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PLEASE SCROLL DOWN FOR ARTICLE This article was downloaded by:On: 2 September 2009 Access details: Access Details: Free Access Publisher Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House,37-41 Mortimer Street, London W1T 3JH, UK Cambridge Review of International Affairs Publication details, including instructions for authors and subscription information:http://www.informaworld.com/smpp/title~content=t713409751 Bounded by the Reality of Trade: Practical Limits to a South American Region Sean W. Burges aa Carleton University, OttawaOnline Publication Date: 01 October 2005 To cite this Article Burges, Sean W.(2005)'Bounded by the Reality of Trade: Practical Limits to a South American Region',CambridgeReview of International Affairs,18:3,437 — 454 To link to this Article: DOI: 10.1080/09557570500238076 URL: http://dx.doi.org/10.1080/09557570500238076 Full terms and conditions of use:http://www.informaworld.com/terms-and-conditions-of-access.pdfThis article may be used for research, teaching and private study purposes. Any substantial orsystematic reproduction, re-distribution, re-selling, loan or sub-licensing, systematic supply ordistribution in any form to anyone is expressly forbidden.The publisher does not give any warranty express or implied or make any representation that the contentswill be complete or accurate or up to date. The accuracy of any instructions, formulae and drug dosesshould be independently verified with primary sources. The publisher shall not be liable for any loss,actions, claims, proceedings, demand or costs or damages whatsoever or howsoever caused arising directlyor indirectly in connection with or arising out of the use of this material. Bounded by the Reality of Trade: Practical Limitsto a South American Region* Sean W. Burges Carleton University, Ottawa Abstract This article argues that regionalism in South America will meet with limitedsuccess because continental and subregional integration projects lack the necessaryeconomic underpinnings. The result is an incomplete form of regional integration that,while offering some rewards to the participating countries, predominantly serves theenergy security needs of the region’s major players. Brazil, in particular, benefits from this process and also is the prime reason that regionalism in South America will not deepen.Without a major state to absorb the costs of region-building the process will stall. As theevidence in this article implies, Brazil is not willing to absorb these costs, placing severelimits on the region and regional acceptance of Brazilian leadership. South American integration is again an issue in New World political economy.Despite the failed Latin American Free Trade Area in the 1960s and the LatinAmerican Integration Association of 1980, attention has returned to integration,putatively as a response to international economic and political pressures(van Klaveren 1997). And it is political pressure, especially in the form of presidential diplomacy (Danese 1999), that is driving contemporary continentalintegration initiatives such as the South American Union launched in December2004 at a Cuzco, Peru presidential summit. But is there an economic fundament tothese political proclamations of integration?This article argues that joint presidential declarations are not matched by thewider dynamics necessary to sustain integration processes. Propositions thatcontinental region formation continues to be about the collective economic growthof the early 1990s appear reasonable, but overlook the underlying intentionsdriving initiatives such as the South American Regional Infrastructure Integrationprogramme (IIRSA). A central strut of the argument is that the conventionaleconomic basis for a deeply integrated South American region is, at best, thin.An examination of intra-continental trade flows and the factors influencing themcalls for an alternative explanation of continued attention to integration,particularly by the region’s dominant players. In short, South Americanregionalism emerges as a project lacking a leader willing to absorb the costs of *The author would like to thank Jean Daudelin, Gian Luca Gardini, Andre´s Malamud, andthe two anonymous reviewers for their comments and encouragement with regard to thispaper. Research was supported by Canadian Social Science and Humanities ResearchCouncil Postdoctoral Fellowship #756-2004-0074. All errors, oversights, and omissions are,of course, attributable to the author. Cambridge Review of International Affairs,Volume 18, Number 3, October 2005 ISSN 0955-7571 print/ISSN 1474-449X online/05/030437–18 q 2005 Centre of International StudiesDOI: 10.1080/09557570500238076 D o w nl o ad ed A t : 19 :05 2 S e p t e mb e r 2009 providing the necessary public goods, but nevertheless is pushing forward indirections that serve the interests of the country that could fill that role: Brazil.Two theoretical propositions will be developed by drawing on the newregionalism literature. First, a deep integration project requires a transfer of ‘ownership’ of the region from the policy e´lite to economic, civil, and culturalsociety. Although such deepening has been discussed in the context of Mercosurand macroeconomic as well as institutional coordination (Pen˜a 1997; Grandi &Schutt 1996; Preusse 2001; Ferrari Filho 2001), proposals remain more an ambitionthan the recipe for a realistic future. Empirical examination of intra-continentaltrade flows as well as lacunae in technical questions such as trade facilitationsuggests that South American regionalism is distinctly limited in character. Thesecond proposition is thus that there is more to region formation than trade flows.Central to the South American case is a non-traditional aspect of security—energysecurity—and the unwillingness of Brazil to assume the costs associated with itsleadership ambitions.On an empirical level this paper provides data demonstrating that there isinsufficient economic pressure to