Mutual trust and Mercosur integration in South America

John A.E. Vervaele
Professor of Economic and Financial Criminal Law at the University of Utrecht; Visiting Professor of European Criminal Law at the Europe College in Bruges.

1.	Introduction

During the 19th century, at the time of the formation of nation states, numerous attempts were made to form a large, strong Latin American nation, all of which failed as a result of internal tension and differences. The first foundation for a free trade zone was laid in recent history in 1960 in the Montevideo Convention. The Latin American free trade zone (LAFTA) developed into a zone comprising 10 South American countries and Mexico. This economic cooperation can easily be compared with the current North American free trade zone NAFTA between the US, Canada and Mexico. LAFTA did not prove to be very successful. Negotiations soon foundered over the harmonisation of customs tariffs. The arbitration scheme for conflict resolution lacked the strength needed to withstand the political differences between the States Parties. In addition, the countries in the economic middle bracket and below feared the economic trade domination of Argentina, Brazil and Mexico. Against this background the Pacto Andino was created, by which Bolivia, Chile, Colombia, Ecuador and Peru under the 1969 Cartegena de Indias Agreement transferred certain powers to a common supranational structure. For the most part, the Comunidad Andina was a copy of the EC, both institutionally and substantively. Even the structure and powers of the European Court of Justice were copied, including the power to refer matters for a preliminary ruling. However, the States Parties were not prepared to accept the binding effect of Andino law. This meant that every individual decision had to be ratified and transposed into national law and could only become binding after ratification by all States Parties. This process of incorporation led to frustration among the partners and Chile’s withdrawal in 1976 was the deathblow. Interest in the free trade zone was revived and LAFTA was transformed into the Latin American Association for Integration (LAIA).

2. Mercosur: genesis and objectives

During the second half of the 1980s negotiations started between Brazil and Argentina, the two major players on the continent, concerning regional community integration. It was intended to deepen further the integration process starting from LAIA as the acquis. The negotiations resulted in the 1991 Treaty of Asuncion (hereinafter: TA). The economically highly dependent countries of Uruguay and Paraguay also acceded. During the course of the 1990s Bolivia and Chile became associated members based on an agreement concerning the free trade zone with Mercosur. Mercosur is based on an international treaty establishing intergovernmental institutions and laying down objectives which all sound quite familiar: the realisation of a customs union and a common market, linked to the four freedoms. It also has common policy areas and the accompanying harmonisation. As such it is an intergovernmental structure with a community integration project in mind, in short, quite definitely not limited to a free trade association.

Article 1 TA provides for a transitional period until the end of 1994 for the realisation of a common market. The common market comprises the customs union, the four freedoms and the coordination of policy in the field of agriculture, fiscal and monetary matters, foreign trade, etc. In addition, Article 1 expressly provides for the necessary harmonisation of the legislation of the States Parties.
It soon became apparent that the agreed time frame, namely the period between 1991 and 1994, was much too short to be able to achieve these goals. The elimination of the internal trade barriers for the purpose of the customs union and the realisation of a common external customs tariff proved much more difficult than expected. In 1993 Mercosur decided to abandon the date, without however abandoning the actual goal of creating the customs union and the common market. These are now sought to be in place by 2006.

3.	The institutional structure of Mercosur

Even though where content is concerned Mercosur strongly resembles the EEC in its early stages, from an institutional perspective the differences are striking. Based on Article 18 TA the institutional structure of Mercosur is further determined in the 1994 Protocol of Ouro Preto (hereinafter: POP). Article 3 POP qualifies the Consejo del Mercado Común (CMC) as the highest political organ. It consists of the Ministers for Foreign Affairs and the Economy and of the Meetings of the Heads of State. The CMC is also authorised to arrange new meetings of ministers and has made ample use of this competence. Besides the Meetings of the Ministers of Agriculture and Industry there are now also Meetings of the Ministers of Justice, the Interior and Social Affairs. In short, the competence of the CMC may be compared to that of the Council of Ministers and the European Council in the EU Treaty. The Grupo del Mercado Común (GMC) is without doubt the executive branch of Mercosur (Article 10 POP). The GMC runs all working groups, ad hoc groups and specialised meetings concerning agricultural matters, the harmonisation of technical product norms, the environment, financial services, border control, tourism, etc. The Comisión del Commercio del Mercosur (CCM) falls under the GMC (Article 16 POP). It has competence in specialised economic issues, like competition, procurement, customs, consumer protection, etc. The CMC further deals with complaints in these areas from States Parties and private parties.

