Mercosur a new address for us investment

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2. TABLE OF CONTENTS- INTR oD U CTI ON -1CHAPTERI. - THE NEW ECONOMIC DEVELOPMENT TRENDS IN LATIN AMERICA4CHAPTER 11.- A BRIEF HISTORY OF MERCOSUR. 8CHAPTER 111.- DESCRIPTION OF MERCOSUR INSTITUTIONS13CHAPTER IV. - THE INTEGRATION OF POLICIES 17CHAPTER V. - THE ATTRACTIVENESS OF MERCOSUR FOR US. INVESTORS 21- CO N CL USI O N -27 3. INTRODUCTIONThe dominant economic trend of the 1990s is the division of the worldinto regional trading blocs.l/ According to a study published by theInternational Monetary Found (IMF), there are current1y 10 regionalagreements between European countries, 11 of such agreements in theAmericas, 8 in Africa and 5 in Asia and the Middle East. 2./This paper will describe what is perhaps the most ambitious effort ofeconomic integration in the Americas: the Common Market of the SouthernCone (flMercosurfl).Mercosur was originally intended to be a bilateralregional trading agreement between Argentina and Brazil that would beestablished within the context of the Latin American Integration Association .(ALADI)~/ system.:l/ Today, Mercosur has evolved and continues to evolveas a regional common market between four countries: Argentina, Brazil,Paraguay and Uruguay.Currently, there are many different types of trading areas in theworld.,2/ However, what is exceptional about Mercosur is the fact that it1 Over the last twenty years the world trading system has increasingly moved toward regionaltrading blocs. This evolution is part of a recognizable trend: as nations move toward market-oriented systems, volumes of trade increase. As volumes of trade increase, pressure to removetrade barriers increases. Jeffery E. Garten, American Trade Law in a Changing World Economy,29 Intl Law. 15, 26 (1995).2 Jacob Paulo Kunzler et al., Mercosul e o Mercado Internacional, Sao Paulo, Ortiz, 99 (1995).3 Ten Nations of South America and Mexico signed in August 1980, the Treaty of Montevideo,creating the Latin American Integration Association (ALADI),to replace the Latin AmericanFree Trade Association (ALALC). "The Montevideo Treatys main purpose is to promoteregional and sub regional partial tariff preference agreements as a means to eventualmultilateral of mutual concessions. James R. Holbein et al., Trade Agreements and DisputeSettlement Mechanisms in the Western Hemisphere, 25 Case W. Res. J. Intl L. 531 (1993).4 Keneth W. Abbott et al., Economic Integration in the Americas: A work in Progress, 14 NW. J.Intl L. & Bus. 493, 498 (1994).5 Trading blocs are defined as preferential economic arrangements between two or more countries.These arrangements may have 6 different grades of integration:a) Preferential trade arrangement: trade preferences in the form of freer access to the market.(e.g. Caribbean Basin Initiative).b) Free trade area: the tariffs between the members are eliminated, however non-members are 4. canstitutes the first concrete effort to establish a full fledged integrated marketin the Americas. Neither the North American Free Trade Agreement(NAFTA)-/, nor other trade arrangements in Central and South Americaachieved such a leveI af integratian.As with Mercasur and NAFTA, many ather arrangements are in theoffing as regional interests come to the forefront of international relations andthe five major trade pacts of Latin America are at various stages of development.Z/ Hawever, nane af these arrangements compares withMercosur in its potential impact on international trade. The four Mercosurmember cauntries - Argentina, Brazil, Paraguay and Uruguay plus Chilecansists af: nearly 210 million consumers; a grass domestic product (GDP) aftaxed by the tariffs rates of each states tariff structure. (e.g. United States-Canada Free TradeAgreement conc1uded in 1988).c) Customs union: The members liberalize trade among themselves and erect a common tariffwall (Common External Tariff - CET) against non-members states. (e.g. The 1969 South AfricanCustoms Union).d) Common market: The members remove restrictions on the internal movement of the means ofproduction. (e.g. The European Union of today).e) Economic union: is a common market with unified fiscal, monetary and social policy. Itcombines all the features of a common market and adds harmonization of the differentmacroeconomic policies of all different member states.f) Total economic integration, presupposes the unification of monetary, fiscal and socialpolicies and requires the establishment of a supranational authority whose decisions arebinding on all the member states. See Thomas Andrew OKeefe, An Assessment of Mereosur sPresent Legal Framework and institutions and How They Affeet Mereosurs Chanees of Sueeess,6-AUT Intl L. Practicum 14, 38 (1993).6 North American Free Trade Agreement, Dec. 8 and 17, 1992, Can.-Mex.-U.5., 32 LL.M. 296, 32LL.M. 605 (hereinafter NAPTA).7 The so-called G-3 Agreement between Mexico, Colombia and Venezuela creates the secondlargest free trade are a in the region. "Colombia and Venezuela have been in a customs unionsince 1992, and along with Bolivia and Ecuador form the Andean Free trade Zone, under theAndean Pact, which recently established a common external tariff. The five Spanish-speakingcountries of Central America (with the exception of Panama) have revitalized the CentralAmerican Common Market and are seeking, as a group and individually, bilateral free tradeagreements with Mexico, Colombia and Venezuela. The Caribbean Common Market(CARICOM), established in 1973 and comprising the English-speaking Caribbean countries, istaking further steps to lower its common external tariff and further liberalize inter markettrade. CARICOM is also seeking free trade agreements with Mexico, Colombia and Venezuela.Garten supra note 1, at 26.2 5. $800 billion (in 1993); a per capita income of $3,500;and representing 55percent of the Latin American market. In 1994, the global imports of the fivecountries were $65 billion, of which around 30 percent were capital gaadsJUMercosur represents the fourth largest economic area, after NAFTA, theEU and Japan. Its market is bigger than Russia. All af its members have putin place market-oriented economic policies and have opened their markets toforeign trade and investments. Most of their public enterprises have beenprivatized in recent years or expect to be privatized in near future. AIso,Mercosurs members are committed to the new World Trade Organization(WTO). Freedom and democracy are today well established in this region andnobody can seriously complain about the performance of these countries inthe human rights field. The changes in the economic policies of the Southern Cone countriescoincide with a renewed US. interest in increasing exports and investment inthis region. In addition to EU~/ and NAFTA countries, Latin Americacountries are of prime importance to the US. Securing markets in LatinAmerica have been considered as a priority for US. investors10/ and since1988 the region has experienced a tremendous growth in imports from theUS. In 1993 for example, U.S. exports ta the region reached almast $80 billion.By the end of 1995 it is expected that US. exports to Latin American countries8 Felix Pena, New Approaches to Economic Integration in the Southern Cone, 18 Wash.L.Q.