1.1.- Regional integration on, a long term basis, can only be successful with the free flow of currencies. Otherwise, it seems obvious, great distortions would set deep roots which would eventually most thoroughly compromise any trade bloc, because their ramifications would affect trade in goods, in services, as well as investments. Accordingly, the Treaty of Assunción 
, which created Mercosul, established amongst the regional bloc´s objectives the free movement of capital. In spite of this, seven years later, Brazil, Mercosul´s largest economy, still avails itself of the transitional provisions of the Bretton Woods Agreement and, as a consequence, enforces exchange controls and administers a controversial foreign exchange policy.
1.2.- Conversely, Argentina, Mercosul´s second largest economy, chose a different approach by means of abolishing exchange controls and adopting, by law, a fixed parity to the US dollar, otherwise known as “currency board” 
. This situation, whilst giving Argentina a clear advantage in the attractiveness of its economy to foreign direct investments, on the other hand subjected it to enormous strategic vulnerabilities from major shifts in exchange policy of both Brazil, Argentina´s main trading partner, and of the USA. Such an unenviable scenario can only be worsened by the lack of flexibility inherent to the currency board model.
1.3.- Not surprisingly, the current international financial crisis has not spared either Brazil or Argentina, and Latin America for that matter, and only last week Brazil´s government announced a package of fiscal measures with a view to balance the budget and to create better fundaments for sustained domestic growth in the future. This presentation will address some strategic subjects for the success of regional integration in South America and has, accordingly, been divided as follows:
a) This Introduction;
b) Monetary Union in Mercosul: strategic considerations; the initiative of a single currency for Mercosul; the positions of the Brazilian and Argentine governments; obstacles for the implementation and advantages of a single currency;
c) Uniform Investment Rules: problems with different norms; the foreign direct investment regime of the NAFTA 
; the initiative for a Multilateral Investment Agreement within the OECD 
; investments and the FTAA 
d) Legislative Integration: competition, consumer; environment and taxation; and
e) Conclusions.2.1.- The vulnerability of the Argentine economy to a major shift in the Brazilian foreign exchange policies that would implement a significant exchange devaluation derives from the fact that, should this occur, Argentina´s competitiveness in the Brazilian markets would be seriously compromised. This is, of course, aggravated by the fact that, as exchange devaluation in Argentina is not a simple matter, because it depends on legal authorisation and not simply administrative action, which is the case in Brazil and in most countries in the world. The basic reason for such greater competitiveness of Argentine goods is based on the fact that the Brazilian currency was substantially overvalued at the incept of the Real plan, in order to make imports cheaper, with a view to checking inflationary pressures. This, of course, on the other hand, has adversely affected the international competitiveness of Brazilian products abroad.
2.2.- The perception, in Argentina, of the inherent difficulties faced by the Brazilian exchange policy, and the opportunistic desire to have the present exchange advantage enshrined in the Mercosul institutional and regulatory regime, was only exacerbated by the possible effects of an international financial crisis in Brazil. This situation prompted the Argentine government, represented by no one less than the president, Sr. Carlos Menem, to take the initiative in proposing a monetary union within Mercosul. On the Brazilian side, there is a considerable resistance to such an initiative for the regional single currency in different political levels. Accordingly, the Brazilian Minister of Foreign Relations replied officially that the single currency should be the golden finish to the integration process, putting its implementation for after those of the free movement of people and services 
. Members of Congress and the president of the Central Bank of Brazil have supported this position. 
2.3.- Undoubtedly, the Argentine initiative is both meritorious and within the frame of the Treaty of Asunción. The enthusiasm with which the creation of the Euro has been received 
, as an alternative for the US dollar´s role of strategic currency, together with the weak inherent substance of both the Euro, for lack of an integrated revenue system, and the US dollar, for dearth of adequate current account levels, is a good indicator to the effect that a monetary union for the Mercosul would be well received by the financial markets. This could effectively be so, provided that the same criteria established in the Maastrich Treaty be observed 
, with respect to public deficit; public debt; inflation and interest rates, which would unequivocally benefit from an additional tax uniformisation.
2.4.- The great obstacle, however, for monetary union within the Mercosul in the near future lies in the lack of adequate structural legal and fiscal reforms in Brazil to complete the modernisation of the regulatory framework in the country in a level with what exists in the European Union and the USA. Much of this is, of course, difficulted by the fact that Brazil is such a geographically, culturally and ethnically diverse society struggling to consolidate its democratic institutions and the rule of law after years of political abuse, corruption and incompetence not subject to democratic and judicial controls. The process of dismantling such a vile edifice is such that we in Brazil have, to our disgrace, again proven that dictatorships are midgets casting a long shadow in the future of nations.
2.5.- Therefore, even if the business communities are naturally impatient and hurried, it is of fundamental importance that, we in Brazil, address first the modernisation of our legal infrastructure and the matter of the fiscal balance. We have no reasons to regret the fact that we first consolidated our democratic regime before we started with the economic reforms and, similarly, should resolve the matter of the fiscal balance and transform the Real into a freely convertible currency before we are in a position to discuss monetary union within Mercosul. The moment for liberalisation of the exchange controls, however, has arrived as, since 1993, the member states of Mercosul have recognised that restrictions on capital transfers impose serious tensions on the financial markets 
. No reforms effected by the Brazilian government without liberalisation of exchange controls would sustain credibility on a medium to long term basis.
