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McGill University
Centre for Continuing Education
North America and Global Economy
CPL-561-781
MERCOSUR
Regional Trade Report
Lecturer:
K. N. Matziorinis, B.A., M.A., Ph.D., C.M.C.
Prepared by:
Andrei Bolchakov
119846991
German Odstrcil
260102470
WINTER 2005
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Table of Contents
Subject
1. Background
1.1 Argentina
1.2 Brazil
1.3 Paraguay
1.4 Uruguay
2. International Trade
2.1 International Trade intra-Mercosur
2.2 International Trade between Mercosur and main world regions
2.2.1 International Trade Fact sheet by country
2.3 Mercosur and Canada
2.3.1 Merchandise Trade between Canada and Mercosur
2.3.2 Service Trade between Canada and Mercosur
2.3.3 Canada’s Exports to Mercosur by Industry
2.3.4 Canada’s Exports from Mercosur by Industry
2.4 Foreign Direct Investment in Mercosur
2.4.1 Canadian Direct Investment in Mercosur
2.4.1.1 Canadian Direct Investment in Argentina
2.4.1.2 Canadian Direct Investment in Brazil
2.5. International Trade Issues
2.5.1 Disputes at the WTO involving Argentina, Brazil and Canada
2.5.2 State of Bilateral Trade relations with Canada
3. Trade Policy
3.1 The DOHA Round – Agricultural Negotiations
3.2 Trade Policy in Action – The Hard Ball
3.3 Mercosur Future Outlook
3.3.1 Advantages of Mercosur
3.3.2 Disadvantages of Mercosur
3.4 Conclusions
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1. Background
MERCOSUR was initiated in 1988 as a free trade pact between Brazil and
Argentina. The modest diminutions in tariffs and quotas accompanying this pact
reportedly helped bring about an 80 percent increase in trade between the two
countries in the late 1980. This achievement pushed the extension of the pact in
1990 to contain Paraguay and Uruguay. The primary plan was to set up a full
free trade area by the end of 1994 and a common market sometime later. The
four countries of MERCOSUR have a combined population of about 200 million.
With a market of this size, MERCOSUR could have a considerable impact on the
economic growth rate of the four economies. In 1995, MERCOSUR’s members
established a five-year program under which they hoped to perfect their free
trade area and move toward a full customs union.
For its first eight years, MERCOSUR gave the impression to be making a
constructive contribution to the economic growth rates of its members states.
Trade between MERCOSUR’s four core members quadrupled between 1990 and
1998. The combined GDP of the four member states grew at an annual average
rate of 3.5 percent between 1990 and 1996, a performance that is significantly
superior than these countries achieved during the 1980s.
MERCOSUR hit an important barrier in 1998, when its member states slipped
into recession and intrabloc trade slumped. Trade fell further in 1999 following a
financial crisis in Brazil that led to the devaluation of the Brazilian real, which
made the goods of other MERCOSUR members 40 percent more expensive in
Brazil, their principal export market. At this point, advancement toward
establishing a full customs union all but came to a halt. Things went down further
in 2001 when Argentina, beset by economic stresses, recommended that the
customs union be temporarily suspended. Argentina wanted to suspend
MERCOSUR’s tariff so that it could eliminate duties on imports of capital
equipment, while raising those on consumer goods to 35 percent (MERCOSUR
had established a 14 percent import tariff on both sets of goods). Brazil agreed to
this request, effectively halting MERCOSUR’s quest ot become a fully functioning
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customs union. Hope for a renewal in the importance of MERCOSUR increased
in 2003 when new Brazilian President Lula da Silva announced his support for a
revitalized and extended MERCOSUR modeled after the European Union with a
lager membership, a common currency, and a democratically elected
MERCOSUR parliament.
MEMBER STATES :
1.1 Argentina
Geography
Location:
Southern South America, bordering the South Atlantic Ocean, between
Chile and Uruguay
Area:
total: 2,766,890 sq km, land: 2,736,690 sq km
Land boundaries:
total: 9,665 km
border countries: Bolivia 832 km, Brazil 1,224 km, Chile 5,150 km,
Paraguay 1,880 km, Uruguay 579 km
Climate:
mostly temperate; arid in southeast; subantarctic in southwest
Terrain:
rich plains of the Pampas in northern half, flat to rolling plateau of
Patagonia in south, rugged Andes along western border
Natural
resources:
fertile plains of the pampas, lead, zinc, tin, copper, iron ore, manganese,
petroleum, uranium
Environment
international
agreements:
-
party to: Antarctic-Environmental Protocol, Antarctic-Marine Living
Resources, Antarctic Seals, Antarctic Treaty, Biodiversity, Climate
Change, Climate Change-Kyoto Protocol, Desertification, Endangered
Species, Environmental Modification, Hazardous Wastes, Law of the
Sea, Marine Dumping, Ozone Layer Protection, Ship Pollution,
Wetlands, Whaling
signed, but not ratified: Marine Life Conservation
5
People
Population:
39,144,753 (2004)
Age structure:
0-14 years: 25.9% (male 5,179,236; female 4,947,234)
15-64 years: 63.6% (male 12,452,566; female 12,457,451)
65 years and over: 10.5% (male 1,685,371; female 2,422,895) (2004)
Population growth
rate:
1.02% (2004)
Birth rate:
17.19 births/1,000 population (2004)
Death rate:
7.57 deaths/1,000 population (2004)
Life expectancy at
birth:
total population: 75.7 years, male: 71.95 years, female: 79.65 years
(2004)
Ethnic groups:
white (mostly Spanish and Italian) 97%, mestizo, Amerindian, or other
nonwhite groups 3%
Religions:
nominally Roman Catholic 92% (less than 20% practicing), Protestant
2%, Jewish 2%, other 4%
Languages:
Spanish (official), English, Italian, German, French
Literacy:
total population: 97.1%
male: 97.1%
female: 97.1% (2003)
Government
Government type:
republic
Capital:
Buenos Aires
Administrative
divisions:
23 provinces (provincias, singular - provincia), and 1 autonomous
city* (distrito federal); Buenos Aires, Buenos Aires Capital Federal*,
Catamarca, Chaco, Chubut, Cordoba, Corrientes, Entre Rios,
Formosa, Jujuy, La Pampa, La Rioja, Mendoza, Misiones, Neuquen,
Rio Negro, Salta, San Juan, San Luis, Santa Cruz, Santa Fe,
Santiago del Estero, Tierra del Fuego - Antartida e Islas del
Atlantico Sur, Tucuman
Legal system:
mixture of West European and US legal systems
Executive branch:
chief of state: President Nestor KIRCHNER (since 25 May 2003);
Vice President Daniel SCIOLI (since 25 May 2003); note - the
president is both the chief of state and head of government
head of government: President Nestor KIRCHNER (since 25 May
2003); Vice President Daniel SCIOLI (since 25 May 2003); note the president is both the chief of state and head of government
cabinet: Cabinet appointed by the president
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election results: results of the presidential primary of 27 April 2003:
Carlos Saul MENEM 24.3%, Nestor KIRCHNER 22%,…; the
subsequent runoff election slated for 25 May 2003 was awarded to
KIRCHNER by default after MENEM withdrew his candidacy on the
eve of the election
elections: president and vice president elected on the same ticket by
popular vote for four-year terms
International
organization
participation:
AfDB, Australia Group, BCIE, BIS, FAO, G-6, G-15, G-24, G-77,
IADB, IAEA, IBRD, ICAO, ICC, ICCt, ICFTU, ICRM, IDA, IFAD, IFC,
IFRCS, IHO, ILO, IMF, IMO, Interpol, IOC, IOM, ISO, ITU, LAES,
LAIA, Mercosur, MIGA, MINURSO, MINUSTAH, NSG, OAS,
OPANAL, OPCW, PCA, RG, UN, UN Security Council (temporary),
UNCTAD, UNESCO, UNFICYP, UNHCR, UNIDO, UNMIK,
UNMOVIC, UNTSO, UPU, WCL, WCO, WFTU, WHO, WIPO, WMO,
WToO, WTO, ZC
Economy
Argentina benefits from rich natural resources, a highly literate population, an
export-oriented agricultural sector, and a diversified industrial base. Over the
past decade, however, the country has suffered recurring economic problems of
inflation, external debt, capital flight, and budget deficits. Growth in 2000 was a
negative 0.8%, as both domestic and foreign investors remained sceptical of the
government's ability to pay debts and maintain the peso's fixed exchange rate
with the US dollar. The economic situation worsened in 2001 with the widening of
spreads on Argentine bonds, massive withdrawals from the banks, and a further
decline in consumer and investor confidence. Government efforts to achieve a
"zero deficit," to stabilize the banking system, and to restore economic growth
proved inadequate in the face of the mounting economic problems. The peso's
peg to the dollar was abandoned in January 2002, and the peso was floated in
February; the exchange rate plunged and inflation picked up rapidly, but by mid2002 the economy had stabilized, albeit at a lower level. Strong demand for the
peso compelled the Central Bank to intervene in foreign exchange markets to
curb its appreciation in 2003. Led by record exports, the economy began to
recover with output up 8% in 2003, unemployment falling, and inflation reduced
to under 4% at year-end.