(1995).9 The rnernbers of the European Union are: Gerrnany, Belgiurn, Denrnark, Spain, France, Greece,Ireland, Italy, Luxernbourg, Portugal, Holland, United Kingdorn, Austria, Finland and Sweden.10 Prepared Staternent of Barbara Urzua Executive Vice President - Arnerican Charnber ofCornrnerce in Chile (AMCHAM - Chile), Hearing of Accession of Chile to the North ArnericanFree Trade Agreernent, The House ways and rneans, Cornrnittee Trade subcornrnittee- UnitedStates House of Representatives, June 21, 1995.3 6. will reach dose to US$ 100 billion.ll/ The recent political and economical developments achieved byMercosur countries will provide a unique opportunity for American investorsas will be discussed later in this paper. The first chapter will examine theeconomic development trends in Latin America. The second through fourthchapters will present a brief history of Mercosur, a description of itsinstitutions, and its main policies. In the last chapter, analysis of the currentimportance of Mercosur members for U.s. investors as well as if Mercosursrules will accelerate incentives for U.S. investment.CHAPTER I - ECONOMIC DEVELOPMENT TRENDS IN LATINAMERICA Thirty years ago, Latin America was largely rural, with widespreadilliteracy,12/ For almost 30 years, import substitution policies dominatedeconomic growth strategies throughout Latin America,13/ These policies wereseen as the only road to industrialization.After all, import substitution wasviewed as the only path to development. The basic premise behind the policy of import substitution was the protection of "infant" industries from foreign11 Ursula M. Odiaga, Recent Trade and investment Initiatives in Latin America and Caribbean,Prac. Law. Inst. CorpoLaw. 69 (1994).12 Howard J. Wiarda, The Future of Political Reform in the Southern Cone: Can Democracy be18 Wash. L. Q. 89 (1995).Sustained?,13 "Under these import substitution policies, alI types of vested interests preferred the higherrents generated by protected markets, rather than to subject themselves to the risks associatedwith foreign competition. The result was the fostering of unproductive industries which wereunable to compete in the world economy." Emilio Cardenas, The Regional Approach toHemispheric Integration: a modular road towards free trade, ISW. J. Trade Am. 49, 51 (1994).See also Joseph Grunward, The Rocky Road Toward Hemispheric Economic Integration: ARegional Background with Attention to the Future, in The Enterprise for the AmericasInitiative: Issues and Prospects for a Free Trade Agreement in the Westem Hemisphere, Roy E.Green ed., 123 (1992). 4 7. competition, while concurrently promoting self-sufficiency for the localdemand.l4/Furthermore, state intervention in the economy was sustained bynationalistic policies in vogue in Latin America during that period. Forinstance, foreign investors property was expropriated; in some cases withoutcompensation. Such activities discouraged foreign investment andcontributed to the classification of Latin America as a high risk market.After dramatic economic declines and severe debt burdens experiencedby most Latin American countries in the first half of the 1980s, thesegovernment carne to the conclusion that replacing the import substitutionpolicies with free market economic policies15/ was preferable. These changeswere implemented by many of the democratically elected governments thatcarne to power in Latin America in the end of 1980s.Presently, with a doubled per-capita income, increasedindustrialization, and more diversified economies, Latin America is in theprocess of rapid transition to modernization.l6/ In the last few decades,beginning in the mid 1980s, Latin American countries have changed towardmarket-oriented economies, free trade, and democratically-elected civilian governments17/. These factors contributed to the region becoming one of the14 Cardenas, supra note 13, at 50.15 lhe four countries of Mercosur choose as a development model, a model of open economies andtheir insertions in the international economy, as part of a process of transforming their forme rimport substitution model. Export activities and import competition are now importantinstruments for the development and the stabilization of their economies - Vera lhorstensen,Commercial Defence Policy and its Instruments- A compara tive analysis of US and ECexperiences with anti-dumping,countervailingmeasures and safeguards as a frame of referenceto the development af Mercasul Policy , Inter-American Development Bank; First Draft (1995).16 Wiarda, supra note 12, at 89.17 Willian R. Long, Regional Outlook Look out, Nafta! Latin Trade Bloc is Growing. The FourNation Mercosur is Llrger than Europe and Boasts two Economic Powerhouses: Brazil andArgentina, L.A. Times, Jan. 24, 1995.5 8. fastest growing markets in the world.Extensive economic and political modernization programs developedthe necessary frameworkto enable open and competitive economies toflourish. 18/ The role of the state was radically revised. This contributedto theadoption of different economic guides: an economy open to internationalcompetition,liberalization of trade; and the privatizationof the state-ownedenterprises.Clearly, direct state interventionin the actual production of goodsand services is fading away in most sectors of Latin American economies.l9/As a result of these dramatic economic and political changes of the last decade,Latin American countries, but mainly Southern Cone countries, started tostrongly support the notion of economic integration20/ and politicalcooperation.The Mexican peso crisis of December 1994 harmed the economies of theentire region. However, as pointed out by Bill Perry,21/ the effect of theMexican peso crisis on Southern Cone nations was minimal. In any case, thenegative implications of the Mexican peso on this region have been largely18 Cardenas, supra note 13, at 51.19 Cardenas, supra note 13, at 52.20 "Until the late 1950s, trade and other economic links were marginal. Then the idea ofpreferential trade relations was introduced. As a result, the Latin American Free TradeAssociation [ALALC] was established in 1960...[including ali South American countries andMexico.] ALALCs practical results were limited. The formal goal of a free trade zone was neverachieved, mainly because it was not compatible with the prevailing idea of importsubstitution ... In 1980 ALALC was transformed into the Latin American Integration Association[ALADI] ... Within this [ALADI] framework, Mercosur, the Andean Group, the Group of 3(Mexico, Venezuela and Colombia), the Chile-Mexico Free Trade Agreement, and many othermostly bilateral agreements were concluded." Pena, supra note 18, at 89.21 Bill Perry is the director of the Institute of the Americas and advisor to former presidentsRonald Reagan and George Bush. 6 9. overcome.22/ Today, Latin American countries are making a serious commitment to economic liberalization and regional integration based on the free flow of goods and capita1.23/ The new economic policies adopted by Latin American countries have created attractive investment opportunities for foreign investors. Also, they have increased trade flows through the region. In 1990s, Latin America absorbed 80 percent of the total direct investment that flowed into developing countries. In 1991, accumulated foreign investment in Latin America reached US $ 36 billion.24/ These figure confirmed the confidence of international investors in the Latin American countries. According to the US. Department of Commerce, by the year 2010, U.S. exports to the region will exceed exports to Europe and Japan combined.25/ The economic importance of Latin America in the current world economy is undeniable. Among the countries in the region, Mercosur members are the most important. After all, these nations account for 3522 Sergio Jellinek, United States: Integration with Latin America A Good Deal, 6/29/95 InterPress Servo 1995 WL 2262066.23 Major Latin American Trade Agreements*Bloc Pop GNPIntragroup %Imports%Exports (millions)Trade From u.s.Andean Pact 97$142 $2.94 36% 41%Group of Three 141$406 $2.37 62% 67%LAIA 395$1,162$22.72 45% 43%Mercosur 198 $676$9.35 23% 17%NAFTA372$6,960 $296.57 67% 80%Note: Populations are listed in millions.GNP, intragroup trade, imports and exports are in billions of D.S. dollars.