Despite the leaders' frequent pledges to pursue free trade negotiations with European Union partners and other major players in Asia and the Pacific, the talks remain bogged down in a diplomatic row that shows no sign of abating.
At issue is Mercosur's decision last year to suspend Paraguay, a founding member, after its congress impeached and ousted former president Fernando Lugo in June 2012 over allegations of impropriety in a showdown between police and protesters. Mercosur called Lugo's removal a coup, an allegation that Paraguay has contested since.
Mercosur also used Paraguay's absence after its suspension to push Venezuela's membership, which was opposed by Paraguayan congress. More recently, as Mercosur made conciliatory gestures toward Paraguay, it went ahead and named Venezuela as the current president, a position that Paraguay was entitled to take.
The presidency of Mercosur is offered to member countries on a yearly rotation.
The resulting row has Mercosur embroiled in a bitter diplomatic row, with officials complaining the trade bloc's real purpose is being forgotten amid the inter-state quarrels.
Paraguayan President-elect Horacio Cartes accused the trade bloc of abandoning the rule of law in naming Venezuela in place of Paraguay. Mercosur argues Cartes, who is scheduled to take office Aug. 15, isn't yet entitled to occupy his country's seat in the trade bloc's organization even if it's offered.
Venezuelan President Nicolas Maduro was named Mercosur's rotating president at the heads of states' meeting in Montevideo last week.
"From the point of view of Latin American integration it's not good news, it closes the doors on Paraguay," the country's Foreign Minister Jose Felix Fernandez said.
Paraguay's suspension was backed by Argentina, Brazil and Uruguay but in recent months each government has indicated it wants to mend fences with Asuncion. Paraguay is a lucrative emerging market and the dispute has hurt bilateral trade between the landlocked country and its larger neighbors.
But, instead of admitting their error, each member state has tried to find a face-saving device and not have to face politically damaging public embarrassment.
Brazilian President Dilma Rousseff was criticized by regional officials who say Paraguay's suspension is unnecessary and hurtful to Brazilian economy.
Meanwhile, Paraguay has hardened its position. Cartes said an end to Mercosur's suspension won't be enough. Mercosur would also need to reverse its decision to give the rotating presidency to Venezuela and invite Paraguay to take the chair, he said.
While Paraguay wants good relations with its neighbors, "the only thing we are asking is for justice, the rule of the law," Cartes said. "What belongs to Paraguay, belongs to Paraguay, what belongs to Venezuela, belongs to Venezuela, that is justice."
Cartes said, "What my government is asking is for the rule of the law, respect for Paraguay and the institutions of Mercosur."
Analysts say while Mercosur came close to resolving the problem it has now painted itself into a tight corner by rewarding Venezuela with this year's rotating chair, with no apparent compromise in sight.
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