International trade is an important element for economic development of states. It has led to emergence of various regional trading blocs globally, due to divergence in natural resource endowment. It has also resulted in the emergence of common markets, which enables free movement of goods, services and other factors of production amongst members (Caribbean Trade Reference Centre, 2003). For effectiveness in the operation of trading blocs, various economic and trade policies need to be developed. For instance, the formulation of US economic and trade policy rests on the Department of Commerce. With such responsibilities, the department requires the collaboration of the various member states and regional blocs.
Among the most important trading blocs is Mercosur —or Common Market of South America—, founded in 1991, which comprises Argentina, Brazil, Paraguay and Uruguay. The objective of its establishment was to foster political and economic development among the member states (Caribbean Trade Reference Centre 2003,1). There has been a significant growth in the economic operation of Mercosur, resulting in a more efficient global trade relationship between member states (Caribbean Trade Reference Centre 2003,1). This has lead to an increased economic counterweight to the United States trade policy. The US and European Union are the largest trade partners of Mercosur accounting approximately for 25% of its trade (Caribbean Trade Reference Centre, 2003). However, the original four member states –not counting the new member, Venezuela– account for just 2% of the total US trade (Caribbean Trade Reference Centre 2003, 2).
The US Department of Commerce acts as an agent of the US Government, through which it formulates international trade policies. Through the Department of Commerce, the US Government has formulated energy policy aimed at ensuring sustainable energy supply. With this policy, the US will increase its energy importation from Mercosur’s member states. According to the US Department of Commerce, Mercosur member states have not been heavily hit by the financial crisis compared to its Asian counterparts, which are major petroleum producers (US Department of Commerce 2005, 1). This has made the Department of Commerce consider these states as potential business partners (Background on Mercosur: Mercosur Update 2003, 12). The US Department of Commerce has identified Venezuela as the main potential trading partner in relation to energy in the region, due to its high supply of petroleum and gas energy (US Department of Commerce 2005). The formulation of the energy policy is enhanced by the Office of Energy Security, which is within the US Department of Commerce. The energy policy will increase the US-Mercosur volume of international trade, which is currently at 2% (US Department of Commerce, 2005). This case study will analyze the US trade policies towards Mercosur from the perspective of the US Department of Commerce. The policy analysis will consider the commodities market in relation to oil energy.
The Department Of Commerce
The US Department of Commerce was established in 1903 with the objective of promoting economic development and fostering technological advancement in the United States. The headquarters is located in Washington, DC. (Commerce: United States Department 2007,1).
Mission
The mission of this department is in line with the legislative and administrative actions to foster and promote national development (Mission and the Organization of the Department of Commerce 2005, 2). The mission can be accomplished only through effective formulation of economic and trade policies between the US and other trading partners. The policies are aimed at enhancing the international trade relationship amongst these trading partners (Mission and the Organization of the Department of Commerce 2005, 2). Its annual operations are funded by the Federal government (Commerce: United States Department 2007, 1).
Organizational Structure
The Department of Commerce has a comprehensive organizational structure, which consists of 35,000 employees (United States Department of Commerce 2009, 2 &3). It is divided into various components, established through the Department’s Organization Orders (DOOs); the three components are: the Office of the Secretary, Secretarial Officers, and the Operating units (United States Department of Commerce 2009, 2 &3). The Office of the Secretary’s arm is related to general management. It supports the formulation of trade policies, provides a program aimed at enhancing effective functions of the department and supervises the operating units (United States Department of Commerce 2009, 2 &3). The Office of the Secretary consists of the secretary, secretarial officers, and other designated staff. These include policy direction and supervision of the operating units (United States Department of Commerce 2009, 2 &3).
