"SIGNIFICANCE: The political desire to pursue the continental integration initiative launched by Brazil in 2000 remains active in South America. Agreements announced during recent state visits have indicated the form that South American integration is likely to take in the short and medium term, with emphasis on the construction of energy matrices and pragmatic forms of cooperation.

ANALYSIS: Despite an apparent lack of progress on economic and trade integration leading to a South American Community continental integration remains a long-term goal. In the meantime, the political rhetoric of solidarity used by Venezuelan President Hugo Chávez and his Brazilian counterpart, Luiz Inacio Lula da Silva is finding a lower-key expression in realisable policy initiatives. Rather than a political ideal, integration-oriented policy is focusing on two main issues: energy infrastructure integration and the upgrading of continental road networks (...).

Energy infrastructure. The dominant feature of Venezuela's relations with the main Mercosur partners, Argentina and Brazil, has been talk of expanded cooperation in the energy sector. During Lula's February 14 visit to Caracas, 20 official accords were signed to form the basis of a bilateral strategic partnership, 14 of them dealing with energy issues:

•  With the possible exception of a deal to sell 36 Brazilian aircraft to the Venezuelan Air Force, the most significant was a joint exploration and processing agreement between the two state oil companies, Petrobras and PDVSA. Under the accord, the two companies will cooperate in the search for oil and gas in Venezuela and jointly open a refinery in the Brazilian state of Pernambuco.

•  A parallel deal between the giant Brazilian ore producer/processor CVRD and the Venezuelan regional development corporation Corpozulia opens the way for joint exploitation of coalfields (...)

Chávez extended the emphasis on energy as a core element of continental integration at the March 1 inauguration of Uruguayan President Tabaré Vázquez:

•  In addition to signing a food-for-fuel cooperation agreement with Uruguay, Chávez also again floated the idea of a regional oil company, Petrosur, which would bring together the Argentine, Brazilian, and Venezuelan state oil companies in a cooperative venture (...)

Growing bilateral and multilateral energy cooperation agreements demonstrate that the South American countries are increasingly seeking to source their energy close to home, use the energy industry as a regional development tool, and deploy the large state-owned energy corporations to provide impetus for expanded regionalisation of business.

Road networks. The abiding problem for expanded intra-continental trade in South America is the parlous state of land-based transportation corridors. During Lula's visit to Caracas much was made of the rise in trade that has followed the paving of BR-174, linking Manaus to Venezuela and Guyana: bilateral trade flows between Brazil and Venezuela rose from 880 million dollars in 2003 to 1.6 billion in 2004. Indeed, the focus of attention during Lula's visit to Georgetown was the construction of new bridges and the upgrading of existing road linkages, and their potential impact on bilateral trade (...)

CONCLUSION: Policies seeking greater South American integration are currently focused on creating the conditions necessary for an expanded regional economic space. The emphasis on energy points to a fundamental concern with addressing specific economic security issues, namely energy dependency on extra-continental sources, rather than pushing for the creation of transnational production chains that would foster sustained local political pressure for deeper integration".