What is Mercosur?
It's a trade agreement like NAFTA that promotes trade between a set of Latin American countries.

Why is it there?
Well, free trade is best for everyone. See game theory for a better explanation of this. But think about it: if a country becomes protectionist and stops all imports, then OK, it might be good in the short term but it will be inefficient! Specialisation and trade, as suggested by Adam Smith works best because of increasing returns to specialisation (why this is the case deserves another node).

Yet game theory tells us that people can't really see this so they think "hey, if I pull out and make stuff for myself then my domestic manufacturing sector will develop: why should I hold myself back?" People are selfish. Therefore,a treaty or a trade agreement is what John Nash referred to as a "credible threat" and an "agreement."

So, a trade agreement makes countries do what's good for them, by removing tariffs and barriers to imports and exports, making the world a better place. Sure, some countries may get a raw deal but overall, everyone's better off.

What does that mean? Well, if America isn't good at making steel then the solution is not to introduce steel tariffs like Bush did. You stop making steel! You're obviously not that good at it, so let ssomeone else do it. They'll do it cheaper, and so everyone benefits. If you're better at making chocolate monkeys then do that, but allow market forces to do their thing.

Mercosur was important because it signalled the end of Latin American protectionism that almost crippled economies. Protectionism isn't good.

The trade agreement begins like this (it's a trade agreement and therefore, I assume, out of copyright):

"Treaty Establishing a Common Market between the Argentine Republic. the Federal Republic of Brazil. the Republic of Paraguay and the Eastern Republic of Uruguay

The Argentine Republic, the Federative Republic of Brazil, the Republic of Paraguay and the Eastern Republic of Uruguay, hereinafter referred to as the "States Parties",

CONSIDERING that the expansion of their domestic markets, through integration, is a vital prerequisite for accelerating their processes of economic development with social justice,

BELIEVING that this objective must be achieved by making optimum use of available resources, preserving the environment, improving physical links, coordinating macroeconomic policies and ensuring complementarily between the different sectors of the economy, based on the principles of gradualism, flexibility and balance,

BEARING IN MIND international trends, particularly the integration of large economic areas. and the importance of securing their countries a proper place in the international economy.

BELIEVING that this integration process is an appropriate response to such trends,

AWARE that this Treaty must be viewed as a further step in efforts gradually to bring about Latin American integration, in keeping with the objectives of the Montevideo Treaty in 1980,

CONVINCED of the need to promote the scientific and technological development of the States Parties and to modernize their economies in order to expand the supply and improve the quality of available goods and services, with a view to enhancing the living conditions of their populations,

REAFFIRMING their political will to lay the bases for increasingly close ties between their peoples, with a view to achieving the above-mentioned objectives,

HEREBY AGREE AS FOLLOWS:"

And the treaty then goes on to list the articles members of Mercosur must obey. In theory, it's a great idea and will help Argentina recover and aid other Latin American countries revive their trade, which has been stagnant during periods of military rule.

Sources:

  • http://www.sice.oas.org/trade/mrcsr/mrcsr1.asp

Other states have joined Mercosur as "associated members" or "future members". Until August 2003, they were Chile and Bolivia. Peru will join in this category around last quarter, 2003. In the near future, it will probably reach Colombia and Venezuela, too. The objective of the main players (Brazil and Argentina) is to create a bigger block to do strong-arm negotiation with USA respect to the FTAA.

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