Mercosur

INTRODUCTION

Many aspects are changing the way business is done around the world, such as: the globalization of the economy, technological advances or the formation of economic blocs. International market opening is a growing force in the global economy that benefits all countries of the world. Regional trading blocs like the EU, NAFTA, ASEAN or MERCOSUR have been formed around the world.

The creation of MERCOSUR (Mercado ComÑŠn del Sur) can be regarded as a response Latin Americas' to the new challenges of the world economy. Its conception is clearly inspired by the role model of the European Union.

1 HISTORICAL BACKGROUND

1.1 ALALC

In the 50s, Latin America was already beginning to take its first steps towards regional integration.

MERCOSUR is the culmination of the process that begun with the signing of a treaty in 1960 that created the Latin American Free Trade Association (ALALC). The goal behind this treaty was to create a free trade zone in Latin America. Unfortunately, the goal could not be realized during the 1970's, when most of the member states were military dictatorships.

Though not achieved, the dream of a Latin American free trade zone had survived.

1.2 ALADI

In 1980, the Latin American Integration Association (ALADI) was formed by the Treaty of Montevideo to replace ALALC.

This association used other means to attempt member state integration. ALADI was to provide a Latin American umbrella under which smaller regional organizations could cooperate. The intent behind the new association was not to create a free trade zone, rather to first establish an economic preference area among the member countries, and later lay the foundation for a future South American common market.

1.3 PICE

Six years later, in 1986, Brazil and Argentina created the bilateral Program of Economic Integration and Cooperation (PICE), which set a timetable for a bilateral common market. PICE focused on sectored cooperation, tariff reductions, and the elimination of non-tariff measures on certain products. In August 1990, Paraguay and Uruguay requested the incorporation of their countries to the agreement that was formed by Brazil and Argentina.

2 MERCOSUR

2.1 Creation

The Treaty of Asunciуn, signed by Brazil, Argentina, Paraguay and Uruguay on March 26th, 1991 is the legal

document that forms the basis of MERCOSUR.

The present form of MERCOSUR was agreed upon in the Ouro Preto Protocol in December 1994.

In this protocol the basic organizational features of the bloc were defined and it added much to the institutional structure of MERCOSUR initiating a new phase in the relationship between the member states when they decided to start to implement a common market.

The name MERCOSUR is formed from the Spanish phrase Mercado ComÑŠn del Sur what means Southern Common Market.

2.2 Objectives

The ultimate goal of MERCOSUR is to create a common market union between the participating countries that would allow the free mobility of all production factors and goods and services as well as the harmonization of macroeconomic policies and the elimination of all tariff barriers.

The treaty is a framework agreement that defines the objectives of the integration process and the mechanisms required to achieve them. It was strategically oriented to develop the economies of its constituents making them more internationally competitive. Although MERCOSUR is an economic trade initiative it was also designed with clear political goals. Its members are committed to the consolidation of democracy and the maintenance of peace throughout the Southern Cone.

The Asunciуn Treaty outlined the framework for the market, entailing:

* The free circulation of goods, services, and production factors with the elimination of customs laws and non-tariff restrictions

* The establishment of a common foreign tariff and the adoption of a common trade policy in dealing with non-member states or groups of states

* The coordination of macroeconomic and sectorial policies in order to ensure adequate conditions for competition among the member states

* The harmonization of laws among the member states in pertinent areas

2.3 Structure

The institutional structure of MERCOSUR is organised within six main bodies:

* Common Market Council (CMC)

* Common Market Group (GMC)

* Trade Commission (CCM)

* Joint Parliamentary Commission (CPC)

* Social-Economic Consultative Forum (FCES)

* Administrative Secretariat (SAM)

2.4 Facts

MERCOSUR represents more than two-thirds of the population of the South American continent and has a combined market of 240 million consumers with a GDP of USD 700 billion (2004). The member countries produce 50 percent of Latin America's GDP and cover 43 percent of its population and 59 percent of its total landmass. The per capita GDP of its four countries is 30 percent higher than that of Latin America as a whole. Argentina and Brazil dominate MERCOSUR, accounting for over 90 percent of the trading bloc's GDP. The export volume is around USD 55 billion and imports add up to USD 45 billion.

2.5 Member states

2.5.1 Brazil

Covering 8.5 million square kilometer with 182.5 million habitants, Brazil is the largest of the four nations. Brazil's large and well developed economy is growing in significance internationally. Due to its economic strength, Brazil is the backbone of the trading bloc, representing 75 percent of MERCOSUR's GDP.

2.5.2 Argentina

Argentina is the second largest economy in South America. Its territory covers 2.8 million square kilometer with a total number of 37 million habitants.