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GDP:
purchasing power parity - $435.5 billion (2003)
GDP - real growth
rate:
8.7% (2003)
GDP - per capita:
purchasing power parity - $11,200 (2003)
GDP - composition
by sector:
agriculture: 11.1%
industry: 34.8%
services: 54.1% (2003)
Investment
fixed):
15.1% of GDP (2003)
(gross
Inflation rate:
13.4% (2003)
Unemployment rate:
17.3% (2003)
Budget:
revenues: $26.62 billion
expenditures: $26 billion, including capital expenditures of NA (2003)
Public debt:
65.7% of GDP (2003)
Agriculture
products:
-
Industries:
Industrial
production
rate:
Current
balance:
sunflower seeds, lemons, soybeans, grapes, corn, tobacco, peanuts,
tea, wheat; livestock
food processing, motor vehicles, consumer durables, textiles,
chemicals and petrochemicals, printing, metallurgy, steel
16.2% (2003)
growth
account
$7.855 billion (2003)
Exports:
$29.57 billion f.o.b. (2003)
Exports commodities:
edible oils, fuels and energy, cereals, feed, motor vehicles
Exports - partners:
Brazil 15.8%, Chile 12%, US 10.6%, China 8.4%, Spain 4.7% (2003)
Imports:
$13.27 billion f.o.b. (2003)
Imports
commodities:
machinery and equipment,
manufactures, plastics
Imports - partners:
Brazil 34%, US 16.4%, Germany 5.6%, China 5.2% (2003)
Debt - external:
$145.6 billion (2003)
Currency:
Argentine peso (ARS)
Exchange rates:
Argentine pesos per US dollar - 2.9003 (2003), 3.0633 (2002), 0.9995
(2001), 0.9995 (2000), 0.9995 (1999)
motor
vehicles,
chemicals, metal
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International Issues
UK continues to reject sovereignty talks requested by Argentina, whose
constitution still claims UK-administered Falkland Islands (Islas Malvinas) and
South Georgia and the South Sandwich Islands, but in 1995 ceded the right to
settle the dispute by force; Beagle Channel islands dispute resolved through
Papal mediation in 1984, but armed incidents persist since 1992 oil discovery;
territorial claim in Antarctica partially overlaps UK and Chilean claims (see
Antarctic disputes); unruly region at convergence of Argentina-Brazil-Paraguay
borders is locus of money laundering, smuggling, arms and drug trafficking, and
fundraising for extremist organizations; uncontested dispute between Brazil and
Uruguay over Braziliera Island in the Quarai/Cuareim River leaves the tripoint
with Argentina in question.1
1.2 Brazil
Geography
Location:
Eastern South America, bordering the Atlantic Ocean
Area:
total: 8,511,965 sq km, land: 8,456,510 sq km
Land boundaries:
total: 14,691 km
border countries: Argentina 1,224 km, Bolivia 3,400 km, Colombia 1,643
km, French Guiana 673 km, Guyana 1,119 km, Paraguay 1,290 km, Peru
1,560 km, Suriname 597 km, Uruguay 985 km, Venezuela 2,200 km
Climate:
mostly tropical, but temperate in south
Terrain:
mostly flat to rolling lowlands in north; some plains, hills, mountains, and
narrow coastal belt
Natural
resources:
bauxite, gold, iron ore, manganese, nickel, phosphates, platinum, tin,
uranium, petroleum, hydropower, timber
1
www.cia.gov, Central Intelligence Agency
9
Environment
international
agreements:
-
party to: Antarctic-Environmental Protocol, Antarctic-Marine Living
Resources, Antarctic Seals, Antarctic Treaty, Biodiversity, Climate
Change, Climate Change-Kyoto Protocol, Desertification, Endangered
Species, Environmental Modification, Hazardous Wastes, Law of the Sea,
Marine Dumping, Ozone Layer Protection, Ship Pollution, Tropical Timber
83, Tropical Timber 94, Wetlands, Whaling
signed, but not ratified: none of the selected agreements
People
Population:
184,101,109 (2004)
Age structure:
0-14 years: 26.6% (male 24,915,902; female 23,966,713)
15-64 years: 67.6% (male 61,739,012; female 62,770,480)
65 years and over: 5.8% (male 4,389,659; female 6,319,343) (2004)
Median age:
total: 27.4 years, male: 26.7 years, female: 28.2 years (2004)
Population growth
rate:
1.11% (2004)
Birth rate:
17.25 births/1,000 population (2004)
Death rate:
6.14 deaths/1,000 population (2004)
Life expectancy
birth:
at
total population: 71.41 years, male: 67.45 years, female: 75.57 years
(2004)
Ethnic groups:
white (includes Portuguese, German, Italian, Spanish, Polish) 55%,
mixed white and black 38%, black 6%, other (includes Japanese,
Arab, Amerindian) 1%
Religions:
Roman Catholic (nominal) 80%
Languages:
Portuguese (official), Spanish, English, French
Literacy:
total population: 86.4%
male: 86.1%
female: 86.6% (2003)
Government
Government type:
federative republic
Capital:
Brasilia
Administrative
divisions:
26 states (estados, singular - estado) and 1 federal district* (distrito
federal); Acre, Alagoas, Amapa, Amazonas, Bahia, Ceara, Distrito
Federal*, Espirito Santo, Goias, Maranhao, Mato Grosso, Mato
Grosso do Sul, Minas Gerais, Para, Paraiba, Parana, Pernambuco,
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Piaui, Rio de Janeiro, Rio Grande do Norte, Rio Grande do Sul,
Rondonia, Roraima, Santa Catarina, Sao Paulo, Sergipe, Tocantins
Legal system:
based on Roman codes
Executive branch:
chief of state: President Luiz Inacio LULA DA SILVA (since 1
January 2003); Vice President Jose ALENCAR (since 1 January
2003); note - the president is both the chief of state and head of
government
election results: in runoff election 27 October 2002, Luiz Inacio
LULA DA SILVA (PT) was elected with 61.3% of the vote; Jose
SERRA (PSDB) 38.7%
elections: president and vice president elected on the same ticket by
popular vote for four-year terms; election last held 6 October 2002
(next to be held 1 October 2006, with a runoff on 29 October 2006 if
necessary); runoff election held 27 October 2002
cabinet: Cabinet appointed by the president
head of government: President Luiz Inacio LULA DA SILVA (since 1
January 2003); Vice President Jose ALENCAR (since 1 January
2003); note - the president is both the chief of state and head of
government
International
organization
participation:
AfDB, BIS, FAO, G-15, G-24, G-77, IADB, IAEA, IBRD, ICAO, ICC,
ICCt, ICFTU, ICRM, IDA, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO,
Interpol, IOC, IOM, ISO, ITU, LAES, LAIA, Mercosur, MIGA,
MINUSTAH, NAM (observer), NSG, OAS, OPANAL, OPCW, PCA,
RG, UN, UN Security Council (temporary), UNCTAD, UNESCO,
UNHCR, UNIDO, UNITAR, UNMIK, UNMIL, UNMISET, UNMOVIC,
UNOCI, UPU, WCL, WCO, WFTU, WHO, WIPO, WMO, WToO,
WTO
Economy
Possessing large and well-developed agricultural, mining, manufacturing, and
service sectors, Brazil's economy outweighs that of all other South American
countries and is expanding its presence in world markets. From 2001-03 real
wages fell and Brazil's economy grew, on average, only 1.1% per year, as the
country absorbed a series of domestic and international economic shocks. That
Brazil absorbed these shocks without financial collapse is a tribute to the
resiliency of the Brazilian economy and the economic program put in place by
former President CARDOSO and strengthened by President Lula DA SILVA. The
