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Mercosur Group

Mercosur (The Southern Common Market) is an economic and political union consisting of South American countries Argentina, Brazil, Paraguay, Uruguay, Venezuela, and Bolivia - pending ratification of Bolivia's accession by each state's legislature. It borders the Andean Community (CAN), a customs market including Bolivia, Colombia, Ecuador, and Peru. Both trading blocs are part of the Union of South American Nations (UNASUR), part of an effort for complete South American regional integration, and part of a renewed world-wide interest in regional trade agreements.

The Mercosur group's primary goal is the creation of a customs union and common market - much like the EU. Like the EU, Mercosur requires the harmonizing of economic regulations between countries, and the creation of common trade policy towards non-members. Its core objective is the free movement of goods, services and factors of production (including labour) by a complete elimination of tariff and non-tariff barriers between member states. As well, Mercusor's rules prevent countries from unilaterally signing other trade deals, where an agreed upon common external tariff (CET) is imposed on the imports from non-members into the trade bloc.1 Venezuela, which joined July 31, 2012, will have four years for economic policy convergence.2

The success of the Mercosur group and the implementation of its rules has been less than perfect. Since the Treaty of Asuncion was signed in 1991, gradual tariff reduction did begin. However, backlash from certain industries, Brazil's 1999 financial crisis, and Argentina's 2001/2002 default have all played a role in reinforcing protectionist tendencies for fledgling national industries. Today, around 85% of goods traded with Mercosur are tariff free. As for the CET, 1299 exceptions are allowed, not including Venezuela and Bolivia.3 As well, Mercosur countries represent themselves at the WTO - unlike the EU who's members are represented by the European Commission. This causes confusion about Mercosur as a union with common trade policy.

Similarly, non-tariff barriers to trade exist. It has been noted that a unique, culturally based system of reciprocity exists within the Mercosur countries. Under this system, business people and government administrators circumvent the laws (including Mercosur's rules), with the expectation that the favor will be returned: "A former Argentine trade minister explained that just as there is a prolific black market in the region, there is a parallel informal legal system that impacts all contractual relations including Mercosur accords."2

None-the-less, Mercosur appears succesful by-the-numbers. In 1990, the year before the free trade agreement was ratified, intra-regional trade between member countries was $4.1B and international trade with non-member countries was $42B. In 2003, intra-regional trade increased to $12.2B and international trade had increased to $93.3B.4 It is not clear how much of this increase is a direct result of Mercosur, however. For example, significant growth in intra-regional trade has come from growth in trade in the automotive industry between Brazil and Argentina - a national industry that is still under "exception."3

 

 

References:

1. Soto, Alonso. Brazil seeks Mercosur flexibility to accelerate EU trade talks. July 2013. Retrieved from http://www.reuters.com/article/2013/07/23/brazil-trade-eu-idUSL1N0FT0HS20130723
2. Venezuela joins Mercosur trading bloc. July 2012. Retrieved from http://www.bbc.com/news/world-latin-america-19069591
3. Laird, Sam. Mercosur: Objectives and Achievements. 1997. Retrieved from http://www.wto.org/english/res_e/reser_e/ptpr9702.pdf
4. Mercosur - Demystified. September 2005. Retrieved from http://www.globalenvision.org/library/15/807

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