A political standoff between the Paraguayan government and the customs union known as Mercosur has been underway since June 2012, when Paraguay's voting rights in the bloc were temporarily suspended in response to former Paraguayan President Fernando Lugo's removal from office. Recent democratic elections in the country have cleared the way for its voting rights to be restored, and Mercosur members are expected to discuss reintegrating Paraguay at the bloc's upcoming summit in Montevideo on July 12.
However, Paraguay is still upset over the suspension, which it considered to be a violation of the bloc's founding treaty, and over the subsequent admission of Venezuela without Paraguayan consent. Moreover, Paraguay believes it should be given the presidency of the union, since its turn was skipped during the suspension. But despite its objections, the country relies on Mercosur states for roughly half its exports and as corridors to other global markets. So while Paraguay may threaten to postpone its re-entry into the bloc or leave it altogether, such threats ultimately would be used as political leverage to rejoin the union on its own terms.
When President Lugo was deposed by the Paraguayan Congress in what his opponents insisted was a constitutional impeachment, the other members of Mercosur — Brazil, Argentina and Uruguay — were heavily critical of the move, going so far as to call it a coup. Paraguay's voting rights in the trade bloc were suspended shortly thereafter, though the country's trade privileges remained in tact. Since then, Asuncion has contended that Mercosur's assessment of the ouster and its subsequent vote were done too hastily without due process.
A month after the suspension, in July 2012, Venezuela became the bloc's fifth member. Paraguay had previously denied Venezuela full admission (according to the bloc's founding Treaty of Asuncion, unanimous approval is required for new members), citing concerns about the country's democratic system. Lugo himself supported Venezuela's entry, but he failed repeatedly to garner sufficient support from Congress. When Paraguay's voting rights were frozen, the other Mercosur members decided that Venezuela could then join the union, since all of the bloc's active members had already approved the country's admission.
Mercosur has indicated that Paraguayan voting rights would be restored once the country held free and fair elections. In April 2013, Paraguay elected Horacio Cartes president in elections that were indeed deemed acceptable by the Union of South American Nations and Mercosur, thereby clearing the way for reinstatement. However, the president-elect is now arguing that unless Paraguay is given the Mercosur presidency and unless it is allowed to vote on Venezuela's membership, it might reject Mercosur's invitation.
Since Paraguay has been in legal limbo — still a Mercosur member but sidelined from decision-making — the country believes it should have retained the right to vote on Venezuelan membership. The rest of the bloc disagrees and is wary of allowing Paraguay to vote on Venezuelan membership. The presidency rotates twice a year among the bloc's members in alphabetical order. With Paraguay disenfranchised when its turn came after Brazil's term expired in late 2012, the presidency passed directly to Uruguay. Venezuela is set to assume Mercosur leadership at the upcoming summit, and Paraguay believes it should hold the presidency in Venezuela's place.
Paraguay's Lack of Leverage
The government in Asuncion is also upset because it believes Paraguay's suspension violated Mercosur's multilateral charter. As a small country located between two stronger powers — Argentina and Brazil — and with few natural resources, Paraguay relies on international law and treaties for much-needed leverage in negotiations with its neighbors. If Paraguay accepted Mercosur's rulings, it would be tacitly conceding that international law and treaties are malleable for political ends, thus undermining the country's bargaining position. Still, Mercosur does not appear to be abandoning its interpretation of events, making Paraguay's willingness to resist rejoining the bloc essentially the country's sole negotiating tool.
Mercosur is the world's fourth-largest trade union (behind the European Union, the North American Free Trade Agreement and the Association of Southeast Asian Nations) and the largest in Latin America, with a total population of around 277 million people and a gross domestic product of around $3.3 trillion. The union is significantly larger than its regional ideological counterpart, the Pacific Alliance — comprising Mexico, Colombia, Peru and Chile — to which Paraguay recently gained observer status. More than half of Paraguay's exports head to Mercosur members, and nearly all of its foreign trade passes through Mercosur countries at some point, making the country highly dependent on the bloc.
If Paraguay follows through on its threats to abandon Mercosur completely, tariffs would likely increase, greatly damaging the country's modest economy. Instead, Paraguay is likely to take a middle road, neither leaving the bloc entirely and forfeiting its preferential trade agreements nor quickly accepting the restoration of its voting powers. Instead, Asuncion will likely delay its re-entry and use its threat to leave the bloc to try to exact political concessions. Rhetoric may flare up in the short term, but geopolitical realities will prevent Paraguay from taking bold action against Mercosur in the long term.
