FREE ESSAY ON MERCOSUR

MERCOSUR

Introduction
The Sectoral Commission for MERCOSUR (COMISEC) was created on April 1, 1991 by Executive
Decree No. 176/991. It is made up of: 
? Government Representatives and Delegates from the Office of Planning and Budget 
? Chamber of Industry of Uruguay 
? National Chamber of Commerce 
? Mercantile Chamber of Uruguay 
? Unions (PIT/CNT) 
? Rural Association of Uruguay 
? Rural Federation of Uruguay 
? Agrarian Cooperatives Association 
? State-owned Enterprises 
This decree entrusts COMISEC with the following functions: 
a) Advise the Executive Branch as regards the adoption of internal measures aimed at the
application, pursuit and evaluation of the process of regional integration. 
b) Coordinate and supervise the performance of the subcommittees. 
c) Obtain and disseminate information on integration. 
For its part, Decree 175/991 dated April 1, 1991, created the Inter-Ministry Committee on
MERCOSUR and gave the Director of the MERCOSUR Sectoral Commission authority to do the
following: 
a) Plan and propose, to the Inter-Ministry Committee, measures necessary for the
orchestration of the internal aspects of the Common Market, paying special attention to
the reconversion of economic activities and the adaptation of the country to the common
market. 
b) Carry out the necessary surveys, and to request the corresponding technical
assistance. 
Uruguay was the first country within MERCOSUR that developed this institutional structure
- which is foreseen in the constitution - so that the different sectors involved could
participate in the integration process. 
Some Argentine Provinces and some Brazilian States have implemented institutional
mechanisms in which the presence of their own social and economic agents is
participatory. 
Paraguay has just recently created, under the Ministry of Integration, the National
Committee on Integration and has invited government representatives (ministries),
business groups and unions to participate. 
One of the goals of COMISEC is to improve the knowledge of the productive sectors and to
create mechanisms for the dissemination of information throughout the country. 
In sum, COMISEC is an working environment where the Uruguayan civil society can be
represented in order to best pursue, understand, and disseminate, in a timely manner, the
key topics that are relevant to Uruguay's future with regard to its insertion in
MERCOSUR. 
As Uruguayans, we all have our concerns especially when we think of the size of our
partners, Argentina and Brazil. However, we have already been associated with these
countries for many years through preferential commercial agreements. 
MERCOSUR and Its Origins
The Common Market of the South (MERCOSUR) is an ambitious economic integration project in
which Argentina, Brazil, Paraguay and Uruguay find themselves engaged.
Its principal objectives are: to improve the economies of their countries by making them
more efficient and competitive and by enlarging their markets and accelerating their
economic development by means of a more efficient use of available resources; to preserve
the environment; to improve communications; to coordinate macroeconomic policies; and to
harmonize the different sectors of the economies of the member countries.
The Beginnings of the MERCOSUR Integration Process
In the 1970s, Uruguay strengthened its commercial relationship with Brazil by way of the
Commercial Expansion Protocol (PEC), and with Argentina by way of the Argentine-Uruguayan
Economic Cooperation Agreement (CAUCE).
Between 1984 and 1989 Argentina and Brazil signed twenty-four bilateral protocols with
the purpose of improving trade.
Integration efforts date back to 1985 when the Foz de Iguazu Declaration was signed
creating the High Level Bilateral Commission for the integration of Argentina and
Brazil.
Around the end of 1990, Argentina and Brazil signed, and registered with ALADI, an
Agreement on Economic Cooperation (Acuerdo de Complementacion Economica) that
systematized and deepened pre-existing bilateral commercial agreements. Around mid-1990,
representatives of both countries met with authorities of Uruguay and Paraguay. It was
then that these two countries expressed their firm aspiration to take part in the
bilateral process already underway. At this point it was decided that an agreement among
all four countries to create a common market should be signed.
On March 26, 1991 the Treaty of Asuncion was signed by the four countries. This Treaty
should not be seen as the final creation treaty of the Common Market of the South, but as
an instrument, of international character, intended to make the implementation of the
Common Market possible.
The Treaty of Asuncion is an economic integration agreement with regional vocation, which
remains open to the accession of the other ALADI members.
By virtue of what is established in Article 10 of Annex I of the Treaty of Asuncion, on
November 29, 1991, the four countries signed an Agreement of Economic Cooperation under
the legal framework of ALADI. It bears number 18, and entered into force on that date.
In December 1994 an additional Protocol to the Asuncion Treaty was signed in relation to
the institutional structure of Mercosur and called the Ouro Preto Protocol.
