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Chapter I
The Globalization of Free Trade Blocs: The
European Union , NAFTA, MERCOSUR, theVisegrad countries (or CEFTA ,) and The
Economic Cooperation in the Black Sea
Dr. Olga Lazin
Beginning in the 1980s, processes of creating economic globalization
through creation of free-trade blocs based upon the free flow instantly
of information, communication, and funds not only brought pressure
to bear on statism but made clear to the world that the failures of
excessive central power could no longer be hidden behind the rhetoric
that state ownership was being carried out in the name of the masses.
The opening of the world trade has broken down old barriers
and boosted development of global civic society to prevent or limitdictatorships although many critics of globalization have argued that it
moves people into poverty. They failed to realize that there is a
positive side to it. The break down of trade barriers and the rise of
telecommunications has enabled the rise of civil society.
They are both against statist power. It is the rise against the
state that stunted civil society in the world.
In its expansive phase, the state rose against real nations who wanted
to associate against the amorphous system of state domination and
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voluntary servitude, trying to create alternative cultures, independent
public spheres and attempting to change and confront official
structures.
The processes of economic globalization, which have
included pressures on countries to end protectionism and to adapt to
the information revolution, had highlighted the increasing crisis in
community life as the world's systems of state ownership proved to be
inefficient, corrupt and bankrupt. Ironically, many observers wrongly
see the decline of statism as being the cause of crisis in community
life, not the result, as I will show here.One Romanian politician, Teodor Melescanu is rightfully arguing
that the globalization process benefits small, underdeveloped
countries, if these countries know how to tune into the globalisms
benefits and profit from the recent possibilities and developments in
telecommunications and networking. 1
Initially the weapon of Cold War rivalry, technology in its nascent
computer networking form, has actually propelled the digital industry
age and therefore one of the main forces of globalization, the
information technology. Ironically, the Seattle Man protesters were
called against IMF and World Bank policy, are sending political
1 Teodor Melescanu, Noua era a tarilor mici, Lumea Magazin, , 28
Jan, 2000http://www.lumeam.ro/nr4_2000/noua_era.html
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information via Internet using the most important major globalization
tool, that is the web, against corporate power.
Protesters in Seattle and Washington gave globalization and its
instrumental enforces the World Bank, the International Monetary
Fund and the World Trade Organization a bad name. 2
The impact of globalization, reflected in the numbers shows that
economic growth achieved through openness to trade is the most
effective, as reliance on trade grew.
New trade blocs have come to define themselves in terms of inter -bloc trading, not intra -bloc as had dominated thinking from the
1950s through the 1970s.
I will take up here the following free trade blocs: European
Union, NAFTA, Mercosur, the Visegrad countries, and The Economic
Cooperation in the Black Sea.
The technology revolution made it possible to break isolation of
police states all over the world.
Marketization and privatization are preconditions of a mature
civil society.
As economic questions have come to dominate political ones, 3
2 Joseph, Kahn, Globalization: Unspeakable, Yes, but Is It Really Evil?
The New York Times, May 9, 2000
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The European Union is becoming the blueprint for free trade in the
world. In the Europe of tomorrow, France intends to set an example of
social and political model in the necessary adaptation to the world as
it is by "deepening" and "widening" in the same time.
On EU institutions the real battle will be between small and big
countries, as Britain, France, Spain and Germany want to redress the
over-representation of the small countries.
The European single-currency, the euro is came into being as
scheduled by 1998. By 2002 the euro will be fully deployed in all
member countries. There are signs that budget deficits will be a problem for
Germany and France for 1997 under the Maastrich criteria for entry of
3% of GDP.
Receiving millions from the Brussels pot are Greece, Portugal,
Ireland and parts of Spain and Southern Italy. The beneficiaries of the
Union grant system (any region of the EU where the income per head
of population is under 75% of the average has a claim on the grants
available) will than be Hungary, the Czech, Slovak Republic and
Poland.
If the number of countries will be big enough to make the euro
possible, Europe would be fit for globalization despite unsolved
problems with its social security systems.
As the world moves into large trade blocs, the two most
important to date are the North American Free Trade Area (NAFTA)
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and the European Union (EU), formerly known as the European
Community. To begin, this study compares the key legal and policy
aspects of the two blocs and outlines the salient features of each. The
remainder of the essay presents quantitative data on NAFTA and the
EU as well as additional relevant data on Japan, Eastern Europe, and
other world trade units. The analysis focuses first on population, GNP,
GNP/C, and exports, as measured by export share of GNP. The EU and
NAFTA are then compared with respect to economic strength,
geographic coverage, and competitive potential.
In 1994 twelve countries belonged to the EU: Belgium, Denmark,France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands,
Portugal, Spain, and the United Kingdom. Joining January 1, 1995,
were Austria, Finland, and Sweden. In a nationwide vote Norway's
population rejected its government's late 1994 bid to become the
sixteenth member.
NAFTA comprises the United States, Mexico, and Canada.
Argentina, Costa Rica, Chile, Colombia, Venezuela, and other Western
Hemisphere countries are seeking membership.
Free Trade "Fever"
With the process of "globalization" in which national trade and
finance seek to form mutually beneficial alliances, free
Trade agreements among nations are reaching a fever pitch. The
magnets and models for free trade are NAFTA and the EU.
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Countries either seek to join NAFTA and the EU or follow these
models in forming their own free trade agreement (FTA) leading to a
free trade area (FTA, depending on the context).
The country with the most free-trade agreements to date
is Mexico. 4 In the Western Hemisphere most countries want to
join NAFTA, except Brazil, which is leading a movement of its
partners in the misnamed Mercado Comun del Sur (Mercosur,)
mostly a closed customs union. As of January 1, 1995,
MERCOSUR became almost a full customs union, and seeks by
the year 2005 to create a SAFTA (South American Free TradeAgreement,) such as NAFTA . MERCOSUR does not expect to
become a common market such as the EU until the first or second
decade of the twenty-first century. In the meantime, it might better
be called the "Mercado del Sur, " omitting the concept of "Comun."
A common market is much more ambitious than a FTA. It goes
beyond free trade and investment flows to require all member
countries to live under the same laws and regulations. The EU has
been successful in providing for educational and labor mobility among
its members. Yet the EU includes aspects that have yet to be
achieved: a common currency, foreign policy, military command, and
police activities (see Figure B:l).
Although there is much discussion of FTAS, comparative analysis
of the provisions that govern them is almost nonexistent.
Furthermore, there is little consistently comparable data on the size of 4 Arriaga, El Financiero, p.
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FTAs in terms of their population, wealth, per capita wealth, and trade
flows among partner countries and with other FTAS.
This study presents baseline data essential for understanding
how the EU and NAFTA models differ in purpose and size.