The CMC, GMC and CCM make decisions that are binding on the States Parties. Binding secondary Mercosur law consists of CMC decisions, GMC resolutions and CCM directives (Articles 41 and 42 POP). The right of legislative initiative is exclusively in the hands of the States Parties which may submit proposals in the CMC, GMC or CCM. Mercosur also has several institutions with purely advisory powers, such as the Comisión Parlementaria Conjunta (CPC) and the Foro Consultivo Economico Social (FCES). The CPC has an important advisory function with respect to the harmonisation of legislation. Finally, Mercosur has an administrative secretariat (SAM) with its headquarters in Montevideo. Its powers, however, are rather weak (see Article 31 et seq. POP) and purely supporting. The SAM has no executive power, let alone any initiating legislative power. The SAM can therefore in no way be compared with the European Commission in the EC Treaty or EU Treaty. It is a supporting secretariat which organises meetings and handles documentation. In 2002 it was decided to expand the administrative secretariat and turn it into a technical secretariat.

4.	The legal character and legal effect of Mercosur law

The majority of authors agree that the organic structure of Mercosur, as elaborated in chapter II of TA is an intergovernmental organisation with community objectives, but not a supranational organisation. The intergovernmental character also emerges from the division of powers between the Mercosur organs and the weak position of the SAM. However, Mercosur remarkably does posses legal personality (Article 34 POP) enabling the CMC to conclude treaties on its behalf.

Article 38, taken together with Article 42 of the Protocol, lays down various obligations for the States Parties. The decisions of the CMC, the resolutions of the GMC and the directives of the CCM are all binding on the States Parties. All decisions are taken unanimously (Article 37 POP). Binding does not mean incorporated in domestic law and thereby a source of rights and duties for legal subjects. In short, the legal instruments of Mercosur have no direct effect whatsoever. Based on Article 42 POP, all States Parties are under the obligation to incorporate binding Mercosur decisions, to the extent of course that they need to be incorporated in domestic law. Article 38 POP in addition includes a provision concerning loyalty to Mersocur comparable to Article 10 of the EC Treaty. Article 42 further provides that incorporation is to take place in accordance with the internal procedures of every State Party. All States Parties that ratify and incorporate have to notify the SAM. After the final notification the SAM informs the States Parties, within 30 days of which the rules in question will simultaneously enter into force in all States Parties. Despite the strong intergovernmental influence, both in the adoption of decisions and in their entry into force, the importance of the community objectives in the TA must not be underestimated. In a dispute between Argentina and Brazil concerning the free movement of goods, quantitative restrictions and measures having equivalent effect, the non-entry into force of the customs union and the common market - argued by Brazil - was rejected by the court of arbitration.A State Party is not allowed to suspend or undermine the community objectives, even if these have only been partly realised. It is interesting to note that the decision frequently refers to European Community case law and uses concepts like interpretation in accordance with the treaty, effectiveness (effet utile), etc.  In the organisation of Mercosur a conscious choice has been made in favour of intergovernmental arbitration instead of for a supranational jurisdictional authority. Mercosur arbitration is regulated in the 1991 Protocol of Brasilia (PB), which has Article 43 POP as its legal basis. Article 43 POP also determines the subject-matter jurisdiction of the arbitration panel, namely concerning the interpretation, application or non-fulfilment of Mercosur law, i.e. both primary and secondary Mercosur law. The arbitration system is only open to States Parties. Mercosur organs and private parties do not have access to the arbitration system.