three pillars of the economic program are a floating exchange rate, an inflationtargeting regime, and tight fiscal policy, which have been reinforced by a series
of IMF programs. The currency depreciated sharply in 2001 and 2002, which
contributed to a dramatic current account adjustment: in 2003, Brazil ran a record
trade surplus and recorded the first current account surplus since 1992. While
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economic management has been good, there remain important economic
vulnerabilities. The most significant are debt-related: the government's largely
domestic debt increased steadily from 1994 to 2003, straining government
finances, while Brazil's foreign debt (a mix of private and public debt) is large in
relation to Brazil's modest (but growing) export base. Another challenge is
maintaining economic growth over a period of time to generate employment and
make the government debt burden more manageable. 1
GDP:
purchasing power parity - $1.375 trillion (2003)
GDP - real growth
rate:
-0.2% (2003)
GDP - per capita:
purchasing power parity - $7,600 (2003)
GDP - composition by
sector:
agriculture: 10.2%
industry: 38.7%
services: 51.2% (2003)
Investment
fixed):
18% of GDP (2003)
(gross
Inflation rate:
14.7% (2003)
Unemployment rate:
12.3% (2003)
Budget:
revenues: $147.2 billion
expenditures: $172.4 billion, including capital expenditures of NA
(2003)
Public debt:
58.5% of GDP (2003)
Agriculture products:
coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus; beef
Industries:
textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel,
aircraft, motor vehicles and parts, other machinery and equipment
Industrial production
growth rate:
0.4% (2003)
Current
balance:
$3.52 billion (2003)
account
Exports:
Exports
commodities:
1
$73.28 billion f.o.b. (2003)
-
transport equipment, iron ore, soybeans, footwear, coffee, autos
www.cia.gov, Central Intelligence Agency
12
Exports - partners:
US 23%, Argentina 6.1%, China 6%, Netherlands 5.8%, Germany
4.2% (2003)
Imports:
$48.25 billion f.o.b. (2003)
Imports
commodities:
-
machinery, electrical and transport equipment, chemical products,
oil
Imports - partners:
US 20%, Argentina 9.8%, Germany 8.7%, Japan 5.2%, China 4.4%
(2003)
Debt - external:
$214.9 billion (2003)
Currency:
real (BRL)
Exchange rates:
reals per US dollar - 3.0771 (2003), 2.9208 (2002), 2.3577 (2001),
1.8301 (2000), 1.8147 (1999)
1.3 Paraguay
Geography
Location:
Central South America, northeast of Argentina
Area:
total: 406,750 sq km, land: 397,300 sq km
Land boundaries:
total: 3,920 km
border countries: Argentina 1,880 km, Bolivia 750 km, Brazil 1,290 km
Climate:
subtropical to temperate; substantial rainfall in the eastern portions,
becoming semiarid in the far west
Terrain:
grassy plains and wooded hills east of Rio Paraguay; Gran Chaco
region west of Rio Paraguay mostly low, marshy plain near the river,
and dry forest and thorny scrub elsewhere
Natural resources:
hydropower, timber, iron ore, manganese, limestone
Environment
international
agreements:
-
party to: Biodiversity, Climate Change, Climate Change-Kyoto Protocol,
Desertification, Endangered Species, Hazardous Wastes, Law of the
Sea,
Ozone
Layer
Protection,
Wetlands
signed, but not ratified: none of the selected agreements
13
People
Population:
6,191,368 (2004)
Age structure:
0-14 years: 38.2% (male 1,201,459; female 1,162,954)
15-64 years: 57% (male 1,773,151; female 1,758,323)
65 years and over: 4.8% (male 136,376; female 159,105) (2004)
Population
rate:
growth
2.51% (2004)
Birth rate:
29.78 births/1,000 population (2004)
Death rate:
4.58 deaths/1,000 population (2004)
Life expectancy
birth:
at
total population: 74.64 years
male: 72.12 years
female: 77.29 years (2004)
Ethnic groups:
mestizo (mixed Spanish and Amerindian) 95%
Religions:
Roman Catholic 90%, Mennonite, and other Protestant
Languages:
Spanish (official), Guarani (official)
Literacy:
total population: 94%
male: 94.9%
female: 93% (2003)
Government
Capital:
Asuncion
Adm. divisions:
17 departments
Legal system:
based on Argentine codes, Roman law, and French codes
Executive branch:
chief of state: President Nicanor DUARTE Frutos (since 15 August
2003); Vice President Luis CASTIGLIONI Joria (since 15 August
2003); note - the president is both the chief of state and head of
government
International
organization
participation:
FAO, G-77, IADB, IAEA, IBRD, ICAO, ICCt, ICFTU, ICRM, IDA,
IFAD, IFC, IFRCS, ILO, IMF, IMO, Interpol, IOC, IOM, ISO
(correspondent), ITU, LAES, LAIA, Mercosur, MIGA, MINUSTAH,
MONUC, NAM (observer), OAS, ONUB, OPANAL, OPCW, PCA, RG,
UN, UNCTAD, UNESCO, UNIDO, UNMEE, UNMIL, UNOCI, UPU,
WCL, WCO, WHO, WIPO, WMO, WToO, WTO
Economy
Paraguay has a market economy marked by a large informal sector. The informal
sector features both re-export of imported consumer goods to neighbouring
14
countries as well as the activities of thousands of micro enterprises and urban
street vendors. Because of the importance of the informal sector, accurate
economic measures are difficult to obtain. A large percentage of the population
derives their living from agricultural activity, often on a subsistence basis. The
formal economy grew by an average of about 3% annually in 1995-97; but GDP
declined slightly in 1998, 1999, and 2000, rose slightly in 2001, only to fall again
in 2002. On a per capita basis, real income has stagnated at 1980 levels. Most
observers attribute Paraguay's poor economic performance to political
uncertainty, corruption, lack of progress on structural reform, substantial internal
and external debt, and deficient infrastructure.1
GDP:
purchasing power parity - $28.17 billion (2003)
GDP - real growth rate:
1.8% (2003)
GDP - per capita:
purchasing power parity - $4,700 (2003)
GDP - composition by
sector:
agriculture: 24.8%
industry: 23.7%
services: 51.4% (2003)
Investment (gross
fixed):
17.2% of GDP (2003)
Inflation rate
(consumer prices):
14.2% (2003)
Unemployment rate:
18.5% (2003)
Budget:
revenues: $937.8 million
expenditures: $988.4 million, including capital expenditures of $700
million (2003)
Public debt:
45.1% of GDP (2003)
Agriculture - products:
cotton, sugarcane, soybeans, corn, wheat, tobacco, cassava
(tapioca), fruits, vegetables; beef, pork, eggs, milk; timber
Industries:
sugar, cement, textiles,
metallurgic, electric power
Industrial production
growth rate:
0% (2000)
Current account
$146 million (2003)
1
beverages,
wood
products,
steel,
www.cia.gov, Central Intelligence Agency
15
balance:
Exports:
$2.727 billion f.o.b. (2003)
Exports - commodities:
soybeans, feed, cotton, meat, edible oils, electricity, wood, leather
Exports - partners:
Brazil 34.2%, Uruguay 19.6%, Switzerland 7.8%, Argentina 5.3%
(2003)
Imports:
$2.77 billion f.o.b. (2003)
Imports - commodities:
road vehicles, consumer goods, tobacco, petroleum products,
electrical machinery
Imports - partners:
Brazil 32.5%, Argentina 21.6%, China 12.7% (2003)
Debt - external:
$2.96 billion (2003)
Currency:
guarani (PYG)
Exchange rates:
guarani per US dollar - 6,424.34 (2003), 5,716.26 (2002), 4,105.92
(2001), 3,486.35 (2000), 3,119.07 (1999)
1.4 Uruguay
Geography
Location:
Southern South America, bordering the South Atlantic Ocean,
between Argentina and Brazil
Area:
total: 176,220 sq km, land: 173,620 sq km
Land boundaries:
total: 1,564 km
border countries: Argentina 579 km, Brazil 985 km
Climate:
warm temperate; freezing temperatures almost unknown
Terrain:
mostly rolling plains and low hills; fertile coastal lowland
Natural resources:
arable land, hydropower, minor minerals, fisheries
Environment
international
agreements:
-
party to: Antarctic-Environmental Protocol, Antarctic-Marine Living
Resources, Antarctic Treaty, Biodiversity, Climate Change, Climate
Change-Kyoto Protocol, Desertification, Endangered Species,
Environmental Modification, Hazardous Wastes, Law of the Sea,
Ozone Layer Protection, Ship Pollution, Tropical Timber 94,
Wetlands
signed, but not ratified: Marine Dumping, Marine Life Conservation
16
People
Population:
3,399,237 (2004)
Age structure:
0-14 years: 23.5% (male 406,500; female 392,497)
15-64 years: 63.4% (male 1,066,464; female 1,087,100)
65 years and over: 13.1% (male 182,654; female 264,022) (2004)
Population growth
rate:
0.51% (2004)
Birth rate:
14.44 births/1,000 population (2004)
Death rate:
9.07 deaths/1,000 population (2004)
Life expectancy at
birth:
total population: 75.92 years
male: 72.71 years
female: 79.24 years (2004)
Ethnic groups:
white 88%, mestizo 8%, black 4%, Amerindian, practically nonexistent
Religions:
Roman Catholic 66% (less than half of the adult population attends
church regularly), Protestant 2%, Jewish 1%, nonprofessing or other
31%
Languages:
Spanish, Portunol, or Brazilero (Portuguese-Spanish mix on the
Brazilian frontier)
Literacy:
total population: 98%
male: 97.6%
female: 98.4% (2003)
Government
Government type:
constitutional republic
Capital:
Montevideo
Administrative
divisions:
19 departments
Legal system:
based on Spanish civil law system
Executive branch:
chief of state: President Jorge BATLLE Ibanez (since 1 March
2000) and Vice President Luis HIERRO (since 1 March 2000); note
- the president is both the chief of state and head of government
International
organization
participation:
FAO, G-77, IADB, IAEA, IBRD, ICAO, ICC, ICCt, ICRM, IFAD, IFC,
IFRCS, IHO, ILO, IMF, IMO, Interpol, IOC, IOM, ISO, ITU, LAES,
LAIA, Mercosur, MIGA, MINURSO, MINUSTAH, MONUC, NAM
(observer), OAS, ONUB, OPANAL, OPCW, PCA, RG, UN,
UNAMSIL, UNCTAD, UNESCO, UNFICYP, UNIDO, UNMEE,
UNMOGIP, UNMOT, UNOCI, UNOMIG, UPU, WCL, WCO, WFTU,
WHO, WIPO, WMO, WToO, WTO
17
Economy
Uruguay's well-to-do economy is characterized by an export-oriented agricultural
sector, a well-educated workforce, and high levels of social spending. After
averaging growth of 5% annually during 1996-98, in 1999-2002 the economy
suffered a major downturn, stemming largely from the spillover effects of the
economic problems of its large neighbors, Argentina and Brazil. For instance, in
2001-02 massive withdrawals by Argentina of dollars deposited in Uruguayan
banks led to a plunge in the Uruguayan peso and a massive rise in
unemployment. Total GDP in these four years dropped by nearly 20%, with 2002
the worst year due to the serious banking crisis. Unemployment rose to nearly
20% in 2002, inflation surged, and the burden of external debt doubled.
Cooperation with the IMF and the US has limited the damage. The debt swap
with private creditors carried out in 2003, which extended the maturity dates on
nearly half of Uruguay's $11.3 billion in public debt, substantially alleviated the
country's amortization burden in the coming years and restored public confidence.
The economy is expected to resume growth in 2004 (perhaps 4% or more) as a
result of high commodity prices for Uruguayan exports, the weakness of the
dollar against the euro, growth in the region, low international interest rates, and
greater export competitiveness. On the negative side, in December 2003 the
electorate voted to repeal the law permitting a cautious liberalization of the
energy industry.1
GDP:
purchasing power parity - $43.67 billion (2003)
GDP - real growth
rate:
2.5% (2003)
GDP - per capita:
purchasing power parity - $12,800 (2003)
GDP - composition
by sector:
agriculture: 7.4%
industry: 26.6%
services: 66% (2003)
Investment (gross
fixed):
9.7% of GDP (2003)
1
www.cia.gov, Central Intelligence Agency
18
Inflation rate
(consumer prices):
19.4% (2003)
Unemployment rate:
16% (2003)
Budget:
revenues: $2.934 billion
expenditures: $3.425 billion, including capital expenditures of $193
million (2003)
Agriculture
products:
-
rice, wheat, corn, barley; livestock; fish
Industries:
food processing, electrical machinery, transportation equipment,
petroleum products, textiles, chemicals, beverages
Industrial production
growth rate:
0.7% (2003)
Current account
balance:
$76 million (2003)
Exports:
$2.164 billion f.o.b. (2003)
Exports commodities:
meat, rice, leather products, wool, fish, dairy products
Exports - partners:
Brazil 21.4%, US 11.4%, Argentina 7.1%, Germany 6.6%, China
4.3%, Mexico 4.1%, Italy 4.1%, Canada 4% (2003)
Imports:
$1.989 billion f.o.b. (2003)
Imports commodities:
machinery, chemicals, road vehicles, crude petroleum
Imports - partners:
Argentina 26.1%, Brazil 21%, Russia 11.7%, US 7.6% (2003)
Debt - external:
$10.73 billion (2003)
Currency:
Uruguayan peso (UYU)
Currency code:
UYU
Exchange rates:
Uruguayan pesos per US dollar - 28.2091 (2003), 21.257 (2002),
13.3191 (2001), 12.0996 (2000), 11.3393 (1999)
19
2. International Trade
2.1 International Trade intra-Mercosur
In order to integrate and summarize the information, we worked in a double entry
table:
EXPORTS in 2003
(millions of USD)
Argentina Brazil Paraguay Uruguay TOTAL
4,561
IMPORTS in 2003
(millions of USD)
Argentina
Brazil
4,605
66
155
4,782
IntraMercosur
Imports
as % of
Total
Imports per
country
37%
425
471
5,501
12%
48
1,176
58%
1,172
48%
Paraguay
421
707
Uruguay
525
404
243
TOTAL
5,551
5,672
734
674
IntraMercosur
Exports
as % of
Exports
per
country
19%
8%
59%
31%
12,631
SOURCE: Own development based on data from: Centro de Economía Internacional en base a Indec, SECEX,
Secretaría Administrativa del Mercosur y Banco Central del Uruguay 2.
As we can see graphically, most of the trade intra-Mercosur is done by Brazil and
Argentina. Together they account for almost 72% of the total intra-Mercosur
Commerce.
Another important issue is that smaller countries like Uruguay and Paraguay
seem to depend more in Mercosur than in the rest of the world.
2
Moreover,
http://www.cei.gov.ar/html/estadistica.htm#mer
20
Uruguay and Paraguay show a negative trade balance intra-Mercousur.
Argentina, as a medium economy seems to be in the middle of the spectrum.
