Mercosur - k n Group

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LOGO

MERCOSURA new region of challenge &

opportunity

By:

Kapil Chadha

Geetananda Sharma

Bhanu Mehra

Sadhna Jain

Pooja

Divya Yadav


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The Origins of the MERCOSUR

1991: Treaty of Asuncin: Argentina, Brazil, Uruguay,

Paraguay. Associate states: Bolivia, Chile, Colombia, Ecuador and

Peru.

Establishment of a Free Trade Area and a Customs Union duringthe Transition Period (1991-1994)

Intending to establish a Common Market at the end of theTransition Period

Trade Liberalization: scheduled, lineal and automatic. Included lists ofexceptions (Final Adaptation Regime)

Fixation of a Common External Tariff: included exceptions. Intentionof incentivating external competitiveness

Coordination of Macroeconomic Policies: just consultations, noharmonization

Adoption of Sector Agreements2


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WHAT DOES MERCOSUR REPRESENT?

From the Political Perspective:

The definitive end of the hypothetical conflict among thecountries of the region.

Insurance for the continuation of democratic system currentlyin operation in the Southern Cone.

A political and institutional safety net over which economicand social relations are developed.

The strengthening of cultural links among the peoples of theregion.

Progress towards the consolidation of a single regional

identity. The strengthening of the regions bargaining power in the

global arena.

The main strategy to ensure the integration of the region intothe current international order.

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Contd.

From the Economic Perspective:

The better allocation of means of production.

Wider scales of production.

A useful tool to strengthen and deepen the economic reformsinitiated by individual member states.

A higher degree of industrial complementarity, through theimplementation of joint corporate initiatives.

Greater incentives to foreign investment as a result of theextended market.

Greater potential for the integration of small and medium-

sized business into international trade.

Improved levels of consumer welfare, granting access to awider range of better-value and better-quality goods andservices.

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Contd.

A considerable reservoir of natural resources...

14.4% of global forested areas.

26% of global cattle stocks.

6.5% of global corn production.

6% of global arable land.

29% of global soya supplies.

A strong industrial base

12.5% of developing countries industrial output.

28% of global soya oil production.

4% of global automotive production.

4.5% of global aluminium exports.

10% of global steel exports.

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Distinguish Features

It is a regional market in which the trade of goods is free fromtariff and non-tariff barriers.

The four Members States have agreed upon a common tradepolicy.

The liberalization of services transactions and the removal of

barriers to the free movement of inputs are foreseen for themid term.

international level, it is one of the emerging markets with thehighest per capita income.

It has a substantial communications and telecommunications

network under a permanent process of modernization. Displays a highly developed and diversified production

capacity that represents 50 % of Latin American GDP.

It has an industrial sector that is one of the most importantamong Developing Countries.

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INSTITUTIONAL STRUCTURECommon

market

council

Ministerialmeetings

Commonmarket group

Mercosur tradecommission

Workingsub groups

Ad hocgroups

Specializedmeetings

Administrative

secretariat

Technicalcommitees

Relatedinstitutions

Joint

parliamentarycommisiion

Economicsocial and

consultative

forum

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The Juridical-Institutional System of the MERCOSUR

Characteristics of the Juridical-Institutional System

MERCOSUR: (Ouro Preto Agreement, 1994)

Juridical Personality in International Law since the Protocol of OuroPreto

Intergovernmental: no sovereignty transfer by the Members

Temporary Structure

Organs withDecision-MakingPowers

Common Market Council (CMC):

-Ministerial Meetings

-Permanent Representatives Commission (CRPM)

(2003) President. They coordinate Ad Hoc GroupStructural Convergence Funds (GAHE-FOCEM)(2005)

Common Market Group (GMC)

Trade Commission of the MERCOSUR (CCM)

-Technical Committees. (Common External Tariff)

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Characteristics of the Juridical-Institutional System

MERCOSUR Parliament (PM) (2005)

Economic and Social Advisory Forum (FCES)

Administrative Secretariat (SAM)

Dispute Settlement Mechanism: Permanent Court of Review (TPR)(2005)

MERCOSURs international Agreements

4+1 : MERCOSUR + USA: Trade Negotiations. InvestmentsProtection Agreement. (1991)

MERCOSUR-EU (1995) Cooperation Agreement Framework.Interregional Association Agreement : market access vsagriculture

Chile & Bolivia: associated members (1995-1996) Free TradeArea

CAN-MERCOSUR (2003) Free Trade Area

South American Community of Nations (2004) UNASUR10


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LOGO


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MERCOSUR: Area, Population and Population Density

Country Area (millionskm2) Total Population(millions) PopulationDensity(pop/km2)