5.	Realisation of the Mercosur objectives

The aim of Article 5 TA, namely the elimination of tariff-related and non-tariff-related customs obstacles and the realisation of a common external customs tariff, was only achieved in 1995, i.e. one year after the deadline, and was moreover only partially successful. All States Parties were granted hundreds of exceptions and at this point the transitional periods for a number of products and customs procedures will not end until 2006. The States Parties may furthermore invoke a safety clause when the import of a certain product shows a dramatic increase implying possible dumping. The customs union has therefore been partly erected and currently applies to around 90 % of products. It remains a problem, however, that states make structural use of the safety clause and temporarily bar the entry of certain products by means of high customs tariffs. For this reason, the trade in cars, electronic equipment, chemicals, etc. is as yet far from liberalised.  Further problems constantly occur involving all kinds of levies and contributions invented by the States Parties and of course involving double health certificates for agricultural products. European lawyers will be struck by a sense of déjà vu, calling to mind historical case law concerning the free movement of goods and the customs union. In Mercosur, however, trade conflicts are often more serious and also more often directed by the states themselves. During the eighties and nineties Argentina drastically liberalised and privatised its economy, while Brazil continued to adhere firmly to a mixed economic model. Soon instances of unfair competition and subsidised trade occurred. On the other hand it was Brazil that devalued its currency during the nineties, while Argentina clung to parity with the dollar. Argentina was forced to protect its much more expensive products on the domestic market against the import of cheap Brazilian products. All this led to serious trade conflicts in the automobile market and in the sugar and grain markets. Brazil has meanwhile become an important manufacturer of cars and it is no coincidence that sugar and grains are products of which both Brazil and Argentina monopolise the production globally. The service sector is still very much closed, although intense trade disputes have by now also arisen in the telecommunications sector.

All this, however, does not alter the fact that a significant body of Mercosur law has by now been developed and that there is clearly a policy of harmonisation in a number of areas, such as for example agriculture and customs. In addition to this the partial entry into force of the customs union has resulted in a fivefold increase in internal trade within Mercosur.

6.	Judicial cooperation within Mercosur

Judicial cooperation is not expressly included in the Treaty, either as an objective or as an instrument. Nevertheless, judicial cooperation within Mercosur, both in the private law and the criminal law sense, has been an important priority from the start. Not only does this appear from the Protocols that have been concluded, but also from the fact that some of the more important Protocols have already entered into force. As early as 1991 the CMC established the Assembly of Ministers of Justice. On impulse from the Ministers of Justice various regional Mercosur agreements were elaborated in the field of private international law, cross-border civil procedural law and international criminal law. In 1996 the Assembly of Ministers of Home Affairs was created. Over the past few years, these Ministers have been very active in the field of police cooperation and intelligence. The recommendations of the Assemblies are submitted to the CMC which practically always approves them in the shape of binding decisions.

In the field of private law one of the first main results of the Justice Assembly was the 1992 Protocol of las Leñas. This Protocol concerning judicial cooperation in civil and commercial matters, employment questions and administrative affairs was clearly inspired by the 1968 Brussels Convention. The Protocol deals with both the mutual recognition of judgments concerning the private law interests of affected parties (i.e. with the exception of criminal law judgments) and the letters rogatory for obtaining evidence. In 1994 the Protocol of Buenos Aires concerning international jurisdiction with respect to contract law was adopted, providing priority rules for determining jurisdiction. Also relevant are the Protocol of Ouro Preto as regards provisional measuresand the Protocol of Santa Maria as regards international jurisdiction in consumer protection cases. In addition, regulations concerning cross-border legal assistance were approved in 2000.

When Mercosur was established, matters of international criminal law were mostly dealt with in bilateral treaties. In 1992 the multilateral Treaty of Nassau concerning mutual legal assistance was approved in the OAS. However, this Treaty was only ratified by a few states. A regional legal assistance protocol along the lines of the private law conventions was subsequently negotiated within Mercosur. In 1996 the Protocol of San Luis concerning judicial cooperation in criminal matters was adopted. Notably, this Protocol has been ratified and incorporated by all States Parties and is in force as of 2001. In 2002, a supplementary agreement standardised the documents for requests for mutual legal assistance. At least according to European standards, this legal assistance protocol is a classic, although on some specific points it is surprisingly different. Requests for mutual legal assistance, for the exchange of information, for the performance of investigative acts (e.g. the questioning of witnesses), for the temporary transfer of persons within the framework of criminal proceedings, etc., can be made by any judicial authority and the judicial authorities of the requesting state may also be present at the fulfilment of the request for mutual legal assistance in the requested state. It is not required that the principle of double criminality be fulfilled. Requests for proactive investigative acts or the use of special investigative methods, such as infiltration, controlled supply, etc., have not been included in the Protocol. The requests are dealt with between the central authorities of the States Parties. The classical royal route is not used, therefore, but neither is there direct cooperation between the enforcement authorities themselves. Furthermore, the central authority for this Mercosur protocol is not automatically the same central authority as for the bilateral treaties. The authority for Mercosur in Argentina, for example, is part of the Ministry of Foreign Affairs. The Protocol includes a duty to cooperate, but it has been watered down by a classic series of exceptions, like exceptions for military, tax and political offences or violations of public order or security. Worth mentioning is that the ne bis in idem principle has also been listed as a ground for exception. The execution of the request in the requested state is subject to the lex locus regit actum rule, but the requesting state may request the application of special aspects of its law (lex forum regit actum) on condition that this does not conflict with the domestic law of the requested state. The requests may also extend to seizure and provisional measures with respect to illegally obtained property, in the framework of the cross-border fight against organised crime and money laundering.