The provisions of the EU and NAFTA are summarized in Figure
B:l. (insert B1 ) The NAFTA model mainly involves freeing trade and
investment flows, although it also provides, in a limited way, for the
movement of professionals among its three countries. Meanwhile,
the EU, knowing that it is losing markets in the member
countries of the North American Free Trade Area, now seeks torecover access to these markets by signing free trade
agreements. In February 1995 the EU authorized negotiation
with Mexico to create an EU-Mexico FTA. 5 (For details, see the
preceding chapter in this volume, "Mexico as Linchpin for Free
Trade in the Americas.")
Tables Bl, B2, and B3 present data on population, GDP, GDP/C,
and export share in GDP for the EU, Eastern Europe, and NAFTA.
Table B4 shows population, GDP, and GDP/C for major world trade
blocs. Table B5 indicates the relative importance of the major trade
blocs, using the United States as a reference point. Table B6 profiles
the economies of the United States, Japan, Germany, the United
Kingdom, Canada, and Mexico, according to selected indicators.
5 Gellner, S., Mexico-European Union Pact Signed, Baja Traveler ,2000, p. 42
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One of the members of the EU, reunited Germany has the largest
population (81 million inhabitants). Italy and the United Kingdom
follow virtually tied at 58 million. Germany's population is 207 times
that of Luxembourg, the smallest European country, with a population
of 389,000. And Germany's GNP is 134 times that of Luxembourg
(Table Bl).
Given such disparities in population size, is it "fair" that voting
rights in the EU give undo weight to small countries? (For shares of
voting rights, see Appendix A.) Despite its small population,
Luxembourg has the highest GNP/C in the EU (US$ 35,260) and thehighest export share of GNP (94 percent). Spain, in contrast, has a
larger population (39 million) but the EU's lowest export share of GNP
(17 percent). Clearly, weighted voting rights are not as arbitrary as
first glance might have us believe. In any case, countries with the
largest populations together constitute a "qualified" (decisive)
majority. In 1994 it took 23 "minority"' votes to block the majority. It
now takes 26 votes to constitute a blocking minority.'
Six countries in Eastern Europe seek to join the EU: Bulgaria, the
Czech Republic, Hungary, Poland, Romania, and the Slovak Republic.
Among these, Poland has the highest GNP (US$ 75 billion), much
higher than EU member Ireland (US$ 42 billion). Poland, however, is
weak in exports, which amount to only 19 percent if its GNP.
Hungary's GNP/C is 54 percent higher than that of Poland, owing to its
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previous leadership position among the former Communist countries
in carrying out economic reforms (Table B2).
The relationship of Poland to "smaller countries is interesting.
Although Poland has four times the population of Bulgaria (9 million),
it has the lowest export share of GNP (19 percent). Bulgaria has the
second largest export share of GNP (45 percent), after the Czech
Republic, which leads both Poland and Bulgaria in export share of GNP
(58 percent) and also in GNP/C (US$2,440) compared with the rest of
the Eastern European countries.
With regard to Romania and the Slovak Republic, the twopoorest countries seeking to join the EU, the lackluster economic
performance of Romania is particularly noteworthy. Romania's GNP
(US$ 24.9 billion) is more than double that of the Slovak Republic (US$
10 billion), yet the two countries export the same percentage of GNP
(28 percent). Romania's trade with Eastern Europe collapsed in 1991
along with the Council of Economic Assistance for Eastern Europe
(COMECON) trading organization.
Subsequent growth in trade with the West has been slow, and
current-account deficits of more than US$ 1.2 billion have been
recorded each year from 1991 through 1994. Romania's population is
four times larger than that of the Slovak Republic (5.3 million).
The legacy of high inflation and modest growth accounts for the
Romanian currency's minimal purchasing power. It is unlikely that
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people while trying to prevent the rise in Europe of any
singularly powerful country.
3. Greece, Portugal, and Spain: These poorer, newly democratic
members seek to modernize their economies to protect against
a resurgence of authoritarian rule. The admission of these
countries into the EU in the 1980s widened the gap between
Rich and poor countries, the latter including Ireland and to some
extent Italy.
4. Eastern Europe: Poland, Hungary, the Czech Republic, and
Slovenia, may gain entrance in 2004. The countries of Eastern
Europe freed themselves from Russian rule after 1989 and view
initial membership then admission to the EU as insurance
against the resurgence of Russian authority in the region. 7
5. European Free Trade Association (Austria, Finland, Norway, and
Sweden): These countries, except Norway, have realized that
they can not afford to be left out of an expanding EU. Austria
may even become part of the Core constituency. For at least
the next decade Norway has petroleum and fish for export to
7 Lowry, Karen, Miller, East Loves West, Newsweek,
September 25, 2000, p. 2212
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non-EU countries, giving the country a feeling of confidence that
it does not need its neighbors as much as they need it.
Furthermore, the fact that Norwegians defeated by slightly more
than 50 percent the government initiative to join the EU can be
traced to the votes of the relatively large agricultural and fishing
populations, both fearful of submitting to common market policy
that would limit food production subsidies and open Norwegian
fishing beds to the EU. The urban sector, some of which also
voted against joining the EU for fear of losing social benefits, has
been disadvantaged by Norway's failure to join the EU, andsome large Norwegian manufacturing companies are relocating
their
main offices to the EU, thus weakening the drive to modernize
the economy.5
In view of the diversity of the five groups, disunity in the Union
comes as no surprise. Two coping models have emerged to manage
the divergent interests: (1) the British model seeks to give more or
less equal weight to the concentric circles depicted in Figure B:2,
encouraging cooperation among the diverse constituencies; (2) the
German-French model favors moving forward with monetary union
and a unified foreign policy focused on the center circle in Figure B:2,
the Core. The notion that Britain may resist France and Germany and
refuse to join the EU monetary union prompted this comment in The
Economist:
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If Britain stays out, only to change its mind later [as it did
about the EU], its leaders may seem as silly as Churchill now
seems, for this comment on the founding of the European Coal
and Steel Community 43 years ago: "I love France and Belgium
but we must not allow ourselves to be pulled down to that
level. 8
Population totals (Table B4) for NAFTA and the EU are now about
the same: NAFTA, 363.3 million; EU (15 countries), 368.8 million (1992
data). Within the EU, Germany's economy is the strongest, followed byFrance and Italy. Among all countries in the two trade blocs, the
United States has the highest GNP and
the highest GNP/C within NAFTA. Overall, Luxembourg has the highest
GNP/C.
With respect to export share of GNP, Mexico ranks lowest in
NAFTA (14 percent) and Greece places last in the EU, with 23 percent.
Even Romania and the Slovak Republic rank above Mexico, with 28
percent each.
The index calculated in Table B5 shows the relative economic
strength of major trading units. For example, Mexico has one third of
the population of the United States, but Mexico's export share of GNP
is only 5 percent of the U.S. export share of GNP. The table also
shows why Japan, a single country that has established a web of trade
dependency worldwide, is often seen as the economic "enemy" of 8 The European Union Survey, The Economist, October 22, 1994, p.23
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Most recently trading options with Italy and the European Union were
discussed. These will go into effect in 1998. The Mercosur free
trade bloc of South America also expects to sign a preferential
trade agreement with Mexico by 2001.