* Source: Export Today April1995. 24 Kunzler, supra note 2, at 148. 25 Urzua, Supra note 10. 7 10. percent of the Latin American market.26/Current discussions regarding the possible expansion of Mercosur toinc1ude Chile and Venezuela increase the attractiveness of this trading bloc forforeign investors. In order to analyze the importance for foreign investors inlooking for investment opportunities n Mercosur, I will present the historicalbackground for the creation of Mercosur and its current institutional designand operation.CHAPTER 11- A BRIEF HISTORY OF MERCOSURSince its inception under the Treaty of Asuncion,27/ the members ofthe Southern Common Market (Mercosur) - Argentina, Brazil, Paraguay andUruguay have worked towards greater economic integration. The currentformation of Mercosur was spawned from trade negotiations betweenArgentina and Brazil initiated in 1984 and culminated in 1985 with thesigning of the Declaration of Iguau.28/ The Declaration formed a bilateralcommission for cooperation in the economic integration of Argentina andBrazil. In 1986 Argentine-Brazilian Program for Integration and EconomicCooperation (better known by its Spanish acronym PICAB) was formed,29/This accord established open trade between both countries and its 12 Protocolsmay be considered as the "embryo" of Mercosur.26 Abbot, supra note 4, at 499.27 Treaty of Asuncion, Mar 26, 1991, Arg.-Braz.-Para.-Uru., 30 LL.M. 1041.28 Argentine-Brazilian Iguazu Act, Nov. 30, 1985, Arg.-Braz.29 The primary goal of PICAB was to increase bilateral trade and thereby improve eachcountrys respective economy and insure the political stability of the two new democraticregimes recently emerged from years of harsh military rule. 8 11. In order to expand trade between Argentina and Brazil the Treaty ofIntegration and Economic Cooperation 30/ was signed in 1988. This treatyproposed the creation of a common market between these countries by theyear 2,000. However, in 1990s,so as to accelerate trade integration betweenthese countries, Carlos Menem, the President of Argentina, and FernandoCollor de MeIo, then president of Brazil, agreed to establish a bilateralcommon market with free movement of capital, services, and workers as ofDecember 31, 1994.31/ Paraguay and Uruguay, fearing that they would be denied entrance intoa common market between two of their largest trading partners, negotiatedtheir accession by signing the Treaty of Asuncion. The Treaty of Asuncion)Ucreated Mercosur. The goals of Mercosur are defined in the first article of theTreaty. Mercosurs objectives do more than simply discuss tariff preference agreements characteristic of other prior Latin American integration schemes.33/ Rather, Mercosurs aims are: to eliminate barriers to the30 In 1988 the them President of Brazil Jose Sarney and Argentinean President Raul Alfonsinsigned the Treaty of Integration and Economic Cooperation (the "1988 Treaty").31 The general guidelines for this bilateral accord were included in ALADI EconomicComplementary Accord No. 14 (ACE No. 14), signed in December 1990s. See generally BerveryM. Carl, The New Approach to Latin American Integration and Its Significance to Priva teInvestors, 2 ICSID (World Bank): F. Inv. L.J., 225 (1987).32 Which was later incorporated into the ALADI framework as ACE No. 18 in November 1991.Is important to emphasize that the Treaty does not supersede the bilateral accord betweenArgentina and Brazil (incorporated in ALADI framework as ACE No. 14). The Article 8 of theTreaty, the signatory states specifically preserve their obligations under any previous ALADIagreement, which means that Argentina and Brazil retain the right to continue with theMercosur process under ACE No. 14, should the Treaty prove unworkable. See Thomas AndrewOKeefe, An Analysis of the Mercosur Economic Integration Project From a Legal Perspective, 28Intl Law. 439, 440 (1994).33 "The economic integration of Latin America, or of South America alone, has been a powerfulconcept, even an ideal, for many years. This ideal inspired the formation of ALALC in 1960, andit is the explicitly stated goal of ALALCs successor ALADI today. As amended in 1967, theCharter of OAS (Organization of American States) contains a commitment to accelerate theintegration process, with a view to establishing a Latin American common market in the 9 12. movement of services, capital and workers; coordinate macroeconomic andsectoral policies, including fiscal, monetary and exchange rate regimes; andharmonize national economic legislation directed towards the expansion ofinvestment, the liberalization of capital movements, and the improvement ofMercosurs international competitiveness.34/In order to ease the brunt of the process of creating a customs union, theTreaty established a transition period from November 29, 1991 throughDecember 31, 1994. During this period, Mercosur members countries wereexpected to: eliminate completely tariff and non-tariff barriers amongthemselves35/; establish a common external tariff (CET)36/;and coordinatemacroeconomic policies. Also, by the end of this transition period, theshortest possible period. Abbott, supra note 4, at 515."The OAS Charter, primarily a codification and consolidation of the Inter American systemthat existed from the previous half century, was based on the desire to enhance mutual securityin the region and to preserve the Inter American system, which was in danger of beingovershadowed by the United Nations." Charter of the Organization of American States, Apr.30, 1948,2 U.S.T. 2394, 119 U.N.T.S. 4. cited in Paul A. O Hop Jr. , Hemispheric Integration andthe Elimination of Legal Obstacles under a Nafta-based system, 36 Harv. Intl L.J. 127, 1995.34 Treaty of Asuncion, supra note 27, art. 1.35 "The timetable for gradually eliminating inter regional tariffs to zero by the end of thetransition period are found in Annex No. 1 to the Treaty. Certain goods exempt from this generaltariff reduction schedule are included in speciallists that must be annually reduced by 20percent as to be completely eliminated by December 31,1994. Because Paraguay and Uruguayjoined Mercosur approximately one year after ACE No. 14 took effect, those nations are givenanother year to totally eliminate their lists." OKeefe, supra note 32, at 441.Mercosurs almost complete elimination of reciprocal trade barriers is a success. Since January 1995 around 90 percent of trade between Argentina and Brazil has been zero-tariff, including agricultural products. See Pena, supra note 8, at 89.Also, during the transition period, Annex IV to the Treaty permitted a member to imposequantitative restrictions on imports from another Mercosur country whenever a sudden surge inimports would substantially harm or threaten to harm the importing countrys economy. Thelanguage in Annex IV makes clear, however, that a quota cannot be imposed when the import surge is due to the exporters use of better technology or is the result