3.1.- The member states of Mercosul signed on January 17, 1994 the Colonia Protocol for the Promotion and Regional Protection of Investments within the regional trading bloc. This agreement establishes most favoured nation privileges, in addition to regulating, in detail, monetary transfers. In order to qualify for the benefits thereunder, the investments must be effected in convertible currencies, in accordance with the regulations adopted by the country receiving the respective disbursements. The Colonia Protocol further ensures convertible currency cover for the remittance of funds for purposes of repatriation of capital; payment of interest, dividends or profits; repayment of loans; payment of royalties and fees under intellectual property agreements; certain indemnifications and other limited purposes. Investments of Brazilian citizens abroad in general, and even within Mercosul, suffer numerous restrictions.
3.2.- As Brazil is a signatory of the transitional provisions of the Bretton Woods Agreement and thus administers exchange controls, the Mercosul Protocol of Investments did not prompt a surge of holding companies based in Argentina or Uruguay for extra-bloc investments seeking the protection of guaranteed exchange conversion. Even in the event that this exchange situation was different and free exchange conversion was the rule in Brazil, in case of default on the part of the Brazilian authorities, the respective enforceability against Brazil would be difficult because the Mercosul system for the resolution of disputes is highly imperfect and does not admit a direct claim from a national of a member state against another member state without the concurrence of the plaintiff´s government. Since the inception of Mercosul, there have been no cases of disputes, in spite of the massive intra-bloc trade 
and of the fact that Brazil is today, probably after the USA, the most litigious country in the world.
3.3.- Again here there can be encountered an element of discord within Mercosul. The Argentines, Paraguayans and Uruguayans have proposed the creation of a regional court of justice similar in structure to the European Court of Justice. This initiative has been energetically refused by the Brazilian Ministry of Foreign Relations ostensibly with the justification that it is premature at the present stage of economic integration. Certain sectors of the Brazilian Judiciary, ever in search of sinecures, have eagerly supported, with justifiable glee and anticipated delight, this proposal of the other member states of Mercosul. At this moment, however, it seems unmistakably clear that the present system of dispute resolution must be improved. The one created for NAFTA could be a model 
3.4.- Within the negotiations for the Free Trade Area of the Americas, there will be material understandings for an investment agreement, as desired by the USA, who wish to expand to the other countries of the hemisphere the same structure agreed to by Mexico in the investments chapter of NAFTA. Article 1139 of NAFTA defines investment very broadly to include property; securities and credits, in addition to intellectual property rights; contractual rights; real estate interest, as well as the corresponding financial transfers. NAFTA´s investment chapter establishes the following basic principles:
a) most favoured nation clause;
b) national treatment;
c) prohibition of performance requirements;
d) internationally accepted criteria for expropriation and compensation;
e) environmental sensibility; and
f) system for the settlement of disputes.
3.5.- The more prosaic objective of the US trade diplomacy with such provisions was to obtain a guarantee of exchange conversibility from the Mexican Republic to all payments due to US nationals from either private or public parties. This prompted the hub and spoke model for financial transactions with Mexico, in that companies and banks from other parts of the word (including Mexican citizens operating off-shore) dealt with Mexico from US based subsidiaries. The frailties of the model were tested only a few months after NAFTA went into effect, when Mexico build an enormous current accounts deficit and faced a situation of major iliquidity, ultimately remedied by a substancial rescue package from the international community of approximately US$ 50 billion.
3.6.- The USA had tried, during the Uruguay Round of the GATT, to have a multilateral agreement on investments, which effort was neutralised by developing countries, including Brazil and India. After success within NAFTA, the USA prompted the OECD to negotiate an investment agreement along the same lines amongst its members, which has not yet succeed, in view of strong opposition of certain nations, most notably France. However, as the agreement is directed against developing nations, which are not members of the OECD, there is a renewed attempt to migrate the initiative to the World Trade Organization, where it will undoubtedly face opposition on the part of many countries. 
In any event, there looms the question as to whether a multilateral investment agreement is really necessary as countries interested in attracting foreign capital will logically enact sensible and competitive regulation in order to attract investments from abroad. 
3.7.- In view of the volatility of the international financial markets and the anomie prevailing in them, the Brazilian government has taken initiatives to motivate other countries with a view to regulate the so called off-shore financial markets. It is to be noted that in tax evasion alone, Brazil looses approximately US$ 40 billion per year, as a result of off-shore transactions effected in most cases with the complicity of OECD countries. In the opening of the 53rd session of the United Nations, the Brazilian Minister of Foreign Relations, Ambassador Luiz Felipe Lampreia, called for international regulation of such markets 
. More recently, in the 8th conference of Iberian-American heads of state, President Fernando Henrique Cardoso called for a new international legal order in the financial markets 
. 4.1.- It is beyond dispute that Mercosul, designed by the Treaty of Asunción to be a common market, needs to have a high degree of political understanding, legislative integration and common institutions. There are naturally numerous obstacles before this task and many of them have to do with the fact that all the member states are young democracies still in need of sundry legislative action in order to conform their institutions to the rule of law. It was estimated that the Brazilian new Constitution of 1988 would need 243 complementary laws to regulate it, a good percentage of which has not been passed yet. There are, however, some areas where efforts have to be urgently made. They include competition law, consumer legislation, environmental law and taxation.
