Although many
observers are
optimistic about
its future, tensions
among national
constituencies as
well as those
between Mercosur
and other countries
could intensify as
the trading bloc
develops.
The October 1997 visit of U.S. President Bill Clinton to Argentina and Brazil worried both countries’ presidents, who feared that Clinton would insist on the dissolution of their regional trade bloc into the U.S.-dominated hemispheric project, the Free Trade Area of the Americas (FTAA). When the U.S. President finally announced his support for
Mercosur, the Common Market of the Southern Cone,
those in the region who see the bloc as a source of eco-
nomic growth and relatively autonomous development
breathed a sigh of relief. Clinton’s visit, however, did
not resolve any of the fundamental problems facing
Mercosur. Although many observers are optimistic
about the future of the agreement, there are a series of
tensions, ranging from conflicts between national con-
stituencies within Mercosur countries to relations
between the bloc and other countries in the region,
which will likely become more acute as the trading bloc
develops.
While Mercosur’s origins can be traced back to a
1986 integration agreement between Argentina and
Brazil, its formal birth was marked by the Treaty of
Asunci6n signed in Paraguay on March 26, 1991 by the
governments of Argentina, Brazil, Paraguay and
Uruguay. The four signatories agreed to establish a
“common market with free circulation of goods, ser-
vices and productive means among its members,” and
at the same time to “facilitate Mercosur’s entry as a
competitor into the global economy.” The bloc has now
signed cooperation agreements with Chile and Bolivia
in order to broaden its base in the future.
The results have exceeded all expectations. In a de-
cade, Mercosur is well on the way to becoming an
autonomous economic actor. It has become Latin
America’s most successful mechanism of economic
integration, and is now the fourth-largest commercial
bloc in the world. With an area of over 4.5 million
square miles, more than 200 million inhabitants and an
25
Jorge Schvarzer heads the Center of Economic Studies of
Business and Development (CEEED) at the University of Buenos
Aires, where he teaches economics.
Translated from Spanish by Jess Kincaid.
25 VOL XXXI, NO 6 MAY/JUNE 1998REPORT ON ARGENTINA
annual output valued at nearly $1 billion dollars, the
region is well placed to accelerate its economic
growth.’ Argentina and Brazil remain the backbone of
the regional agreement, representing more than 90% of
the bloc’s population, output, industrial activity and
exports.
While its presence marks a significant change in the
history of the region, Mercosur is really a child of hap-
Political leaders sought to establish
mechanisms which would prevent
the return of military regimes by
directly linking their countries’
economic future to the endurance of
democratic rule.
penstance. Just 15 years ago, Argentina and Brazil were
largely isolated from each other. Connections between
the countries were rare and trade was minimal. Despite
the rhetoric of regional brotherhood, each of them
traded primarily with the core capitalist countries, a
strategy that was perceived as the only possible road to
development. They primarily sold raw materials to the
industrialized countries in exchange for manufactured
goods and credit. Moreover, both Brazil and Argentina
had adopted the model of import-substitution industri-
alization (ISI) in an effort to develop their own manu-
facturing sectors, with little or no regard for regional
economic integration.
In the mid-1980s, a number of factors converged to
change these official policies. The external debt crisis
strongly called into question the borrower-lender rela-
tionship with the core economic powers. Regional inte-
gration, it was thought, could help in the renegotiation
of the debt and create a new dynamic between the
southern periphery and the global powers. The debt cri-
sis also highlighted the difficulty of building a solid
industrial economy within the bounds of a single coun-
try. Regional integration, it was hoped, could create a
solid base for a modern and viable industrial economy,
and a common market would allow production to take
place on a scale large enough to accelerate the process
of development. Once the agreements were signed, each country’s business sector immediately began
doing business in neighboring countries, both through
exports and direct investment. These activities, in turn, helped create economic structures that were broader, more complex and more competitive than those which
had previously existed in the member nations.
But economic incentives were not the only factors
behind the creation of Mercosur. What made the crucial
difference was the political reality of the period. In the
1980s, both Argentina and Brazil underwent democra-
tic transitions after long periods of military dictator-
ship. Through integration agreements, political leaders
sought to establish mechanisms which would prevent
the return of military regimes by linking their countries’
economic future to the endurance of democratic rule.
To this end, Mercosur negotiations looked to address
the problems that had generated support for military
solutions in the past and sought to facilitate a reduction
of military power on both sides. An agreement on
nuclear cooperation, signed by Argentina and Brazil in
the mid-1980s, was the first step towards building
mutual trust and reducing historical disagreements
between the two nations. Later, the Treaty of Asunci6n
explicitly established democracy as a basic condition
for membership in Mercosur.
rgentina’s trade with its Mercosur partners grew
from around 8% of its total trade in 1986 to
A25% ten years later. For Brazil, that same figure
increased from 5% to 14%. Paraguay and Uruguay, as
smaller nations, buy and sell nearly half their imports
and exports to Mercosur countries. 2 This increase of
intra-bloc commerce generated a doubling of the total
international trade in all four countries between 1990
and 1996.3 Although the figures for Brazil and
Argentina are still low (compared, for example, to the
European Union), the current dynamics of the bloc sug-
gest that a high level of mutual dependence will
develop within the next few years.
The increase in trade has occurred both in manufac-
turing and in agriculture and raw materials, where nat-
ural comparative advantages that were ignored in the
past due to the pressures of other interests are now
being exploited. Argentina exports oil, wheat and dairy
products-goods for which there is a strong demand in
Brazil. Despite the advantage of low transportation
costs, however, Argentina won the Brazilian market
only after the Mercosur accords. Before the treaty,
Brazil bought these goods from other countries, either
because it could obtain them with preferential credits or
because it could pay in kind with its own products. By
transforming that market, integration has thus con-
tributed to increased production in Argentina.