of a shift in consumerpreference. The sudden increase must be due to disloyal trading practice such as subsidized exports or dumping. The quota can only be imposed for a maximum of one year, although it maybe extended continuously but not intermittently. OKeefe, supra note 32, at 442.36 A COffiffionexternal tariff was implemented in January 1995. However, some sectors such ascapital goods, chemicals and informatics have an additional period of 5 to 10 years for theimplementation of the common external tariff.10 13. harmonization of conflicting national legislation was expected to becompleted.Two major Mercosur protocols have been signed since theestablishment of the Treaty of Asuncion. For example, on December 1991, thepresidents of the four Mercosur member countries signed the Protocol ofBrasilia,37/ which delineates the definitive rules for resolving disputes38/among the member countries with respect to interpretation, application, andfailure to adhere to obligations arising under the Treaty of Asuncion anddecisions and resolutions of the Common Market Council and CommonMarket Group.39/Analogously, the Ouro Preto Protocol,4o/ signed in December 1994 bythe presidents of the four member countries complemented the Treaty ofAsuncion and re-defined the institutional profile of Mercosur.Mercosur successfully achieved its target of establishing a customsunion by January 1, 1995 with the reduction of tariff and non-tariff barriersamong the member countries and by modifying the CET.41/ However, the37 lhe Protocol was subsequent1y ratified by the legislatures of all Mercosurs member countriesand entered into force on April, 1993. Protocolo de Brasilia Para la Solucion de Controversias,Dec. 17, 1991, 6 Inter American Legal MateriaIs 1 (1992).38 lhe General Agreement on Tariffs and Trade (GATT) "provides the fundamental mechanismscommon to many nations in the Westem Hemisphere for resolving trade disputes and thereforeprovides the context or framework for comparisonwith Other trade agreements ... (...the primarydispute resolution under Mercosur remains negotiation and consultation but the addition of thenew avenues of referral to the Common Market Group ar to arbitration offer the possibility ofmore objective and efficient decisions ..." Holbein, supra note 3, at 531.39 OKeefe, supra note 5, at 30.40 Additional Protocol to Asuncion Treaty about the InstitutionalStructure of Mercosur (OuroPreto Protocol), Dec. 17, 1994, Arg.-Braz.-Para.-Uru.41 lhe only requirement the Treaty of Asuncion imposed was that the CET be low enough toencourage the competitivenessof MERCOSUR industries on the internationalmarket.InMontevideo on Dec. 28, 1992 the member countries agreed to a flexible pseudo CET, whereby eachcountry have to had an individual external tariff that does not exceed twenty percent in place11 14. lack of a supranational42/ authority in Mercosurs institutional bodies makesit difficult to aehieve the harmonization of rules neeessary to effectuateMercosurs goal as originally scheduled.43/ AIso, unilateral actions bymember nations sueh as Brazil, have made it impossible to coordinatemacroeconomic policies among the member eountries.44/ Consequently, what developed by Mercosurs original target date of1995, is a customs union with a modified CET,45/ instead of the commonmarket as expected. Nevertheless, Mereosurs record thus far is an enormoussuccess in view of Latin Americas previous attempts at integration.46/ Mereosur s sueeesses are several-fold: a dramatic inerease in intra-regional trade flOWS,47/ignificant job creation, and new business sby June 1993. Thought each member state is permitted to change a tariff of up to 35 percent on avery limited number of imports included in a speciallist of items. The member states mustwithin 6 years after January 1, 1995 begin reducing the tariff on these goods to under 20 percent.Id. at 40.42 See page 17, Chapter III.43 OKeefe, supra note 32, at 444.44 However, the implementation of the Real Plan in 1994 by the Brazilian governrnent and itssuccess, changed the mood quickly in favor of Mercosur for a while. The restrictive policiestaken by the Brazilian government against car imports affected again the mood of Mercosur.This development will be discussed later.45 "In August 1994, the member countries agreed on a common external tariff (CET) that is to takeeffect on January 1, 1995. In fact, the agreement calls for a modified form of CET, one that is lessthan fully "common". A cap will be placed on national tariff rates, several important itemswill be excluded from this cap for particular countries - the major issue has been Braziliantariffs on computers and telecommunications equipment - and extra item has been given to phasethese tariffs down to the standard cap." Abbot, supra note 4, at 500.46 Most of past attempts to establish a free trade zone never achieved their goals mainlybecause the prevailing idea of import substitution was not compatible with the idea ofintegration. Mercosur however, could achieve its goal sustained by the return of the democraticinstitutions and the opening of the economies to the international trade and investment, whichfurther stimulated the notion of working together in the Southern Cone.47 Trade between Argentina and Brazil has increased 200 percent in only 4 years, from US$ 4billion in 1990s to nearly $12 billion in 1994. Pena, supra note 8.Mercosurs combined gross domestic product in 1994 was about US$ 800 billion. Its total exportswere US$ 61.5 billion and its imports were US$ 56 billion. See Long, supra note 17.12 15. opportunities. Yet, a fully functioning customs union is expected to beachieved on1y after 1999 when alI the interna1 tariff and non-tariff barriers willbe eliminated.48/ The creationaf a common market is an even longer rangeproject, with fruition expected only after the year 2005.CHAPTER lU - DESCRIPTION OF MERCOSUR INSTITUTIONSThe Treaty of Asuncion created two institutions to oversee theadministration and implementation process of Mercosur during thetransition period:49/ the Common Market Council (CMC) and the CommonMarket Group(GMC).51!/ The CMC is the more powerful of the two bodies.The CMC consists of the Ministers of Foreign Relations and Economics of eachmember state.51j Meanwhile, the GMC is ma de up of representatives frameach member state s Ministries of Foreign Relations, Economy (or itsequivalent responsible for Industrial Policy, Foreign Commerce, or economic48 Mercosur has its own rules of origin which stipulate the minimum regional content necessaryfor a good to qualify for duty free treatment. As a general rule, these guidelines (found in AnnexII of the Treaty of Asuncion) determine that goods made of inputs originating outside the regioncan only receive duty free treatment if: a) the value added in one of the four countries wasenough to change its position in ALADIs tariff schedule, or b) the inputs originating outside theregion do not constitute more than 50 percent of the final goods export value (FOB). TheMercosur rules of origin are rather liberal when compared to other regional integration schemes.For example, in the NAFTA, passenger automobiles and light trucks will need 62.5 NorthAmerican content in order to qualify for preferential tariff treatment when the NAFTAs rule oforigin are fully planed in. OKeefe, supra note 32, at 444.49 Treaty of Asuncion, supra note 27, art. 9.50 The Common Market Council is an executive body that supervises the implementation andoperation of the agreement. Its main