Download How Brazil Effects the Economic Policy of Mercosur

Mercosur is a Beneficial Organization
David Sheets
Advanced Strategies of Rhetoric and Research
Professor Hevey
21 November 2011
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It is a common belief that a fist is stronger than five fingers. Modern societies
emphasize the importance of working as a team and reaping the benefits of
cooperation. This concept of teamwork is the underlying principle in supranational
organizations such as the European Union, NAFTA, and the more recently established
Southern Common Market, Mercosur. Mercosur is a free market amongst the four
countries Argentina, Brazil, Paraguay, and Uruguay with the goal of easing the
transport of goods and investment between its members. The Mercosur organization
is a critical organization to the growth and future health of the South American
economies it encompasses.
There is a clear advantage of an increase in trade by belonging to an economic
community like Mercosur. At its conception, the organization was created “to be … a
Customs Union” (Ferrari-Filho and Fernando 2001). This customs union has
eliminated the conventional burdens conducting trade across international borders.
Citizens and businesses located within the Mercosur jurisdiction can conduct trade
free of internal import and export tariffs. The members have experienced “growing
levels of trade interdependence” due to the favorable economic conditions (2009
Gomez-Mera). In his article “Latin America’s Free Trade Market Struggles,” Clay
Risen builds off Gomez-Mera’s argument declaring internal trade increased sharply
from a total of $1 Billion in 1990 to $26 Billion in 2007 (2008). Internal commerce is
so healthy that “intra-bloc trade has grown faster than flows with the rest of the
world” (Gomez-Mera 2009). Surrounding countries like Venezuela and Colombia
have expressed interest in joining Mercosur due to the prosperity experienced by its
members (Clay 2008). As demonstrated by Risen and Gomez-Mera, the member
countries are inclined to trade with member states due to the convenience and ease
Mercosur offers to the members. Unlike the European Union, Mercosur does not have
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the bureaucratic entities and governing bodies similar to those established in Europe
(Barry 2004). It is the bustling trade relationships that unite the four countries and
strengthen the loose structure of Mercosur. If the four member states did not belong to
Mercosur, they would be subjected to trade tariffs assessed by countries, increasing
trading costs, in a market with no clear favorable partners. However, the creation of a
single market in South America has stimulated trade and developed economic reliance
between the member countries.
Mercosur has played a crucial role in inserting the member states into the
global economy. Today, the countries with the most influence economically are those
with the largest economies. By using the market value of all final good and services
produced, the gross domestic product (GDP), the European Union and the United
States have the two largest economies worldwide. China, arguably a trading partner
with almost every country, has the third largest GDP. The ability to place Paraguay
and Uruguay into the customs union of Mercosur is a tremendous advantage for the
two countries. These members have the 105th and 92nd largest GDP’s in the world. On
the other hand, heavyweight Brazil has the 9th largest GDP in the world and Argentina
has the world’s 24th largest GDP. Mercosur provides the avenue that allows Paraguay
and Uruguay, both small countries economically, to gain economic influence. These
two countries receive favorable treaties and indirectly participate in economic forums
like the G-20 by being associated with Mercosur. When the group’s largest members
of Brazil and Argentina attend the G-20 or United Nations discussions on economics,
they advocate for Mercosur’s interest, which includes those of small Paraguay and
Uruguay. In total, the organization lobbies in favor of 250 million people (Risen
2008). In a global context, Mercosur is currently the “third largest trading bloc in the
world” (Carranza 2003). The member states of Mercosur have gone from being lone,
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underdog economies to one of the world’s largest unified market. Large entities such
as the United States of America and the European Union must conduct business with
the Mercosur as a bloc. Mercosur can demand this power because it built on the
premise that its members will not to sidestep the hierarchy of the organization and
establish independent trade agreements on their own will (Clay 2008). The pressure to
deal with the members as a whole entity has “strengthen the bargaining power” of the
member states (Carranza 2003). The concept of association and being unified has
brought success upon all member states.
The benefits of Mercosur are not limited to increased trading. The trade bloc
has prepared the members to be in a favorable economic position in the continuously
evolving world economy. As seen recently the crises, the international markets are
vulnerable to the stability and strength of prominent economies. The influence of the
largest economies on the global economy cannot be entirely conveyed in words. The
financial depression experienced in the United States in 2008 spread to the entire
world. The current euro crisis in Europe upsets the markets in North America and
Asia on even the smallest rumors of negative news. The consequences of markets are
no longer isolated to one specific geographic region. There is a direct correlation
between the size and influence of the world’s largest economies.
In regard to Mercosur, this globalization occurring worldwide is in their favor.
By 2025, Brazil is projected to one of five nations that will account for one-half of the
global growth (Lin et al. 2011). With evidence like the United States and European
Union, the value of having a prominent strong economy such as Brazil in Mercosur
cannot be underestimated. With the United States “losing its economic power,” the
position it once held will be sought by many leading economies (Lin et al. 2011).
Brazil, and Mercosur along side it, will be a strong contender in the race to dominate
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the global economy. This association will benefit Argentina, Paraguay, and Uruguay
vicariously as a Mercosur member will be one of the leading economies of the world.
Additionally, Brazil will be able to protect the interests to the South America,
specifically the smaller Mercosur members, on the world stage. Mercosur has already
showed signs of its might with it ability contribute to the “failure of the FTAA
negotiation in the Mar de la Plata” treaty proposed by the United States but opposed
by many South American countries in 2005 (Risen 2008). This unity provided by
Mercosur allows the region to support one another and achieve feats never thought
possible. It is in the best interest of the member countries to sustain the
interdependent trade relationships established and reap the current and future
prosperity they are poised to encounter.
South America has been able to witness the advantages of Mercosur through
its free market concept. In the world today, competition is fierce and nations need to
be proactive in forming their fiscal policy. The countries that will prosper are those
who have the right resources and economic policy tailored to allow the nation to
flourish. Mercosur is the key to internationalizing the unified trade group and is
pertinent to the future development of all of the four member nations.
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Works Cited
Carranza, Mario E. 2003. "Can Mercosur Survive? Domestic and International
Constraints on Mercosur." Latin American Politics And Society 45, no. 2: 67103. EconLit, EBSCOhost (accessed November 13, 2011).
Ferrari-Filho, Fernando. 2001. "Why Does It Not Make Sense to Create a Monetary
Union in MERCOSUR? A Keynesian Alternative Proposal." Journal Of Post
Keynesian Economics 24, no. 2: 235-252. EconLit, EBSCOhost (accessed
November 13, 2011).
Gomez-Mera, Laura. 2009. "Domestic Constraints on Regional Cooperation:
Explaining Trade Conflict in MERCOSUR." Review Of International Political
Economy 16, no. 5: 746-777. EconLit, EBSCOhost (accessed November 9,
2011).
Lin, Justin Yifu, and Mansoor Dailami. "The Coming Multipolar World Economy."
International Economy 25, no. 3 (Summer2011 2011): 30-31. Business Source
Premier, EBSCOhost (accessed October 16, 2011).
Risen, Clay. 2008. "Latin America's Free Trade Market Struggles." World Trade 21,
no. 6: 52-54. Business Source Premier, EBSCOhost (accessed November 19,
2011).