MERCOSUR y Chile

(2006)

12.697 255.377 20

Argentina 2.792 38.971 14

Brazil 8.547 190.127 22

Chile 756 16.436 22

Paraguay 407 6.365 15,6

Uruguay 175 3.478 20

European Union (2007) 3.191 495.090 155

Germany 357 82.315 230

Spain 505 44.475 88

France 544 63.392 116

United Kingdom 242 60.817 251

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MERCOSUR + Chile: GDP

Country/Year 2003 2004 2005

Argentina 263,600 287,402 313,783

Brazil 624,736 655,349 670,422

Chile 82,547 87,633 93,196

Paraguay 7,516 7,827 8,057

Uruguay 17,640 19,725 21,020

Total 996,039 1,057,936 1,106,478

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MERCOSUR + Chile: Foreign Debt as % of the GDP

Country/Year 2003 2004 2005

Argentina 127.3 112 62

Brazil 42.5 33 21.3

Chile 59.1 46 39.1

Paraguay 54.9 44 37

Uruguay 98.9 88 68.1

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Goods Argentina Brazil Paraguay Uruguay Venezuela MERCOSUR

Exports 0,38% 1,14% 0,02% 0,03% 0,54% 2,11%

Imports 0,27% 0,77% 0,05% 0,04% 0,27% 1,40%

MERCOSURs Paricipation in World Trade - Year 2006

Services Argentina Brazil Paraguay Uruguay Venezuela MERCOSUR

Exports 0,27% 0,65% 0,03% 0,05% 0,05% 1,05%

Imports 0,31% 1,03% 0,02% 0,03% 0,22% 1,61%

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Exports by DestinationImports by Origin

Exports and Imports of the MERCOSUR

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HEIRARCHY OF MERCOSUR

FREE TRADE ZONE

CUSTOM UNIFICATION

COMMON MARKET

Co-ordination of macroeconomics policies and

negotiation of agreement with non-memberstates and international agencies

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Establishing Free Trade Zones

The member nations can have commercial free-trade zones, industrial free-

trade zones, export processing zones, and special customs areas, all of whichtarget providing merchandise marketed or produced in these areas withtreatment different from that afforded in their respective customs territories.

TARIFFS The member states can assess merchandise from these areas with the

common external tariff used for Mercosur merchandise, or, in the case of

certain special products, the domestic tariff prevailing in each individual state.

In this way, the products from the free-trade zones can have the more

favorable tax treatment established under Southern Common Market, given tothe merchandise produced in the normal customs zones of each member state

or, in the case of certain special products, can have the normal customs

treatment prevailing in each nation.

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Contd.

SAFEGUARDS Products produced or marketed in the free-trade zones of each member nation will

be eligible for the safeguard system whenever this entails an increase not provided

for in imports, but capable of causing damages or threatened damages to the

importer country.

INCENTIVES In the event of the producing nation's granting special incentives for production

from the free-trade zones that are not compatible with the corresponding guidelines

established under the General Agreement on Tariffs and Trade (GATT), the

member nation can make any adjustments needed to return the situation toequilibrium.

CREATION The member nations agreed that any free-trade zones that in August 1994 were

already in operation could operate normally under Mercosur, along with any that

are set up in light of legal guidelines prevailing or in course in Congress during this

same time period. This means that a member nation can no longer create new free-trade zones that are more privileged.

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COMPARISON TO OTHER INTERNATIONAL TRADE BLOCS

Mercosur differs substantially from both the North American Free

Trade Agreement (NAFTA) and the European Union.

To some extent, in terms of member integration, Mercosur can beseen as being somewhere between NAFTA and the EuropeanUnion.

The Mercosur members have as their goal greater economicintegration than their NAFTA counterparts. The two blocs aresimilar in creating a free trade zone among their members.

Thus, both Mercosur and NAFTA share a common goal in

eliminating all barriers to trade among their members.

Mercosur, however, extends this cooperation by creating sharedexternal tariffs to third-party members; NAFTA members do not.

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Contd.

The European Union, in turn, goes beyond the integration

of member states' economies that characterizes Mercosur.

Thus, European Union members share a common tradepolicy and the free movement of labor and capital amongmember states; Mercosur does not.

Additionally, the European Union leaves open the possibilityof coordinating independent national legislative activity;Mercosur does not.

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ROLE AND POTENTIAL

Some South Americans see Mercosur as giving the capability to combine

resources to balance the activities of other global economic powers, especiallythe NAFTA and the EU. The organization could also potentially pre-empt

the Free Trade Area of the Americas (FTAA) however, over half of the current

Mercosur member countries rejected the FTAA proposal in Argentina in 2005.