Mexico and Israel plan to sign a free trade agreement by early
1999. 10
The index of population and economic strength in Table BS
shows that in relation to the GNP/C of the United States, Mexico ranks
higher than Mercosur by 3.5 percent, while Germany, with a
population about equal to the U.S. population, has 95.7 percent of theU.S. GNP/C, raising the average for the EU to 80 percent of the U.S.
GNP/C. This analysis is carried a step further in Table B6, adapted
from a comparison published regularly by the New York Times of
NAFTA (Canada, Mexico, and the United States), the EU (represented
by Britain and Germany), and global competitors (represented by
Japan).
The bottom line for global competition is shown in the
manufacturing wage gap (Table B7). The Western European countries
1997, p. 7
10 "Mexico Pact Raises Nica Export Quotas", The News, September
21, 1997, p. 32
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Under the NAFTA model, the process of opening markets to free
trade will occur over 15 years (Table B8). Eastern Europe, in contrast,
faces a much more difficult mission of nearly immediate integration
into the EU. In keeping with the gradual removal of trade barriers,
Mexico has eliminated duties on all U.S. and Canadian products not
made in Mexico, that is, on 43 percent of its purchases from Canada
and the United States.
Although the data suggest that Mexico purchases most of its
goods from the United States (63.4 percent in 1992) and very little
from Canada (1.0 percent), the reality is that much of the Canada-Mexico trade is "lost" statistically when it passes through the United
States, where the transactions become incorporated into U.S. trade
data. (See the preceding chapter in this volume.)
Under NAFTA the United States immediately eliminated duties
on nearly 50 percent of Mexican imports and Canada did away with
tariffs on 19 percent of its imports from Mexico, including a complete
opening to Mexican textiles (thread, cloth, and clothing) and
manufacturing exports, which in 1992 reached about US$ 17 million in
value. (Mexican textile exports to the United States were 56 times
greater.)
Conclusion
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When NAFTA and the EU are compared with respect to their
framework and policies, geographic scope, and leadership, three
significant points emerge.
1. Unlike NAFTA, the EU allows individuals, both workers and
students, to move about freely among the member countries. In
addition, a goal of the EU is eventual unification under one
currency, a common foreign policy, and military coordination.
2. NAFTA has the potential to expand beyond Mexico into Latin
America. The United States and Mexico have extensive trade
experience in the region, in comparison with the EU's lackthereof in Europe. Also, Mexico has entered into several
multilateral and bilateral agreements that make expanded trade
possible, making serious breakthroughs around the globe.
Canada has far to go however, in establishing trade relations
beyond those with the United States. And both the United
States and Canada face formidable competition from Japan.
Under Mexico's leadership in bringing about the integration of
the Americas, however, NAFTA is well positioned to compete
with the EU, as it takes its first serious steps to develop relations
with MERCOSUR.
3. One country, the United States, functions as the "core" for
NAFTA, whereas France and Germany comprise the EU core.
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Meanwhile, expansion of the EU into Eastern Europe is
delayed not only by the slow process of creating market economies
with modern laws and credit systems but also by Russia's argument
that inclusion of former Warsaw Pact countries in NATO could signal a
new Cold War.
The European Union is becoming the blueprint for free trade in
the world. In the Europe of tomorrow, France intends to set an
example of social and political model in the necessary adaptation to
the world as it is by "deepening" and "widening" in the same time.
On EU institutions the real battle will be between small and bigcountries, as Britain, France, Spain and Germany want to redress the
over-representation of the small countries.
The European single-currency, the euro is coming into being as
scheduled by 1998.
It has been decided in April 1998 how many member countries
would be included in the first round of the monetary union. Hungary
has been the first to be accepted. There are signs that budget deficits
will be a problem for Germany and France for 1997 under the
Maastricht criteria for entry of 3% of GDP.
Receiving millions from the Brussels pot are Greece, Portugal,
Ireland and parts of Spain and Southern Italy. The beneficiaries of the
Union grant system (any region of the EU where the income per head
of population is under 75% of the average has a claim on the grants
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The Visegrad Countries (CEFTA.) New accessions
The Central European nations of the Czech and Slovak Republics,
Poland, Hungary and most recently Romania, are actively seeking
integration and generally viewed as leaders in the process of
transition from central planning to market-based economies. There
are prospects of the accession of the Visegrad countries to the
European Union in the long run. Having still not fully recovered from
forty years of socialist rule, Poland and Slovakia are the most likely tofirst join the European Union. As a well functioning market economy is
the main entry condition, the biggest success. As competition heats up
between the member countries, the Czech government claims they
are better prepared for the accession than the rest and avoids using
the Visegrad label and considers the CEFTA label more appropriate,
But two World Bank economists say that while these nations have
come a long way, the four -- known as the Visegrad countries -- are
plagued by "weaknesses" in such critical areas as property rights and
contract enforcement.
Writing in the current issue of the World Bank/International
Monetary Fund magazine "Finance and Development," World Bank
Central European division chief Michel Noel and consultant/financial
analyst Michael Borish say that to ensure the continued growth of the
private sector all four "need to push forward with reforms."
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State ownership is still significant in both the banking and industrial
sectors in all four countries, they say, and "Poland and the Slovak
Republic, in particular, need to accelerate privatization."
Without question, the two economists point out, these four countries
have led the entire region in opening up the private side.
The Czech Republic has seen its private sector increase from 11
percent of GDP (gross domestic product) in 1989 to about 60 percent
in 1995. Private sector employment jumped from 16 percent of the
workforce in 1989 to 65 percent in 1995, with the number of private
jobs estimated at about 3.2 million.In Hungary, the private sector share of the economy climbed
from 20 percent in 1989 to 70 percent of GDP in 1995, with about two
thirds of the Hungarian labor force now working in the private sector.
In the Slovak Republic, the private sector share of GDP rose
from 27 percent in 1991 to 62 percent in 1995 while private sector
jobs nearly quintupled from 1990 to 1995, reaching 1.2 million.
And in Poland, the private sector share of GDP rose from 28 percent in
1989 -- the highest in the region at the time primarily because of
private agriculture under communism -- to just 59 percent in 1995,
with the private sector accounting for 66 percent of the country's
labor force in 1995, compared with 47 percent in 1989.
But even in these successes there are problems.
In Slovakia, for example, private sector growth has been
concentrated in one sector of the economy -- services -- and in just
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one region --Bratislava. Economists say that private sector growth
since 1994 has been "slowed by policies that, despite the growth of
export industries, have encouraged a gradualist approach to
privatization."
In Hungary, the private sector growth is also primarily in the
service sector and financial, legal, consulting, tourism, entertainment
and other nonmaterial services generate nearly 75 percent of
Hungarys GDP.
The economists say that private sector growth in Hungary has
been "stunted" by high tax rates, high inflation and heavy governmentborrowing.