2.2 International Trade between Mercosur and main world regions
We have integrated the information available for the countries member of
Mercosur with the objective to have an aggregate picture. Please, take into
account that this figures are approximately as each the sources as different for
each country. Furthermore, Paraguay does not provide the level of detail as
Argentina or Brazil. Nevertheless, considering Paraguay’s international trade
relative volume, the impact will not be significant. Graphically:
1993
REGION
INTRA-MERCOSUR
ANDEAN COMMUNITY (*)
CHILE
NAFTA
Canada
Estados Unidos
Mexico
EU (15 members)
CHINA
JAPAN
MIDDLE EAST
REST OF THE WORLD
10,057
2577
1796
11,053
530
9,321
1,258
14,447
1,031
2,795
1,732
8,978
EXPORTS
% of
total
Exports
2003 in 1993
12,630
3847
5370
24,920
1,283
20,009
3,629
24,572
7,071
2,699
3,723
22,145
18%
5%
3%
20%
1%
17%
2%
27%
2%
5%
3%
16%
% of
total
Exports
in 2003
12%
4%
5%
23%
1%
19%
3%
23%
7%
3%
3%
21%
1993
9,086
1,031
988
10,084
855
8,612
617
10,824
948
3,253
2,346
7,429
IMPORTS
% of
total
Imports
2003 in 1993
12,966
1,371
1,150
13,697
848
12,046
804
15,840
2,954
3,010
1,678
13,616
% of
total
Imports
in 2003
20%
2%
2%
22%
2%
19%
1%
24%
2%
7%
5%
16%
20%
2%
2%
21%
1%
18%
1%
24%
4%
5%
3%
21%
TOTAL
54,466 106,977
45,988 66,284
SOURCE: Own development based on data from: Centro de Economía Internacional en base a Indec, SECEX,
Secretaría Administrativa del Mercosur y Banco Central del Uruguay.
NOTES :
Figures in millions of USD.
(*) Andean Community : Bolivia, Colombia, Ecuardor, Peru and Venezuela.
21
Mercosur’s total exports grew from $54,466 million USD in 1993 to 106,977 in
2003. This increments represent an increase of 94.41%.
In the meantime,
imports only grew at a rate of 44.13%.
As a result, Mercosur’s Net Exports increased from $8,478 million USD in 1993
to 40,693 million USD. This growth is approximately equivalent to an increase of
380% over 10 years.
The main drivers of this spectacular growth in Net Exports are:

The growth of Brazilian exports from $38,555 millions USD in 1993 to
$73,084 millions in 2003. An increased of almost 90% over the mentioned
years.

The growth if Argentine exports from $13,118 millions USD in 1993 to
$29,565 millions in 2003. An increased of more than 125% over 10 years.

Imports from Argentina decreased by almost 18% between 1993 and 2003.
The principal reason behind this is Argentina living the Currency Board in
2001, the devaluation of the peso and the subsequent relative increment
in prices of imported goods.
We must shed light in the fact that exports intra-Mercosur countries, shrunk from
18% of the total exports in 1993 to 12% in 2003. Moreover, this fact is not
intrinsically a negative aspect as Total Exports grew by 94.41% in the same time.
However, this statistic could be an alarm signal that will be address later on the
analysis.
Between 1993 and 2003:
- Considering the % of total exports by region, Mercosur has Increased its
participation of exports to:

NAFTA by 15%.

CHINA by 250%.

REST OF THE WORLD by 31%.
22
- Considering the % of total exports by region, Mercosur has Decreased its
participation of exports with the:

EU by 15%.
- Considering the % of total imports by region, Mercosur has increased its
participation of imports from:

CHINA by 100%.

REST OF THE WORLD by 31%.
- Considering the % of total imports by region, Mercosur has decreased its
participation of imports:

CANADA by 50%.

JAPAN by 29%.
23
2.2.1 International Trade Fact sheet by country.
24
2.3 Mercosur and Canada
2.3.1 Merchandise Trade between Canada and Mercosur
CANADA’S MERCHANDISE EXPORTS
(Including re-exports)
(thousands of Canadian dollars) - customs basis
Country and Rank as Cdn Export
Market in 2004 (based on 2004
Exports)
55
Argentina
17
Brazil
83
Uruguay
2002
2003
2004
% Share of
Exports
2004
1999
2000
2001
211,808
244,298
133,436
43,868
78,115
127,953
0.031
1,079,693
1,110,804
957,448
766,440
894,665
952,553
0.232
37,518
27,862
19,876
10,345
13,061
38,685
0.009
CANADA’S MERCHANDISE IMPORTS
(Customs Basis)
(thousands of Canadian dollars) - customs basis
Country and Rank as Cdn Import
Source in 2004
50
Argentina
14
Brazil
64
Uruguay
% Share of
Imports
2004
1999
2000
2001
2002
2003
2004
303,937
367,132
350,104
322,721
374,085
287,754
0.081
1,502,304 1,531,070
1,905,005
1,992,652
2,340,629
0.659
47,928
136,953
130,185
0.037
1,374,692
89,130
118,107
138,147
CANADA’S MERCHANDISE TRADE BALANCE
(thousands of Canadian dollars) - customs basis
1999
Argentina
Brazil
Uruguay
SOURCE : Statistics
3
2000
2001
2002
2003
2004
-92,129
-122,834
-216,668
-278,853
-295,970
-159,801
-294,999
-391,500
-573,622 -1,138,565 -1,097,987 -1,388,076
-51,612
-90,245
-118,271
-37,583
-123,892
-91,500
Canada3
http://www.dfait-maeci.gc.ca/eet/cimt/2004/pfact_annual_trade_2004-12-en.asp
25
Canada’s merchandise trade balance shows an increasing deficit with Brazil,
reaching a peak of nearly 1.4 billion CAD in 2004.
When considering Canada’s merchandise trade balance with Argentina, we
observe an increasing deficit from 2000 to 2003. The major driver behind this
situation could be found in the devaluation of the Argentine peso and the
corresponding relative increase in price of Canadian goods. This situation began
to reverse in 2004, where the deficit contracted from nearly 296 million CAD in
2003 to 160 million CAD in 2004. Graphically:
CANADA'S MERCHANDISE TRADE DEFICIT (Thousands
of CND)
1,600,000
1,400,000
1,200,000
1,000,000
Argentina
Brazil
Uruguay
800,000
600,000
400,000
200,000
0
1999
2000
2001
2002
2003
2004
SOURCE : Statistics Canada
26
2.3.2 Service Trade between Canada and Mercosur
Canada's International transactions in services, (millions of CAD)
1997
65
24
18
1998
64
22
20
22
22
20
25
26
16
56
32
10
50
29
11
62
32
20
53
24
16
65
36
16
34
11
16
14
10
10
13
13
7
SERVICE TRADE BAL.
9
14
4
Total Services Receipts (exports) 400
429
347
Travel
106
113
107
Commercial services
226
249
182
Transportation and government
services
68
67
57
Total Services Payments
Brazil
(imports)
142
194
173
Travel
44
78
74
Commercial services
42
58
44
Transportation and government
services
56
58
55
SERVICE TRADE BAL.