support a deep South American region. In thecase of Mercosur the data puncture suggestion that the bloc is a prelude to an EU-style union. (de Oliveira 2000; Bajo 1999). Evidence is organised under sixheadings: the character of intra-continental trade; the size of trade flows; the roleof trade in South American economies; the paucity of transnationalisedproduction; low intra-continental foreign direct investment (FDI) flows; andtransnational infrastructure networks. Two of these factors, FDI flows andtransnational infrastructure, are key elements for understanding the emergingnature of South American regionalism—i.e. its focus on energy. Althoughtraditional security concerns were important to the srcins of Mercosur, there isnow minimal fear of intra-continental state-state conflict; hence, external threatmanagement is not addressed here (Mera 2005). A more detailed treatment of Brazilian attempts at costless leadership (Burges, forthcoming) are largely leftimplicit in this article due to space restrictions, with the subject assuming greaterresonance in the conclusion. Regionalising: Why and How? Hettne and So¨derbaum (2002) describe region formation as a political processguided by formal governmental policies. A conscious decision is made by a seriesof countries to group together, whether in reaction to perceived erosion of theWestphalian system, the rise of unipolarity, or globalisation-induced competi-tiveness concerns. The goal is to create a larger, supranational space collectivelytransforming or protecting existing structures. Regional initiatives are thussimultaneously political, economic, and social projects designed to collectivelyprotect national sovereignty and autonomy. Discussion about which actor createsthe initial regionalist impetus—some argue the market, others the state—is not of immediate importance to an examination of regionalism’s trajectory in SouthAmerica; what matters is that deepening and extending a region requiresincreased contacts between previously separate groups. As Acharya (2002, 25)suggests, regional progress depends on non-state-level interaction providingeconomic substance through trade, which precipitates shifts in public opinion.438 Sean W. Burges D o w nl o ad ed A t : 19 :05 2 S e p t e mb e r 2009 The argument in this paper is that the economic substance of a South Americanregion will not generate the necessary integrative pressures.Cable (1994) notes that the major difference between first- and second-waveregionalism is that market considerations drive contemporary region formation,particularly capital movements and multinational corporations’ decision making.Tussie (1998, 82) points at this factor in her examination of regionalism in theAmericas, highlighting a desire for expanded market access as a ‘bottom-up’ pushfor integration. Yet a contradiction remains embedded within this market-seekingapproach, namely the concentration on market access as opposed to regionaldisaggregation of production structures. Ethier (2001) points to this conundrum by stating the obvious: convenience suggests that countries trade with theirneighbours. But this does not necessarily tell us why or how far countries willpursue integration. A simple boost in trade may tell us little about thesustainability of a region (Thomsen 1994). I will thus consider what is traded aswell as the nature of transnational investment flows and their impact on theintegrative impetus of trade. Thomsen posits that it is intra-firm trade, and I willalso include investment, which is key because much international trade serves thegeographical distribution of production, implying that regionalism involves theevolution of a truly integrated economic space, not just an increase in commercialexchange.This is the network of economic, cultural, scientific, diplomatic, military, andpolitical linkages that Mace and The´rien (1996, 3) place at the core of regionalism,precipitating what Baldwin (1997, 877–78) labels a domino theory of regionalism.The benefits from small preferential trading agreements create incentives to notonly deepen but also enlarge the bloc in search of greater advantage. Aninherently protectionist logic is implicit, one that should prompt participatingstates to establish institutional frameworks protecting the advantage gainedthrough the bloc. The issue is one of control: a state seeks to preserve autonomy byceding a limited degree of sovereignty to the region. Again, pressure forinstitutionalisation comes from economic and civil society interests becomingincreasingly embedded in the region, creating domestic pressure for expandedcollectivisation of sovereignty. Such is the suggestion from the Europeanexperience (Baldwin 1997). In a South American context the process isfundamentally more defensive, with regionalism becoming a protectionist toolfor globally uncompetitive industries. The critical consideration is whether or notstates feel that the payoffs from participation in the project are sufficient to justifythe surrender of sovereignty and the effective collectivisation of some aspects of policymaking.Bulmer-Thomas and Page (1999, 77) as well as Gamble and Payne (1996)suggest that a state might pursue the regional integration path independent of market pressures to force economic liberalisation and seek the integrationistgrowth possibilities long mooted by the Economic Commission for Latin Americaand the Caribbean (ECLAC). To a significant extent this is what happened inSouth America (Baumann and Lerda 1987; Manzetti 1990). Here the embeddedneoliberalism that Mittelmann (2000, 128–29) finds in the resurgence of regionalism underpins a belief that trade expansion will perforce bring economicgrowth. This assumes first that trade is important to the national economy, and,second, that trade with neighbouring countries is on a significant scale. Asrepeated ‘relaunchings’ of Mercosur demonstrate (Phillips 2001; Cason 2002), Practical Limits to a South American Region 439 D o w nl o ad ed A t : 19 :05 2 S e p t e mb e r 2009
