Mercosur

MERCOSUR

The basic objective of the Common Market is to increase the efficiency and competitiveness of the economies involved expanding the current size of their markets and accelerate theireconomic development through the efficient use of available resources. The preservation of the environment, improving communications, macroeconomic policy coordination and complementarity of the differentsectors of their economies. Moreover, the formation of a common market is an appropriate response to the consolidation of large economic spaces in the world and the need for adequate internationalinsertion.

BENEFITS AND CHALLENGES OF MERCOSUR

The elimination of tariff barriers within the common market means that some goods and services (which initially members produced or imported fromthird countries) is now being supplied by a partner country, although this is less effective as producer worldwide. This occurs because the exporting country enjoys a protection in the importingcountry's market due to the common external tariff.
In the case of some commodities, the supply of a partner country could replace imports from the rest of the world and in addition totally or partiallyreplace inefficient domestic production. If one partner has lower unit costs at the world price plus the common tariff, its exports go to replace imports from the rest of the world and the union leadsto lower prices in the local market. This means that consumers can consume more goods now less protected and that firms adjust its offer, which will fall partially inefficient production. This meansthat there will be a net increase of imports from the partner country. The increasing consumption, decreasing production and inefficient net increase of imports, are the trade creation effect a customsunion.
Simultaneously, the producers of the partner country replace the rest of the world, producing more efficiently, as providers of the national market. This shift raises the social cost (or...