Overall, the economists say the Visegrad countries have made
progress in equalizing the status of private and public property and
improving protection of property rights. However, they mention,
"property rights continue to be undermined by tenancy laws that
restrict the rights of property owners, incomplete property registries
and weak legislation governing collateral ." (add housing project)
They write that in all four, "tenancy laws distort rental markets and
make repossession of mortgaged property difficult." Title to urban and
agricultural property is "often uncertain because of incomplete and
inaccurate records, multiple pledges on the same property, and
unsettled claims arising from demands for restitution and from
transfers" among state entities.
Similarly, say the economists, all four countries have improved their
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commercial codes, but that "institutional weaknesses" such as a
shortage of adequate courts and underdeveloped procedures for the
private resolution of contract disputes, are undermining contract
enforcement.
The flow of credit to the private sector has also been "mixed" within
the four nations, say the economists. New lending to the private
sector is growing, although public sector borrowing is growing faster
in all except the Czech Republic, where the private sector got 65
percent of total outstanding credit in 1995. In Hungary, Poland and the
Slovak Republic, on the other hand, private sector credit was at thelow end of the scale -- between 32 and 46 percent.
Instituted in 1992 and effective from 1993, CEFTA comprises the
following countries: Hungary, Poland, the Czech Republic, Slovakia,
and most recently Romania. Romania has signed in 12th of April
through the Central European free Trade Zone that is going to be a
complete free trade zone by 2000. 11 For the industrial and agricultural
goods taxes will be gradually lowered by 1998 (Rudzieski, 1995).
Trying to catch up with the pulse of globalization of free trade markets
is Romania, which joined CEFTA in April 1997.
The issue causing the most anxiety for EU decision-makers is the
archaic agricultural structure in the region that would cost the Union a
substantial amount of money to bring to Western standards.
11 Mediafax , April, 199725
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The cheap labor force is a mine gold for Westerners who are flooding
in with investment. As long-standing negotiations have begun in 1995
for admission of Hungary Poland, Czech and Slovak Republic in 1999.
The Economic Cooperation in the Black Sea
Besides the European Union, NAFTA, MERCOSUR, the
Visegrad countries, The Economic Cooperation in Black Sea area
(BSEC) was set up in 1992, at the initiative of Turkey, with the
participation of eleven countries: Albania, Armenia, Azerbaijan, theBulgaria, Georgia, Greece, Moldova, Romania, Russian Federation and
Ukraine. BSEC initiated fields of cooperation with Mercosur and
relations with the EU and problems concerning sea and river transport
and reorganization of commercial exchanges have been recently
discussed in Bucharest. 12
Nowadays, only five members (Albania, Azerbaijan, , All
countries have to cope nowadays with the globalisation of free trade.
Flexibility is replacing the old immutable order, as adaptability is the
major value. The growing integration of the world economy has been
in general an engine of mutual enrichment in the form of access to
overseas markets and has hoisted wages. Yet some Western and East-
Central European countries are seeking to protect themselves from
12 Mircea, Daniciuc, Romania Libera, Bucharest, 1995, p . 5
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the adverse consequences of change showing a particular propensity
for support on acquired rights and entitlements in the workplace, as
France, Sweden and almost all East Central Europeans. One symptom
is that the structure of welfare state damages job creation. Countries
with more flexible labor markets do better in their fight against
unemployment and lowering tariffs within continuously enlarging free
trade blocks is beneficent for their economies. Striking a balance
between state protection and freedom of action is the model for future
development in a globalized economy.
272
72727272727272727272727272727272727272727272727272727272
72727272727272727272727272727272727272727272727272727272
72727272727272727272727272727272727272727272727272727272
7272727272727Mercosur and The Integration of the South
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If the strongest example of Globalization to date is found in NAFTA and
the EU, which push standardization, the weakest example is that of
MERCOSUR. Although MERCOSUR claims implicitly to develop in the mold of
Globalization, in our view it represents Closed Globalization. Too many
Brazilian leaders are proposing to use Brazil's tariff-protected MERCOSUR
market to dominate an internally-oriented South American market that
inhibits world competition. Although those same Brazilian leaders claim that
they favor joining the U.S.-Mexico proposed Free Trade Association of the
America (FTAA), the realization that Mexico would be the bridge between
north and south.
In implicit opposition to MERCOSUR, Mexico is using bilateral
agreements with Latin American countries to lay the basis for the FTAA, a
basis that the USA can not help to build because it is trapped in petty
partisan political struggles between the Republic Party and Democratic Party.
In the meantime, Mexico has signed FTAs with Venezuela and Colombia,Chile, Bolivia, Costa Rica, and is developing such a union with the Caribbean
and Central America.
The rise of Globalization is complicated by two major factors. First,
the nationalist antipathy to foreign direct investment and inflow of portfolio
funds has vanished almost everywhere at once and there is not enough
private capital to meet all the demands for it. The change of world
economies has been accelerated by the New Economy, generated by hi-
tech jobs.
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As How the World Bank and the IMF had been building the
infrastructure in many poor countries around the world, has changed,
putting more into education, stopped building bridges, dams and
roads, which is very short sighted.
The process of economic integration between Brazil and
Argentina that began in the mid 1980s has become the mostsuccessful attempt at regional integration in modern Latin America.
This process has contributed to a fundamental departure from
previous regional antagonisms and has foster higher levels of
economic interdependence. In 1991, Argentina and Brazil were joined
by the smaller neighbors of Uruguay and Paraguay establishing the
Southern Common Market or Mercosur.
Mercosur's members, with a population of more than 200
million people, represent over 55% of the total economic activity of
Latin America and its most industrialized region. Mercosur has a
diversified and modernized manufacturing industry and has excellent
prospects in the agribusiness and mining sectors. The consensus that
Mercosur's initial stages had been successful and the already high
levels of intraregional trade led Chile and Bolivia to join Mercosur as
associate members in 1996. Peru and the Andean Group, the other
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south American trade group, have began talks on a formal agreement
to be negotiated with Mercosur, an event that would link South
American economies in an unprecedented manner.
Mercosur has survived the unpredictability of hyperinflation,
disci mil exchange rates, and sharp fluctuations in demand and
production. Moreover, institutional support continued despite drastic
changes of government and a profound turn in the strategy of
integration. The evolution of Mercosur can be divided in three stages:
the sectoral agreements of the 1986-89 period of bilateral protocols;
the transition to Mercosur from the Buenos Aires Act of 1990 until theestablishment of an imperfect custom union at the end of 1994; and
the period of consolidation and expansion initiated in 1995.
In reviewing the evolution of regional integration since 1986 we
also analyze the main tools implemented in this process. I begin by
placing the origins of regional integration in a Latin American and
global context, and then follow to evaluate the first phase of
integration under the Program of Integration and Economic
Cooperation (PICE). The second part focuses in the debate over which
strategy of integration to adopt and in the difficulties and imbalances
on the road to a custom union. Finally, I suggest some short and
medium term policy objectives for consolidating Mercosur and address
the dilemmas of expansion.
I - The Foundational Years
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Technocrats and policy makers alike have advocated economic
integration between Latin American countries since at least the 1950s.
