MERCOSUR

Latam Sin Filtro
Jan 27
8 min read

On Saturday, January 17, 2025, the President of the European Commission, Ursula von der Leyen, signed the free trade agreement between the European Union and MERCOSUR in Asunción, Paraguay. This agreement is the result of more than 20 years of discussions between the two institutions and now must be ratified by the European Parliament to come into effect.

I think that now is the perfect time to introduce you to MERCOSUR!

What is Mercosur?

Mercosur stands for “Mercado común del Sur”in Spanish or Mercosul for “Mercado común do Sul” in Portuguese, both translating to “Southern Common Market” in English, is an economic alliance formed between 4 South American countries: Argentina, Brazil, Paraguay and Uruguay.

Mercosur is a free trade zone which aims to eliminate all tariff barriers between several countries. In theory, member countries should try to coordinate their macroeconomic policies and trade legislations in order to harmonize them.

The Mercosur region covers over 14 million km², representing more than half of the South American continent. 295,007 people live within the Mercosur region. Mercosur plays a major role in the South American economy and is the third largest economic bloc behind the USMCA (formerly NAFTA) and the European Union (EU).

Difference between a free trade area and a customs union:In a free trade area such as Mercosur, each member country decides on the tariffs and trade policy it wishes to apply to countries outside the area. In a customs union, such as the European Union, all member countries apply the same trade policy and the same tariffs for all non-member countries.

Origins and history of the MERCOSUR treaty

On March 26, 1991, Argentina, Brazil, Paraguay and Uruguay signed in Asunción (Paraguay) a treaty that was originally intended to commit the four countries to a common market after a transition period ending on December 31, 1994. A few days before the end of the transition period, on December 17, 1994, in Ouro Preto, Brazil, the project was definitively established. The protocol signed by the presidents of the four countries granted Mercosur international legal status.

This treaty was signed at a time when the international market was fractured. Indeed, the end of the 20th century was marked by a world divided into economic blocs competing with each other.

In 1989, European countries decided to create an economic union with the EU, while the United States signed a free trade agreement with Canada and Mexico in 1994. Several countries, developing countries in particular, feared to be left apart on the international stage. Countries like Uruguay, decided to adopt a liberal economic policy, gearing towards free trade and external forces, obliging it to adapt to major international markets and their conditions of access.

Just like Uruguay, many Latin American countries decided to opt for more liberal economic policies by promoting exports, using their comparative advantages to conquer foreign markets.

At the end of the 20th century, regional integration was considered an essential step towards the total opening of economies and to achieve competitive integration into global markets.

The political context also contributed to the creation of Mercosur. In Latin America, the authoritarian regimes of the 1950s were succeeded by the establishment of democratic regimes with a neo-liberal ideology.

The creation of Mercosur is primarily due to the rapprochement between Argentina and Brazil during the 1980s. These two countries, which today form the core of the Mercosur alliance, have always been very reluctant to engage in any form of advanced economic cooperation. The historical rivalry between them for regional leadership as well as the existence of military governments for many years had created tensions in the region that were in no way conducive to integrationist ideas.

However, the democracies established in Argentina in 1983 and in Brazil in 1985 fostered cooperation between the two countries.

The dictatorial past of both countries prompted these new democracies to seek in bilateral agreements of political and economic cooperation means of protecting themselves against the possible return of fascism and protectionism. Furthermore, the very poor economic record of the dictatorships led Argentina and Brazil to abandon the importa substitution industrialization model better known as the ISI model, largely advocated from the 1930s to the 1970s. These new democracies chose external openness promoting regional integration as a drive for economic growth.

In 1988, Argentinian president Raul Alfonsín and Brazilian president José Sarney signed the Treaty on Integration, Cooperation and Development (TICD). This treaty set up the foundations of a common market between Argentina and Brazil. The common market would have to be created within ten years. However, in June 1990, the Argentine and Brazilian presidents decided, by signing the Buenos Aires Act, to bring forward the effective date of the common market to January 1, 1995 (instead of 1998). Paraguay and Uruguay were invited to join the project and in 1991 the Mercosur was created.

Main goals of MERCOSUR according to the Treaty of Asuncion

The Treaty of Asunción clearly defines the aims, principles, and conditions for the establishment of a future common market in the Southern Cone. The objectives of the Mercosur common market are as follows:

“To promote the free movement of goods, services and factors of production”.
“Establish a common external tariff and adopt a common trade policy towards third countries”.
“Coordinating macroeconomic and sectoral policies in areas such as, for example, foreign trade, agriculture, industry, taxation and currency.”
“Harmonize national legislation in order to consolidate the integration process.”

In order to achieve the common market and these four objectives, the signatory countries have committed to:

Implement a trade liberalization program leading to the creation of a free trade zone.
Coordinate their macroeconomic policies.
Define a common external tariff.
Adopt sectoral agreements to optimize the use and mobility of factors of production.

Functioning and structure of the alliance

First of all, the organization is led by a “pro tempore” president. The president, who is the head of State of one of the member countries, serves for six months, ensuring the rotation of power among all member countries.