Principal indicators of MERCOSUR members (as of 1993) 
Argentina Brazil Paraguay Uruguay 
Population (in millions) 32.6 147.3 4.3 2.9 
Land Area (thousands of km2) 2.767.0 8.512.0 407.0 177.5 
GNP (thousands of $US) 255.326 413.122 7.005 13.144 
Per capita GNP ($US) 7.832 2.805 1.629 4.532 
Foreign Trade 
Exports 13.091 39.101 725 1.647 
Imports 16.787 25.695 1.478 2.249 
Balance (3.696) 13.406 (753) (602) 
Source: Our own, based on data from Working Subgroup No. 10 (Basic Macroeconomic
Indicators) and MERCOSUR, Statistical Report, volume 1, 1993
14. Can Uruguay leave MERCOSUR? 
Legally, there are no impediments, and the Treaty of Asuncion anticipates that any of the
Member States may desire to pull out of the treaty.
Politically, leaving MERCOSUR would bring about significant difficulties.
It is a well-known fact that the four national economies are closely interrelated. In the
case of Uruguay, 44% of its exports and a similar percentage of its imports are
MERCOSUR-based. This gives an idea of what Uruguay?s situation would be, should it not
belong to MERCOSUR. Moreover, in a growing globalized economy, negotiations are carried
out between large economic blocks, and the opportunities for independent action by our
country are very slim.
25. Is Uruguay prepared to participate fully in MERCOSUR? 
There is a long history, both within the public and private sectors, of efforts made
towards integration that started around 1960 when ALALC was created by the Treaty of
Montevideo.
Since then, Uruguay has been a staunch supporter of regional integration. This commitment
has earned Uruguay the right to be the seat of the two principal regional organizations:
ALADI and MERCOSUR. This is both a distinction and a privilege.
29. How does the mechanism for the annual reduction of import duties function? 
Argentina and Brazil granted an initial reduction on January 1, 1995. In January 1996 the
reduction was of 25%. Further reductions will be: 50% by January 1997; 75% by January
1998; and duties will be completely eliminated by January 1, 1999.
For Paraguay and Uruguay the scale is similar except that it runs one year longer. That
is to say that the initial reduction started on January 1, 1996 and the successive
reductions to 25%, 50% and 75% are scheduled for January 1997, January 1998 and January
1999, respectively. Total elimination of duties will be on January 1, 2000.
This system is called Final Adaptation Regime to the Customs Union. The reductions are
applied to the total nominal tariff of each country as of August 5, 1994. No other tariff
or non-tariff barriers will be applicable to the products included in this Regime.
About the Uruguayan Economy
153. What was GDP share of the main sectors during the years 1991-1993? 
Agriculture 11.3%, manufactured goods 23.1%, construction industry 3.9%, electricity
3.1%, retail and restaurant/hotel services 12.8%, transport, storage and communications
7.7%, financial institutions, insurance, real estate and services to enterprises 22%,
municipal, social and personal services 17%. These percentages are reflected in the
employment structure.
Employment structure excluding the agricultural sector as of 1993:
People employed Total
Exploitation of mines and quarries 0.3%
Manufactured goods 24.7%
Electricity, gas and water 2.0%
Construction industry 3.7%
Retail, restaurants and hotels 19.2%
Transport, storage and communications 6.4%
Financial institutions and services to enterprises 7.3%
Communication, social and personal services 36.5%
154. What are the main fields within the manufactured goods sector? 
Foodstuffs, beverages and tobacco 33%; textiles, apparel industry and hides 19%; paper,
printing and publishing houses 5%; chemicals, oil, rubber, plastics 25% (oil refining is
40%); non-metallic minerals 4%; metallurgy, machinery and equipment 13%.
155. What is the relationship between external and domestic trade? 
In 1995 exports (FOB) totalled US$2,116.7 million while imports totalled US$2,866.9
million. There was a negative balance of minus US$750.2 million.
156. What are the main geographical areas with which we do business? 
Trade with the other MERCOSUR countries during 1995 totalled US$2,316 million (this
represents a 47% of overall trade which was US$4,983.6 million).
Exports from Uruguay to MERCOSUR: US$995 million
Uruguay?s imports from MERCOSUR: US$1,320 million
Exports from Uruguay to Europe: US$482.5 million
Exports from Uruguay to the U.S.A.: US$112.8 million
157. What changes will MERCOSUR bring about? 
The coming into effect of MERCOSUR will open new business opportunities in a market of
200 million inhabitants.
At the same time, Uruguayan businessmen will face new and greater challenges and will
have to strive in order to meet new market requirements. Similar efforts will have to be
made to improve quality of labor, quality of management and productivity, and to foster
the use of proper technology. All this will have to be done bearing in mind people?s
needs and expectations, guaranteeing job security as far as possible, making better use
of national resources and, finally, taking advantage of the benefits of integration.