As regards extradition, the Mercosur States Parties have concluded many bilateral treaties, which were mostly ratified before Mercosur’s entry into force. The only multilateral treaty, the Inter-American Extradition Convention of Caracas (1981), has not been ratified widely. For this reason, the Extradition Agreement of Rio de Janeiro (1998)  was approved in the framework of Mercosur. This is another classic regulation with a few surprising aspects. The agreement includes a duty to extradite for offences punishable in both states by a maximum of no less than 2 years’ imprisonment. Political and military offences have been made exceptions, but it is expressly provided that war crimes or crimes against humanity, attacks on political authorities and terrorism do not fall under this heading. Military offences are only excepted insofar as they are of an exclusively military character. Tax offences therefore do not come under the exception. Another striking aspect is that the extradition of one’s own nationals is the rule, unless a State Party’s constitutional provisions determine otherwise. In that case the state in question is not obliged to extradite. Extradition for the purpose of standing trial before ad hoc tribunals is also excluded. Moreover, the requesting State Party is not allowed to impose the death penalty or life imprisonment. In such cases the penalty must be limited to the maximum penalty which could be imposed in the state asked to extradite. The procedure is classic and uses the royal route.

The field of customs cooperation has also witnessed due progress. In 1997 an assistance agreement was concluded concerning the prevention and repression of customs infringements.  The assistance can be used in the context of both administrative law and criminal law enforcement procedures and the information obtained may be passed on between the administrative and judicial authorities. This is direct assistance, either by request or voluntary, between the mutual customs authorities. The requests may concern the exchange of information, the performance of controls or the special supervision of persons or goods. The assistance cannot be used for the execution of fines, taxes, customs arrears, etc. In 2000 the Committee of Customs Directors was established, which is to give priority to the fight against smuggling. The action plan for countering customs infringements was approved in 2001. The plan contains a long list of concrete measures, ranging from the introduction of standardised customs controls to the exchange of knowledge in the field of customs intelligence. 

In the field of financial regulations and the fight against money laundering the results are less than impressive. There is only a framework agreement between the Central Banks, providing duties to cooperate and obligations to perform to the best of one’s ability, but lacking any obligation to establish financial intelligence units or to introduce specific obligations for financial service providers.

The vitality demonstrated over the past few years by the Assembly of Ministers of Home Affairs has no doubt been the main cause of surprise, however. It strongly appears that an acquis is being built within Mercosur in the field of police cooperation and intelligence which is similar in many respects to the Schengen acquis and the cooperation within the third pillar of the EU, although in this case not with the aim of compensating for the abolition of internal borders. In 1999 an integrated security plan was approved, elaborating the 1998 outlines of this plan. The plan regulates the cooperation between police and security services of the States Parties in the field of the exchange of information and operational cooperation. It also provides for the establishment of an automated database for storing and exchanging information, the SISME. Ratione materiae the cooperation is intended to prevent and detect crime, of which the trade in drugs and precursors, terrorism, trafficking in goods and people, vehicle theft and organised crime are specifically regulated, and to serve non-criminal law purposes. This last category comprises migration (forum shopping with respect to visas, political asylum, etc.), transnational protection of the environment and the trade in radioactive materials. Finally, due attention is paid to the common training of police and intelligence officers. The plan further elaborates the modus operandi concerning the exchange of data. For example, for terrorism which, by the way, is not a specific punishable offence in most States Parties, a fast cross-border alerting system has been built into SISME. The access to and security of the SISME database has been further detailed in a number of specific decisions and regulations. The responsible SISME subcommittee is mainly a managing body and a coordinating body with respect to all the specific technical substantive committees (migration, terrorism, etc.). It has no function with respect to data protection. The way the operational cooperation is run remains vague and ad hoc agreements between the States Parties are referred to. Special technical working groups have been established under the Assembly of Ministers for topics like ‘Offences’, ‘Environment’, ‘Migration’, etc. In 2001 the cooperation was given further shape and substance and was made operational. Regional operational cooperation was provided for drug trafficking and terrorism in a geographical zone to be agreed later. In addition, liaison officers were going to be appointed in each other’s regions. Finally, a special system for the exchange of information was elaborated with respect to bio-terrorism. In 2002, the training of police and intelligence officers was assigned to a Coordinating Centre for Police Training. The Centre is really a network under revolving chairmanship, rather than a Mercosur police academy. 