The United Nations Economic Commission for Latin America (ECLA),
under the leadership of Raul Presbich, begun advocating the
expansion of intraregional trade together with policies of import
substitution industrialization. The creation of the Latin American Free
Trade Assosiation (LAFTA) in 1960, sought to foster greater economic
integration between South American countries and Mexico. The twenty
years that followed the creation of LAFTA, brought only modestprogress. Between 1960 and 1980, intraregional trade expanded from
7.9% of total trade to only 13.8% in 1980. In an effort to resuscitate
the integrationist project, LAFTA became the Latin American
Integration Association (LAIA) in 1980.
The debt crisis that erupted at the beginning of the 1980s
brought to an end an expansionary cycle propelled since the 1940s by
import substitution policies. Intraregional trade hit a bottom low in
1985 at 8% of world trade, and it was not until 1989 that the region
regained the levels achieved nine years earlier. The burden of the
foreign debt sharply decreased the ability of Latin American countries
to pay for imports, and although the recession allowed for a favorable
balance of trade, it also made extremely difficult to comply with the
necessary fiscal restrictions.
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During the second half of the 1980s, Latin American countries
seeking to overcome the crisis, begin to adopt adjustment policies
designed to stimulate the economy through an increase in exports. As
the pressures brought about by the foreign debt begin to ease and
governments experience moderate success in the implementation of
stabilization measures, intraregional trade began to grow again. This
process was also stimulated by an important return of capital that had
flown away during the debt crisis, which allowed for the financing of a
large deficit in the current account and an increase in international
reserves. In addition, a slowdown of the economies in theindustrialized nations at the end of the decade led to a reduction in
the demand for Latin American products and an increase in
protectionist measures from these markets. In 1994 intraregional
exports between LAIA was three times bigger than in 1985.
The Program of Integration and Economic Cooperation, 1986-1989
It is within the previously mentioned context of economic
uncertainty that the governments of Brazil and Argentina decide on
1986 to establish the Program of Integration and Economic
Cooperation (PIEC). The PIEC intended to establish a framework for
the emergence of a common market by promoting a gradual process
of integration based on a series of commercial agreements in selected
sectors of the economy. These agreements, established in the form of
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protocols, demanded a low level of coordination required to define the
scope and exemptions to the process of trade liberalization, and to
agree on rules to avoid unfair competition and unwanted
triangulations. This selective and gradual process, lacking definite
timetables and specified objectives, sought to achieve intra-industry
arrangements and to modify the asymmetries present in bilateral
trade since the beginning of the 1980s.
In addition to an increase in the general level of bilateral trade,
which was very low before 1986, the PIEC also addressed Argentina'sconcern of a continued trade deficit with Brazil, and the inter-sectoral
specialization of trade in which Argentina exported agricultural and
food products with little value added, and Brazil manufactures of
industrial origin. The PIEC chose to concentrate on the capital goods
sector, which members believed offered significant opportunities for
attracting investment and fostering cooperation. The primary
sector was thought to be unable to create intra-sectoral equilibrium
and growth. Additional benefits of the capital goods sector included
the stimulus that could have for the rest of the economy, and the high
degree of government autonomy over this sector, composed mainly of
small and medium size firms.
The PIEC originated under favorable macroeconomic conditions.
The 1986-87 period represents a moment of high compatibility in the
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their approach to the foreign debt. While Brazil was declaring a
moratorium on debt services, Argentina was closing a deal on a stand-
by credit and a loan to cover for losses on export revenues.
Despite the severity of the economic problems in Argentina and
Brazil, the PIEC contributed to several important developments.
Bilateral contacts in many important sectors was originated. Between
1986 and 1989 agreements were negotiated in the areas of capital
goods, food production, wheat, iron and steel, energy, biotechnology,
nuclear energy, automobiles and transportation. A modest
liberalization of trade begun in the second half of the 1980s. Brazilbegan to restructure its tariffs in 1988-89, and in 1990, the list of ban
imports was abolished. Local content rules for intermediate and
capital goods were still maintained, as it was a ban for 47 computer
related products. In Argentina, the value of industrial output subject to
restrictions was reduced from 62% to 18% during 1987-88. the
remaining licensing restrictions were eliminated between 1989 and
1990.
Total bilateral trade significantly increased and almost doubled
during this period. Most of this growth was from Argentine exports
that gained access to the Brazilian market for the first time. The
greatest progress in bilateral trade was achieved in the capital goods
sector, automobiles and food products. Although short from original
expectations and despite a lack of investment and different industrial
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policies, the capital goods sector captured a greater share of trade at
13%. In the food sector, 500 products were added to a list of zero
tariff between 1986 and 1990, and in 1988 Brazil became Argentina's
most important export market for wheat, capturing over 26% of wheat
exports.
The PICE generated significant changes in the relationship
between the economies of Brazil and Argentina but fell short of
achieving a clear success. The project lacked the instruments and
policies to allow for a reconversion of the productive sectors and did
not go far in implementing industrial or technological programs of complementation.
As the decade came to an end, presidential elections and
domestic conflict dominated the political agenda in both countries.
II - The Transition to MERCOSUR, 1990-94
The new coalitions that arrived to power after the Argentine and
Brazilian elections had to take on the major task of achieving
economic stability and renewed growth in a fast changing
international context. Changes in world politics significantly affected
policies for regional integration. After the end of the cold war, it
seemed that power competition between nations had shifted its center
of gravity from the political-ideological realm to the economic realm.
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Two sets of events in particular affected Argentina and Brazil. On the
one hand, the competition for investment posed by the emergent
markets of Eastern Europe, protectionist policies in the agricultural
markets of the industrialized nations, and the rise of China and East
Asia in world trade, threatened the position of the South America in
world markets. On the other, the success of the European integration,
the proliferation of trade blocs, the United States Initiative for the
Americas, and Mexico's early moves towards a North American Free
Trade Agreement, gave support to regional integration as an
important tool to compete successfully in the world economy.
A crucial factor that distinguishes the process of integration in
this decade is the unilateral liberalization programs that began to be
implemented in South America. Argentina began to liberalize the
economy in 1987 and accelerated after Menem's arrival to power in
1989. Brazil began with a program of liberalization of trade under
Collor in 1990. Although there are differences between these
programs, unilateral liberalization helped to re-inforce the flow of
regional trade and to diffuse sectoral opposition to preferential
arrangements between both economies. The betterment of conditions
of access to regional markets induced by unilateral liberalization,
allowed for particular sectors to identify payoffs derived from the
integration process, and led to the formation of coalitions of support.
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The simultaneous implementation of preferential agreements
and market oriented policies of trade liberalization induced a revision
of the strategy of integration. Integration within the latter context has
been called open regionalism. Under this strategy, unilateral
liberalization and preferential agreements are seen as reinforcing
each other. This is opposite from previous attempts at preferential
agreements in protectionist regimes of import substitution
industrialization that permitted influential sectors of the economy to
block integrationist attempts. Moreover, as Bouzas noted import
substitution programs of regional scope demand the ability tonegotiate and coordinate policies to structure and redistribute costs
and benefits that exceeds the technical and political capacity of closed
economies.
