Mercosur

The Common Market of the Southern Cone (Mercosur in Spanish, Mercosul in Portuguese) was established in the 1991 Treaty of Asunción, signed by the governments of Argentina, Brazil, Paraguay, and Uruguay. Implemented on December 31, 1994, the Mercosur permits the free movement of goods, services, and factors of production between these economies; it establishes a common external tariff and a common trade policy; and commits the member [Page 561]countries to the coordination of macroeconomic and sectoral policies in a variety of areas such as agriculture, industry, and foreign trade. Chile and Bolivia became associate members of the Mercosur in 1996 and 1997, respectively.

Earlier attempts at integration in the region had resulted in the short-lived Latin American Free Trade Association (LAFTA) initiative of the 1960s, as well as the Argentine-Brazilian Economic Integration Program (ABEIP), which was signed in 1986 but stalled in the context of economic difficulties in both countries. With the election of Carlos Menem in Argentina and Fernando Collor de Mello in Brazil at the end of the decade, more concerted efforts were made to pursue integration as part of a broader market-led reform agenda and the negotiations were extended to include the governments of Paraguay and Uruguay. The Treaty of Asunción was followed by a series of summits between the four contracting states, which hastened the integration process and led to the implementation of the Mercosur.

From the outset, the Mercosur was intended to increase the competitiveness of the Southern Cone economies and to facilitate increased inflows of foreign direct investment. Commentators have also noted the utility of the Mercosur as a means of “locking in” politically sensitive market reforms in the four member states. However, a key problem since its inception has concerned the relative gains of integration enjoyed by the member states and the question of whether Brazil, in particular, would reap the greater reward as the largest economy. Economic and political divergences between the member states have contributed to the slow pace of integration in the late 1990s, with little progress in areas such as trade in services, exchange rate coordination, and intellectual property rights. The further “deepening” of the Mercosur has also been hampered by the devaluation of the Brazilian real in 1999 and the 2001 economic crisis in Argentina. These developments have prompted speculation about the future of the Mercosur, as the member states have tried to protect their economies from the threat of contagion.

Furthermore, it has been suggested that should the proposed Free Trade Area of the Americas materialize, then the rationale for subregional initiatives such as the Mercosur might disappear.