258
235
174
SOURCE: International Trade Canada. Trade and Economic Analysis. 4
33
412
115
225
44
357
74
221
42
333
61
210
72
62
62
189
88
43
208
118
42
208
112
40
58
223
48
149
55
125
Total Services Receipts (exports)
Travel
Commercial services
Transportation and government
services
Total Services Payments
Argentina (imports)
Travel
Commercial services
Transportation and government
services
4
1999 2000 2001
2002
66
86
109
76
24
33
29
19
22
27
54
41
http://www.dfait-maeci.gc.ca/eet/CIMT/2003/intern_trade_in_services_2003-en.asp
27
2.3.3 Canada’s Exports to Mercosur by Industry
Canadian Exports to Argentina by
industry
Value in Thousands of Canadian Dollars
5-digit NAICS codes
32411 - Petroleum
Refineries
33421 - Telephone
Apparatus
Manufacturing
32212 - Paper Mills
33241 - Power Boiler
and Heat Exchanger
Manufacturing
33451 - Navigational,
Measuring, Medical
and Control
Instruments
Manufacturing
2000 2001 2002 2003 2004
31
61
30
18 10,347
Canadian Exports to Brazil by industry
Value in Thousands of Canadian Dollars
27,580 21,139
975 4,178 9,058
5-digit NAICS codes 2000 2001 2002 2003 2004
21239 - Other Non- 219,590 170,770 193,328 200,566 247,849
Metallic Mineral
Mining and
Quarrying
32212 - Paper Mills 294,358 256,190 145,800 114,834 152,197
17,290 10,606
813 8,218 6,886
21211 - Coal Mining 70,073 92,670 80,401 109,887 89,485
2
-- 1,431
304 5,295
8,026 4,376 1,597 2,268 4,831
33422 - Radio and
11,099 2,522 433 1,168 4,438
Television
Broadcasting and
Wireless
Communications
Equipment
Manufacturing
11113 - Dry Pea and 1,304 3,464 1,239 2,675 4,227
Bean Farming
33329 - Other
Industrial Machinery
Manufacturing
33313 - Mining and
Oil and Gas Field
Machinery
Manufacturing
3,658 2,824 1,792 2,754 4,152
33322 - Rubber and
Plastics Industry
Machinery
Manufacturing
33531 - Electrical
Equipment
Manufacturing
32541 Pharmaceutical and
Medicine
Manufacturing
5,474 8,657
637 1,968 3,729
5,384 3,271
633 3,805 3,595
1,525 2,890 2,030 1,947 3,968
1,830 1,861 2,691 2,953 3,551
21111 - Oil and Gas 48,298 35,705 36,065 40,575 44,674
Extraction
33451 Navigational,
Measuring, Medical
and Control
Instruments
Manufacturing
32521 - Resin and
Synthetic Rubber
Manufacturing
8,556 11,923 13,173 21,602 28,699
22,041
8,419 22,151 20,149 25,583
32518 - Other Basic
2,878 3,085 2,876 11,447 23,902
Inorganic Chemical
Manufacturing
33329 - Other
7,288 13,113 4,989 37,876 20,542
Industrial Machinery
Manufacturing
33361 - Engine,
9,069 16,478 18,341 16,615 18,298
Turbine and Power
Transmission
Equipment
Manufacturing
32541 6,032 9,211 8,462 12,114 16,771
Pharmaceutical and
Medicine
Manufacturing
11119 - Other Grain 11,744 9,427 19,470 22,232 16,755
Farming
33641 - Aerospace
Product and Parts
Manufacturing
8,224 15,904
9,508 16,857 16,541
SOURCE: Statistics Canada5.
5
http://strategis.ic.gc.ca/sc_mrkti/tdst/tdo/tdo.php#tag
28
2.3.4 Canada’s Imports from Mercosur by Industry
Canadian Imports from Argentina by
industry
Value in Thousands of Canadian Dollars
2000 2001 2002 2003 2004
5-digit NAICS codes
33121 - Iron and Steel
Pipes and Tubes
Manufacturing from
Purchased Steel
61,579 48,062 41,284 77,543 70,690
33111 - Iron and Steel
Mills and Ferro-Alloy
Manufacturing
10,656 24,776 46,620 35,836 19,550
31213 - Wineries
10,020 8,117 9,416 12,070 18,706
11133 - Non-Citrus
Fruit and Tree Nut
Farming
23,172 19,472 16,695 18,346 16,747
32191 - Millwork
31611 - Leather and
Hide Tanning and
Finishing
31142 - Fruit and
Vegetable Canning,
Pickling and Drying
31171 - Seafood
Product Preparation
and Packaging
0 1,954 5,361 11,598 13,228
32,672 34,214 23,996 15,764 13,189
5,833 7,221 8,771 10,917 11,613
11,301 14,614 12,561 13,762 7,956
31133 - Confectionery
Manufacturing from
Purchased Chocolate 12,759 11,413 7,680 8,557
11132 - Citrus (except
Orange) Groves
7,182 11,593 10,067 6,941
33391 - Pump and
Compressor
Manufacturing
648 2,038 1,657 5,720
33721 - Office
Furniture (including
Fixtures)
Manufacturing
5
7
190 3,012
7,494
Canadian Imports from Brazil by industry
Value in Thousands of Canadian Dollars
5-digit NAICS codes
2000
2001
2002
2003
2004
33111 - Iron and Steel
Mills and Ferro-Alloy
Manufacturing
187,795 133,656 307,713 251,433 391,982
31131 - Sugar
Manufacturing
33131 - Alumina and
Aluminum Production
and Processing
33361 - Engine,
Turbine and Power
Transmission
Equipment
Manufacturing
31621 - Footwear
Manufacturing
21222 - Gold and
Silver Ore Mining
71,336 114,693 152,147 176,080 141,172
26,679
2,198 25,509 64,719 118,504
11,080 14,392 13,909 84,963 99,130
67,217 67,999 81,680 74,373 95,461
0
--
1,017 61,417 93,232
33611 - Automobile
and Light-Duty Motor
Vehicle Manufacturing 59,643 189,212 190,296 156,157 84,828
11133 - Non-Citrus
Fruit and Tree Nut
Farming
88,373 77,083 75,387 69,083 68,106
6,007
32191 - Millwork
31141 - Frozen Food
Manufacturing
22,183 28,858 57,175 59,026 64,333
5,812
21229 - Other Metal
Ore Mining
5,064
33634 - Motor Vehicle
Brake System
Manufacturing
31,612 27,965 37,287 39,046 56,688
74,061 77,122 85,495 74,264 62,618
43,411 57,065 56,489 42,626 57,955
SOURCE: Statistics Canada
29
2.4 Foreign Direct Investment in Mercosur
Led by economic reforms and the associated growth prospects, FDI in Chile and
the Mercosur—that includes Argentina, Brazil, Paraguay, and Uruguay—
increased sharply from $10 billion in 1994 to $62 billion in 1999. This was led
initially by marketseeking investments and later by investments in the services
sector that was catalyzed by rapid privatization of state-owned assets.
Since 2000, FDI in Latin America has declined sharply, driven largely by the
contraction in flows to Mercosur. This has been triggered, among other things, by
crisis in Argentina, sluggish growth and dim prospects, and the slowdown in the
privatization process in other countries, notably Brazil 6. Nonetheless, this is a
situation that reversing as the Argentine and Brazilian economies are regaining
momentum since 2003.
6
FOREIGN DIRECT INVESTMENT IN EMERGING MARKET COUNTRIES. Report of the Working
Group of the Capital Markets Consultative Group. September 2003.
30
2.4.1 Canadian Direct Investment in Mercosur
Canadian Direct Investment in Mercosur - Millions of dollars CAD
Source: CANSIM Table 376-0051
Argentina
Brazil
Uruguay
TOTAL
1997
1998
1999
2,004 2,972 3,274
3,155 3,975 4,662
5
7
37
5,164 6,954 7,973
2000
5,023
6,667
26
11,716
2001
2002
6,002
5,104
6,275
7,605
7
5
12,284 12,714
2003
5,216
7,578
7
12,801
Foreign Direct Investment in Canada - Millions of dollars
1997
1998
1999
2000
2001
2002
Brazil
294
365
387
621
854
774
SOURCE: International Trade Canada. Trade and Economic Analysis.
CANSIM Table 376-00517
2003
770
With regards to Canadian Direct Investment in Argentina an Brazil, we observe
an increasing a sustain trend.
In addition, Canadian Direct Investment in
Argentina has a stronger weight than in Brazil despite the later’s market size.
Surprisingly, despite Argentina’s devaluation in 2001 and default, Canada
continued its solid CDI in the country.