The new strategy of open regionalism still allowed for different
interpretations. Integration in an open economy can be thought as an
intermediate step leading to the convergence between preferential
and general liberalization. Under this scenario, preferential treatment
to regional states acquires a temporary status to be followed by
general openness generated by ever growing free-trade areas. This
has been the traditional view from the United States regarding
integration in the western hemisphere and the most narrow
interpretation policy makers derived from orthodox economic theory.
This commercialist view of integration that concentrates on trade
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During the transition phase, the different development of the
economies of Argentina and Brazil made bilateral relations difficult
and threatened the consolidation of the custom union by the last day
of 1994. The Argentine economy grew almost four times faster than
that of Brazil. The cumulative real GDP growth between 1991 and
1994 was 10.5 % for Brazil and 40 % for Argentina. Inflation was
reduced drastically after the Convertibility Plan applied in Argentina
brought it down from 171.6 % in 1991 to 24.9 % the next year and
then kept falling to 4.1 % in 1994. The opposite happened in Brazil were the average inflation
jumped from 440.9 % in 1991 to over 1,008 % in 1992 and then
doubled the next year to end at 2,244.5 for 1994, the year the Plan
real was lunched. In addition, the development of the exchange rate
between the Argentine and Brazilian currencies followed different
paths.
After convertibility, Argentina fixed the peso with the dollar and
experienced a reevaluation of the currency that had an important
effect on the flow of trade. Between September of 1991 until August
of 1994, Argentina accumulates a trade deficit with Brazil, partially
compensated at the end of 1992 with ad-hoc agreements over grains
and oil (Lavagna 96).
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Since the end of 1992, the automatic process of linear
liberalization was complemented by a parallel process of ad-hoc
intervention that sought to compensate for the asymmetries produced
by the lack of coordination. These ad-hoc interventions were
prominent in the automobile, machinery, electronics, pharmaceutical,
paper, iron and steel, and textile sectors.
The asymmetry of macroeconomic variables previously
mentioned resulted in an unbalanced distribution of costs and benefits
that led to sectoral dissatisfaction and unilateral restrictions in
Argentina. The Treaty of Asuncion included a safeguard clause that could
be used until 1994 to temporarily lift the preferential treatment
negotiated if it was proved that a massive inflow of imports was
threatening to cause serious problems. Between 1991 and 1994
Argentina utilized this mechanism ten times against Brazilian imports.
Argentina also adopted non-tariff barriers such as the elevation of a
statistic tax to Brazilian products from 3% to 10% in October of 1992
and anti-dumping measures in 1994. After 1993, when the average
tariff for Argentina had surpassed that of Brazil, negotiations resulted
in concessions to facilitate the export of Argentine energy, wheat and
wheat flour. The vacuum provided by the lack of sectoral or regional
reconversion and adjustment designed to smooth the transition
towards a custom union was filled by these ad-hoc measures.
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During the transition period, the economic establishment of
Argentina had serious reservations about the future of the Brazilian
economy and voiced support for a Chilean strategy of multilateral
liberalization and preference for an association with the United States.
After President Clinton failed to received fast track authority to
negotiate Chiles inclusion into NAFTA from a Congress reluctant to
approve further free trade agreements, Argentine preference for
NAFTA faded away.
At the same time that the NAFTA option became less probable,
Mercosur continued to make members economies moreinterdependent and politically committed to the fulfillment of the
custom union.
Despite a context of divergent economic performance during the
transition phase, a series of factors contributed to diffuse the costs of
integration. The availability of abundant external financing until the
end of 1993 reduced the conflicts generated by the uneven flow of
trade. External financing and the simultaneous process of automatic
liberalization of trade with ad-hoc interventions, helped to improve the
management of sectoral pressures arising from the rapid growth of
intra-Mercosur trade (Bouzas 96).
Between 1990 and 1995, intraregional trade grew from 15% of
total trade to almost 19%. In 1994 Brazil became Argentina's number
one export market, capturing over 20% of total exports. Argentine
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exports to Brazil increased at an annual rate of 32%, while Brazilian
exports to Argentina did so at 44% annual average. During this period
Argentina became Brazil's third market for exports and imports, after
the European Union and the United States. This rise in intraregional
trade has gone hand in hand with the growth of total trade. Mercosur's
exports to the rest of the world continued to grow. Also, total imports
for Mercosur have been greatly outstripping the growth of exports
(180% vs. 50% in 1990/95).
The markets open by intra-group liberalization helped the
exports of manufactures, specially cars, car parts and machinery. Thishad been an important goal when the process of integration began in
1986. By 1995, the first year of the custom union, almost half of
Argentina exports to Brazil, and almost 85 % of goods sent in return
were manufactures. Much of this intra-industry trade resulted from a
methodology of integration that favored intra-sectoral
complementation in oligopoly industries.
The flow of trade within these sectors was characterized by
managed trade agreements fostered by the private sector. These
sectoral agreements provided firms with a way to lessen the effects of
preferential liberalization.
The extended market offered opportunities for rationalization
and specialization, particularly to large firms with better lobbying
capacity and in search for protection from the process of liberalization.
The Treaty of Asuncion already provided a special treatment to the
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automotive industry. The agreement stipulated quotas for the free
trade of finished vehicles and car parts, together with additional
quotas for automobiles. Although the automotive sector was an
important part of the domestic industrial policies of Brazil and
Argentina, coordination was limited to the regulation of bilateral trade.
In fact, the only officially approved agreement on complementation
was in the iron and steel industry.
After the Real Plan was lunched in the second half of 1994,
Brazilian currency began to increase in value and Argentina again
experienced a trade surplus. The renewed growth experienced by theBrazilian economy during 1994, and the appreciation of the currency
after the Real Plan of stabilization, exerted great influence and offered
incentives to other members to continue negotiations for the CET.
During the first year of the Plan Real (7/94 to 7/95), the peso
depreciated by 20% with respect to the real (Ferrer 96).
In summary, the different evolution of the economic programs
generated macroeconomic and sectoral imbalances leading to an
almost chaotic treatment of conflicts as they surfaced. Although the
Mercosurs methodology in transition to a custom union came short of
achieving a high degree of complementation or harmonization
between members economies, it nevertheless deepened integration
commitments.
Intra-Mercosur trade grew six fold between 1985 and 1995, at
an average of 22% each year. During those ten years, intraregional
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trade jumped from 5% to 20% of world trade. Presidential summits
and numerous contacts between high and medium level officials was
well under way by the time the CET was reached. The difficult
negotiations over a CET and the constitution of a custom union
demonstrate the importance that all Mercosur members assigned to
the fulfillment of the integration agreements.