responsibility is to ensure that the Mercosur project isimplemented on schedule. The Common Market Group oversees the operation of 10 workingsubgroups on trade, regulatory, and macroeconoffic issues between the countries. Three newworking subgroups were added in December of 1991 dealing with labor relations, education andtourism. The Group is also the Mercosur body to which a country petitions for authorization toimpose a temporary import restriction.51 The administra tive secretariat of the CMC is located in Montevideo, Uruguay. Thesecretariat coordinates meetings, issues press releases, and handles public relations. Ouro PretoProtocol, supra note 40, art. 3 through 9.13 16. coordination), and Central Bank.52j The fact that the CMC and GMC have, as representatives, individuaIsthat are involved in setting foreign and economic policy in each country,helps to guarantee that Mercosur will continue to play an important role forthe achievement of wider policy goals. This can be considered the mostsignificant difference from previous Latin American economic integrationprojects where the institutional bodies were controlled by bureaucrats whosework soon became irrelevant to the policies actually being pursued by theirhome countries.53/Another important feature of Mercosur is the emphasisplaced on private sector participation. Artide 14 of the Treaty expresslyauthorizes the GMC to invite private sector representatives to devise andpropose concrete measures to further the integration processo This measuredemonstrates the recognition in Mercosur of the crucial role that the privatesector plays in insuring the success of any type of integration project. The nega tive features of the CMC and GMC is the lack of any realauthority to enable the achievement of the harmonization of laws54/necessary to create a true common market. This stems from the fact that anydecision adopted by CMC or GMC must be ratified by each member state srespective legislature. The Ouro Preto Protocol re-defined the administrative bodies, andterminated the working subgroups. In their place, it created Commissions52Ouro Preto Protocol, Id. art. 10through 15.53 OKeefe, supra note 32, at 44.54 The legal sources of Mercosur are: (i) The Treaty of Asuncion, its protocols and otheradditional or complementary instruments; (ii) Agreements celebrated in accordance with theTreaty of Asuncion and its protocols; (iii) decisions of CMC, resolutions of GMC and directives ofCCM adopted since the enforcement of Treaty of Asuncion.14 17. which have not yet been installed. However, CMC and the GMC are still thehighest administrative bodies. An important change introduced by the OuroPreto Protocol, is the empowerment of Mercosur to act on behalf of membercountries in trade negotiations with other countries or groups of countries.This change helps to expedite negotiations and guarantee a higher degree ofharmonization of decisions as a real integrated bloc.55/ The CMC is theadministrative institution with authority to fully exercise the judicialpersonality of Mercosur.The Commissions created by the Ouro Preto Protocol are several fold.First, the Commission of Trade of Mercosur s (CCM) responsibility is to assistthe GMC. The CCM guarantees the application of the common commercialpolitical measures accorded by the member countries in arder to effectuate thecustom union. AIso, the CCM is charged with following-up and revising thetopics and subjects related to common commercial politics between themembers of Mercosur and third countries. 56/ Second, the JointParliamentary Commission (CPC) is the representative institution of theParliaments of member countries in Mercosur. The members of the CPC areselected by the respective national Parliaments, in accardance with theirinternal procedures. 57/ Third, the Social Economic Consultive Forum (FCES)is the representa tive institution of the economic and social sectars. The FCES55 The article 34 of the Ouro Preto Protocol determines: "The Mercosur will have judicialpersonality of International Law". This will allow Mercosur to negotiate trade agreements as anunified entity with other countries or group of countries. This implies a new experience forMercosur, because its members need to reach a higher degree of internal coordination to negotiatewith non member countries. Pena, supra note 8, at 89.56 Ouro Preto Protocol, supra note 40, art. 16 through 21.57 Id. art. 22 thrbugh 27.15 18. will be camprised af the same number af representatives fram each membercountry. FCES will have a consultive function and will makepronouncements upon request of GMC. It has not yet been establishedbecause of parliamentary delay. 5.8./ Fourth, the Administrative Secretary ofMercosur (SAM) will have one Administrative Secretariat as an operationalsupport institute. SAM will be responsible for providing administrativeservices to other institutions of Mercosur and will have permanentheadquarters in Montevideo. 59/Mercosur does not have its own court to solve disputes arising amongmember countries. Rather, state parties to a dispute have to enter in to directnegotiations before they refer their dispute to the GMC. The GMC has torender a decision within thirty days.60/ If a decision is not reached, then thematter is referred to a three-member arbitration panel, which has to render ajudgement within ninety days. The arbitration panels decision is notappealable. Also, since the panels decision is confidential it is difficult toestablish a body of Mercosur law which could provide precedential value forfuture disputes. AIso, Mercosurs rule of not allowing dissenting opinions toa judgement goes against the standard practice of arbitration clauses found inother international treaties. 61/Meanwhile, individuaIs may file a camplaint with the National Sectionof the GMC against a member state. If the complaint is not resolved within58 28 through 30.59 Id. art. 31 through 33.60 Protocol of Brasilia, supra note 33.61 OKeefe, supra note 5 at 40. 16 19. fifteen days, it is then referred to the full GMC. The full GMC has thirty daysto resolve the complaint. However, individuaIs have no further recoursebeyond the GMC unless a state party a:dopts the individuals complaint andrequests arbitration. Furthermore, individuaIs may not direct1y challenge astates failure to adhere to ts obligations under Mercosur. This particularlimitation contrasts with the situation in the European Union (EU). In theEU, individuaIs who meet the standing requirements can directly challenge astates failure to adhere to obligation arising under the Treaty of Rome. Mercosur needs to develop stronger and well defined institutions tobetter adjudicate the interests of each member countries. AIso, since there areno supranational consequences arising from Mercosur s jurdical andinstitutional safeguards, (neither at the decision-making stage nor at theenforcement stage of integrative measures) member states consent is essentialto validate both the enactment and the enforcement of Mercosur legislation.In order to ensure that the regional rules are correctly observed, Mercosurneeds to create a supranational machinery like the European Court of Justice.Such an institution would make the community law enforceable overnationallegislation.As a result, there will be more confidence amongMercosur members.62jCHAPTER IV - THE INTEGRA TION OF POLICIES As widely recognized, the Treaty of Asuncion was not conceived as afoundational framework but instead, its primarily purpose was only to62 See generally Ferrari, Marta Haines, A new madel af Latin American Ecanamic Integratian?,25 Case w. Res. J. Intl L. 413,427 (1993). 