Criticisms and Projections of Mercosul: the Southern Common Market

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Conor Mullan
Economics 462
Brad Barham

Criticisms and Projections of MERCOSUL: The Southern Common Market MERCOSUL first began as a trade bloc between Argentina and Brazil when they signed Programa de Integração e Cooperação Econômica Argentina-Brasil (PICE) in 1985. After the relative success of this program, Uruguay and Paraguay joined in 1991 once the Treaty of Asunción established a southern common market in the Southern Cone. This treaty was later revised in 1994 when member states signed the Protocol of Ouro Preto, which further eliminated protectionism of certain industries. Though the relative success of MERCOSUL can be measured by the slight increase in GDP, the political and corruption issues that has enveloped the southern market hinders its expansion. Bolivia, Chile, Colombia, Ecuador and Peru all have associate member status in MERCOSUL, mostly due to their bilateral trade agreements with other nations, typically the United States. Venezuela is awaiting membership into the trade area, but a lack of confidence from the Paraguayan government is delaying its inclusion. Yet another obstacle within MERCOSUL is its difficulty integrating members. Because both the Brazilian and Argentine economies often overshadow smaller members, it becomes difficult for Uruguay and Paraguay to realize the full benefits of the trade bloc and have strong opinions about seeking bilateral agreements elsewhere. Brazil and Argentina, however, feel they should protect the sovereignty of MERCOSUL and not allow member states to set up other bilateral agreements. These hurdles have greatly affected certain development projections of MERCOSUL in the Western Hemisphere. A common opinion is that if the Western Hemisphere does not integrate to create a free trade area, the economies of China, Europe and India will soon overshadow the region. Thus, in order to stay competitive they will need to cooperate with NAFTA and the United States. Europe has also tried to compete for free trade in the Americas opening talks with MERCOSUL in attempts to increase exports to the Southern Cone, in exchange for cheap agricultural products. However, after more than 20 years of talks of lowering protectionism, communication has come to a standstill on the issues of agricultural subsidies and intellectual property rights. Lowering protectionism will not be possible, though, if MERCOSUL cannot control their political discourse among members. Members of the Southern Common Market have to improve the way they settle disputes among members and need to communicate more openly due to the high costs of judicial tribunals and arbitration, further obstructing development. Criticisms of MERCOSUL and the Pulp Mill Dispute

Politicization and the corruption that comes from it is the most severe obstacle MERCOSUL must overcome. The bleakest example is that of Uruguay’s pulp mill dispute with Argentina, which occurred when the Spanish company ENCE, and Finnish company Botnia, made public their intention to build pulp mills, after several years of forest industry development, on the Uruguay River. Soon after, residents from across the river in Gualayguaychú, Entre Rios, began to show concerns that this mill could pollute the river, and would cause other negative externalities to industry in Argentina. Botnia, however, claimed this to be untrue as they were to install a sewage plant in Fray Bentos, Uruguay, which would treat the untreated water from the city, actually improving the pollution level in the river. This caused an impasse between the governments of Uruguay and Argentina, because the Uruguay River, which separates the two nations, is protected by an international treaty that requires a nation to inform the other of any economic activity that would directly affect the river. Residents of Gualayguaychú began to blockade entrance into Uruguay via the Libertador General San Martín Bridge. On April 30th of 2005 between 10,000 and 20,000 people gathered at the border...
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