III - Consolidation and Expansion
Mercosur began to function as a custom union on January 1st,1995. The common external tariff (CET) applied covered 85% of goods
and had an average of 14% and a maximum of 20%. The other 15% of
trade has different national tariffs that range from 0% to 35%. The
exemptions to the norm were in capital goods, computer related
equipment and telecommunications. Tariffs on capital goods were to
converge at 14% in the year 2001, while computer and
telecommunications equipment should do the same at 16% on the
year 2006. There were also national lists that included some products
temporarily exempted from the CET.
Mercosur has led to the convergence of administrative norms
regarding product sanitation procedures and on the treatment of bi-
national companies. The opening of offices of representation, the
purchase of stocks, the establishment of subsidiaries and the creation
of joint ventures have incentive cooperation in the private sector. Net
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foreign direct investment in Argentina and Brazil has been growing
since the beginning of the PIEC and total almost 40 billion dollars
between 1987 and 1996.
Brazilian companies, larger and with greater international
experience, have been more active in penetrating the extended
market. In addition, intraregional trade continued growing and by
1996, the Brazilian state of Sao Paulo had displaced the United States
as the largest single destination for Argentine exports.
Mercosur has also helped to consolidate the political gains of
military dtente, denuclearization, and democratization. Thedenuclearization agreements reached in the first half of the 1990s
represent a remarkable change in Southern Cone politics.
The Brazilian-Argentine Agency for Accounting and Control of
Nuclear Materials (ABACC), a bilateral institution to overview a joint
accounting and inspection regime, has been in effect since 1991.
Argentina and Brazil now conduct joint military exercises, something
unthinkable twenty years ago. Soon both militaries will begin
peacekeeping training.
Mercosur was a decisive force in preserving Paraguay from
returning to military rule after a rebellious general threatened
President Juan Carlos Wasmosey in 1996. In April of that year,
Mercosurs foreign ministers arrived in Asuncion and threatened the
general with diplomatic and economic isolation. It is a prerequisite for
members of Mercosur to have democratically elected government.
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One of the first problems found by the Mercosur after the
establishment of the custom union was aftermath of the collapse of
the Mexican currency in December of 1994. The large amount of
capital pulled away from Latin America, hit the region hard. Argentina,
with the peso fixed by law at par with the dollar, was hit hardest,
experiencing a decline in GDP of -4.6%. Since 1996 both economies
have been in low gear, with a 3.5% GDP growth for Argentina and a
3% growth for Brazil.
The next objective for Mercosur will be to deepen the
commitment to the common market. Mercosur still needs to addressseveral important elements if it is to reach a true common market.
Some of its most immediate are: the harmonization of custom
procedures; standardizing and streamlining rules and regulations;
improving transport links; the non-tariff trade barriers that affect
intraregional competitiveness; and labor and tax regimes. Customs
procedures, including rules of origin, are easier issues to resolve. Non
tariff barriers to trade offer greater difficulty because these are
difficult to detect and because of the constant changes in legislation
and regulations demanding agreement (Bouzas 96.)
The need to promote a convergence of standards and
regulations will contribute to the practical implementation of
Mercosurs objectives..
Brazils primacy in Mercosur is similar to that of the United
States over NAFTA. This structural situation has made Brazil the main
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force behind the shaping of Mercosur. Brazil, reluctant to cede
sovereignty, wants a wider, rather than a deeper, union. Argentina, in
turn, favors a European Union style of integration and included the
authority of supranational institutions in the 1994 Constitution.
Recently, President Menem suggested, and President Cardoso
agreed, on the need to discuss the probability of a common Mercosur
currency. For the smaller countries of Paraguay and Uruguay, there is
little choice but to follow the steps of their main trading partners,
although they clearly prefer a deeper union with no rapid expansion
that can threatened their competitiveness. The first enlargement of Mercosur came in 1996. Chile was the first country to be admitted as
an associate member on mid 1996. Bolivia soon followed and also
became an associate member that year. Peru and Canada have
requested association to Mercosur in 1997.
A crucial objective for Mercosurs future will be to strike the right
balance between the sovereignty of the nation state and the need for
common market institutions. Brazil wants to see Mercosurs
methodology of integration to continue with a minimal of
supranational institutions, and with decisions taken by consensus.
This is certainly an innovation from the previous Latin American
experiences of excessive bureaucratic apparatus and little ability to
generate real economic integration. But the lack of an stable and
effective mechanism for dispute settlement has high costs.
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So far, Mercosurs decision making power rests with the inter-
governmental Common Market Council, made up of the foreign and
finance ministers of the four members. In reality, no Mercosur
bureaucracy exists, aside from a tiny secretariat in Montevideo. The
most important and controversial decision have been resolved by the
Presidents themselves in their twice a year meetings. The costs of this
choice for presidential diplomacy is that even smallest disputes
have tended to escalate and ended up being settle by the national
presidents.
The establishment of the custom union have not stopped Brazilfrom acting unilaterally in several occasions. The costs of rapid trade
opening in Brazil, like earlier in Argentina, have led to intermittent
domestic pressure for selective protection. These decisions raised
serious concerns in other members of Mercosur. First, in 1995, Brazil
suddenly elevated tariffs on some car imports; the following year, it
required textile imports to be paid for within 30 days rather than 180;
and lastly in 1997 when Brazil, concerned with a mounting trade
deficit, limited credit to pay for imports. All Mercosur members were
eventually exempt from these measures, but only after difficult and
sometimes embarrassing negotiations.
Brazil has also shown flexibility. It did not insist on a weighted
voting system inside Mercosur and agreed to a lower CET than
originally thought. Since the 1995/96 recession in Argentina, Brazil has
had a trade deficit with the rest of Mercosur. The opening of the
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Brazilian market to Argentine lubricants on May of 1997 was a
decision long-awaited for in Buenos Aires. This measures allows for
100 to 150 million dollars of exports, that would give Argentine
companies 10% market share in Brazil.
Brazil has powerful motives for wanting a strong and committed
Mercosur. While Brazils weight in world trade has been declining for
years, south American markets represent the fastest growing market
for Brazilian manufactures. Brazilian companies have been the best
suited to take advantage of the expanded market and to prepare
themselves for worldwide competition. It is also true that Mercosuradds diplomatic weight to regional interests.
Mercosur members now negotiate their commercial relations to
third countries as a block. Mercosurs diplomatic role has visibly
increased since the first years of integration. Mercosur signed an
agreement with the European Union in December of 1995 that sets a
tentative target for free trade by the year 2005. The EU is Mercosurs
largest single source of external trade and investment.
The Free Trade Agreement for the Americas (FTAA), if such an
project is to be achieved, will be based on an agreement between
NAFTA and Mercosur. This means that a precondition for FTAA will be
an understanding between the United States and Brazil. Brazil is
interested in preserving an open, multilateral world trade. Brazilian
exports markets are well diversified, as the direction of trade in 1995
shows: 27% went to the EU; 21% went to NAFTA; and 18% to Asia.
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The discrepancies between the United States and Mercosur over
the steps to achieve a FTAA surfaced again in the 1997 meeting of
foreign ministers from the western hemisphere. The US pressure
Mercosur to open markets, without a compromise to reduce the
domestic agricultural subsidies the greatly affect Latin America.
