presentation mercosur - matthieu...

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Introduction

Presentation MERCOSUR

Presenters: Hsu, Yao Yuan, Andy Victor Schubert Wang, Cheng Wei, Franck Wong, Shun Chi, Simon

Instructor: Professor Matthieu Crozet

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Introduction

Brief Introduction Agenda

• Agreement Type • Agreement History • Members •  Important Policies • Organization Structure

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Introduction

Agreement Type

• Economic Union • Regional Trade Agreement

• Zero tariff between members • Common tariff towards other countries • Free trade • Fluid movement of goods, and people

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In the WTO, regional trade agreements

(RTAs) are defined as reciprocal trade agreements between two

or more partners. They include free trade agreements and customs unions.

Ø  Common Market Ø  Common product policies Ø  Fluid movement of goods, services Ø  Common external trade policy Ø  EU à Economic and monetary union

MERCOSUR

Introduction

Agreement History

Date Agreement Participants

1988 Argentina-Brazil Integration and Economics Cooperation Program or PICE

Argentina, Brazil

May, 1991 Treaty of Asunción – the establishment of Mercosur Argentina, Brazil, Paraguay, Uruguay

Dec, 1994 Treaty of Ouro Preto – the execution agreement of Mercosur Argentina, Brazil, Paraguay, Uruguay

Jan, 1995 Mercosur started Mercosur

Jun, 2006 Jul, 2012

Venezuela had signed a membership agreement Full membership for Venezuela became effective

Mercosur and Venezuela

Jul, 2015 Accepted Bolivia's request to become a full member country Mercosur and Bolivia

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Introduction

Members – 1988 – PICE

• Brazil’s President •  José Sarney

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• Argentina’s President • Raúl Alfonsín

Introduction

Members – 1995 – MERCOSUR

• Brazil

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• Argentina

• Paraguay • Uruguay

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Introduction

Members – 2012 – New Member

• Venezuela

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Introduction


• Bolivia

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Introduction


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Introduction

Important Policies

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Introduction

Free Tariff

• According to Treaty of Asunción • Between Members of Mercosur

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Date 3 0 J u n e 1991

3 1 D e c . 1991

3 0 J u n e 1992

3 1 D e c . 1992

3 0 J u n e 1993

3 1 D e c . 1993

3 0 J u n e 1994

3 1 D e c . 1994

Percentage T a r i f f Reduction

47 54 61 68 75 82 89 100

Introduction

Free Tariff

• While members can set some exceptions

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Argentina-Brazil Uruguay-Paraguay

Jan-1995 Initial Intrazone Tariff

Jan-1996 25% Initial Intrazone Tariff

Jan-1997 50% 25%

Jan-1998 75% 50%

Jan-1999 100% 75%

Jan-2000 100%

Items Exempted

Brazil 324

Argentina 394

Paraguay 439

Uruguay 960

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Introduction

MERCOSUR

Common External Tariff

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Member Member Zero Tariff

Other Countries

Same Tariff with Exceptions

Introduction

Educational Integration

• Educational courses excludes technical studies • Primary and Junior High • Recognized by all members àStudents can complete their study of primary or junior high in different

countries.

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Introduction

Organization Structure

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Common Market Council

Common Market Group

Administrative Office

Work Subgroups

Joint Parliamentary

Committee

Trade Commission

Situation Introduction

Situation

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Early Situation

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•  Trade within the bloc grew substantially, from $4 billion in 1990 to $14 billion in 1995.

•  Signed trade agreements with Chile, Bolivia, Israel, and Peru. Negotiated with the EU.

•  Disputes existed. Ex. 1999 great depreciation of BRL (Brazilian Real), 2001 Argentina financial crisis

•  Coordination of trade policies suspected. Ex. China – Mercosur trade

•  Big Ambitions: Turning Mercosur into a single market and issuing common currency


Early Situation

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“[Mercosur] is less about opening up but actually about protecting Brazilian and Argentine industries from global competition.” – Oliver Stuenkel

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Current Situation

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States Parties Area (km2)

Area (% of Mercosur)

Population (millions)

Population (% of Mercosur)

Argentina 2,791,810 21.8 42.0 14.7

Brazil 8,502,728 66.5 202.8 71.0

Paraguay 406,750 3.2 6.9 2.4

Uruguay 176,220 1.4 3.4 1.2

Venezuela 912,050 7.1 30.5 10.7

Territory •  Brazil is the country with

the largest territory inside the region.

