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Trading Blocs and Economic Integration in South America: the MERCOSUR

Trading Blocs and Economic Integration in South America: the MERCOSUR. Prof. Rubén A. Marx June, 2 009 desarrollotutor@hotmail.com. 1. 1. Theories of Economic Integration. 4. Theories of Economic Integration.

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Trading Blocs and Economic Integration in South America: the MERCOSUR

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  1. Trading Blocs and Economic Integration in South America: the MERCOSUR Prof. Rubén A. Marx June, 2009 desarrollotutor@hotmail.com 1

  2. 1. Theories of Economic Integration 4

  3. Theories of Economic Integration • Economic Integration: (Europe and Latin America) “ Measures designed to abolish discrimination between national economies” (Balassa) • Forms and Degrees of Integration: • Tariff Preferences • Free Trade Area: Removal of Trade Restrictions. Tariffs and Quantitative restrictions are eliminated between members • Customs Union: Common External Tariff • Common Market: Factor Movement Restrictions are eliminated (K,L) • Economic Union: Harmonization of national economic policies. It can also imply a Monetary Union, with a unification of monetary policies • Total Economic Integration: unification of fiscal, monetary, social & juridical policies SUPRANATIONAL AUTHORITY WITH BINDING DECISIONS OR INTERGOVERNMENTAL POWER? Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 5

  4. Theories of Economic Integration (Cont’d) Economic Integration and Welfare - Change in Potential Welfare (efficiency). Static Efficiency where economy operates at on its Production Possibility Frontier. Production Efficiency: Quantity of goods produced with given inputs rise. Efficiency in Exchange: consumer’s choice are reoriented towards merchandise produced in member countries, when intra-union tariffs are removed. • Distributional Component: redistribution of income accompanying an increase in real income can be acceptable to reach the goals of equity + Dynamic Efficiency will be moving the Production Possibility Frontier, assuming given initial resources and saving ratio. Main Factors affecting Dynamic Efficiency: technological progress, investment allocation, interindustry relations in production and investment, and uncertainty in economic decisions. Under these assumptions, an increase in the rate of growth will be equivalent to an Improvement in dynamic efficiency and represents a rise in potential welfare Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 6

  5. Theories of Economic Integration (Cont’d) Main Topics Concerning the Creation of a Customs Union Creation of a Customs Union will affect : Production, Consumption and Terms of Trade. • Trade Creation / Trade Diversion • Competitiveness vs.Complementarity • Size of the Union • Logistics and Transportation Costs • Level of Tariffs Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 7

  6. 2. MERCOSUR: Institutions 8

  7. MERCOSUR’S Members and Associated Members Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 9

  8. The Origins of the MERCOSUR 1991: Treaty of Asunción: Argentina, Brazil, Uruguay, Paraguay • Establishmentof a Free Trade Area and a Customs Unionduring theTransition Period (1991-1994) • Intending to establish a Common Market at the end of the Transition Period • Trade Liberalization: scheduled, lineal and automatic. Included lists of exceptions (Final Adaptation Regime) • Fixation of a Common External Tariff: included exceptions. Intention of incentivating external competitiveness • Coordination of Macroeconomic Policies: just consultations, no harmonization • Adoption ofSector Agreements • General Origin Regime Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 10

  9. The Juridical-Institutional System of the MERCOSUR Characteristics of the Juridical-Institutional System • MERCOSUR: (Ouro Preto Agreement, 1994) • Juridical Personality in International Law since the Protocol of Ouro Preto • Intergovernmental: no sovereignty transfer by the Members • Temporary Structure Common Market Council (CMC): -Ministerial Meetings -Permanent Representatives Commission (CRPM) (2003) President. They coordinate –Ad Hoc Group Structural Convergence Funds (GAHE-FOCEM) (2005) Common Market Group (GMC) Trade Commission of the MERCOSUR (CCM) -Technical Committees. (Common External Tariff) Organs with Decision-Making Powers Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 11