Mercosur and private business associations from Latin America
proposed a modality of negotiation based on three steps: first, to
facilitate business transactions by eliminating non trade barriers;
second, the harmonization of technical standards; and finally a
reduction of tariffs. The United States insisted on the opposite sequence of steps.
The United States, through Commerce Secretary, W. Daley,
conditioned the lifting of trade barriers for such products as textiles,
fruit juices, footwear and cigarettes, to Brazilian agreement on a
negotiation over tariff reductions for Mercosur. Brazil answered with a
call to gradual consensus. Finally, at this meeting no agreement was
reached.
IV - Conclusion
Mercosurs first and foremost challenge will be to maintain
macroeconomic stability and growth while keeping an open trade
regime. Mercosur is still short of a full fledge custom union. The
effective implementation of the CET is still being worked out and free
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intraregional trade has persisted for the last twelve years and it will
probably continue for a few more.
Unlike the European Union, Mercosur has lacked a supranational
bureaucracy in charge of administrating the process of integration.
Mercosurs reliance on contacts between high level officials and
presidential meetings, intended to avoid excessive demands on
national governments.
Nonetheless, the growth of interdependence between Mercosur
members demands attention to the establishment of a dispute
settlement mechanism and to the specification of members rights.the eventual implementation of fair practice regulation and a
safeguard clause will demand the establishment of some sort of
supranational institution. this is a difficult arena of negotiations, where
Mercosur members have been particularly cautious.
The convergence of macroeconomic performance since 1994 did
not modify the divergent approach to fiscal and monetary policy in
Argentina and Brazil. The lack of mechanisms for coordination
demands attention to the exercise of better communication between
officials and to greater transparency in domestic objectives affecting
the union at large.
Although the parity between the Argentine and Brazilian
currencies appears to be an important determinant of the flow and
direction of trade, coordination over this issue seems unprobable in
the short-term.
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The harmonization procedures should try to eliminate the
distortions to competition created by public policies that influence the
advantage of particular sectors. The technical competence and judicial
objectivity of some kind of supranational institution should replace the
presidential ability to make political deals. Instead of regional funds or
a Mercosur parliament, what the union needs is an institution, such as
a regional tribunal, with powers of arbitration similar to those of the
World Trade Organization.
The progress achieved by the process of integration since 1986
has been unprecedented in Latin America. Mercosursaccomplishments extend beyond impressive growth of intraregional
trade, to include the formation of a custom union, the coming together
of private businesses, and a common external policy. The future
requires Mercosur to simultaneously deepen their commitment and
enlarge their membership. 13
Within the next twenty years, a free trade area in the western
hemisphere will probably be established. Mercosurs new role as a
regional model for integration and as a global trader will give South
America greater diplomatic power to negotiate a favorable insertion of
the region in the international economy.
13 Richard Rosecrane, The End of War Among Trading States , New
Perspectives Quarterly , February, 1995, p. 9
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There is an unprecedented fever on the part of Brazil for
leadership and enlargement of the Sounthern cone free trade area till
January 2002. 14 The implementation of the free trade accord between
CAN or Comunidad Andina de Naciones (Bolivia, Colombia, Ecuador,
Peru and Venezuela) and Mercosur (with Chile as incoming as partner)
is aiming at producing economic growth and deepening integration.
The vision is to connect all South America not only fluvially but also
technologically, by massive influx of fibrooptic cable and satellites.
Conclusion
The global economy links together the world community and
everybody is getting richer, as economic analysts prove in their recent
studies over the last decades. 15 It is therefore obvious that
productivity-enhancing technological progress played an important
role in economys strong performance and improved the quality of our
lives.
14 La Opinin , Sudamrica aspira a unirse, 2 de septiembre,
2000, p. 3A
15 Postrel, Virginia, The rich may get richer, but numbers suggest the
poor are doing better, too, The new York Times , August 10, 2000
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The flow of cross-border funds is private now - no government is
involved, therefore the bureaucracy is eliminated.
Movement of both investment and industry has been facilitated by
information technology.
Individual consumers are therefore more global in orientation
For the U.S., a prosperous European Union remains an important
nexus for growth. Trading partner, cooperation in major economic and
preservation of free trade regime.
All these four I's (integration, individuals, information, intra-regional
trade) work just fine on their own, nation states more often just get inthe way (given their own troubles) and state intervention is absent.
Region states are Hong Kong, or the Kansai region around Osaka, or
Catalonia - where real market flourishes - global solutions correspond
to the more focused geographical units. The rise of the superregions
as true natural business units in today's global economy.
In today's borderless world, lines of demarcation on the political
map are irrelevant as the currents of global economy (namely the new
knowledge-based economies) punishes hesitating countries by
diverting investment and information elsewhere. 16
16 Adrin de Len Arias, La dimension technolgica en la
reestructuracin econmica, Globalidad Y Region: Algunas Dimensiones de la Reestructurcin Econmica en Jaliscoeds. Graciela Lpez Mndez y Ana Rosa Moreno Prez(Guadalajara: University of Guadalajara, UCLA Program on Mexico,)
Juan Pablo Editores, 2000, p. 12858
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The question that arises is what are the consequences of the the
structural changes in the ontext of knowledge-based economic
globalization? What are the fissures it provokes?
Nobody argues more forcefully than Roderick that the world
economy faces a serious challenge in ensuring that international
economic integration does not contribute to domestic social
disintegration. The three major sources of tension between ultra
liberalism and social stability that pose a challenge to the architects of the globalization remain: the transformation of the employment
relationship, conflicts between international trade and social norms,
and the pressures brought to bear on national governments in
maintaining domestic cohesion and social welfare systems.
Making a rightful distinction, a French writer, Viviane Forrester
contends that it is not globalization that some people are against, but
the malefic forces of ultraliberalism that confiscated/hijacked the
achievements of globalization that is an historical phenomenon,
irreversable and irrevocable. 17
17 Anne Marie Mergier, El ultraliberalismo secuestr la globalizacin, e
impuse sus falcias: Viviane Forrester, Proceso , March 12, 2000, p.45
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The globalization and ultraliberalism are not synonimous nin
absolute terms, the technoloy allowed the triumph of ultraliberalism
that actually manipulates, utilizes and depends on technology.
It is actually liberalization of trade, globalization that allows for
tremendous progress of technology and exchanges of information of
all types in real time.
At the first ever global conference in Europe, IMF President Horst
Koehler announced that the representatives are open to discussion
with the NGOs, on issues ranging from making loans to emerging
countries, cancelling the foreign debt of developing third worldcountrie. 18 Most of the NGOs, among which Rainbow Movement,
Summer of Mercy, CEE Bankwatch and Friends of the Earth, Jubilee
2000 have called for a coalition and announced months in advance
their plan to protest for the nine day event in Prague, Czechia. 19
18 Reuters Prague, IMFs Koehler open to discussion with NGOs,Turkish Daily News Business Report , August 1, 2000, p. 7