IB ASSIGNMENT

MERCOSUR

MOHAMEDARIF M
16MBA031
MERCOSUR
Mercosur is a sub-regional bloc. Its full members are Argentina, Brazil, Paraguay and Uruguay. Its
associate countries are Bolivia, Chile, Peru, Colombia, Ecuador and Suriname. Observer
countries are New Zealand and Mexico.

Its purpose is to promote free trade and the fluid movement of goods, people, and currency. The
official languages are Spanish, Portuguese and Guarani. Since its foundation in 1991/4, Mercosur's
functions have been updated, amended, and changed many times. It is now a full customs union and
a trading bloc. Mercosur and the Andean Community of Nations are customs unions that are
components of a continuing process of South American integration connected to the Union of South
American Nations (USAN).

HISTORY
Mercosur was established in 1991 by the Treaty of Asuncin, which was later amended and updated
by the 1994 Treaty of Ouro Preto. Mercosur originated in 1988, when presidents Ral Alfonsn of
Argentina and Jos Sarney of Brazil signed the Argentina-Brazil Integration and Economics
Cooperation Program or PICE (Portuguese: Programa de Integrao e Cooperao Econmica
Argentina-Brasil, Spanish: Programa de Integracin y Cooperacin Econmica Argentina-Brasil). The
protocol Number 20 of the program also proposed the Gaucho as a currency for regional trade.

The founding of the Mercosur Parliament was agreed upon at the December 2004 presidential
summit. Up to 2010 it was planned to have 18 representatives from each country, regardless of
population.

Member states
Mercosur is composed of 5 sovereign member states: Argentina, Brazil, Paraguay, Uruguay and
Venezuela (suspended since December, 2016) and a state in process of incorporation, Bolivia (since
July 17, 2015)

Following the impeachment of President Fernando Lugo by the Paraguayan Senate, this country was
suspended from Mercosur, and the admittance of Venezuela as a full member became effective on
31 July 2012.Venezuela had four years to fully adapt to the trade bloc regulations and failed to do so,
with the nation being suspended from Mercosur on 1 December 2016.

Directly subordinated to the Common Market Group, the Work Subgroups draw up the minutes of
the decisions to submit for the consideration of the Council, and study specific Mercosur concerns.
The work subgroups are:

Commercial matters

Customs matters

Technical standards

Tax and monetary policies relating to trade

Land transport

Sea transport

Industrial and technology policies

Agricultural policy

Energy policy

Coordination of macroeconomic policies

Labour, employment and social security matter

Merchandise trade
Intra-Mercosur merchandise trade (excluding Venezuela) grew from US$10 billion at the inception of
the trade bloc in 1991, to US$88 billion in 2010; Brazil and Argentina each accounted for 43% of this
total. The trade balance within the bloc has historically been tilted toward Brazil, which recorded an
intra-Mercosur balance of over US$5 billion in 2010. Trade within Mercosur amounted to only 16%
of the four countries' total merchandise trade in 2010, however; trade with the European Union
(20%), China (14%), and the United States (11%) was of comparable importance. Exports from the
bloc are highly diversified, and include a variety of agricultural, industrial, and energy goods.
Merchandise trade with the rest of the world in 2010 resulted in a surplus for Mercosur of nearly
US$7 billion, trade in services, however, was in deficit by over US$28 billion. The EU and
China maintained a nearly balanced merchandise trade with Mercosur in 2010, while the United
States reaped a surplus of over US$14 billion; Mercosur, in turn, earned significant surpluses (over
US$4 billion each in 2010) in its trade with Chile and Venezuela. The latter became a full member in
2012.

FREE TRADE ZONE

The member nations can have commercial free-trade zones, industrial free-trade zones, export
processing zones, and special customs areas, all of which target providing merchandise marketed or
produced in these areas with treatment different from that afforded in their respective customs
territories. Uruguay's Vice-President Danilo Astori said the issue of a free trade agreement
with the United States must be dealt and that "opportunities must be built". He also said that "each
Mercosur country should have a multiplicity of memberships. Mercosur must have joint
international policies, an agreement on moderate protection from third parties and above all must
have agreements with other trade blocks".

Tariffs
The member states can assess merchandise from these areas with the common external tariff used
for Mercosur merchandise, or, in the case of certain special products, the domestic tariff prevailing
in each individual state. In this way, the products from the free-trade zones can have the more
favourable tax treatment established under Southern Common Market, given to the merchandise
produced in the normal customs zones of each member state or, in the case of certain special
products, can have the normal customs treatment prevailing in each nation. Products coming from
outside of Mercosur are highly taxed so that local companies do not feel the need to compete with
large international companies.

