The Southern Cone’s Common Market (Mercosur) was created by Argentina, Brazil, Paraguay and Uruguay in March 1991 with the signing of the Treaty of Asunción. It originally was set up with the ambitious goal of creating a common market between the participating countries. The accord did not represent isolated diplomatic action but was the result of a long process of drawing together the member-countries. The creation of the Latin American Free Trade Association (ALALC) in 1960, to be superseded by the Latin American Association of Integration (ALADI) in 1980, and the process of integration between Brazil and Argentina that began with the signing of the Accord for Argentine-Brazilian Integration in 1986, all constitute relevant precedents for the block’s implementation process.
As a result of the legal documents provided for under the Treaty of Asunción, around 95% of intra-Mercosur trade is currently being carried on free of tariff barriers. The Common External Tariff is specified for practically the whole universe of products, with widespread implementation since January 1st, 1995. By 2006, with the termination of the period of ascending and descending convergence of the national tariffs that are still excluded, the CET will be used for the entire universe of products.
The Ouro Preto Protocol signed by the four countries in December 1994 added much to the institutional structure of Mercosur and initiated a new phase in the relationship between the countries, when they decided to start to put in place a common market. The Protocol recognises the legal existence of the bloc under international law, ascribing it with the authority to negotiate, on its own behalf, agreements with third party countries, groups of countries and international organisations.
Mercosur today is an economic reality of continental dimensions. Comprising an area of 11.863.000 square kilometres, or more than four times the size of Europe, Mercosur represents a potential market of more than 200 million people and a joint GDP of more than US$ 1 trillion, which places it amongst the four largest economies of the world after NAFTA, EU and Japan.
In 1996, association agreements were signed with Chile and Bolivia and in 2003 with Peru, establishing free trade areas with these countries on the basis of a “4+1” formula. In October 2004, Mercosur and the Andean Community (Bolivia, Ecuador, Colombia, Peru and Venezuela) signed an agreement that will establish a free trade area of 350 million people. Furthermore, Mexico is also in the process of becoming an associated member of Mercosur. Mercosur is also currently engaged in negotiations with the European Union for the liberalisation of trade, aside from being an active force in the Free Trade Area of the Americas negotiating process. Other important consultations are being held with a variety of partners such as SADC (South African Development Community), CER (Australia-New Zealand Closer Economic Relations Trade Agreement), CIE (Community of Independent States), India, Korea, China, Japan, Egypt and Israel.
This wide external agenda is clear evidence that Mercosur is an example of open regionalism, in the sense that it is not a “stumbling block” to the globalisation of world trade. It is only natural that Mercosur practice open regionalism, since it was conceived precisely to increase and improve the participation of the four economies in the world economy.
Mercosur has also a broad internal agenda, which extends far beyond economic and trade issues. In this institutional structure, there are several working groups dealing with the so-called “Mercosur’s social dimension”, which covers areas such as education, labour, culture, environment, justice and consumer protection. Although seeking deep integration in all these areas, Mercosur adopts a flexible approach, whereby every advance is made “step by step” and after consolidation of previous conquests. For example, even though the “Treaty of Asunción” foresaw that the Common Market should be implemented by the end of 1994, member states decided to revise this timetable and concentrate on the completion of a customs union in light of the complexities faced during the course of negotiations.
Mercosur also created a common mechanism for political consultations, which was formalised in 1998, in which the four countries plus Bolivia and Chile all participate as full members of the so-called “Political Mercosur”. In this context, they have taken important commitments such as in defence of democracy and declaring the region free of weapon of mass destruction.
In 2003, several important events contributed to Mercosur strengthening. The newly elected presidents of Argentina and Brazil, Presidents Kirchner and Lula da Silva, have put Mercosur at the top of the political agenda. Amongst several initiatives one can underline the appointment of Mr. Duhalde, Argentina’s ex-President, as the President of the newly established Committee of Permanent Representatives of the Mercosur. A Dispute Settlement Court has also been created with a view to strengthen Mercosur’s Institutionalisation. Its five members have being appointed and the Tribunal is already established and working since January 2004.