less than $2.0 billion.
After inking the Indian agreement, Mercosur leaders said they will work toward similar trade deals with South Africa, South Korea, the European Union, members of the five-nation Andean Community and the FTAA. As agricultural giants, Mercosur members also demanded cuts in agricultural tariffs by the E.U. and the World Trade Organization.
In terms of improving integration within Mercosur, four main objectives are being pursued: macroeconomic policy convergence to include the creation of a common currency; the conclusion of talks to standardize the bloc's common external tariff, which currently averages about 14%; the creation of a Mercosur parliament; and multilateral infrastructure projects to help physical integration in the zone.
The effort to clean up rules on the common external tariff, which is applied to all goods made outside the Mercosur zone, appears most likely to be implemented by its 2006 goal. This may occur despite familiar grumbles from Uruguayan and Paraguayan officials that they have too little say in the bloc and that their exports are limited by Argentine and Brazilian trade protections.
A proposed Mercosur parliament composed of congressmen from each country may go nowhere. Uruguayan Foreign Minister Didier Opertti said such a body would be "difficult to implement," but indicated he supports multilateral programs for infrastructure.
Finance ministers and central bank heads from the Mercosur countries affirmed their commitment to common fiscal targets and a long-term inflation goal of 5% starting in 2006. And the historic goal of creating a single currency is gaining force as Argentina and Brazil now have floating-rate currency regimes. In recent months, Brazil's real and Argentina's peso have each started trading at about three per U.S. dollar.
Brazil supports the idea of a unified currency and Argentine Vice Foreign Minister Martin Redrado said the discussions on the topic here were "very good," but there was no mention of how such a plan would be implemented.
-By Terry Wade, Dow Jones Newswires; (5511) 8147-0583, terry.wade@dowjones.com
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