Once the negotiations have been completed enterprises, workers, professionals, farmers,
students, the State, in other words, the society as a whole will have to take a stance
within the new regional environment.
In the short term most of the products and services Uruguay has to offer will undergo
radical changes. The new markets will undoubtedly offer new opportunities, but in order
to seize them Uruguay will have to offer the right products, with an excellent quality
level and within a convenient time framework.
158. What do we export to the other MERCOSUR countries? 
? Vehicles 
? Garments and accessories 
? Dairy products 
? Paper and carton 
? Plastics 
? Common metals and their products 
? Footwear 
? Ceramic products 
? Fabrics and jersey garments 
? Machines and electrical material 
? Rubber 
? Pigments, paints and varnishes 
? Rice 
? Milling products 
? Wool and hair 
? Fish and crustaceans 
? Furs and hides 
? Cattle on the hoof 
? Barley 
? Pharmaceutical products 
? Inorganic chemical products 
? Glass and their products 
? Tobacco and their products 
? Hydrocarbons and derivatives 
? Honey 
? Ovine and bovine meat 
? Seeds 
? Vegetables and fruits 
? Products derived from wood 
? Wines 
159. What do we export to the rest of the world? 
? Garments and accessories 
? Dairy products 
? Footwear 
? Ceramic products 
? Fabrics, leather garments and textiles 
? Rice 
? Wool, yarns and wool fabrics 
? Fish and crustaceans 
? Furs and hides 
? Cattle on the hoof 
? Barley 
? Pharmaceutical products 
? Leather handbags and accessories 
? Meat and fish preparations 
? Fur garments 
? Cereal preparations 
? Seeds and fruits 
? Sugar 
? Bovine meat 
? Fresh fruits 
? Ovine meat 
? Products of animal origin 
? Cereals 
? Vegetables 
? Honey 
? Various foodstuffs preparations 
? Wood, vegetable coal and its products 
? Wines 
The MERCOSUR-Chile Agreement
On June 19, 1996 MERCOSUR and Chile signed a Free Trade Agreement which was later
endorsed (June 25) by the Presidents of the five countries in San Luis, Argentina.
Key features: 
? the agreement complies with the requirements of the World Trade Organization; 
? the principles of the customs union are maintained (the common external tariff remains
unchanged). 
Further, it should be pointed out that Chile has not become a new member of MERCOSUR, but
has joined MERCOSUR?s free trade zone without adopting the common external tariff system.
This is a 4 + 1 type agreement.
General Outline
? On October 1, 1996 tariffs on goods not subject to exceptions will be reduced by a 40%.
Reductions will continue in a progressive manner until a zero tariff is reached in 8
years, more precisely by 2004. 
? Tariffs for products considered sensitive will be liberalized in 10 or 15 years,
according to the type of product. In this regard, Chile has decided to close its market
for wheat and wheat by-products during 18 years. To counterbalance this, Chile has
granted additional quotas for beef and rice and, for the first time, has opened its
domestic market to dairy products from MERCOSUR. 
? A very strict rules of origin regime has been approved by which Chilean products
exported to MERCOSUR should have at least a 60% of national (Chilean) components; the
remaining 40% may be from outside MERCOSUR. This system is already in force in the other
MERCOSUR countries. 
? Dispute resolution will be done by means of consensus during the first three years
after the signing of the Agreement. After that it will be done through arbitration. 
Uruguay-Chile
Consequences of the Agreement
The MERCOSUR-Chile Agreement may come to affect the fruit/vegetable and wine sectors in
Uruguay. Chile is a large exporter of fruits and wine, internationally known. In Uruguay,
however, fruit and vegetable growing is mostly family-run, with no rationalization of
productive inputs used.
Even though in general Uruguayan products will not benefit from the above mentioned
tariff reductions, the Agreement with Chile will be advantageous for certain products
such as rice, dairy products, beef and the apparel industry.
In the case of rice, Chile approved a quota of 14,000 tons for Uruguay until the year
2000 (presently the quota is 4,000 tons for shipments from September through December
only).
In the case of dairy products, Uruguay can now access the Chilean market with an
advantageous tax of 40% and progressive reductions of up to a 100% by the year 2000. Up
to the signing of the Agreement, Chile had refused to negotiate with Uruguay the
introduction of dairy products.
Regarding beef, until October 1, 1996 Uruguay had a quota of 750 tons per year, with a
tax of 50%. Thanks to the agreement, Uruguay will be able to export 3,000 tons of beef
per year (50% of frozen and 50% of fresh meat).
The textile sector was granted an additional quota for some articles with a 100% tax
exepmtion (usual tax in this sector is 40%). Moreover, Uruguayan leather garments were
completely liberalized in the Chilean market.
Additionally, the MERCOSUR-Chile agreement opens new opportunities for business and
investment in Uruguay.