Trade Seen Taking Back Seat to Politics at South American Summit

Expressions of Solidarity With Fugitive Leaker Snowden Could Outshine Members' Conflicts

By KEN PARKS, July 11, 2013, 8:06 p.m. ET, Source - Wall Street Journal

MONTEVIDEO, Uruguay—Allegations of U.S. espionage and expressions of solidarity for National Security Agency leaker Edward Snowden are expected to top the agenda as South American presidents gather for a summit in Uruguay's capital on Friday.

Mercosur, as the South American customs union is known, was founded in 1991 as a vehicle to promote regional trade. But it has increasingly become a political forum for regional leaders, some of whom plan to voice concerns about reports of electronic surveillance by the U.S. of several Latin American countries. What is less clear is whether members will find a way to effectively deal with membership and trade disputes that have some national officials and analysts questioning the value and future direction the trade bloc.

Brazilian newspaper O Globo reported Sunday that the NSA targeted millions of emails and phone calls in Brazil and other countries in the region. President Dilma Rousseff´s government has ordered an investigation into the matter and demanded the U.S. explain its intelligence-gathering activities. Senior U.S. government officials have promised to respond to the allegations directly to their Brazilian counterparts.

"I hope that at the Mercosur meeting this Friday, we presidents make a strong pronouncement and demand explanations to these revelations…are confirmation of what we thought was happening," Argentina´s President Cristina Kirchner said in a recent speech.

The leftist governments of Venezuela, Bolivia and Nicaragua have offered political asylum to Mr. Snowden, who has been stuck for more than two weeks in Moscow's Sheremetyevo International Airport without proper travel documents.

Last week, Bolivian President Evo Morales had to make an unscheduled landing in Vienna after several European countries refused his jet authorization to enter their airspace on suspicions the U.S. fugitive was on board.

The incident prompted leftist regional leaders to call a snap summit in Bolivia a week ago, where they demanded that Spain, Italy, France and Portugal explain and apologize for their actions.

"Up until now, we continue to consider insufficient the explanations or apologies European countries have given," Uruguay's Foreign Minister Luis Almagro told reporters following a meeting of Mercosur foreign ministers early Thursday.

Christopher Sabatini, the senior director of policy at Americas Society and Council of the Americas, said the bloc's original goal of economic integration has become sidelined by political rhetoric.

"They failed to sufficiently liberalize the trade within Mercosur, and as a customs union they have shackled their members and their ability to negotiate free-trade agreements with other more-modern and dynamic economies," he said.

Mercosur—whose current members are Brazil, Argentina, Venezuela and Uruguay—has to deal with several internal disputes and membership issues. Bolivia is seeking full membership, while Suriname and Guyana signed accords Thursday to join the bloc as associate members.

Mercosur suspended Paraguay´s membership last year after it judged that the swift impeachment of former President Fernando Lugo violated its democratic principles.

Paraguay could be readmitted once president-elect Horacio Cartes takes office in August. But it isn't clear if Paraguay wants back into Mercosur, and if it would be willing to live with Venezuela as a full member. The Paraguayan Congress had long blocked Venezuela's membership bid on the grounds that former Venezuelan President Hugo ChÁvez was undemocratic. The suspension of Paraguay cleared the way for Venezuela to join Mercosur.

Uruguay is scheduled to pass Mercosur's rotating presidency to Venezuela at the end of the summit. That could prove symbolically important for Venezuelan President NicolÁs Maduro, who is struggling to consolidate his power amid inflation of almost 40%, shortages of basic goods and lingering doubts about his disputed victory in April's election.

The reports of U.S. surveillance and membership announcements could prove a welcome distraction from what some members and observers see as Mercosur´s shortcomings, such as its inability to resolve trade disputes that has called into question its effectiveness as a trade bloc.

Paraguay and Uruguay have long complained about the absence of formal dispute resolution mechanisms in Mercosur. Trade spats are usually resolved bilaterally by heads of state or through closed door talks between government officials.

Argentina has blocked imports from Uruguay and Brazil as it struggles to boost its trade surplus, a key source of foreign currency for Mrs. Kirchner´s government. Brazil has retaliated with trade barriers of its own, which usually cause the Argentines to back down. But tiny Uruguay has much less leverage over Buenos Aires.

Mercosur has shown more cohesiveness when it comes to protecting regional industry from outside competition, while internal divisions have hobbled its ability to strike trade deals with other countries and blocs.

Uruguayan President JosÉ Mujica said Mercosur should consider discussing a special tariff on Chinese imports during the summit to protect South American manufacturers.

Trade talks between Mercosur and the European Union are in limbo, while the Europeans appear to be moving closer to signing a free trade deal with the U.S., he said in an interview with Argentine state news agency Telam. His comments were confirmed by a government spokesman.

"We need to have a debate about the path of Mercosur," Mr. Mujica was quoted as saying.