Mercosur is formed by three central bodies:

The Common Market Council: Formed by the different foreign affairs and economy ministers of member countries. The Council is responsible for establishing a political framework whose goal is to monitor the integration process.
The Common Market Group: Ensures the proper functioning of Mercosur.
The Trade Commission: Oversees the organization’s trade policy measures and administers common trade policy instruments.

Mercosur has more than 300 discussion groups covering many areas and the Treaty of Asunción also provides for the creation of 10 working groups in several areas like: trade, customs, standards, fiscal and monetary policies, land and sea transport, industry, technology, agriculture, energy, coordination of macroeconomic policies, labor, employment and social security.

During the discussions, all decisions are taken by consensus, all parties should agree which means that the organization does not take into account the different economic or demographic weights of the member countries. Every party has the same weight when it comes to decision making.

The Mercosur also has:

A parliament which aims to ensure the representation of the inhabitants of the member countries. Mercosur also has a public policy institute on human rights, in order to protect its citizens and to punish actions that go against its principles.
The Mercosur Social Institute whose aim is, among other things, to support the organization's social policies.
The Permanent Review Tribunal which allows for the resolution of disputes that may exist within the organization.

Member and Associate Member Countries

As already mentioned, the member countries of Mercosur are Argentina, Brazil, Paraguay and Uruguay.

Venezuela, which had joined Mercosur on July 31, 2012 was suspended on December 2, 2016, for failing to comply with the charter of the South American Common Market. This decision came after the expiration of the three-month ultimatum issued in September to the authorities in Caracas to adapt their legislation to the Mercosur charter.

A few months later, Venezuela was also politically suspended. On August 5, 2017, Mercosur suspended the country for “breaching democratic order." The foreign ministers of Brazil, Argentina, Uruguay, and Paraguay decided to suspend Venezuela from Mercosur due to the actions of Nicolás Maduro's government. According to them, the Venezuelan government was acting against democratic principles and therefore could not be part of Mercosur. Until now, the country has still not joined the alliance. The suspension will only be lifted when the other members have deemed that democratic order has been restored in Venezuela.

In 2015, Bolivia's integration process to Mercosur was signed by all member states. However, access will only become truly effective once the congress of each member state has ratified it, which still has not been done. Furthermore, since Bolivia is still part of the Andean Community (CAN), the legal question of its integration to Mercosur remains unresolved.

The Associated States of Mercosur are Chile, Colombia, Ecuador, Peru, Guyana, Panama, and Suriname. Mercosur also has two observer countries: New Zealand and Mexico, which can attend the alliance's discussions without participating.

Mercosur, beyond economic integration

Although the main role of Mercosur is to promote free trade between member countries and with other organizations; the institution is trying in some way to expand its skills and scope of action. In 2011, Mercosur implemented the Strategic Social Action Plan (from Spanish Plan Estratégico de Acción social, PEA), aiming to improve the living standards of citizens in member countries. This project includes several social goals such as the eradication of poverty or hunger, and the universalization of public health.

However, Mercosur's economic cooperation and its desire to deepen their political integration face several obstacles: tensions between the two major leaders, Argentina and Brazil; conflicts of interest between each country; economic asymmetries; internal political shifts: since Javier Milei became president of Argentina in 2023, he has already mentioned the possibility of withdrawing his country from the alliance…

#mercosur #argentina #brazil #uruguay #paraguay #mercosurmembers #EUmercosur #mercosurEU #mercosuragreement #countrymembers

Sources:

Alperstein, Aida Lerman. « L’Amérique latine et les Caraïbes dans l’intégration régionale : le cas du Mercosur ». In Alena-Mercosur : enjeux et limites de l’intégration américaine, édité par Alain Musset et Victor M. Soria, 190‑212. Travaux et mémoires. Paris: Éditions de l’IHEAL, 2014. https://doi.org/10.4000/books.iheal.558 .

Dabène, Olivier. « L’intégration régionale en Amérique latine : Le Mercosur », 1995.

Lacroix, Laurent, et Claude Le Gouill. « Une intensification des relations avec les pays du Marché commun d’Amérique du Sud (Mercosur) ». In Le « processus de changement » en Bolivie : La politique du gouvernement d’Evo Morales (2005-2018), 171‑86. Travaux et mémoires. Paris: Éditions de l’IHEAL, 2019. https://doi.org/10.4000/books.iheal.6634.

Dieguez, Julian. « Logro 7: Expansión del comercio de servicios ». MERCOSUR, October 14, 2021. https://www.mercosur.int/logro-7-expansion-del-comercio-de-servicios/.

Neves, Alessandra de Lima. « Le marché commun du Cône Sud », s. d.

Pennaforte, Charles, et Marcos Antônio Fávaro Martins. « MERCOSUR, 25 ans plus tard : les problèmes structurels et les impacts du changement de conjoncture ». L’Espace Politique. Revue en ligne de géographie politique et de géopolitique, n^o 31 (18 avril 2017). https://doi.org/10.4000/espacepolitique.4161.

Santander, Sebastian. « Le mercosur et ses états membres : les asymétries interétatiques, un obstacle à l’intégration ? » In Alena-Mercosur : enjeux et limites de l’intégration américaine, édité par Alain Musset et Victor M. Soria, 51‑70. Travaux et mémoires. Paris: Éditions de l’IHEAL, 2014. https://doi.org/10.4000/books.iheal.542.