Other personnel positions include the Chief Financial Officer, Assistant Secretary for Administration, Intergovernmental Affairs and Legislative (United States Department of Commerce 2009, 2 &3). These parties are the principal assistants to the secretary on administrative, legal and programs issues (United States Department of Commerce 2009, 2 &3). The secretarial officers assist on issues related to program management such as economic and trade policy direction. These officers are also engaged in the supervision of various operating units. The operating units are outside the Office of the Secretary (United States Department of Commerce 2009, 2 &3). Additionally, they are involved in the conduction of specific functions related to the Department (United States Department of Commerce 2009, 2 & 3).
Policy Analysis
Effectiveness in Operations within the Department Of Commerce
In relation to effective management of utilities such as energy, the Department of Commerce is committed to ensuring a sustainable energy supply (Hornbeck 2008, 7). Through the Office of Energy Security, the US government formulated a trade policy aimed at increasing its level of trade with Mercosur (Hornbeck 2008, 7). The implementation of the policy by the Department of Commerce was timely; due to the fact that there is an increased economic growth in the aftermath of the 1999 financial crisis in Brazil. The result is optimistic trade prospects between the US and Mercosur states (Hornbeck 2008, 7).
The commodities market is one of the main economic sectors that has been experiencing an enormous growth (Trade policies reviews 2008, 11). The chances of the Department of Commerce attaining sustainable energy are now even better, since now there is an increase in the levels of US oil imports from Venezuela —one of the major oil producers in Latin America (Trade policies reviews 2008, 11). As a result, there has been an increase in the Mercosur level of trade, compared to US total trade, from 3% to 3.6% (Trade policies reviews 2008, 11). Economic and trade policies of the US towards Mercosur have improved the international trade performance of Mercosur, which is a reflection of the effective departmental policy formulation (Trade policies reviews 2008, 11).
For instance, in 1991, the volume of US exports to Mercosur amounted to $8.8 billion. Through the US-Mercosur trade agreement, the volume of US exports to Mercosur increased to $17.7 billion in 1995 (MERCOSUR and NAFTA: trends of trade 1997, 20). According to Paula Lopes (1997), the volume of US exports to Mercosur has been on an upward trend annually, on the one hand (12). On the other hand, the US has also increased its volume of imports from Mercosur. Lopes assert that in 1991, the total amount of merchandise that the US imported from Mercosur was approximately $8.3 billion. By 1995, the total amount of merchandise imported reached $10.8 billion (MERCOSUR and NAFTA: trends of trade 1997, 20). Therefore, it can be seen that economic growth and prosperity in the development of markets is being experienced at both ends of the spectrum.
Image of Department of Commerce
The US Department of Commerce secretary Carlos M. Gutierrez emphasizes the department’s operational effectiveness based on it’s the overall performance (US Department of Commerce: Citizens report 2008, 1 & 2). According to the US Department of Commerce Citizens’ report (2008), the department has been effective in the formulation of comprehensive strategic goals, which allows for monitoring domestic and foreign trade (1&2). This enables US to be competitive in the world market (US Department of Commerce: Citizens report 2008, 1&2). The department is also involved with licensing of the various industries, as well as promoting the establishment of an effective domestic and international business environment (Minnesota Department of Commerce 2000, 1).
The US Department of Commerce has also been effective in maintenance of an organizational structure consisting of diverse parties, including its three components, which are, the Office of the Secretary, Secretarial Officers, and the Operating units (Minnesota Department of Commerce 2000, 1). These parties enable the department to formulate economic and trade policies in relation to various industries more effectively (Minnesota Department of Commerce 2000, 1).
For instance, in relation to the energy sector, the Office of Energy Security has formulated energy policies aimed at increasing oil importation from Mercosur member states (Current Budget Submission, Performance Reports, and Strategic Plan 2007, 10). Many policies formulated also consider the small manufacturers. This enables them to be more competitive in international trade. This is through increasing the rate of innovation within the US industrial markets. On the other hand, the department is concerned with strengthening the small businesses by increasing accessibility to capital and international market opportunities. This makes the Department to be a catalyst for the growth of minority businesses in US (Current Budget Submission, Performance Reports, and Strategic Plan 2007, 10).