7
http://www.dfait-maeci.gc.ca/eet/cimt/2003/CIIP03-en.asp
31
2.4.1.1 Canadian Direct Investment in Argentina - Ranking of the 30 leading
Canadian companies investing in Argentina
Period 1998-2003 - in million of USD –
Company
1 Barrick Gold
2 Millar Western
3 Profértil
4 Otros proyectos mineros
5 Wheaton River Minerals Ltd.
Mining
Pulp and paper
Chemicals
Mining
Mining
Total
1998-2003
633,3
350
294,6
289
275
6 Inversiones en exploración
7 Pachón
8 Barrick Gold Corporation
9 Transportadora Gas del Norte
10 Potasio Río Colorado
11 Agua Rica
12 Meridian Gold
13 AEC Pipelines
Mining
Mining
Mining
Natural Gas Supply
Mining
Mining
Mining
Oleoducts, Gasoducts
265
260
221
146,4
105
97,5
90
68
14 Saputo Inc.
15 Sudpap
16 Gasoducto Uruguayana
Food and Beverages
Forestry
Oleoducts, Gasoducts
50,8
50
47,4
17 Canadian Hunter Exploration
Oil and Gas
39,6
18 Gasoducto del Pacífico
Oleoducts, Gasoducts
38,1
19 Scotiabank Quilmes (*)
20 Minera Alumbrera
21 Caisse de Depot et Placement du
Quebéc
Banking
Mining
Construction
30
28,2
25
22 Cuarta Línea del Comahue
Electricity
22,3
23 Thomson
Printing and Editorial
18
24 Comunicación Dinámica
25 Editorial Antártica
26 Mc Cain Foods
Printing and Editorial
Printing and Editorial
Food and Beverages
15
15
14,5
27 Agrium
Food and Beverages
10
28 YPF
Oil and Gas
11
29 Clearwater Seafoods
Food and Beverages
7,5
30 Minera Andes
TOTAL
(*)Left Argentina in 2002. SOURCE:
8
Sector
Mining
6
3.556,50
CEP, Base de Inversiones.8
http://www.comercio.gov.ar/dnpce/bilaterales/canada/inversiones.html
32
Canadian Direct Investment in Argentina is congruent with Canada’s main
sectors: Mining, Oil and Gas, Forestry, Pulp and paper.
2.4.1.2 Canadian Direct Investment in Brazil - Largest Canadian Companies
operating in Brazil
More than 800 Canadian companies do business with Brazil with about 60
having full-time operations there. Several of them have high profiles in Brazil,
including Brascan, which has been in the country for 150 years. Alcan has
become the country's leading producer of aluminum and the pre-eminent
company in Brazil's world-leading aluminum recycling program since establishing
operations there in 1966.
While Molson Breweries has more recently gained stature with its purchase of
Brazil's leading brewery and its internationally known Bavaria brand and
Cervecerias
Kaiser.
Other
leading
Canadian
investors
include
the
pharmaceutical company Apotex and the petroleum exploration firms Nexen and
Encana9.
2.5. International Trade Issues
2.5.1 Disputes at the WTO involving Argentina, Brazil and Canada
22.04.03 Argentina’s anti-dumping measure found to violate WTO agreement
A WTO dispute panel has concluded that Argentina acted inconsistently with the
WTO Anti-Dumping Agreement on a number of counts when it imposed anti-dumping
duties on poultry from Brazil. The panel report in case DS241 was circulated on
22 April 2003. Canada, Chile, the EU, Guatemala, Paraguay and the US were third
parties in this case10.
19.02.02 DSB adopts report on aircraft dispute
The Dispute Settlement Body, on 19 February 2002, adopted the panel report on
Brazil's complaint against “Canada — export credits and loan guarantees for regional
aircraft” (DS 222).
9
EDC. Brazil: Back in Business. By Mike Trickey.
http://www.edc.ca/corpinfo/pubs/exportwise/summer04/p16_e.htm
10
WTO. http://www.wto.org/english/news_e/news03_e/news03_e.htm
33
28.01.02 Panel report out on aircraft financing dispute
The WTO, on 28 January 2002, released the report of the panel that had examined
Brazil's complaints against Canada's export credits and loan guarantees for regional
aircraft (DS222/R). The panel concluded that some of the Canadian measures
constituted prohibited export subsidies but also rejected a number of Brazil's claims.
The battle began in 1996 when Canada requested the establishment of a WTO
panel to investigate the legality of state subsidies given to the Brazilian aircraft
manufacturer, Embraer. The WTO found that the subsidies were illegal and when
Brazil did not comply with the ruling, Canada was granted permission by the
WTO to impose countermeasures against Brazilian goods.
Instead of proceeding with tariffs, Canada decided to fight the subsidies given to
Embraer
by essentially giving matching subsidies to its own regional aircraft manufacturer,
Bombardier. Proving once again that two wrongs don’t make a right, the WTO
found Canada’s subsidies illegal and granted Brazil permission to impose
economic countermeasures against Canada. To date neither country has
proceeded with retaliatory duties11.
However, the settlement being worked on may also stipulate what other kinds of
assistance, such as research and development or location grants, could trigger a
complaint from either side. The task to close an agreement has become more
complex because Brazil in recent months has been pushing to expand the
agreement to cover the type of production and development assistance that
Canadian governments may give to Bombardier to build the new regional jets12.
11
12
BRITISH COLUMBIA. Ministry of Management Services. BC stats. September, 2004.
GLOBE AND MAIL. Canada, Brazil tackle ‘thorny issue'. By STEVEN CHASE . March 10, 2005.
34
2.5.2 State of Bilateral Trade relations with Canada

November 25, 2004 . International Trade Minister Jim Peterson today
concluded the Canada trade mission to Sao Paulo and Rio de Janeiro,
Brazil.
"Canada is targeting Brazil as a key country in the emerging
markets strategy it is developing," said Minister Peterson. "Brazil is a
gateway to South America and this mission has allowed us to build
bridges for the long term." 13 Also among the main objectives were:
working together to resolve the aircraft dispute between the two countries
and to moving forward on the WTO Doha Development Round.

February 7 and 8, 2005. MERCOSUR – CANADA. The meeting in Ottawa
was organized as a continuation of the dialog between Canada’s Prime
Minister, Paul Martin, and the President of Brazil, Luis Inácio Lula da
Silva,
last November. The objective was to discuss the possibility of
initiating bilateral negotiations that would allow access to the market of
goods, services and investments between Canada and Mercosur within
the FTTA framework14.

March 3, 2005. The president of Sanitary Services and Agri-food Quality
from Argentina (SENASA), Jorge Amaya, maintained a meeting in Ottawa
with the chief of the CFIA, Richard Fadden. Argentina requested that
Canada reopen the importation of fresh and mature beef from the former
country.
They also signed various agreements related to animal and
vegetable health15.
13
http://www.teamcanada.gc.ca/brazil/menu-en.asp
Subsecretaria de Política y Gestión Comercial. http://www.comercio.gov.ar/novedades.html#canada .
15
SENASA. El SENASA y la CFIA de Canadá alcanzaron coincidencias institucionales y sanitarias.
http://www.senasa.gov.ar/noticias/canada.php?id=60136 .
14
35
3. Trade Policy
In this section we will address Mercosur’s Trade Policy. Particularly, we will focus
on Brazil given the size of its economy and the leading role in Mercosur’s policy
making process.
3.1 The DOHA Round – Agricultural Negotiations
Through the Doha round, many developing countries complain that their exports
still face high tariffs and other barriers in developed countries’ markets and that
their attempts to develop processing industries are hampered by tariff escalation
(higher import duties on processed products compared to raw materials). They
want to see substantial cuts in these barriers16.
Specifically the Doha round, August 2004 framework, that treats export subsidies
and competition if fully adopted could signify an incredible benefit for Mercosur
agricultural exports.
The framework states clearly that all forms of export subsidies will be eliminated
by a “credible” date. The elimination will work in parallel for all types of subsidies,
including those in government-supported export credit, food aid, and statesanctioned exporting monopolies17.
3.2 Trade Policy in Action – The Hard Ball
The U.S. Trade Representative Robert B. Zoellick once told Brazilian officials
that if they were unhappy trading with the United States, their other option was to
trade with Antarctica.
16
WTO. AGRICULTURE NEGOTIATIONS: BACKGROUNDER. Developing countries.
http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd14_devopcount_e.htm#august
17
WTO. August 2004 framework: export subsidies and competition.
http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd24_subsidiesframework_e.htm
36
Under President Luiz Inacio Lula da Silva, Brazil's foreign policy has followed Mr.
Zoellick's advice. Though it is not actually trading with Antarctica, it has decidedly
turned east for economic growth and political partnerships instead of looking
toward its traditional partner in the north. A key example of Brazil's foreign-policy
initiatives is the accord among Brazil, India and South Africa signed in June. It
focuses on scientific and technological cooperation, but one of its chief strategies
is to act as a unified opposition voice inside the World Trade Organization.