17 20. provide a preliminary legal framework for the organization of the commonmarket.6.3./ mong Argentina, Brazil, Paraguay and Uruguay. aAs prescribed in its provisions, the Treaty is a temporary agreement. Itis not intended to explain the rationale for the coordination of nationaleconomic policies, sectorial agreements, and the harmonization of nationallegislation.64/Furthermore, the Treaty prescribed precise mechanismsdevoted to the freedom of interstate goods circulation. Yet, it failed to specifythe tools to establish the common market.The compulsory character of the measures adopted for theimplementation of a free trade area implied the obligation of membercountries under internationallaw to adjust their domestic legislation andguarantee its enforcement. However, for the implementation of a commonmarket, Mercosur members have to: negotiate the content and modalities ofpending aspects essential to attaining the common market; sign new agreements complementary to the Treatys65/ text; and obtain parliamentary approval for their juridical validation.The early phase of integration, which was a complete success, created acustoms uni~n since Mercosur countries resolved initial disputes over the63 The achievement of the common market envisioned by the Treaty of Asuncion will result in:(i) Free circulation of goods, services and production factors within the territories of the fourcountries involved, to be achieved by the elimination of tariffs and non-tariff barriers; (ii)establishment of a common external tariff; (iii) coordination of macro-economic policies amongthe member states and (iv) the harmonization of the countries respective internal regulations.64 Ferrari, supra note 62, at 440.65 By analyzing the Mercosurs legal structure, it is important to emphasize that neither ACE14 nor the Treaty of Asuncion established the necessary legal rules of a functioning commonmarket. Instead, both agreements merely lay down the general, broad guidelines forestablishing such a common market, and leave the specifics to later agreements tobe signed bythe member states.18 21. CET.66/ Subsequently, they were able to accommodate divergent economicconditions of the four member countries (e.g., by setting an extendedtimetables for each member countries67/ to comply with eventualconvergence). These efforts emphasized the interests and strongcommitments of the Mercosur s leaders to liberalize trade as quick aspossible.68/Regardless of this initial success of implementing a customs union, therecent action by Brazil sparked a trade dispute by creating barriers to autoexports from Argentina, raised some doubts with regard to the realachievement of Mercosur.69/Hopefully, this temporary setback will notpermanently reverse the steps taken thus far by its members. In addition, it66 "Although the member states were able to agree on CET levels for four-fifths of theirproducts, the remaining products have proven to be more problematic. For example, Argentina,which is anxious to modernize its infrastructure, has been negotiating for low duties on importedcomputers and capital equipment, but Brazil has been reluctant to lower barriers protecting itsown industries in these fields." OHop Jr., supra note 33, at 127. However, those sensitive areassuch as capital goods and information technology will be gradually phased in and should becompleted between 2001 and 2006.67 "First of all, every country submitted by October 1994, a list of exceptions to the CET; up to 300items for Argentina, Brazil and Uruguay and up to 400 items for Paraguay. With regard tocapital goods, there was an agreement on an external tariff of 14 percent by the end of thetransition period. This represents a compromise between Argentina, which favored a lowertariff and Brazil, which advocated more external protection for its capital goods industries.Paraguay and Uruguay will not adopt this tariff until2006. The common external tariff forcomputer equipment will be reduced up to 16 percent by 2006. At this juncture both for computersand capital goods there is not as yet agreement on the calendar for convergence of tariffs onlevels agreed to for CET. Finally, intra regional tariffs on "sensitive products" will continue inforce for a transition period of four years. The details for this as well as for the convergenceprocedures on the exception items have to be worked out by October 31." Arturo Vera, FinancingInfrastructure and Other Investment Projects in Mercosur, Interamerican Development Bank,Integration, Trade and Hemispheric Issues Division, 1994.68 Mercosur became free trade zone far in advance of NAFTA timetable.69 The Brazilian Government imposed limits on car imports for the rest of the year. Brazil isseeking with this measure, widening trade deficit, which has swung from a large surplus sinceeconomic stability measures known as Real Plano This tension is a result of several issues,however, the main problem was that Argentina has been commonly preferred to Brazil asmanufacturing location since the move to free trade between the countries began last year,because of the more stable politic and economic environment and a more favorable legislation forthe car manufactures. Matthew Doman Afr, Brazil, Argentina Car dispute Threatens TradeGroup, Australian Financial Review, June 23, 1995. 19 22. may be considered as just one action occurring during an economicadjustment period. More specifically, a time when member countries workedto maintain stable economies70/ and protect their divergent interests.Mercosur member countries should not forget that a customs unionmeans more than removing barriers, harmonizing regulatory policies, andeliminating cross-border trade and investment restrictions. It also leads to theadoption of a sound macro-economic policies as well as the implementationof comprehensive and well functioning integration structure. In addition, theleaders of the member countries should remember that the immediate firstpriority should be the consolidation of what has been achieved.71/Furthermore, a continuous and hard political and economic coordinationamong the regional partners is essential to complete its task in becoming acommon market. However, despite the intensive work of alI four membercountries to identify and eliminate the obstacles to inter-regional trade,72/much still has to be done before Mercosur fully meets its goal of becoming acommon market.Presently, under Mercosur, free trade is in place for goods. AIso, steps70 In March, 1995, the Brazilian Government raised the tariff on 109 products. PresidentCardoso, declared that this measure is a "very temporary measure" only taken to keep the tradebalance in "equilibrium". The Bureau of national Affairs, Inc. , Coal Df Free Trade Area DfAmericas by 2005 is Feasible, Brazils Cardoso says, Daily Report for Executives April 24, 1995,1995 Der 78d22.71 In February, Brazil raised tariffs on imported automobiles from 20 percent to 32 percent andthen proceeded to raise levies on 109 imported consumer items by as much as 70 percent. In June,Brazil create barriers to auto exports from Argentina. These measures have been taken as aresponse to the recent increase of the Brazilian trade deficit. Nevertheless Mercosur adds a doseof credibility to South America for foreign investors as economic reforms take hold. Someobservers have said that this conflict could actually grease the wheels of Mercosur relations.72 