  10. The Juridical-Institutional System of the MERCOSUR The Juridical-Institutional System of the MERCOSUR Characteristics of the Juridical-Institutional System • MERCOSUR Parliament (PM) (2005) • Economic and Social Advisory Forum (FCES) • Administrative Secretariat (SAM) • Dispute Settlement Mechanism: Permanent Court of Review (TPR) (2005) • MERCOSUR’s international Agreements • 4+1 : MERCOSUR + USA: Trade Negotiations. Investment’s Protection Agreement. (1991) • MERCOSUR-EU (1995) Cooperation Agreement Framework. Interregional Association Agreement : market access vs agriculture • Chile & Bolivia: associated members (1995-1996) Free Trade Area • CAN-MERCOSUR (2003) Free Trade Area • South American Community of Nations (2004) UNASUR Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 12

  11. 3. MERCOSUR: Economic Integration Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 13

  12. MERCOSUR + Chile: Area, Population and Population Density Source: Eurostat 2008 – Compendio Estaístico del Mercosur 2007 sobre datos INDEC, IBGE;INE,DGEEC, INE Uruguay y CEPAL Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 14

  13. MERCOSUR + Chile: GDP Source: ECLAC Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 15

  14. MERCOSUR + Chile: Foreign Debt as % of the GDP Source: ECLAC Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 16

  15. GDP and the Intra-MERCOSUR Trade - Period 1990-2005 GDP and the Intra-MERCOSUR Trade Period: 1990-2005 Source: SEPYME (Secretariat of Industry, Trade and Small and Mid-size Firms) Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 17

  16. Participation Intra and Extra-MERCOSUR Trade in Total Exports & Imports – Period 1990-2005 Exports Imports Source: self-elaboration based on data of the WTO Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 18

  17. MERCOSUR’s Paricipation in World Trade - Year 2006 Source: self-elaboration based on data of the WTO Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 19

  18. c Exports and Imports of the MERCOSUR by destination Year 2006 Exports by Destination Imports by Origin Source: self-elaboration based on data of the CEI (International Economy Center) Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 20

  19. MERCOSUR + Chile: Exports by Destination 2005 Source: ECLAC Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 21

  20. MERCOSUR + Chile: Exports 2005-2006 Source: ECLAC Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 22

  21. Uruguay: Trade with MERCOSUR In USD Millions – Years: 1990, 1995, 2000, 2004, 2005 and 2006 Exports from Uruguay to MERCOSUR Imports of Uruguay from MERCOSUR Source: ECLAC Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 23

  22. MERCOSUR + Chile: Competitiveness Index Year: 2007 Source: World Economic Forum 2007 Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 24

  23. MERCOSUR: Social, Educational and Sanitary Aspects 4. Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 25

  24. Human Development Index Year: 2005 Year: 2005 Human Poverty Indicators Period: 1990-2004 Source: self-elaboration based on data of the UNDP Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 26

  25. Mortality Rates Years: 2000-2005 Source: self-elaboration based on data of the UNDP Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 27

  26. Inequality in Income or Expenditure Years: 2003-2004 Source: self-elaboration based on data of the UNDP Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 28

  27. Public Expenditure on Education Period: 2002-2005 * Last available data: year 1991 Source: self-elaboration based on data of the UNDP Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 29

  28. Expenditure on Health Year: 2004 Source: self-elaboration based on data of the UNDP Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 30

  29. MERCOSUR:New Regional Strategy and the World Economic Crisis 5. Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 31

  30. CONCLUSIONS MERCOSUR : NEXT STEPS • Better Macroeconomic Coordination: Monetary and Financial cooperation. Reciprocal Payments Agreement, Foreign Trade in Local Currency (October 2008), Joint regulations for short term capital, joint negotiation of foreign debt. • Better Microeconomic Coordination: regional value chains, with an emphasis on infrastructure. Vertical Chains: gradual productive development for SME’s & Horizontal Chains: Export consortiums (niches) • Financial Aid for productive reconversion : Stuctural Funds(FOCEM) • Sharing Research and Development programs Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 32

  31. CONCLUSIONS • More efficiency in common internal market + more competitivity towards external markets. • Incorporate Social Integration Agenda: Cohesion Funds. • Strenghten MERCOSUR´s Institutions: TPA to inforce Decisions, Resolutions and Directives. Better MSD´s are necessary too. • Permanent Political Dialogue and International Presence Trading Blocs & Economic Integration in South America: MERCOSUR Prof. Rubén Marx 33

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