4.2.- Brazil has regulated competition law since 1962 
and the main purpose of its legislation is to restrain and prevent infringement of economic policy based on the constitutional guarantees of free initiative, free competition, the social functions of property, consumer defence and restraint of the abuse of economic power. Argentina´s legislation is more recent, which puts it amongst the 30 countries that have regulated the subject in the past 8 years. 
It is eminently clear that the actions of a country´s anti-trust authority may affect the ability of foreign and domestic companies to enter and or operate in a given market which, in case of a customs union, will undoubtedly have repercussions in the neighbour´s territories. Because this is now widely recognised, there are many who think 
that the subject matter needs to become more co-ordinated internationally, even within the multilateral system of the World Trade Organization, but certainly within regional trade blocs.
4.3.- Accordingly, the importance of establishing a framework for the matter, within Mercosul, has been perceived and Decision No 20 – 94 of the Common Market Council of Mercosul has been taken with a view to guaranteeing equal conditions for competition and created a technical committee charged with the examination of public policies that may be seen to distort competition. The objective of the committee is to identify those measures considered incompatible with the functioning of a customs union, pursuant to criteria of economic efficiency and the global objectives of Mercosul. The basic guidelines for defence of free competition within Mercosul were given by Decision No 21 – 94 of the Common Market Council. In the event of perceived breach of any competition rules, the signatory country affected may present a complaint, complete with proofs and allegations, to Mercosul´s Trade Commission. The country in which the alleged violation took place will have 30 days to initiate an investigation pursuant to its own law and apply, if the case, the applicable sanctions contemplated by such law. The system is evidently faulty as it assumes that domestic laws of the member states are adequate. 
4.4.- The Brazilian 1988 Constitution established the protection of consumers as a basic principle for the country´s economic order. 
This precept was followed in 1990 by a modern and comprehensive legislation of consumer protection 
imposing various obligations on manufacturers, purveyors and agents, individual or juridical persons, Brazilian or alien. Several administrative provisions were included, in addition to criminal law precepts. As none of the other Mercosul partners had the same level of protection, the Brazilian laws were initially subjected to some unfounded accusations of non-tariff barriers. Subsequently, it was recognised that it was important to have, within the trade bloc, a common regime on consumer protection, and thus a commission for studies of consumer rights was created in 1993. In the same year, Argentina enacted a law on consumer protection, which is similar but not up to the same standards as Brazil´s. Uruguay and Paraguay as of yet have not passed legislation on the subject. In practice, today, companies doing business in Mercosul, conform to the most rigorous laws, Brazil´s, but efforts continue towards a common regime.
4.5.- With respect to environmental law, the situation is very much similar to consumer protection. Brazil´s Constitution deals with the subject in no less than five different articles 
and the environment is extensively regulated in municipal, state and federal levels. Brazilian law enshrines and upholds the principle of strict liability for polluters (i.e. responsibility regardless of knowledge, fault, degree of care or intent). Environmental protection agencies at the state and federal levels have concurrent jurisdiction to:
a) control the quality of waters destined for public water suplies and certain other uses;
b) establish environmental standards and discharge limitations governing air, water and soil pollution;
c) issue construction and operating licenses for new and existing sources of pollution;
d) monitor polluting activities;
e) fine violators of pollution standards and limitations; and
f) request the temporary closure of serious violators.
4.6.- At the federal level, the first comprehensive environmental legislation was law 6938 enacted in August 31 1981, as amended by law 7804 of July 18, 1989 and law 8028 of December 4, 1990. Recently, law 9605 of February 12, 1998 provided for crimes against the environment and introduced the principle of disregard of the legal entity for infringements of its terms. Due to the criminal nature of the statute, liability is based upon fault and not on strict liability as in civil cases. A common legislative regime of the area within Mercosul is incipient and there are disagreements between Brazil and Argentina on how to best structure it. 5.1.- In spite of the remarkable successes of Mercosul in the fostering of trade and ultimately in securing economic and social development with political dialogue and understanding without parallels in history, we could see in today´s presentation that there are some daunting and quite formidable obstacles for the further integration of the South-American trade bloc. At the same time that we recognise them, we should not feel discouraged and use the example of the forty year continuing struggle of the European Union as an additional source of motivation.
Advogado admitido no Brasil, Inglaterra e Gales e Portugal. Formou-se em direito pela PUC-SP em 1975. Árbitro do GATT (General Agreement on Tariffs and Trade) e da OMC (Organização Mundial do Comércio), e professor de direito do comércio internacional na pós-graduação da Universidade Cândido Mendes (RJ).