Mercosur has the advantage that it can learn from the US and Europe experience. NAFTAand EC models are of great importance to Mercosur, not only as a basis to learn what type ofpolicy and how to construct a policy, but also to learn what should not be practiced to achievefaster the proposed goals.20 23. have been taken to liberalize capital movements and protect foreigninvestment. Yet, there is no sight of an agreement on either services or labor.AIso, numerous issues - - the development of a unified code of intel1ectualproperty, competition policy, consumer protection, harmonization of taxcodes, harmonization of monetary and exchange policies, regulation offoreign investments, incentives of exports, disloyal practice of inter-zone tradeand trade with third countries - - need to be addressed. However, the mainissue is to correct the current enormous differences in the legislation of allfour member countries. Among the laws that must be harmonized include:minimum wages and labor laws, as wel1 as policies on subsidized electricityand tax incentive for exporters. After all, disparities in such laws give onecountry unfair, non-market advantages over other nations.CHAPTER V - THE ATTRACTIVENESS OF MERCOSURFOR U.S.INVESTORS Indeed, the Latin American market is important for u.s. exporters,particularly for those selling manufactured goods.73/In 1993, U.s. exports toLatin America reached US$ 80 billion, twice as much as was exported to theregion in 1980.74/ In all of Latin America, the Mercosur region is attracting73 U.s. exports to Latin American Countries grew 30 percent more than in any other region lastyear. U.S. exports more products to Mexico than to Germany and France combined, and sells moreto Brazil than to China, while Venezuelan market provides more profits than Russias.J ellinek, supra note 22.74 The United States concentrates its direct investment in Westem Europe (47 percent), NorthAmerica, i.e., Canada and Mexico (18 percent together), and Latin America (10 percent). Gary C.Hufbauer et a1., Western Hemisphere Eeonomie Integration - Eeonomie and PolitiealDeterminations of U.S. Poliey, Inter-American Development Bank, 3 (1994).21 24. the greatest interest among foreign investors. With successfulmacroeconomic and political stabilization, Mercosur provides the most stableand favorable environment for foreign investors. If Chile accedes toMercosur, this regions economic importance will increase further.75jAIso,Venezuela is expected to join Mercosur from January 1, 1996.761Noteworthy, foreign771 and inter-regional~1 investment is rising inthe region. In addition to multiplying business opportunities in all fourcountries, because of the enlarged market size, the Mercosur initiative hasopened enormous investment opportunities in transportation infrastructure,energy, and in manufacturing.79175 At the meeting held in Ouro Preto, Chile and Bolivia formalized their intention to join theMercosur. Chile will most probably enter in 1995, either as a full member or as a special partnerthrough some king of association agreement."Santiago 12th May: Chilean Economy MinisterAlvaro Garica stated today that by the end of June Chile and the Common Market of the South(Mercosur) will exchange lists of sensitive and exceptional products, based upon which theywill begin the stage of free trade negotiations."Economy minister explains negotiations withmercosur, Source: EFE news agency, Madrid, May 23, 1995." A Chilean diplomat here said on June 1 that Santiago was on target to sign a "good associationagreement" with Mercosur before the end of 1995, and that the only thing standing in the wayfor full membership of Mercosur was some outstanding changes to Chiles tax system." DebraPercival, Trade: EU Seeks Better Ties With Chile, Preferably Under Mercosur, InterpressService June 1, 1995.76 The projects that are moving the process of integration of Venezuela forward, are the sale ofelectricity to the north and northeastern regions of Brazil; the paving of highway in theAmazon jungle and a joint oil venture. The joint venture known as Petroamerica between the twostate-run oil companies Petrobras and Petroleos Venezoelanos (PDVSA) is projected to operateon an internationalleve1. The Venezuelan Senator Humberto Celli, gave speech pointing outthat Venezuelas entry into the Mercosur contributes to the basic aim of his institution: thebuilding of a Latin American community of nations. Integratian: Venezuela to jain Mercasul in1996, 5/18/95 Inter Press Servo 1995 WL 2261154.77 Multinational corporations in the motor industry are modifying their production lines in bothArgentina and Brazil, geared towards specialization in the wider Mercosur market. Vera, supranote 67, at 3.78 Brazilian firms have increased investment in the other Mercosur partners either through theestablishment of joint venture or the creation of subsidiaries. Vera, supra note 67, at 4.79 Such regional development projects, many af which are receiving financing fram themultilateral development banks, affer U.S. firms a variety af investment appartunities. Onelarge praject, along the Tiete-Parana waterway, will create a fluviallink between the faurMercosur countries and will provide a much cheaper means to shipping than the highway 22 25. The importance of Mercosur for the V.5. can be illustrated not only bythe amount of bilateral trade and investment,80/ but also by the fact that theV.5. is presently working on a possibility of a trade arrangement withMercosur.81/Mercosurs policy, has expanded greater efforts on external relations.The idea is to gradually extend the zero-tariff concept to other SouthAmerican partners within the ALADI framework.82j Another importantitem on the foreign relations agenda of Mercosur is the hemisphericdimension.83j The Mercosurs member countries give priority tohemispheric process with a strong relationship with NAFTA that hascompatible approach with Mercosur.84j Moreover, Mercosur and NAFTA .probably will be the two mam pillars of a hemispheric system of free tradesystem. Farming and agribusiness along the Tiete and Parana rivers are already notinginereased investments.80 Mereosur alone absorbs half of all US. exports in Latin Ameriea and reeeive almost two fifthsof US. direct investments. Vera, supra note 67 at 5.81 For US. investors, the involvement of the US. government in a trade integration withMereosur will give a further advantage in the negotiations of favorable rules.Among the issues upon whieh the presidents desired input are: (i) the means by whieh theUnited States and Brazil, individually and through their respective memberships in the NorthAmeriean Free Trade Agreement and Mercosur, ean jointly eontribute to attaining the FTAA-Free Trade Area of the Amerieas and to aehieving eonerete progress toward that goal by theyear 2000; and (ii) the potential for establishing links between NAFTA and MERCOSURrefleetive of linkages being established between other sub regional integration arrangementsand trading partners in the hemisphere. The Bureau of national Affairs, me., Coal of Free TradeArea of Americas by 2005 is Feasible, Brazils Cardoso says, Daily Report for Exeeutives April24,1995 -1995 Der 78d22.82 This idea originated in a Brazilian proposal for South Ameriean Free Trade Area. Theproposal was aeeepted by the Mereosur partners and negotiations are eurrently in progresso SeePena, supra note 8, at 89.83 Whieh is related to the follow-up of the Deeember, 1994 Miami Summit and to the eonfereneethat took plaee in Denver in June, 1995.84 Pena, supra note 8, at 86.23 26. and investment.85/Moreover, Europe is another a priority in Mercosurs foreign relationsagenda. After all, more than 25 percent of Mercosurs total trade is with theEuropean countries. Similarly, 70 percent of European direct foreigninvestment in Latin America is concentrated in Mercosur countries, mainlyin Argentina and Brazil. The EU-Mercosur framework agreement, negotiatedin 1995, and ultimately a transatlantic free trade area, should open the way forGATT-plus inter-regional agreements. 