Problems faced by the Department
The vision of the US Department of Commerce is that of formulating a trade policy aimed at creating hemispheric integration within the region, through the establishment of Free Trade Areas for the Americas —or FTAA (Mercosur countries make poverty pledge 2006, 8). In the recent past, trade amongst Mercosur states has been strengthened, thwarting the economic integration vision of the US Department of Commerce. (Mercosur countries make poverty pledge 2006, 8). The inclusion of Venezuela into the regional bloc might affect relationships between Mercosur members and United States. This is demonstrated by the open anti-Americanism by Venezuelan President Hugo Chavez (David 2006, 6). Chavez’s efforts to make Mercosur –economically and politically– independent of the US, evidently conflict with the objectives and interests of the Department of Commerce.
In the formation of Mercosur, the member states had the priority of eliminating agricultural subsidies. The United States and European Union member states are the largest market for agricultural produce. Agricultural produce composes a significant proportion of Mercosur exports. During the Bush administration, the US government rejected this Mercosur proposal, which indicates an increased possibility that relationships between the US and Mercosur would be affected (Larissa 2005, 12). In the event that this happens, the US Department of Commerce might not be able to fully attain its goal of promoting economic growth in US (Horneback 2007, 12).
The presidents of Venezuela, Bolivia, Brazil, and Ecuador are committed to establishing a South-South political and economic integration, consisting only of South American states (James 2008, 1). The establishment of such an economic integration poses additional challenges to the operation of the US Department of Commerce, due to the department’s effort to meet its goal of sufficient future oil energy supply. One of the main challenges is the increased desire by the Venezuelan president to establish Petrosur –a transnational oil company that would consist of Argentina, Brazil, Bolivia and Venezuela–. This potential economic integration may result in negation of the economic and political order to be established by the US in South America (Larissa 2005, 11).
Conclusion
Various economic and trade policies have been formulated through the US Department of Commerce to enhance the US-Mercosur relationship. These policies are related to various economic sectors such as the commodities market. The Department of Commerce consists of various components with efficient human resources to ensure a comprehensive policy formulation and effectiveness in enhancing domestic and foreign trade, achieving a good image locally and globally. It has also been successful in licensing and monitoring of various industries involved in international trade.
The trade of energy, and to some degree agricultural products, account for the most important part of US-Mercosur policies that the US Department of Commerce has enhanced. This could be explained in the fact that most Mercosur member states are major producers of agricultural products, which therefore forms a significant proportion of their exports (MERCOSUR and NAFTA: trends of trade 1997, 20). Others like Venezuela are major producers of petroleum and gas. The policies formulated by the department have led to increased trade amongst these economies in regards to oil and agricultural products. This has boosted the economic development of the individual member states. Despite these achievements, the establishment of the South-South economic integration poses a threat to the US economy in the near future. The south-south economic integration is characterized by economic integration amongst the developing countries. Most of the South American countries are in this category unlike US which is developed. This is due to the fact that the integration would result in thwarting the creation of free trade agreement that was advocated by the US. There would be reduction in oil energy imports from Venezuela upon the establishment of Petrosur. The creation of Petrosur would result into establishment of oil and gas production quotas amongst the South American oil producing countries. This means that the member countries would reduce their oil and gas exportation to US. This will create a challenge for the Department of Commerce in its effort to ensure future sufficient oil supply.
References
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Department of Commerce.2009. “Current budget submission, performance reports, and strategic plan.”
Hornbeck, J. 2008. “Mercosur: evolution and implication for US trade policy.”Web.
Info-please. 2009. “Commerce: United States Department of Commerce.”
Inthenews.co.uk. 2006. “Mercosur countries make poverty pledge.” Web.
Lopes, Paula. 1997. “MERCOSUR and NAFTA: trends of trade.”
Minnesota Department of Commerce.2000. “Welcome to Minnesota Department of Commerce.” Web.
US Department of Commerce. 2008. “Citizens Report.”
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