Trading with the MERCOSUR countries

Dec 8, 2011 by Patricia Maroday

mercosurMercosur -- the Southern Common Market -- is a regional trade agreement in South America among Argentina, Brazil, Paraguay and Uruguay. With its member countries covering over 12 million square kilometers and a market of more than 263 million people, Mercosur is a major trading bloc in the global economy, accounting for three-fourths of the economic activity in South America. Mercosur was originally set up under the Treaty of Asuncion in 1991 to promote free trade among its member states. In 1994, the Treaty of Ouro Preto extended Mercosur's international status as a trading bloc and formalized it as a customs union.

Bolivia, Chile, Colombia, Ecuador and Peru are associate members of Mercosur, which means they can join free-trade agreements but remain outside the customs union. Venezuela signed an agreement in 2006 for membership in Mercosur and is pending ratification by the parliaments of Paraguay and Brazil.

Benefits of Mercosur For Its Members

One of the principal benefits Mercosur provides its members is a common external tariff and a common trade policy toward nonmember states or groups of states. Mercosur also allows its members to coordinate their trade positions in regional and international economic summits.

While Mercosur members have a common front when facing competition from outside the group, between the member states there is free transit of goods and services, manpower and capital; customs duties are eliminated and restrictions not related to tariffs are lifted. This serves to stimulate trade among the members and the development of each of their economies.

The member countries work to ensure free competition among them by coordinating their macroeconomic and policies regarding foreign trade, agriculture, industry, taxes, currency exchange, capital investments, customs procedures, transport infrastructure and communications. The members are also committed to making the necessary adjustments to their laws to strengthen the integration process, based on their reciprocal rights and obligations under the Asuncion Treaty. Under the most-favored-nation principle, members extend to each other any advantage or privilege granted to a product originating from Mercosur members. Mercosur also provides its member states with a forum for resolving trade disputes.

By joining forces, the Mercosur member countries can more effectively counter the strength of other major trading blocs such as the European Union and the North American Free Trade Agreement. Mercosur enables its members to negotiate with nonmember countries as an institutionalized group. And the opening of trade among the member countries has resulted in a significant economic stimulus and expansion of exports and investments.

Mercosur Institutional Structure

The Mercosur Common Market Council, comprised of the ministers of foreign affairs and the economy of the four member countries, is the highest level agency and has the authority to make policy decisions. The Common Market Group is the executive body of Mercosur and is responsible for monitoring compliance with the Asuncion Treaty and making resolutions to implement the policy decisions made by the Common Market Council. The Common Market Group can also initiate measures to open up trade, coordinate macroeconomic policies and negotiate trade agreements with nonmember countries and trading blocs, resolve controversies, and organize, coordinate and supervise work subgroups.

The work subgroups conduct studies on specific Mercosur concerns in areas such as commercial and customs matters, technical standards, tax and monetary policies related to trade, transport, industry and technology policies, agricultural policy, energy policy, labor, employment and social security.

The Joint Parliamentary Committee has an advisory as well as decision-making role. It follows up on the integration process and submits proposals to the Common Market Council and the Common Market Group on how to carry out the integration process and harmonize member states' laws. It establishes relationships with private entities in the member states and with international agencies to obtain information and specialized assistance.

The trade commission assists the Common Market Group in applying the common trade policy agreed upon by the member states and follows up on the development of matters related to common trade policies within Mercosur and with other countries, including the origin system, free-trade zones, systems to discourage unfair trade practices, the elimination of tariff restrictions, customs coordination and harmonization, consumer protection systems and export incentives.

Evolution of Mercosur

As reported by the BBC, Mercosur has had its share of disputes, difficulties and controversies. In 1999, Argentina responded to the increasingly competitive Brazilian car industry by imposing tariffs on Brazil's imports of steel. That dispute was resolved through a bilateral agreement signed in 2000. In 2006, Argentina fought Uruguay's plans to build two large pulp mills on the Argentine border. It was the largest foreign investment Uruguay had ever attracted, but Argentina was concerned about pollution and the effect on tourism. This case was resolved in Uruguay's favor by the International Court of Justice.

The general deteriorating economic conditions in Argentina during 2001 caused the country to unilaterally exempt various imports from the common external tariff. The other Mercosur members initially objected but later granted Argentina a temporary waiver. And because of their own economic troubles, they pursued the same course of action for some of their own imports.

Disagreements on farm subsidies and tariffs on industrial goods have hindered a trade agreement between Mercosur and the European Union. But according to the European Commission on External Relations, the European Union has favored strengthening Mercosur and supported its initiatives. Mercosur and the European Union signed an Interregional Framework Cooperation Agreement in 1995 that provides for political dialogue through regular meetings. The European Union is the largest supplier of assistance to Mercosur through the EU's 2007-2013 Regional Programme, which provides €50 million to support projects to strengthen Mercosur institutions, prepare for the implementation of an association agreement and to encourage the participation of civil society in Mercosur's integration process.

In December 2004, Mercosur signed a cooperation agreement with the Andean Community trade bloc, formed by Columbia, Ecuador and Venezuela, publishing a joint letter of intention for future negotiations toward integrating all of South America. Mercosur has free-trade agreements with Bolivia, Chile and Peru, and a framework agreement with Mexico. Depending on the progress of this integration, Mercosur could potentially pre-empt the Free Trade Area of the Americas initiative, favored by the United States but generally opposed by Mercosur.

Sources:

Mercosur - (common market of the south) - European Commission External Relations

Profile: Mercosur - Common Market of the South - BBC News

Southern Common Market, MERCOSUR - International Training Centre - International Labour Organization

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About The Author
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Patricia Maroday

I’m Mercatrade’s co-founder and enthusiastic team member. I blog, I travel and I love the the combination of marketing, technology and Latin America.

You can also find me on LinkedIn, Twitter, Facebook and Google +

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