Created by the Treaty of Asunción of March 26 1991 between Argentina, Brazil, Paraguay and Uruguay, the free trade zone of Mercosul has had a consistent history of success since its inception and became a model for initiatives of its kind. Aimed at creating a common market for the region, Mercosul had the initial objectives of achieving, by January 1 1995, a) the free movement of people, goods, capital and services, b) the creation of a common external trade tariff and the establishment of a common external trade policy; and c) the coordination of macro-economic policies. Such objectives were largely achieved on schedule, the most important being the Common External Tariff (CET), which has been in force since 1995 set at 11 different levels from zero to 20% with an average of approximately 12%. Each member country was allowed an exception quota of 300 items from the CET (Paraguay with 399), with a linear and automatic convergence set to be achieved for most items by the year 2001. Products in the areas of information technology and telecommunications will converge only by 2006.
Trade within Mercosul is mostly tariff-free, but there are some relevant albeit temporary exceptions such as cars in the industrial sector and sugar and related products in the agricultural sector. In addition, there are groups of products considered sensitive trade by the member states that are subject to internal tariffs to be eliminated by 1999 for Argentina and Brazil and by 2000 for the others. Those exceptions amounted to 29 items for Brazil, 221 for Argentina, 427 for Paraguay and 950 for Uruguay. In December 1994, during the Ouro Preto meeting, a special supranational body was created, the Mercosul Trade Commission , with the objective of overseeing the dismantling of the non-tariff barriers and the homogenization of phyto-sanitary, technical and safety rules. At the same time, a common customs code was adopted for the member states incorporating customs procedures, import valuations and norms and rules of origin.
In December 1995, the member sates of Mercosul agreed on a five-year plan with a view to evolving in the direction set by the Treaty of Asunción, perfecting the free trade area and customs union and resolving the pending agenda. Among the points still outstanding is the question of the free movement of people, which remains unresolved. For Mercosul, this question does not have the importance it had for the European Union, because of the relatively liberal rules in place before the creation of the free trade area, but nevertheless retains considerable relevance because a common market cannot be achieved without it. Another important question to be addressed involves the harmonization of the economic policies of the member states. Of course, since 1991, the degree of harmonization of policies within Mercosul has been unprecedented, but closer cooperation is required for the future, and that should include the effects of exchange controls in Brazil, which prevent the free flow of capital within the free trade area.
Coordination of external trade policies has been so effective that, at present, the negotiations on the creation a Free Trade Area of the Americas (FTAA) are being conducted by Mercosul as a bloc. In addition, free trade agreements were signed between Mercosul and Chile, and Mercosul and Bolivia. Similar negotiations are going on with other Latin America countries such as Venezuela, Peru, Ecuador and Colombia. A point still subject to some degree of controversy pertains to the structure of supranational institutions. The Argentines seem to favour the creation of a structure similar to that in place in the European Union, whereas the Brazilians wish to maintain as small a bureaucracy as possible. At present, there is only a small secretariat based in Montevideo, and some believe part of the success of Mercosul is due to this minimalist approach, valid in a part of the world historically plagued by red tape. In any case, a new system for the resolution of disputes, at present very inefficient, will have to be examined.
In strict trade terms, Mercosul has been enormously successful. Internal trade went from US$ 4 billion in 1990 in a constantly ascending curve to US$ 14 billion in 1995 and approximately US$ 18 billion in 1996. This was accompanied by a movement towards trade liberalization with third parties as well. In the case of Brazil, the average tariff went from 58% in 1989 to 12.6% as a consequence of the implementation of the CET. Accordingly, the growth of regional trade was not achieved at the expense of extraregional imports, which leapt from US$ 25 billion in 1990 to US$ 55 billion in 1995. These figures amply confirm Mercosul´s objectives of practising an open regionalism in tune with the goals of commercial liberalization and increasing participation in the world trade of goods and services.
This favourable trade picture, taken with an economic scenario of stabilized currencies, has been well received by the international community as a whole, and enhanced the attractiveness of Mercosul member states with respect to foreign direct investment, which rose in a continuously ascending curve from US$ 2 billion in 1991 to approximately US$ 14 billion in 1996. Major investments from extraregional sources have been made in the recent past in the motor and the pharmaceutical sectors. In addition, regional investments have also increased, many related to agri-business. The regional agricultural sector, which is largely complementary, has greatly benefited from a substantial market free from the distortions created by the grotesque practice of subsidies – unfortunately still in vogue in much of the world.
As with any regional trade agreement, there is still much to be done within Mercosul. There are also many political and economic risks facing this initiative. However, for its member states, Mercosul has represented the greatest strategic programme carried out this century and one that could very well leverage their respective societies and economies to the developed world.
Lawyer admitted in Brazil, England and Wales and Portugal. GATT and WTO panelist. Brazilian government ad-hoc representative for the Uruguay Round of the GATT. Post-graduation professor of the law of international trade.