Argentina’s dairy production expanded by about 60%
during the 1990s. This would not have taken place were
it not for the Brazilian demand for those goods. 4
Economies of scale have grown and costs of production
have been reduced, thus consolidating local develop-
ment as well as the development of the entire bloc. The
same process occurred with Argentina’s purchases of
Brazilian iron, coffee and other raw materials, which
26 NACIA REPORT ON THE AMERICASREPORT ON ARGENTINA
are generating a continuous flow of goods between both the Europea
nations. ian policy t
The expansion of manufacturing trade has been even interests an
more dynamic than that of primary exports, especially bling block
in the automotive sector, iron and steel manufacturing, The role
A worker assembles a car door at Chrysler’s new Jeep Grand Cherokee factory in C6rdoba, Argentina. Most of its products are exported to Brazil.
and the chemical and petrochemical industries. In all of groups are
these sectors, there is a visible process of industrial spe- tinue to chi
cialization in each country which has been brought ways to org
about by growth in the economies of scale made possi- At the sai
ble by Mercosur. The clearest example is the automo- integration,
tive industry, in which companies have set up plants on than those
both sides of the Argentina-Brazil border which assem- and current
ble cars with components made in all four member tinue to b
countries. This process has generated strong competi- national mi
tion among the auto companies. Mercosur consumers national p
already purchase two million vehicles a year-a market regional pai
that has not gone unnoticed by multinationals. 5 more coop
could still p D espite its promising performance, however, tries. A cu
Mercosur faces a series of challenges that are could advei
likely to intensify even as it consolidates. Some its partners
of these challenges are external, such as the demand by a nondemo
northern powers that Latin America open its economy cal crisis co
to a degree which is incompatible with effective and thus th
regional integration. Local champions of neoliberalism The diver
support such measures because they are more interested with pruden
in their contacts with northern industrial and financial reconcile th
sectors than in the development of the regional market. for concert
Other challenges are internal, such as resistance to much to str
Mercosur from producers in regions adversely affected Southern C
by the agreement. The protests of sugar-producers in independen
Argentina in 1997, for example, who feared the sudden activity, off
competition of their more powerful Brazilian neigh- countries ir
bors, suggest the need to reconcile local interests with insufficient
the interests of the market as a whole. Here, Mercosur relations, bl
will have to pursue a long-term solution in the style of in the medii
VOL XXXI, No 6 MAY/JUNE 1998
in Union, which adopted an equitable agrar-
that took decades to develop. Ignoring the
d proposals of local sectors could be a stum-
to the integration process.
of the labor movement is another challenge
that Mercosur must address. Labor
feels, rightly, that Mercosur is a
project of other social groups and
that economic integration could be
detrimental to its short-term inter-
ests. The possibility that Mercosur
could force organized workers to
compete with workers in countries
with lower wages was an element
that mobilized the labor movement
against the trade bloc during its
early stages. Today, Mercosur has
contributed to the creation of the
first regional labor networks in the
Southern Cone, a development that
will certainly affect its evolution.
Union leaders, small and medium
business owners and representa-
tives of other special interest
currently debating whether they should con-
allenge the integration strategy or look for
anize within it.
ne time, in spite of the progress of regional
national interests continue to be stronger
generated by integration. Taxation, finance
cy-exchange policies in each country con-
e focused around the problems of each
arket. The growing recognition that these
)licies can be divisive and harm other
rtners has not yet been sufficient to assure a
erative approach, and internal pressures
rovoke a rupture among the Mercosur coun-
rency devaluation in Brazil, for example,
rsely affect the relative competitiveness of
and provoke a negative reaction. Similarly,
cratic outcome of Paraguay’s current politi-
uld potentially threaten the unity of the bloc
e Treaty itself.
se challenges facing Mercosur must be met
at political and social policies that are able to
e interests in question and provide direction
ed national interests. Such policies will do
lengthen this new pole of development in the
ione. Mercosur could become relatively
t and, by promoting productive economic
er a better life to the citizens of its member
the foreseeable future. This is of course
in terms of transforming social and political
ut it represents a viable and worthwhile goal in the
medium-term.
Mercosur: The Prospects for Regional Intergration
1.See Adolfo Buscaglia, “Argentina: Paridad internacional en d61ares
del producto interno y tasas reales de cambio,” Paper presented at
the National Academy of Economic Sciences, Buenos Aires
(December 4, 1996), Mimeograph; and Jorge Schvarzer, La evolu-
ci6n de la producci6n argentina en la d~cada de los noventa
(Buenos Aires: CEEED/University of Buenos Aires, 1997).
2. See the International Economy Center of the Argentine Ministry of
Foreign Relations, Boletin de Comercio Exterior Argentino, Vol. 5,
No. 7 (July 1997).
3.Institute for European-Latin American Relations (IRELA), El
Mercosur: Perspectivas de un bloque emergente (Madrid: IRELA,
August 1997).
4. See Agricultural, Livestock and Nutrition Ministry (SEAG), Informe
estadistico de leche y productos IActeos (Buenos Aires: Subministry
of Nutrition, 1996).
5. Center for Social Research on the State and Bureaucracy (CISEA),
El desaflo del Mercosur para la industria argentina. Evaluacibn de
un proceso cambiante (Buenos Aires: CISEA, November 1992).
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