MERCOSUL IN THE REGIONAL CONTEXT
Rubens A. Barbosa
back fifteen years, almost all South America was governed
by authoritarian military regimes; suspicion and rivalry
- even resorting to arms were the common denominator,
and intra-regional trade was in decline. Seven years
ago, protectionism was the main instrument of foreign
trade policy in the region.
ahead, in three years' time, if everything goes according
to plan, we shall have formed the world's fourth largest
economic group in terms of size in the form of Mercosul,
with more than 200 million people and a GDP in excess
of 1.5 trillion dollars. In seven years we shall have
started to implement the Free Trade Area of the Americas,
the most important economic-commercial bloc alongside
the European Union.
IN THE CONTEXT OF THE WORLD AND THE REGIONAL POLITICAL
AND ECONOMIC SITUATION
was formally created in 1991 when Argentina, Brazil,
Paraguay and Uruguay signed the Treaty of Asuncion.
Today, this regional subgroup is as yet an incomplete
customs union, with an average Common Foreign Tariff
of 17% and an independent legal status.
Taking a seven-year overview, since the signing of the
Treaty of Asunción, it can be seen that this
exercise in regional integration has been a successful
operation in terms of responding to trends towards the
globalization of the world economy.
Compliance with the international trade system represented
by the rules of GATT/OMT in the development of the sub-regional
integration process, represented by Mercosul, has ensured
consistency of the provisions of Clause 24 of GATT with
the modifications introduced by Clause 5 of the new
accord that created the OMT .
Since January 1st, 1994, Mercosul has become the first
customs union to operate in the Southern Hemisphere
and is second only to the European Union with almost
all its dealings (95%) relating to free trade. It is
an incomplete customs union because some products will
only be included in the Common Foreign Tariff when the
Adaptation Regime ends in 1998 and when the capital
asset tariffs are unified in 2001 and those of the information
technology and telecommunications sectors in 2006.
The following figures illustrate the importance of the
regional subgroup within the context of the American
continent: Mercosul represents more than 50% of Latin
America's GDP, 46% of inter-regional trade (within the
scope of the Latin American Integration and Development
Association (ALADI), this would be 58% including Bolivia
and Chile), it represents around 10% of Latin America's
total trade with the rest of the world, 45% of the population,
covering 59% of the land area and 80% of investment
in South America.
The perception of Mercosul from the point of view of
governments and private sectors abroad has come across
as a positive one. The Customs Union has become established
as a political and economic reality and a factor of
stability and differentiation in relation to other emerging
IMPLICATIONS OF MERCOSUL FOR SOUTH AMERICA
the setting up of Mercosul and its satisfactory progress,
the process of economic integration and the political
coming together of the countries of the South American
subcontinent have acquired their own impetus, which
to a certain extent had not been expected.
In this respect, taking a historical panorama of the
last forty years since the Treaty of Montevideo and
the emergence of the ALALC, it would be no exaggeration
to consider Mercosul as a landmark: the regional integration
process can be classified as being before or after the
Treaty of Assunción.
has played an important role as a promoter of economic,
commercial and investment growth in relation to the
four member countries. In 1997, South America turned
in its best economic performance in recent decades:
the growth-rate was at its highest for the last twenty
years; inflation was the lowest for the last fifty years
whilst the flow of investment was at an all-time high.
rapid and dramatic upturn in trade within Mercosul,
climbing from USS 4 billion in 1991 to US$ 18.8 billion
in 1997, has contributed to the consolidation of the
trade liberalization process throughout the region and
has highlighted some limitations that exist in all countries,
particularly in relation to competition and infrastructures
focus of intra-Mercosul trade is between Argentina and
Brazil. Between 1990 and 1997 trade grew by around six-fold.