In 2002, the CMC approved several agreements reached by the Ministers of Home Affairs. Agreement 15/02 provides for the intensified exchange of information concerning cross-border offences committed by means of aircraft. The Agreement applies to 19 described offences committed with the aid of planes, such as terrorism, trafficking in human beings, smuggling, hazardous substances, counterfeiting, drug trafficking, etc. In addition to the exchange of information, Agreement 17/03 concerning the fight against border corruption also provides for a complaints committee. Agreement 19/02 provides measures in the fight against the cross-border movement of goods posing an environmental risk (including a threat to biodiversity). Finally, Agreement 23/02 provides for cooperation between police and intelligence forces in the fight against terrorism and related offences. This Agreement of Salvador do Bahia, which was negotiated in special technical working groups on terrorism, aims to supplement the classical legal assistance in criminal matters with police assistance and mutual assistance between intelligence agencies. It not only regulates the exchange of information, but also the joint cross-border ad hoc operations. The initiative for this has to come from a recognised authority and the terms (time span, powers, geographical area, etc.) have to be established per ad hoc operation. Other states may participate in these operations, but only as observers. A striking aspect is that this does not concern cross-border investigative acts, but rather police intelligence in the fight against terrorism. Neither ‘intelligence’, nor ‘terrorism’ has been further defined and the boundaries between intelligence and law enforcement have been completely erased here. During the Assembly of Ministers of June 2003 the CMC widened the scope of application of the regional security scheme to include tobacco smuggling, theft of goods and imitation of goods and has introduced special measures against cross-border cattle smuggling.

Mercosur has thus adopted far-reaching operational measures, but has done so without first harmonising the underlying criminal (procedural) law. Are the States Parties of the opinion that the Treaty of Asuncion does not provide the necessary legal basis for this? Quite the opposite, the prevailing view is that Article 1 TA includes this legal basis. Recital 2 of the legal assistance (criminal matters) agreement of San Luis also expressly refers to the States Parties’ compromise to harmonise their internal laws with a view to the common objectives established. In a decision of 2001 the CMC assigned a study on the provisions on terrorism in the Mercosur states as compared to the legislation of other countries on the American continent and in Europe. Also in 2001, the CMC decided to elaborate measures for the harmonisation of provisions and penalties concerning smuggling and imitation goods. It therefore looks as if criminal law harmonisation, especially of substantive criminal law, will pick up in the coming years. Meanwhile, the Mercosur states have already harmonised a number of offences, such as corruption and money laundering, but this took place based on international obligations assumed in the context of the UN or the OAS. Over the past decade, criminal procedural law in Latin America and in the Mercosur States Parties has been modernised considerably. It has proved to be possible, following periods of dictatorship, to organise the criminal procedure system in a constitutional way and to provide the right to be heard in procedures based on the principle of immediacy and thereby to abolish the written and secret prosecution procedures before, sometimes, single judges. By the reform the public prosecutor’s office has also been strengthened and organised constitutionally. Remarkably, though, the reforms have not addressed aspects of cross-border cooperation in criminal matters or international criminal law. Still, some already dare to dream of common criminal law jurisdiction within Mercosur.

