MERCOSUR



Mercosur is a customs union coordinating the economies of Argentina, Brazil, Paraguay, and Uruguay. Mercosur (in Portuguese, Mercosul) resulted from the 1991 Treaty of Asunci6n, and began taking effect on January 1, 1995. Since then, two additional nations have joined as associate members: Chile (in 1996) and Bolivia (in 1997).

Mercosur eliminates the majority of tariffs among the four member states as well as the two associate member nations. Additionally, the original four nations share a single external tariff throughout the region. The tariff is intended to spur interregional growth and interregional investment.

Following political upheavals in Paraguay in the mid-1990s, the four Mercosur presidents met in San Luis, Argentina, in June 1996. At the San Luis meeting, Mercosur added the so-called democratic clause, in which they indicated that respect for democratic institutions is a prerequisite to Mercosur membership.

COMPARISON TO OTHER
INTERNATIONAL TRADE BLOCS

Mercosur differs substantially from both the North American Free Trade Agreement (NAFTA) and the European Union. To some extent, in terms of member integration, Mercosur can be seen as being somewhere between NAFTA and the European Union.

The Mercosur members have as their goal greater economic integration than their NAFTA counterparts. The two blocs are similar in creating a free trade zone among their members. Thus, both Mercosur and NAFTA share a common goal in eliminating all barriers to trade among their members. Mercosur, however, extends this cooperation by creating shared external tariffs to third-party members; NAFTA members do not.

The European Union, in turn, goes beyond the integration of member states' economies that characterizes Mercosur. Thus, European Union members share a common trade policy and the free movement of labor and capital among member states; Mercosur does not. Additionally, the European Union leaves open the possibility of coordinating independent national legislative activity; Mercosur does not.

SIZE AND GROWTH OF MERCOSUR

Together, the four member nations represent 59 percent of the land mass of Latin America. Additionally, Mercosur joined together a population of approximately 190 million, or 44 percent of the Latin American total. By 1997, following the associate memberships of Bolivia and Chile, that figure had grown to a population of 220 million people. At the time of the Treaty of Asunci6n, the combined gross national product (GNP) of the four nations was approximately $437 billion. By 1997, the combined GNP of the six Mercosur states (including the two associate members) had reached $1.3 trillion.

Though the customs union formally took effect on January 1, 1995, trade in the entire region had already exploded in anticipation. Trade among the four Mercosur nations grew from $4.7 billion in 1991 to over $10 billion by the end of 1994. Despite world economic crises, growth within Mercosur has continued to grow. Consequently, Mercosur experienced more rapid growth than any other trade bloc, with a 400 percent increase in trade growth between 1990 and 1997.

While some of this growth reflects foreign investment in Mercosur member nations, much of this growth can be attributed to the elimination of tariffs and other trade barriers among the members. For example, Paraguay, a leading producer of cotton, traditionally shipped 90 percent of its product to Brazil, but in the form of raw cotton. In the wake of Mercosur, Paraguay's textile industry expanded dramatically as—for the first time—it could ship manufactured cotton products (such as thread, cloth, and clothing) to Brazil duty-free. The resultant demand for cotton goods in the form of value-added garment production, in turn, boosted the Paraguayan economy and created a supporting manufacturing infrastructure.

While foreign investment has remained substantial among the Mercosur members, the common external tariff for the region has also successfully encouraged interregional investment. In the four-year period from Mercosur's signing in 1991 to its enactment at the close of 1994, for example, investment from Brazil into Argentina reached $1 billion. Additionally, the member states have undertaken a proposal to build the world's longest bridge of its kind, at the Uruguayan city of Colonia, crossing the Río de la Plata. The proposed bridge will join Uruguay with the Argentine capital of Buenos Aires on the opposite river bank. In addition to allowing for construction costs previously far in excess of Uruguay's pre-Mercosur ability, the bridge will radically slash the overland trucking time between Argentina's most important economic center and Brazil's major industrial center of Sao Paulo. Additionally, Uruguay will reinforce its position as a trade crossroads, increasing employment at the least and opening its own opportunities to build on the trade traffic between Argentina and Brazil.

Investment from foreign multinational corporations—including the United States—in the Mercosur has resulted in an estimated $3.5 billion, ranging from investment in factories to franchise operations. While some officials in Mexico, Canada, and the United States see opportunities for expanding NAFTA to the Mercosur nations, the direction of the Mercosur members at present is leaning away from ties to North America. The Mercosur nations have set the goal of first strengthening their own regional economy and then expanding, if at all, to other South American nations in order to form a South America-wide customs union as a counterbalance to, not in cooperation with, the North American free trade partners.

SEE ALSO : Andean Pact Nations, Doing Business in the ; Argentina, Doing Business in ; Brazil, Doing Business in

[ David A. Victor ]

FURTHER READING:

Coffey, Peter, ed. Latin America-Mercosur. Dordrecht, Netherlands: Kluwer Academic, 1998.

Roett, Riordan, ed. Mercosur: Regional Integration, World Markets. Boulder, Co: Lynne Rienner, 1999.



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