Argentina's exports to Brazil increased by more than
360% whilst Brazilian exports to Argentina went up by
more than 620%.
the political front, the greater closeness and confidence
generated have transformed the spirit of confrontation
of the sixties and seventies into one of increasing
cc-operation. Political stability has come to be seen
as a valuable asset, leading naturally to the laying
down of foundations for the consolidation of democracy.
frontiers that previously separated and divided the
nations have become poles of attraction for investment
and co-operation. If NAFTA has changed the face of economics,
Mercosul has changed the geo-politics of the region.
integration (roads, bridges, ports and waterways improvements)
and energy integration (natural gas, oil, water, electricity)
are high on the region's current political and economic
agenda as a direct result of advances in the process
of trade integration accelerated by Mercosul. The hi-national
and multi-national infrastructural projects linking
the countries of Mercosul and the rest of South America
are a pole of attraction for investment with the prospect
of greater benefits for the countries and consumers
of the region.
expanded market has become a magnet for Brazilian and
foreign investment which is rapidly spreading throughout
the other countries.
participation by the private sector made favorable by
positive results from Mercosul is another relevant detail
in the regional integration process. Until the mid eighties,
there were no private business involvement and there
was frequent opposition to regional integration. Nowadays,
the expanded sub-regional market is included in the
strategies of both Brazilian and foreign companies and
intra-company trade is one of Mercosul's commercial
in just seven years, Mercosul has become the binding
axis for recent integrationist developments in South
America and the promoter of one of the most important
principles of the 1980 Treaty of Montevideo: the co-ordination
and the convergence of the regional subgroups in a gradual
and ordered manner, by means of the inter-penetration
of the sub-regional and bilateral agreements drawn up
within the context of the Treaty.
a more global angle, Mercosul has promoted the expansion
of the region's relationship with the rest of the world,
exemplified by the accords in progress with hemisphere
partners (NAFTA and CARICOM), with the European Union,
Australia and New Zealand, the Russian Federation, with
ASEAN, China, Japan, South Africa, India, Canada and
into account Brazil's great economic weight within the
context of Mercosul, the Brazilian market has become
the anchor of the South American economy. Including
Chile and Bolivia, Mercosul represents 80% of the South
American GDP, which explains why the dynamism of the
Brazilian economy has come to influence the performance
of all the countries of the region.
AND THE NEW HEMISPHERIC GEOGRAPHY
the signing of the NAFTA accord in 1994, which began
to take shape in l991 with the Treaty of Asunción
that created Mercosul, there was clear evidence from
the economic-commercial point of view in general and
Brazilian and multinational company strategy in particular,
that the economic geography of the Hemisphere had acquired
a new dimension.
concept of Latin America, formulated within the context
of nineteenth century Europe, had lost its meaning.
immense force, there emerged on the American Continent,
the sharp geographical delimitation of different regions
as acknowledged in the Treaties and freely signed by
the nations of the Continent.
terms of actual economic and financial interests, unaccustomed
to government rhetoric, what exists nowadays is North
America (NAFTA), South America (Mercosul and the Andean
Community of Nations), Central America (Central American
Common Market) and CARICOM.
that new geographical configuration in South America,
Mercosul is the first step and the most dynamic element,
playing the role of stimulating agent for South American
free trade agreements with Chile and Bolivia have been
the precursors in that direction. In the medium and
long-term outlook, it is important to emphasize the
strategic significance of the association of the two
countries with Mercosul. Chile gives a two-ocean dimension
to the customs union: the territory of the expanded
market extends from the Atlantic to the Pacific, opening
the Chilean ports to enable Mercosul's products to reach
Asia. In the center of the continent, Bolivia acts as
a bridge with the Andean Community and as a link for
energy (natural gas) and transport (waterways).
the support of its other Mercosul partners, Brazil has
proposed the membership of the Andean Community of Nations
and negotiations between the two regional groups are
in progress. It is expected that agreements of free
trade be negotiated until the end of 1999. If successful,
these will establish a South America free trade area.
the start of talks aimed at setting up a hemispheric
free trade area, Mercosul and NAFTA have become the
natural forces of attraction for the other countries
and constitute building blocks for the construction
of the ambitious project to integrate Alaska and Patagonia.