7.	Conclusion

Mercosur is an intergovernmental organisation, with community objectives, which is directed from the political centres of the States Parties and is therefore greatly dependent upon the political economic cycles in the States Parties. In the short term, this can be an advantage for safeguarding the political feasibility of the project, but in the medium term it is manifestly disadvantageous. Regional integration is not always a path strewn with roses and conflict among states, among private entities, be they natural or legal persons, and among private individuals and national and/or regional authorities forms an integral part of regional integration. It is essential that these parties be given the necessary tools and autonomy to enforce their rights. This of course presumes that they are able to invoke the integrated rules and have access to legal remedies which they can use to have their cases decided by an impartial and independent body competent to impose binding decisions on the parties. The history of European integration proves that the Member States alone are unable to realise the regional integration and that a purely intergovernmental model does not suffice. That is not to say that a strong supranational organisation with supranational jurisdiction has to be created at any cost and at once. It is important, however, that some kind of common administration is established, in which national and regional authorities give shape and content to the regional integration through a system of checks and balances. It is also important that an independent body with judicial authority is able to cut knots and take decisions on principles, independent of the economic or political interests of the parties.

Against this background it is clear that Mercosur is struggling with the dilemma between community objectives and intergovernmental instruments. The position of the SAM is very weak and the right to introduce legislation is exclusively in the hands of the States Parties. The entry into force of Mercosur law is too complex and too dependent upon internal procedures and agendas in the States Parties. Because of the non-recognition of the direct effect of Mercosur law the legal subjects’ position in domestic law is weak. Mercosur law provides no instruments for forcing compliance either by the States Parties, by Mercosur institutions or by legal subjects. In short, the parties who could ensure the autonomy of Mercosur law are not given much leeway under the intergovernmental structure. It is clear that still a lot of mutual trust is lacking between the  states. They are afraid to give away national autonomy to the Mercosur institutions and make of them full supranational institutions instead of intergovernmental bodies. For the moment being there is no trust enough to build out the SAM secretariat into something similar as the European Commission. Another problem linked to insufficient mutual trust is the weak incorporation of Mercosur norms in the domestic legal orders of the States. States should give to the Mercosur instruments not only binding legal effect, but also direct effect. 

On the other hand, the Mercosur acquis as it was built up over the past decade is not without meaning. With respect to the customs union and the common market significant progress has been made. These are also the areas where the arbitral awards, which are comparable to important case law of the European Court of Justice as regards content and purport, have had an influence. Notable too is the fact that, despite the as yet only partial realisation of the customs union, considerable action has already been taken in the field of positive integration. Mercosur law is developing rapidly and the tentative outlines of, for example, Mercosur environmental law, are becoming visible. The same is true of the harmonisation of competition law, trademark law, etc. The States Parties are also aware of the acquis that has been built up and do not wish to see it undermined, for example, by a posteriori international agreements. However, realism is in order here. The free movement of persons, services and capital is still in its infancy. 

The most striking aspect is no doubt that with an incomplete customs union and a common market still waiting in the wings considerable progress has been made in the field of judicial cooperation in civil, criminal and security matters. The dynamism displayed by the Ministers of Justice and of Home Affairs seems to exceed that of the economic Ministries. Within a relatively short time an impressive acquis has been elaborated, not only with respect to the regulation of judicial cooperation, but also with respect to immigration, information management and joint operational competence. A cause for concern is no doubt that these developments are insufficiently linked with the political rights of citizens and therefore remain separate from Mercosur citizenship. Moreover, they are not at all embedded in any setting of human rights – as guaranteed by the Inter-American Convention of Human Rights –  or to references of general principles of Mercosur law.   The States Parties, partly due to the pressure of the post-11 September context, seem determined to keep adding to the judicial area. We do see here an increasing mutual trust between the states and between some actors of the law enforcement system, especially the police forces and the intelligence agencies. They have been able to build out a common security policy, both in theory and practice. 

In my opinion, this example of mutual trust is rather an example of corporate mutual trust between some security actors of the state, which is not enough to establish mutual trust, fides in res publica. We do not need only mutual trust between the states and between all actors of the criminal justice system, including the judiciary, but foremost mutual trust of the citizens in their and in each others criminal justice systems. Trust of the citizen in the efficiency of the criminal justice system and trust  in the respect of due process and of the rule of law are substantive parts of a common area of freedom, security and justice.  Citizens want to enjoy their freedoms in the common area, want to live in peace and in security and want also  a criminal justice system embedded in European shared values of the rule of law and due process.