28/10/16 10(23 PoPuPS | Is a strengthening south-south regional integration possible? Page 1 sur 12 http://popups.ulg.ac.be/1374-3864/index.php?id=1624&format=print Fédéralisme Régionalisme - Volume 16 : 2016 21st century Latin American regionalism in the spotlight Is a strengthening south-south regional integration possible? The case of Mercosur and Latin America Jean-Christophe Defraigne, Professor Institute for European Studies, Université Saint-Louis – Bruxelles Abstract This article will look at the structural difficulties that regional integration faces in Latin America and in particular will analyze the evolution and prospects of Mercosur. It will show that regional integration could only fully develop at the end of the Cold War but this period coincided with the adoption of the Washington Consensus and that meant that the largest Latin American economies renounced to a substantial part of their import substitution industrialization policies. The global economic context reinforced the specialization of Mercosur and the rest of South American economies on commodities and energy sectors. This has generated a higher macroeconomic instability and more tensions between the member States of the Mercosur. It has also weakened the lobby of industrialists in shaping economic policies. The relative weakness of the industry in this region explains why the enterprise-driven regionalization will be weaker than in other regional integration processes such as the EU, NAFTA or ASEAN where it played a decisive role in the deepening of the economic integration. Introduction This article will look at the structural difficulties that regional integration faces in Latin America and in particular will analyze the evolution and prospects of Mercosur. It will show that regional integration could only fully develop at the end of the Cold War but this period coincided with the adoption of the Washington Consensus and that meant that the largest Latin American economies renounced to a substantial part of their import substitution industrialization policies. The global economic context reinforced the specialization of Mercosur and the rest of South American economies on commodities and energy sectors. This has generated a higher macroeconomic instability and more tensions between the member States of the Mercosur. It has also weakened the lobby of industrialists in shaping economic policies. The relative weakness of the industry in this region explains why the enterprise-driven regionalization will be weaker than in other regional integration processes such as the EU, NAFTA or ASEAN where it played a decisive role in the deepening of the economic integration. Section 2 of the article will look at the roots of the regional integration processes in Latin America that emerged in the 1990s. It will show that these processes could not take place the throughout the 20 th century because of two main factors. The first is the geopolitical context of the Cold War which gave the US government a strong leverage inside the domestic politics of Latin American government and Washington was opposed to Latin American regional integration schemes. The second is the competing nationalist import substitution industrialization strategies that prevented intraregional liberalization. The regional integration process really took off with the end of the Cold War and the scaling down or phasing out of import substitution policy and a higher degree of trade liberalization. Section 3 will highlight the structural economic weaknesses of the Mercosur integration process. It will explain than their greater exposure to macroeconomic shocks (compared to advanced industrialized economies) which put a strain of regional solidarity, secondly, an uneasy geographical location and inadequate transport infrastructure to develop a strong manufacturing sector inserted in international global production networks. Section 4 and 5 outlines the serious challenges faced by the Mercosur process by analysing the difficulties of Mercosur member states to break away from their specialized role of commodities providers for the industrialized countries, the EU, the US and East Asia and what this specialization means for regional integration processes in Latin America. The article then address the issue of competing integration projects in the light of this increasing economic specialization based on commodities. The historical roots of Latin American regional integration in the late 20 th century The geopolitical weight of the Cold War and regional integration in Latin America The Americas have been characterized by competing integration projects since the end of the Cold War. In the early 20 th century, US firms began to internationalize and challenge the hegemonic commercial position of Great-Britain in Latin America after WWI1 . The rise of US multinational enterprises (MNEs) was accompanied by a more interventionist diplomacy in which the US government attempted to take the regional leadership of the continent and marginalize the influence of European powers2 . Latin America was perceived in the US as their “backyard”, both economically and geopolitically. It did not prevent some Latin American governments, notably after the 1930s crisis such as Vargas, Cardenas or Peron to adopt policies to strengthen their bargaining position in the global economy and to attempt to develop some, although limited, economic autonomy vis-à- vis the US or Europe, notably through import-substitution industrialization. These attempts by the governments to gain more sovereignty and by some indigenous bourgeoisies to develop a stronger industry capable of strengthening their capital accumulation capacities vis-à-vis their European and US competitors led the largest Latin American economies toward protectionist policies in the aftermath of WWII. However given the technologies generated by the fordist industrial production methods, the size of the Latin American national economies, even the largest ones such as Brazil, Mexico or Argentina, was not sufficient for indigenous firms to benefit from sufficient economies of scale to compete against their American or European counterparts in many key industrial activities3. Therefore some