CHALLENGES AND OUTLOOK
Short term: 1998, a year of uncertainty
make progress and become consolidated within a climate
of political and economic uncertainty will be the main
challenges facing Mercosul in 1998. On the one hand,
the presidential elections in Paraguay and its repercussions,
on the other, the implementation of the Common Foreign
Tariff as the basis of the customs union, has suffered
setbacks (a three percent increase at the suggestion
of Argentina and the exclusion lists of Uruguay and
Paraguay). The consideration of proposals such as the
introduction of a common passport, the establishing
of a peace zone within the territory of Mercosul and
the start of research into a single currency are continued
indications of the political will to move the integration
term: 1998-2005, years of consolidation and solidification
implementation of the Mercosul 2000 Plan is the great
challenge faced by member countries in the medium term.
Approved in 1995, in general terms this program provides
for the consolidation and solidification of Mercosul
the consolidation phase the primary aim is to extend
the application of the Common Foreign Tariff to the
entire tariff range, eliminating exclusion lists. In
addition, it seeks to define agreements on common trading
policy that will both encourage the adoption of common
commercial defense mechanisms (safeguarding measures,
special importation regimes) and also increased competition
within the integrated area for the benefit of consumers
(protection of competition, consumer protection).
to the present time, over a seven-year period, Mercosul
has made advances principally in the free movement of
goods. The free movement of services, capital and people
is only just being addressed. In December 1997, the
member countries approved a framework agreement on services,
establishing their gradual introduction over ten years;
in the financial area, increasing integration of the
capital markets, common rules governing the banking
systems (Basile Convention) and research aimed at the
creation of a Mercosul Bank as well as a common currency,
all presage new advances in years to come.
integration within the context of Mercosul is bringing
about new specializations or accentuating the regional
division of pre-existing labor, in a scheme in which
complementarity is becoming increasingly important.
Finding niches in the Brazilian and Argentine markets
for the production and export of manufactured products
from Uruguay and Paraguay will be one of the major challenges
in coming years within the field of the consolidation
is not only seeking to become consolidated internally
as an economic bloc but is also looking to expand its
foreign relations and enhance its importance on the
international scene. In addition to continued negotiations
with the Andean Group for the signature of the free
trade agreements up until the end of 1999, in 1995 Mercosul
signed the Framework Agreement for Economic and Commercial
Co-operation with the European Union, a transition agreement
for a future association between the parties having
the basic objective of implementing a program of progressive
liberalization of reciprocal trade. After a further
three years of accords, it is envisaged that negotiations
will start next April in Santiago de Chile aimed at
establishing a continental free trade agreement.
the three negotiating fronts (Andean Community of Nations,
the EU and the FTAA), the prospects augur difficult
negotiations because of the diverse and conflicting
existing interests but depending on the development
of the Brazilian economy in particular, the political
will of governments and the specific interests of the
Brazilian and international private sectors will operate
so that a form of compromise will eventually be found
that will enable all the agreements to move forwards.
That at least is the intention of Brazil and the countries
term: after 2005, the road to the Common Market
complete customs union has been achieved with the unification
of the Common Foreign Tariff, the political will of
the members countries will be put to the test with the
deepening of integration and the ability to retain its
own identity in the future hemispheric free trade area.
to the declaration made by the Presidents of Brazil
and Argentina in November 1997, one of Mercosul's next
developments will be the undertaking of studies that
will enable the sub-regional group to enter into a new
stage - as quickly as is wished by the people of the
two countries - that transcends the economic and commercial
sphere and reinforces its political dimension.
the first time, specific reference was made by two member
countries to the route towards an effective common market,
as envisaged in Clause One of the Treaty of Asunción.