•  Takes approximately 67% of the total area of South America.

Population •  The combination of

Mercosur population reaches 285.5 million.

•  Brazil with the highest population within the bloc.

Members •  Argentina, Paraguay,

Uruguay, Brazil, Venezuela as full members.

•  Bolivia turning to be the new full member from an associate member.


Current Situation (GDP)

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GDP Argentina Brazil Paraguay Uruguay Venezuela MERCOSUR

GDP (US$ billion)

540.2 2,353.0 29.7 55.1 205.8 3,184

GDP percapita (US$)

12,873 11,604 4,305 16,199 6,757 10,348

PPP GDP (US$ billion)

947.6 3,263.8 58.3 70.0 538.9 4,879

PPP GDP per-capita (US$)

22,582 16,096 8,449 20,556 17,695 17,076

Growth projection -0.31 -1.03 3.99 2.80 -7.00 ---

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Intra-trade

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•  Trade among Mercosur members was about $108 billion in 2015, approximately 3 times to that in 2000, but the it had dropped as the share of total members’ trade about 5%.

•  As shown in the graph, the intra-export proportion

of Mercosur was around 14%, while that of EU over 60%, ASEAN about 26%, NAFTA around 50%.

•  Generally, Mercosur has slightly increased its importance in world trade since 1995, with shares in world exports from 1.4% to 1.7%, but far from the original expectations.

Exporters 2010 2011 2012 2013 2014

Brazil 13.1 12.7 11.5 12.2 11.2

Argentina 27.3 26.9 27.3 28.1 27.2

Paraguay 44.6 43.6 49.3 40.4 40.2

Uruguay 35.8 34.2 32.2 30.8 29.0

Venezuela 2.7 2.6 2.4 2.2 2.3

MERCOSUR 15.1 14.5 13.7 14.3 13.6

Percentage of Intra-Export to Total Export (%)


Intra-trade

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•  The main exports intra-Mercosur are manufactures, while the main exports to the rest of the world are agricultural, fuels, and mining product.

•  Intra-trade has declined greatly, with exports decreasing by 13% and imports by 15%. This declination could be attributed to the macro trend, but intra-trades are declining faster than extra-trades.

•  Brazil and Argentina collectively contributed to about 80% of exports and 70% of imports.

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Extra-trade

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•  The main exports extra-Mercosur are agricultural, fuels, and mining product, which shows that countries in Mercosur still relies a lot on primary industries.

•  Brazil was trading more and more with China than with Mercosur, as the intra-trade within Mercosur isn’t

•  NAFTA negotiating with Mercosur to group into a bigger trade bloc. U.S. tends to sign FTAs with individuals but as a whole.

Victor’s Graph


Comparison

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Introduction

Problems

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•  Lag in integrating Mercosur countries to create value-added supply chains or regional production hubs.

•  Instability political situations of the members and the restriction from the Articles. Ex. Paraguay, Venezuela, left-winged parties

•  Conflicts between two major Mercosur members: Brazil and Argentina. Ex. Steel, computers

•  The influence of Mercosur mitigated by other international organizations.

Challenge I Situation Introduction

Challenges

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Political Instability

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•  Mercosur is still very susceptible to crisis that reflect volatile order in its main leading countries: Brazil and Argentina.

•  Lack of political and economic resilience of its members leads to a whole fragile system.

•  As a consequence, strong institutions that could reinforce commercial activities become less effective and significant.