The development of Mercosur was arguably weakened by the collapse ofthe Argentine economy in 2001 and it has still seen internal conflicts over trade

policy, between Brazil and Argentina, Argentina and Uruguay, Paraguay and

Brazil, etc. In addition, many obstacles are to be addressed before the

development of a common currency in Mercosur.

The bloc comprises a population of more than 270 million people, and the

combined Gross Domestic Product of the full-member nations is in excess of

US$3.0 trillion a year by IMF numbers, making Mercosur the 5th

largest economy in the World. It is the 4th largest trading bloc after the

European Union.

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MERCOSUR TODAY

Mercosur today is an economic reality of continental dimensions.

Comprising an area of slightly less than 12 million square kilometers, ormore than four times the size of Europe, Mercosur represents a potential

market of 200 million people and a joint GDP of more than US$ 1 trillion,

which places it among the four largest economies of the world after

NAFTA, the European Union and Japan.

Mercosur is currently one of the major poles of attraction for investment in

the world. There are many reasons for this success: Mercosur is the fourth

economy and has the largest reserve of natural resources in the world.

Mercosur today is a global trader and, as such, is fully interested inmaintaining broad and varied relations with the outside world.

Its imports and exports are distributed in a balanced way among the diverse

economies of the world.

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Contd.

On Mercosur's foreign agenda, which includes initiatives within the Latin

American spheres, both hemispheric and extra-hemispheric, the followingtopics are top priority:

o the negotiation of free trade agreements between Mercosur and the other

members of the Latin American Association of Integration;

o the implementation of the Inter-Regional Framework-Agreement for

Economic and Trade Co-operation, signed in December 1995 between

Mercosur and the European Union;

o the co-ordination of positions within the scope of negotiations aimed at the

formation of the Hemispheric Free Trade Area.

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MERCOSUR FUTURE

Over its twenty years of existence, Mercosurwhich accounts for a total

population of 241 millions and a combined GDP larger than that of Indiahassubstantially expanded, both in membership and scope.

Mercosur could become the OPEC of food production, Pea anticipates. By

pulling together their common natural and competitive advantages in agriculture,

countries of the Southern Cone could lead global food production.

Mercosur, as South Americas main economic association, has a clear role to play

in building economic synergies and promoting coordinated policy approaches.

Two decades after its inception, many observers are uncertain about theachievements of Mercosur. Trade between members of Mercosur has increased, but

still represent a low fraction ofMercosurstotal trade: only 10,3% of Brazils total

exports and imports are made with other countries of Mercosur.

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Contd.

Despite its imperfections, Mercosur continues to be a driving force for

regional integration.

As a regional bloc, Mercosur signed free trade agreements with Israel and

Egypt. A new trade deal with Korea is underway.

Recently, Mercosur and the European Union officially relaunched their

negotiations for a trade and cooperation agreement which holds the

potential to create the worlds largest free trade area.

The future of Mercosur is not limited to commodities however. Countries

of the region are also becoming strong productive bases as well as sizeable

markets.

the key to success is to understand the logic of global value chains and

seek to escalate them.26


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Contd.

Mercosur is a strategic idea, it is a geographical space, but it is also a

process, one of continuous metamorphosis.

The level of integration and institutionalization of Mercosur may not be

comparable with that of the European Union, but its flexibility will surely

be a precious advantage as South America seeks to increase its weight andpresence on the global stage.

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RECENT NEWS


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RECENT NEWS

Uruguay could reconsider links with Mercosur given

obstacles to inter-trade Uruguay is reconsidering the situation and links with Mercosur, given the

recent trade obstacles and tariffs imposed by Mercosur senior partnersBrazil and Argentina, announced President Jose Mujica in an interview.

Mercosur coordinating temporary tariff mechanismto defend home markets Mercosur coordinators are holding meetings in Montevideo to decide on a

mechanism for temporary increases of national tariffs besides those already

implemented under the common external tariff for the group.

Mercosur consolidates as leading soybean regionwith 52% of worlds production In twelve years Mercosur has consolidated as the leading region in

soybean production with 52% of the world crop and the potential to further

expand area and yields.28


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Mercosur is not working, good relations

between two presidents are not enough President Jose Mujica admitted to Uruguayan manufacturers

and farmers that with recurrent Argentine and Brazilianobstacles to trade its very hard to make Mercosur function

and good relations between presidents are not enough.

Mercosur and Mexico auto industry agree tojointly compete with Asia Mercosur and Mexico signed an agreement which virtually

liberates all bilateral auto industry trade and opens prospectsfor joint undertakings world wide. The event took place in

Montevideo, administrative capital of Mercosur.

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THANK YOU!!!

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