2005, having confirmed the political will of the four
member countries to follow this direction, Mercosul
must face this new challenge, focusing on delicate and
sensitive areas such as the creation of supra-national
institutions, a single currency, foreign policy and
paths: Mercosul and FTAA
the context of its consolidation, despite all its success
in the commercial area - and perhaps because of the
latter - Mercosul is currently going through a period
of increasing complexity in negotiations and lack of
definition in relation to its real priorities.
complexity in terms of negotiations is the result of
the acceleration and multiplication of the forums created
by the FTAA: the agenda of Mercosul, the draftsmen and
the availability of the negotiators were all shared
between the needs of twelve work-groups and the FTAA's
round of ministerial meetings.
lack of definition in relation to the priorities is
the result of the superimposing of negotiating agendas
with the FTAA, the sometimes unclear co-ordination between
national economic and commercial policies and those
of Mercosul and the need for the putting forward the
most important topics to reflect a balance of interest
between the four.
relationship between Mercosul and the FTAA, not only
during negotiations but mainly after 2005, will perhaps
be the greatest challenge to the identity of the customs
to the decisions taken in the Ministerial Declaration
of San Jose, confirmed by the Santiago Summit, Mercosul,
as a customs union, will go beyond the FTAA and will
continue to exist independently, but from an economic-commercial
point of view, Mercosul will not be diluted with the
creation of the FTAA from 2005, since in practice the
Common Foreign Tariff would cease to be effective within
the Continent. On the other hand, from a political-strategic
stance, Mercosul is more than simply a commercial scheme
because it encompasses areas such as culture, politics,
security and education, being obliged to maintain its
individuality within a hemispheric free trade area.
of the specific effects of the FTAA's negotiations with
Mercosul is the decision by the member countries (to
avoid the diluting effect) to accelerate accords aimed
at deeper forms of integration, exemplified in the agreements
reached last December in the services and social welfare
area (agreement on social security).
WITHIN THE CONTEXT OF BRAZILIAN INVOLVEMENT ABROAD
the Brazilian point of view, the setting up of Mercosul
is not an isolated initiative. It forms part of a structured
view of Brazil's role in the world today and a force
that will ensure the nation's more positive involvement
on the international stage.
integration is a prominent element in a wider Brazilian
scheme for commercial liberalization and the modernization
and stabilization of the economy. The dismantling of
economic borders between the four countries that comprise
Mercosul has been a driving force in the distribution
and production of wealth and consequently, the job creation.
the other hand, Mercosul has contributed to consolidating
the opening up of Brazilian trade abroad with increased
competition in Brazilian production on the international
markets. In this regard, the integration process has
made an outstanding contribution to the reinforcement
in Brazil of an open and dynamic view of company activity,
centered on the technological renewal of Brazilian industry
and the improvement in the quality of its products.
considers itself to be a global trader with its business
reasonably balanced across the different regions (27.3%
to Europe, 25.6% to South America, 17 7% to the USA
and 14.5% to Asia).
a central feature in foreign policy and overseas economic
policy, Mercosul has become an important element since
it occupies an increasing area of Brazilian foreign
trade, climbing from around 4% in 1991 to 17% in 1997.
its creation, Mercosul has played an important part
in relation to Brazilian business by demonstrating the
market potential of the Southern Cone and by extension,
that of South America. Because of Mercosul, Brazilian
business has gone back to its neighbors and is becoming
multinational (around 400 joint-ventures with Brazilian
companies are operating in Argentina).
Brazil, the success of Mercosul both in the political
(the affirmation of democracy) and in the commercial
areas (Mercosul can already boast a good name in trade
and investment) represents a greater projection of South
America in the international context and a reinforcement
of the country's specific influence on nations as a
making better use of its regional position and with
Mercosul as a platform for South America, Brazil is
taking advantage of its geography and projecting its
natural leadership talents in examining and debating
the chief concerns of the region.
remains to be seen how the Brazilian position will develop
on the way to a deeper integration with its partners
in Mercosul, as witnessed by recent steps in the political
area in terms of services and social welfare matters.