MERCOSUR, the “Common Market of the South”

by Teresa Acklin
Share This:

   The Mercado Comun del Sur, or MERCOSUR as it is commonly known (MERCOSUL in Portuguese), is an ambitious project designed ultimately to integrate the economies of Latin America. The main goal is to increase the efficiency and competitiveness of member countries by opening markets for goods, capital and labor; accelerating economic development; and improving communication and coordination of macro-economic policies. Through the free trade area and economic integration, the region hopes to put itself in a competitive position to penetrate the international trade and investment arenas.

   MERCOSUR represents the world's fourth-largest integrated market, after the North American free-trade area, the European Union and Japan (see Table 1). Since its inception early in the decade, MERCOSUR trade has soared (see Tables 2 and 3). Its members' combined gross domestic product has grown by an annual average of 3.5% since 1990 — members Brazil and Argentina between them account for more than half of Latin America's G.D.P.— and per capita incomes in member countries are 30% above that of Latin America as a whole. MERCOSUR members are viewed throughout Latin America as regional leaders.

   MERCOSUR is not yet a full free-trade area, but its stated goals have led some to describe it as the world's most ambitious plan for regional integration since the inception of the European Economic Community in 1957. MERCOSUR has developed a framework and a timetable to achieve its goals, as well as a political commitment that has kept the process moving along.

   MERCOSUR was created by the Treaty of Asunción, which was signed on March 26, 1991 and took effect in November of the same year. Its members today are the original signatories — Argentina, Brazil, Paraguay and Uruguay. Chile and Bolivia are associate members, and Colombia, Peru and Venezuela are considering formal requests to begin the association process.

   The Treaty's first objective was to establish a free trade area and a customs union during the “transition period,” which lasted until Dec. 31, 1994. Eventually, the Treaty calls for the creation of a Common Market, a process that began Jan. 1, 1995 and still is evolving. Mechanisms to form the Common Market consist of free movement of goods, services and capital; a common external tariff; a common trade policy in relation to third states; and coordination of macro-economic and sectorial policies.

   On Dec. 14, 1994, the four member governments signed the Ouro Preto Protocol, which formed a Customs Union, including the definition of a Common External Tariff (CET), and a new institutional structure. That structure consists of the Common Market Council, the highest body, responsible for political decision making; the Common Market Group, an executive body comprising 10 working sub-groups; the Trade Commission, a technical body in charge of implementing the CET and primary trade policies; the Joint Parliamentary Commission, comprising representatives from each member's legislative bodies; the Social and Economic Consultative Forum, an advisory body comprising members of the private sector; and the Administrative Secretariat, which has a budget of U.S.$1.2 million to provide logistic support and is located in Montevideo, Uruguay.

   The Common Market Group is assisted by 10 working sub-groups: Communications; Mining; Technical Standards; Financial Issues; Transport and Infrastructure; Environment; Industry; Agriculture; Energy; and Labor, Employment and Social Security.

   MERCOSUR members have signed a number of protocols dealing with a variety of topics. The protocols cover issues such as harmonizing intellectual property rights, trademarks and origins; consumer protections; air transportation among members and associates; education; and joint cultural projects.

   MERCOSUR also has negotiated agreements with other trading entities, including the European Union. One of the first with Europe was a pact signed in Santiago, Chile, in May 1992 establishing regular cooperation between the two groups, followed in December 1995 by the Economic and Trade Cooperation Agreement between MERCOSUR and the European Union.

   MERCOSUR's relations with North America are more complex because of influences from various proposals for hemispheric free trade areas and from the North American Free Trade Agreement. Nonetheless, in December 1994 at the Summit of the Americas in Miami, Florida, U.S., heads of state from Latin America, the United States and Canada held negotiations aiming for a free trade agreement by 2005.

   Also, ideas have been put forth to expand the existing NAFTA treaty to include first, Chile, and then perhaps MERCOSUR members. But no formal negotiations have occurred regarding a “merger” of MERCOSUR and NAFTA members into a Western Hemisphere trading bloc, and political controversies within the United States over NAFTA and possible free-trade expansion have tended to slow momentum in this direction.

   Meanwhile, Brazil in 1994 proposed establishing a “web” of free trade agreements with neighboring South American countries. Negotiations have been carried out, jointly, by all MERCOSUR members to establish free trade agreements with the other South American countries or sub-regional groups of countries in 10 years.

   In 1996, free trade agreements with Chile and Bolivia were signed, and free trade agreements between MERCOSUR and the remaining Andean Pact member countries of Venezuela, Colombia, Peru and Ecuador are expected to be signed this year.

   MERCOSUR also has begun to develop exploratory contacts with trade groups in the Asian Pacific region and the former Soviet Union.

Table 1 — MERCOSUR: 1995 economic data (gross domestic product and trade data in U.S. dollars)

Per capita TotalTotal
(in millions)(in billions)(in billions)(in billions)

   Source: Brazilian Embassy, London

Table 2 — MERCOSUR member imports by trading partner (in billions of U.S. dollars)

Percent change
Andean Group*1.070.971.281.6352

   *Bolivia, Colombia, Ecuador, Peru and Venezuela

   Source: Brazilian Embassy, London

Table 3 — MERCOSUR member exports by trading partner (in billions of U.S. dollars)

Percent change
Andean Group*2.282.502.703.4451

   *Bolivia, Colombia, Ecuador, Peru and Venezuela

   Source: Brazilian Embassy, London