Mercosur - Changing Course?



Case Details Case Introduction 1 Case Introduction 2 Case Excerpts

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Introduction

On February 1, 2006, Argentina and Brazil, the two dominant members of the Southern Common Market (Mercosur),3 a four-nation trade bloc, negotiated a 'Competitive Adjustment Mechanism' agreement under which industries in either country could demand protection if they felt they were being harmed by rising imports from the other.

The agreement was the result of a longstanding demand by Argentina which wanted to restrict certain imports from Brazil, that had hit some sectors of its domestic industry. Brazil's much larger size, its ability to attract foreign investment and provide fiscal incentives gave it an edge in reaping the benefits of liberalization and regionalization vis-à-vis Argentina and the other smaller members of Mercosur - Uruguay and Paraguay (Refer Exhibit I for map of South America showing Mercosur members).....

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Argentine Economy Minister Felica Miceli called the agreement "a triumph of cooperation and common work,"and urged further steps to strengthen Mercosur, but some analysts were critical of these moves to restrict trade and felt it was not in line with the idea of a Customs Union4 (CU) at all (Refer Exhibit II for stages of economic integration). Brazilian businessmen openly expressed their displeasure at the pact. Humberto Barbato, Director for Trade at CIESP, a Sao Paulo state industry association, said, "This is an enormous step backwards. Instead of increasing free trade it creates more exceptions."5 ........

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