China and Brazil signed an accord that will increase commercial alliances and
technological cooperation in agribusiness, construction, civil engineering and in
natural-resource development projects. A Chinese delegation was in Brazil Aug.
18-20 and again in mid-September 2004 to discuss trade with Mercosur.
Brazil is also looking for alternatives in case the U.S.-proposed Free Trade Area
of the Americas doesn't go its way. Brazil — the world's largest beef, coffee,
sugar cane and orange juice exporter — has tried unsuccessfully to get
Washington to lower or eliminate trade barriers to Brazilian food products in past
FTAA-development negotiations18.
Rafael Bielsa, Argentina’s Minister of Foreign Affairs was quoted by a Brazilian
weekly as saying his country's position on the FTAA is "very similar to Brazil's."
Mercosur represents Brazil’s first priority. From a Brazilian standpoint , one of
the main objectives of Mercosur is Brazil’s insertion in the international economy.
Moreover, from a strategic viewpoint, Mercosur would help to prevent further
interdependence with the US economy, and to avoid isolation in the region 19.
18
WASHINGTON TIMES. Brazil moves to form bloc 'against' U.S. By Kenneth Rapoza.
VAN ROMPAY, JAN. Brazil’s Strategy towards the FTTA. Free Trade for the Americas? Edited by
Paulo Vicentini and Marianne Weisbron. Zed Books, 2004.
19
37
We can conclude that Mercosur is an strategic framework that would allowed its
members and Brazil in particular, to leverage its bargaining power with the EU,
NAFTA, FTAA, SAFTA, and ASEAN among others.
With regards to Foreign Direct Investment, tax breaks and other incentives are
being provided for foreign firms that set up operations in Brazil, especially in the
pharmaceutical, software and intellectual technology sectors where Lula is
attempting to establish a strong domestic presence.
3.3 Mercosur Future Outlook
3.3.1 Advantages of Mercosur
When looking for other reasons explaining Mercosur’s advantages as a subregional entity, there are three basic points:
1. MERCOSUR advocates a multipolar system and its inherent benefits
cannot ignore the difference between an FTAA with MERCOSUR and an
FTAA without MERCOSUR.
2. Developed countries represent increasingly ageing societies. More and
more young people are looking for ways to find new geographic solution to
an anti-fiscal rebellion. In order to maintain the implemented structures of
welfare, capital in those countries will have to find productivity outside their
borders. Taking into account the demand which is bound to fall, the
apparent overinvestment observed in many sectors ant the ongoing race
for profitability, these countries will be forced to look for solutions outside
their unions. This is despite the new borders formed by Central Europe.
3. Only a few languages on a global scale will achieve the required
dimension of a “lingua franca”. Those languages include English,
Mandarin, Arabic and Spanish that will be without a doubt the Latin world’s
point of reference. In addition, Spanish has the enormous advantage of
growing within the NAFTA’s sphere.
38
4. Mercosur allows for an evolutional economic and trade development
within member states. If the FTTA becomes fully effective, this would
mean the end of Mercosur, as it would cancel the advantages that the
Common External Tariff provides to local companies. The Southern Cone
integration
is
among
developing
countries
only,
with
limited
competitiveness. Its fusion into a bloc that includes Canada and the US
would imply the collapse of the productive chains, as it would grant the
highly competitive companies of the North the same advantages as local
companies20.
5.
Mercosur’s enables a multi-level negotiation process that combines an
evolutionary competitive adaptation process for local companies and at
the same time maximizes the bloc bargaining power. Mercosur is able to
exploit this advantages by engaging in multiple negotiations within the
Bloc, with the EU, NAFTA, the WTO, the FTTA, considering options at the
bilateral level, and also the possibility of negotiating a South American
Free Trade Area (SAFTA).
3.3.2 Disadvantages of Mercosur
1. Institutional Weakness : Until today Mercosur is operated on a highly
informal institutional basis. In essence, Mercosur is managed politically
rather than by a commonly agreed and binding principles (rules-based
system). This impression is underlined by the fact that these groups are
themselves constrained by the presidents - from Brazil and Argentina in
particular – who used to decide on vital questions of the Mercosur on a
strictly personal level21.
20
VIZENTINI, PAULO G. F., WEISEBROWN, MARIANNE L. Free Trade for the Americas? Zed Books,
2004.
21
PREUSSE, HEINZ G. The Future of Mercosur. Free Trade in the Americas. Edited by Sidney
Weintraub, Alan M. Raugman and Gavin Boyd. Edward Elgar, 2004.
39
2. Excessive
dependency on the international financial markets. For
example, Brazil’s stock of external debt remains the largest in the
emerging world, despite this decline. The need to roll over an average of
US$40bn in long- and medium term debt falling due each year accounts
for the country’s vulnerability to changes in conditions in international
capital markets22.
3. Divergence in International Insertion (Van Rompay 2004 : 134). Member
countries within Mercosur seems to follow different strategies to foster
economic development and International Insertion.
This example was
most evident with Argentina’s opportunistic behaviour in the FTTA
negotiations.
4. Missing Macroeconomic Coordination (Preusse 2004: 133) : The different
concepts of macroeconomic management, for example the Argentine
currency board and the Brazilian system of managed floating, turned out
to be a major factor of uncertainty for the determination of reliable
competitive positions within the region. After the Brazilian crisis of January
1999, the incompatibility of both concepts could not be overlooked any
more and eventually turned out to be one of the driving forces of the
Argentine crash of 2001/2.
5. Retreat of National Trade Policies to unilateralism and protectionism. For
example, in the first half of 2001 when Argentina introduced unilateral tariff
changes as part of a series of measures designed to help its economy
recover from three years of stagnation. These changes, notably the
abolition of tariffs on imports of capital goods from outside Mercosur,
contravene the CET, but were accepted by Brazil on the understanding
that they would be temporary. Paraguay’s decision in July 2001 to impose
a 10% tariff on imports from its Mercosur partners was accepted by Brazil
on the same understanding, as was Uruguay’s decision, its first unilateral
22
ECONOMIST INTELLIGENCE UNIT. Brazil, Country Profile, 2004.
40
initiative, later that month to join Argentina in suspending the CET for
capital goods and to impose a 3% tariff on imports from within the bloc23.
6. Trade Diversion: Occurs when lower-cost external suppliers are replaced
by higher-cost suppliers within the free trade are 24 .
A working paper
developed by the IMF 25 concludes that MERCOSUR’S propensities to
import and export decreased and became significant precisely at the time
when integration became significant. Thus integration and trade diversion
went hand in hand in MERCOSUR. This probably reflects the overall trade
liberalization of the MERCOSUR countries at the same time as they were
forming the RTA among themselves.
3.4 Conclusions
Arguably we can object the benefits of Mercosur. Above all, Mercosur’s strategic
framework that would allowed its members, to leverage its bargaining power with
the EU, NAFTA, FTAA, SAFTA,
and ASEAN among others.
Despite the
asymmetry of the economies of the member states when considering Brazil,
Mercosur offers so far a more equal position to negotiate with when compared to
the overwhelming power of the US.
Secondly, Mercosur integration is among developing countries only, with limited
competitiveness to local companies that enables a progression of economic
development and evolution.
However, the combined effects of Institutional Weakness, Macroeconomic
discoordination, Uniteralism, and excessive Dependency on Financial Markets
creates a serious treat to Mercosur’s survival.
Each of the issues must be
address if the political leaders of Argentina, Brazil, Paraguay and Uruguay
23
24
25
ECONOMIST INTELLIGENCE UNIT. Argentina, Country Profile, 2004.
HILL, CHARLES. International Business. Competing in the Global Marketplace. McGraw Hill, 2005.
Enzo Croce, V. Hugo Juan-Ramón, and Feng Zhu. IMF Working Paper. Performance of Western
Hemisphere Trading Blocs : A Cost-Corrected Gravity Approach. International Monetary Fund, 2004.
41
expects to maximize Mercosur’s strategic framework to insert their economies in
the trade system.
Finally, the moment of truth for Mercosur will come when in November 2005
hemisphere’s leaders are due to gather in Buenos Aires to the 4 th Summit of the
Americas26.
26
The Economist. The World in 2005.
42