Challenge I Situation Introduction 28

•  Recent Impeachment of Brazil’s President Dilma Rousseff due to allegations of corruption and poor government performance

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Nature of popular revolts in Brazil over time

Introduction 30

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Argentina’s Crisis Another classic example of balance of payments crisis

• Overvalued exchange rate • A generally large current account deficit • Rising debt (consumer, corporate and government debt) • Flat or Falling reserves • Economy became less competitive with vigent rate • Powerful labor unions made it unfeasible to cut production costs by

lowering wages


December 2001 Riots in Argentina

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Introduction 33


Some tables summarizing following months of the occurrence of the riots

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Protests against President Nicholas Maduro in Venezuela

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Introduction 36

“The inclusion of Venezuela in MERCOSUR is a factor that brings instability,” says Penna Filho. “From the political point of view, the situation becomes a bit more unstable, given the foreign policy of Chávez.” Although Hugo Chávez is no longer in government, Venezuela st

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Challenge II Challenge I Situation Introduction 38

•  The Variation of Relative price that makes a specific activity or sales in a specific market more attractive affects demand and supply in the short term and investments in the medium term. As with any other relative price, exchange rate variations can affect a country’s imports and exports.

•  When economic agents are risk averse, higher exchange rate volatility should affect trade negatively.

Currency Volatility

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Asymmetries Among the Members of Mercosur

• The Mercosur countries are very different in terms of their economic size and dimensions, population and size of their market. Taking into account GDP, population and territory, Uruguay and Paraguay are clearly the smallest Mercosur Members and they do not even represent even 5% of any of these variables, while Brazil represents 70%.


Custo Brasil

•  Literally means “Brazil cost”.

•  Refers to the increased operational costs associated with doing business in Brazil.

•  Inefficiency of public services;

•  Excessive bureaucracy for importing and exporting, creating difficulties for foreign trade;

•  Excessive layers of bureaucracy, to start a business in brazil takes at least 120 days;

•  Expensive Labor costs;

•  High tax burden, over 33%;

•  High Interest rates;

•  Legal Uncertainty;

•  High crime rates, which adds additional security costs;

•  And much more!

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But this is not particular to Brazil…

Challenge II Challenge I Situation Introduction

Argument for economic benefit

•  Tariff-free policy, free trade, fluid movement of goods and services ensures more corporations for MERCOSUR members.

•  However, easy entrance for trade facilitate despiteful economic activities, such as dumping.

•  Beneficial conflicts break down togetherness within Mercosur, lowering incentives for further cooperation.

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• Example: Argentina denounced Brazil for her illegal anti-dumping measures in 2005 against Argentina’s exports of PET resins products.

• Argentina refused accepting decision made by recreated Permanent Review Court of MERCOSUR to protest.

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“It is not possible for Bolivia to continue to subsidize gas for Brazil.

For once and for all, we are going to do away with these inequities. We only

want a fair price.” Evo Morales, Bolivia’s president.

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Competition with Foreign Groups

• Even with zero-tariff and free trade, members of MERCOSUR are threatened by foreign countries with different economic measures.

• America’s frequent dumping activities of agricultural goods such as soybean and wheat on south America threatened wheat exporting countries like Uruguay and cotton exporting countries like Brazil.

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• Beside economic measures, foreign groups such as EU and America also possess relatively advanced technology in production(e.g Genetically modified food), providing them with clear absolute advantage in production.

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Conclusion

•  Role •  Future perspectives

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Role

• Mercosur is given the capability to combine resources to balance the activities of other global economic powers, especially the North American Free Trade Agreement(NAFTA) and the European Union.

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•  Today, it is viewed as the principal vehicle for the political, economic and cultural integration of Latin America.


Future Perspectives

• MERCOSUR intended to be merely a customs union as a result of bilateral negotiations between Argentina and Brazil in 90s.

• More members (e.p Venezuela, Bolivia) joining the bloc implies the existing operating system is not enough for the organization.

• The construction of an institutional framework to support multilateral negotiations would be necessary, a think tank alike OECD (Organization for Economic Cooperation and Development) should be established for purpose.

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“Obviously, we have serious problems because there is no institution responsible for resolving conflicts .This makes it harder to resolve a number of issues that can be resolved in a legal way before reaching the presidential level. ” Theotonio dos Santos

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Conclusion Challenge II Challenge I Situation Introduction

Thank You!!

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