86/For companies already operating in the region, the Mercosur free tradezone enables firms to streamline operations and redirect production to themost cost-effective plants that can serve the entire market from one location.All things being equal, foreign investor new to the region would prefer theaccess afforded by a Mercosur member than a non-member.87/The creation of Mercosur brought other positive developments besidesincrease trade. With respect to capital movements and investment policies,additional opportunities were hastened.88/ Also, Mercosur adopted the BasleCommittee Guidelines,89/ an agreement which accelerated the coordination85 See generally, OHop Jr., supra note 36.86 The Center for Strategic and International Studies and the Massachusetts Institute ofTechnology The Washington Quarterly 1995 Summer - The Emerging Southern Cone; Vo118, No.3 - New Approaches to Economic Integration in the Southern Cone.87 OKeefe, supra note 33, at 23.88 e.g. the discussion of a floating exchange rate system aimed at narrowing exchangedisparities between Argentina and Brazil. By narrowing the exchange disparities, the foreigninvestors will be able to invest in a more stable market and will have means to project theirinvestments.89 Basle Committee of Banking Regulations and Supervisory Practices comprises representativesof the central banks and supervisory authorities of the Group of Ten countries (Belgium, Canada,France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, United Kingdom, UnitedStates and Luxembourg). The Committee meets at the Bank of International Settlements, Basle,Switzerland. July 1988. 24 27. of capital markets legislation. As a result of implementing this accord,domestic and foreign investors gained greater protection of theirinvestments.90/With the adoption of Protocol for the Promotion and Protection ofInvestment Originating from non-Mercosur Countries, by Mercosurscountries on August 1994, 91/ all member nations pledged to promote andfacilitate the entry of foreign investment in accordance with local laws.92/Also, under this accord each Mercosur country agreed to provide nationaltreatment to foreign investors.93/The removal of limits on foreign ownership as well as the easing of90 Vera, supra note 67, at 5.91 Types of foreign investment covered by this Protocol include: real esta te, mortgages, andbonds; participation in companies such as stocks; credit titles; intellectual property rights,including patents, industrial designs, trademarks technical procedures and know-how; economicconcession by law or by contract, including research, cultivation, extraction or exploration ofnatural resources; and income, including ali sums produced by an investment, such as profits,income, dividends, interest, royalties, etc. Brazilian Embassy in Washington, Fact sheet aboutMercosur.92 "In spite of important political and economic advances in Mercosur, and other integrationschemes, the legal framework has been left in another era" said Chilean lawyer and diplomatRaimundo Barros Charlin. 50, it is not clear whether the Calvo Doctrine has been implementedwith regard to foreign investments in Mercosur. As Barros Charlin added, " it is not clearwhether the legal conditions of the treaties have primacy over the individual nationallawsystems", even in the case of integration schemes like the Mercosur. Marcelo Jelen, LatinAmerica: Integration in Legal Limbo, 5/22/95, Inter Press Servo 1995 WL 2261237.93 Forms of protection for foreign capital under this Protocol include the following:Transferrals: transferrals of the foreign investment and its related income will becarried out without delay and in a freely convertible currency. Such transferrals include:capital and additional sums needed to maintain and develop investments; profits, income,interest, dividends and other current receipts; funds to repay loans; royalties; proceeds of sale orliquidation of an investment; indemnities payments; and payment to employees authorized towork with the foreign investment.Dispute Settlement: Disputes between a foreign investor and a Mercosur member statethat are not solved in an amicable way and within a reasonable time frame, may be brought tothe local courts of the country where the investment was made or to intemational arbitration(either an "ad hoc" arbitration court or an intemational arbitration institution). Arbitrationsettlements will be defined and executed by the mercosur member state in accordance with itslegislation.25 28. restrictions on profit and capital remittances is a future aim of Mercosur94/.Greater liberalization in many service sectors would be helpful as well.22/Furthermore, since the Mercosur formed its objective of a customsunion with GATT compatible rules, and its member have been active in theGATT Uruguay Round96/,Mercosur can offer foreign investors additionaladvantages of predictable rules.CONCLUSIONFull economic integration with free movement of capital and furthermacro-economic harmonizahon under Mercosur likely will occur in themedium to long termo Nevertheless, some important steps to ensure theestablishment of a common market have already taken place. In order toachieve complete integration, greater political commitment should bemaintained.Similarly, the economic growth and positive developments related tocapital movements and investment policies undertaken by the Mercosurcountries (by the adoption of the Basle Committee regulations and othermeasures to protect investors) contributed to the expansion of theinvestments in the region.Investing in Mercosur will not only ensure access to a significant94 Simonsen Associados, Mercosul O Desafio do Marketing de Integracao, 53 (1992).95 A country that significantly lags its neighbors in introducing investment reforms is Brazil.Constitutionallimitations on private sector participation in certain sectors, statutory limits onprofit and capital repatriation, performance requirements, and restricted access to local capitalmarkets are major barriers. Gary C. Hufbauer et al., Western Hemisphere Economic lntegration- Economic and Political Determinations of U.S. Policy , Inter-American Development Bank, 56(1994).96 Vera, supra note 67, at 4. 26 29. market, but also wiU facilitate access to other markets in the WesternHemisphere. After all, Mercosur is considered a building block forhemispheric integration. However, there is always the possibility that the some of the goals of theMercosur will never be fulfiUed. Alternatively, the whole initiative may fail.But, it would appear that the democratic and economic transformationsrecently taking hold in the Southern Cone, wiU continue to be a priority andreality. 27 30. Bibliography Abbott, Kenneth W. & Bowman, Gregory W., Economic Integration in theAmericas: A Work in Progress", 14 NW. J. Intl L. & Bus., 1994. /I Almeida, Paulo Roberto de, O Mercosul no Contexto Regional eInternacional, Politica Externa VoI. 2 No. 2 , 1993. 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