Mercosur

The Common Market of the South (Mercado Común del Sur) is an economic organization formed in 1991 by Argentina, Brazil, Uruguay, and Paraguay, with the aim of establishing a common market for South America. It is an institution that links a population of 190 million people (1991) and a joint GDP of US$606.5 billion (51% of Latin America's total GDP). Other countries have since joined as associate nations, namely Chile (1996), Bolivia (1997), and Peru (2003).

If we ignore the historical commercial exchange of primary products among the South American countries, a trade that was intensified during the World War II, and the Pan-American Union, established first in 1889 with the name of the Commercial Bureau of the American Republic, for the purpose of promoting peace, friendship, and commerce among the member republics, the first processes of integration can be found in the ideas that emanated from the Economic Commission for Latin America and the Caribbean, 1948 (ECLAC). Raúl Presbisch, director of the ECLAC from 1948–1963, drew attention to the difficulties inherent in an industrialization process that was limited to small national markets and to the need for economies of scale. In this same period, Europe was undertaking its own integration process, which led to the formation of the European Economic Community (EEC) in 1957. Because the EEC agreed to favor primary products exported by former colonies of Africa, South American exporters had to seek alternative solutions.

The first major integrating initiative in South America was the Latin American Free Trade Association (LAFTA) of 1960, formed initially by Argentina, Brazil, Mexico, Paraguay, Uruguay, Peru, and Chile, which were subsequently joined by Colombia (1961), Ecuador (1962), Venezuela (1966), and Bolivia (1967). Its aim was to fully liberalize trade in twelve years; its failure brought about the Latin American Integration Association (LAIA) in 1980. Another organization, the Central American Common Market (CACM), was organized in 1960. Subsequently, the Andean Group (Bolivia, Colombia, Ecuador, Peru, and Venezuela) established a second wave of integrations in 1969. The Caribbean countries also went for a regional integration through the Caribbean Community (CARICOM, 1973).

These events enabled a rapprochement between Argentina and Brazil, strengthened by the arrival of democracy (in 1984 and 1985, respectively), which allowed the two nations to embark upon the recovery of their economies, which had been weakened external debt, lack of infrastructure, and lack of competitiveness abroad. In 1985 the two countries signed the Declaration of Iguaçú, which was a preferential association. Three more treaties followed in 1986, 1988, and 1990.

Using this base, the presidents of Argentina, Brazil, Uruguay, and Paraguay endorsed the Treaty of Asunción on March 26, 1991, which was the constituent act of MERCOSUR. The treaty established as objectives the free circulation of goods, services, and production factors. The instruments were to be a trade liberalization program with progressive reductions in customs duties and the elimination of noncustoms restrictions, the coordination of macroeconomic policies, a common external customs tariff, and the adoption of agreements by sectors. The date set for the zero-customs duty was December 31, 1994.It also created the following two provisional governing bodies: the Common Market Council, a higher body responsible for policy guidance and in charge of ensuring that the objectives of the Treaty of Asunción are met; and the Common Market Group, an executive body supervising the fulfillment of the treaty and the council decisions. Further consultative and executive bodies were added in 1994. However, MERCOSUR did not achieve a common external customs duty.

MERCOSUR is an example of "open regionalism" (as opposed to the "closed regionalism" of the 1950s to 1980s), meaning that it can be extended to neighboring countries and can establish agreements with other trading blocks. Agreements were rapidly undertaken with nations in the LAIA area. Chile signed an agreement as an associate nation in 1996, aiming to establish a free-trade area within ten years. Bolivia became another associate nation in 1997, as did Peru in 2003. Likewise, negotiations took place with other regional blocks, including NAFTA, the European Union, CARICOM, the Andean Group, and India.

MERCOSUR's history falls into two periods, divided by the year 1998. The first stage is characterized by the consolidation of the institutions, the increase in the trade exchanges, and a strong growth in the zone; nominal GDP rose from U.S.$620 billion in 1990 to U.S.$1,115 billion in 1998. The direction of the trade flows also varied, with an increase in MERCOSUR's interregional trade (exports and imports), which, in 1990, was worth U.S.$8,230 billion (11.3%), rising to a maximum volume of U.S.$41,074 billion (22.8%) by 1997. Overall trade also grew from U.S.$73,798 billion in 1990 to U.S.$180,119 billion in 1997.

At the end of 1998 this period of growth dissipated during a series of crises beginning with Brazil (1998–1999), whose economy was negatively affected by the financial crisis in Asia. This was followed by the Argentine financial disaster of 2001 to 2002, which led to a disorderly devaluation and the economic and institutional collapse of the country. Nominal GDP fell sharply, to U.S.$554 billion in 2002.

MERCOSUR has had both successes and failures. The objectives established in 1991 have not been met, and although, in the first stage, growth was positive—real GDP grew at a rate of 2.37 in 1990, 5.85 in 1995 and 2.42 in 1998—in 2002 it was a mere 0.1 percent. Some experts now question the need for utility of regional blocks in a globalized world that requires universal standards. The successes include increased trade, the arrival of foreign investment, and the forming of a block with an international presence. The benefits have been political as well as economic. One indicator of this is that the support of the member states helped to quash General Lino Oviedo's attempted coup d'état in Paraguay in 1996. An even stronger example is the Ushuaia Protocol (1998), in which it was agreed that the breakdown in the democratic processes of a member nation could lead to its being expelled from the organization.

The 2003 elections of Nestor Kirchner and Lula da Silva as presidents of Argentina and Brazil, respectively, have brought fresh impetus to the integration process. When Kirchner proposed the creation of a single currency, he was backed by Brazil. Subsequently, the twenty-sixth summit of Mercosur presidents in 2004 accepted Mexico and Venezuela as associate nations. The integration continues with an interest in Mexico forming a nexus between MERCOSUR and NAFTA.

SEE ALSO Argentina; Brazil; Chile; GATT, WTO; Globalization, Pro and Con;International Trade Agreements;NAFTA;Protectionism and Tariff Wars;Regional Trade Agreements.

BIBLIOGRAPHY

Chudnovsky, Daniel., and Fanelli, Jose Maria, cdor. El desafío de integrarse para crecer. Balance y perspectivas del MERCOSUR en su primera década (The challenge of joining to grow, balance and perspectives of the MERCOSUR in its first decade). Madrid: Siglo XXI editores, 2001.

United Nations Economic Commission for Latin America. Statistical yearbook for Latin America and the Caribbean 2002. Santiago, Chile: 2003.

Donato Gómez-Díaz Ignacio Amate-Fortes