Safeguards

Products produced or marketed in the free-trade zones of each member nation will be eligible
for the safeguard system whenever this entails an increase not provided for in imports, but capable
of causing damages or threatened damages to the importer country.

Incentives

The city of Manaus, Brazil, has a free-trade zone.

In the event of the producing nation's granting special incentives for production from the free-trade
zones that are not compatible with the corresponding guidelines established under the General
Agreement on Tariffs and Trade (GATT), the member nation can make any
adjustments needed to return the situation to equilibrium.

Creation
The member nations agreed that any free-trade zones that in August 1994 were already in operation
could operate normally under Mercosur, along with any that is set up in light of legal guidelines
prevailing or in course in congress during this same time period. This means that a member nation
can no longer create new free-trade zones that are more privileged. Mercosur is an effective
agreement for its members.

Manaus and Tierra del Fuego FTZs

The actual implementation of Mercosur will not affect the special Manaus, Brazil, and Tierra
del Fuego, Argentina, free-trade zones organized in light of their special geographic situations.
These two free-trade zones may continue normal operations until 2013.

Investors
For the purposes of constructing the Protocol, investors are considered to be: Individuals who are
citizens of any of the member nations or that reside there on a permanent basis or are domiciled
there, with due regard for legislation prevailing in such territory; Legal entities organized pursuant to
the legislation of one of the member nations that are headquartered there; and Legal entities
organized in the territory where the investment is made, actually and directly or indirectly controlled
by the legal entities or individuals mentioned above.

Investment
The term investment includes all types of assets such as: movable or immovable property, such as
rights in rem and guarantee in rem rights, shares, corporate holdings and any other type of
corporate participation; credit instruments and rights that may have an economic value; intellectual
property rights or materials, Including copyrights and industrial property rights such as
patents, industrial drawings, trademarks, commercial names, technical procedures, know-how and
goodwill; Economic concessions involving public law, such as research, cultivation, extraction or
natural resource exploration concessions.

Freedom to invest
The nation receiving the investment cannot avail itself of unjustified or discriminatory means
capable of restricting the investor's freedom to manage, maintain, use, enjoy and dispose of its
investments.

Tax
The member states are not however obligated to extend to investors in the other nations signatory
to the Colonia Protocol the benefits of any treatment, preference or resulting from international
accords relating fully or partially to tax matters.

Exceptions
In addition, the member nations can temporarily establish a list of exceptions where the new
treatment will not yet prevail.

In this way, the various member nations decided to except the following economic sectors:

Argentina: ownership of real estate on the frontier strip, air transportation, naval industry, nuclear
power plants, uranium mining, insurance and fishery;

Brazil: mineral prospecting and mining; use of hydraulic energy, health care, television and
radio broadcasting and telecommunications in general, acquisition or leasing of rural properties,
participation in the financial intermediation, insurance, social security and capitalization
systems, chartering and cabotage as well as inland navigation,

Paraguay: ownership of real property on the frontier strip, communications, including radio and
television broadcasting, air, sea and land transportation, electricity, water and telephone services,
prospecting for hydrocarbons and strategic minerals, import and refining of petroleum derivatives
and postal services,

Uruguay: electricity, hydrocarbons, basic petrochemicals, atomic energy, prospecting for strategic
minerals, financial intermediation, railways, telecommunications, radio broadcasting, press and
audiovisual means.

Expropriation and compensation

The member nations undertook to do nothing to nationalize or expropriate investments in their

territories that pertain to investors from the signatory countries, unless such measures are taken
based on public need. In such case, nothing discriminatory can be done, but everything must be
implemented by due legal process. Compensation for the investment holder that is expropriated or
nationalized should be both adequate and effective, and made in advance, based on the real
investment value determined at the time the decision is publicly announced by the proper
authorities. This payment will be updated until actual payment, and the affected investor will receive
interest.

Transfers
The original member state investors will be ensured free transfer of their investments and any
earnings thereon. These transfers can be made in freely convertible currency, using
the exchange rate prevailing on the market pursuant to the procedures established by the
member state receiving the investment. Member nations cannot adopt any exchange measures
restricting free transfer of the funds invested or from activities exercised in their respective
territories.