Regional Trade Agreements – Mercosur

Mercosur is a regional trade agreement, formed in South America, which includes the founding members Argentina, Brazil, Paraguay and Uruguay. It was initiated by the Treaty of Asuncion in 1991, and “aims to eliminate all internal tariff and non tariff barriers on the flow of goods and factors of production, implement a common external tariff and harmonize numerous macroeconomic and sectoral policies” among the four founding members. Although it only has four members the arrangement has evolved to include associate members such as Venezuela, Chile and Bolivia; they can join free-trade agreements but remain outside the bloc's customs union.

Why did these countries decide to enter into a Regional Trading Arrangement (RTA)?  These agreements create unique opportunities to take advantage of economy of scale, allowing a country to export to an unrestricted market and to have opportunities to improve products in better conditions than previously encountered. They can also open protected markets that were unavailable prior to the arrangement. 

Mercosur tariff policies regulate imports and exports and the bloc can arbitrate in trade disputes among its members. In the longer term, Mercosur aims to create a continent-wide free-trade area. Although Mercosur members negotiated about 800 exceptions to the common external tariff (CET) in order to protect multiple fledging industries, the member countries have been able to capitalize on 85% of goods and services being traded free of restrictions. Although they have had some success they have also experienced some road blocks. A problem that has been experienced by Mercosur member is the informal non-tariff barriers such as administrative delays at customs and side deals between private businesses, which hinder the free flow of goods between member countries.

“Perhaps the most telling sign of Mercosur's success is that its core member countries remain part of the bloc and other countries and regional blocs want to associate with it despite its many imperfections.”