Mercosul structures and perspectives 1 

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Durval de Noronha Goyos Jr

Abstract
Resumen
Resumo
Introduction: legal structure of Mercusol
Mercusol's economic performance
Organizational structure and arbitration within Mercusol
Perspectives

Dr Durval de Noronha Goyos Jr is the founder and senior partner of Noronha Advogados, the second largest law firm in South America with offices in various cities in Brazil, as well as in Miami, London, Zürich and Lisbon.

He is regarded as an authority on international law and economics, and on economic group such as Mercosul, Nafta and Gatt. He has also represented the Brazilian government in international negotiations involving Mercosul and Gatt.

ABSTRACT

For various reasons Mercosul's viability depended largely on successful institutional development in Brazil. Since this initiative was welcomed by the business sector there, trade has blossomed.

The creation of the Common External Tariff (CET) for Mercosul countries was another milestone, and the expected stabilization of the Brazilian economy will see present exchange controls lifted. With this final inhibiting factor eliminated, the common market, and therefore Mercosul, can become an important reality as a trade block with attractive investment prospects.

RESUMEN

Por varias razones, la viabilidad de Mercosur dependió en gran parte de un desarrollo institucional satisfactorio del Brasil. Desde que esta iniciativa fue acogida por el sector comercial de est país, el comercio se ha extendido.

La creación del Arancel Externo Común (AEC) para los países del Mercosur fue otro hito y la prevista estabilización de la economía brasileña va a ver cómo se suprimen los controles de intercambio actuales. Con este factor eliminado, el mercado común, y sobre todo Mercosur, puede convertirse en una realidad importante como bloque comercial con perspectivas interesantes de inversión.

RESUMO

Por vários motivos, a viabilidade do Mercosul dependia em grande parte de um desenvolvimento institucional exitoso no Brasil. Desde que o setor de negócios brasileiro acolheu esta iniciativa, o comércio se expandiu bastante.

A criação da Tarifa Externa Comum (TEC) para os países do Mercosul foi mais um marco e a esperada estabilização da economia brasileira resultarána abolição dos atuais controles de câmbio. Com a eliminação deste fator, o mercado comum, e logo o Mercosul, podem convertê-lo em uma realidade importante como um bloco comercial com possibilidades interessantes para o investimento.

INTRODUCTION: LEGAL STRUCTURE OF MERCOSUL

The Treaty of Asunción makes provision for:

• free movement of capital, goods, services and people;
• the creation of a common external trade tariff and the establishment of a common external trade policy; and
• the co-ordination of macro-economic policies.

In order to achieve these objectives, the Treaty of Asunción created the following instruments:

• a programme of gradual trade liberalization with the purpose of eliminating all trade barriers by 1 January 1995;
• a programme for adjusting internal legislation to enhance equitable competition;
• a system to define the rules of origin;
• a mechanism for resolving disputes and controversies; and
• transitory safeguard clauses.

The governing body of Mercosul is the Common Market Council, consisting of the member states' ministers of foreign relations and finance. The executive body is the Common Market Group comprising sixteen members who represent the foreign relations offices, the economic ministries and the central banks of the member states. The Common Market Group has a permanent secretariat based in Montevideo, Uruguay.

The Treaty of Asunción also created ten working groups to deal with matters of trade liberalization, harmonization of internal trade legislation, customs, technical specifications, taxation and finance, maritime transportation, land transportation, industrial property, agriculture and energy and macro-economic issues.

MERCUSOL'S ECONOMIC PERFORMANCE

As is evident from the figures above, the relative weight of Brazil within Mercosul is considerable. In 1990, for example, Brazil represented 79 per cent of the population, 72 per cent of the GNP, 67 per cent of the total exports and 76 per cent of the total imports of Mercosul. In the same year, Brazil absorbed approximately 33 per cent of the exports from Argentina and Paraguay and 30 per cent of the exports from Uruguay. On the other hand, Brazilian exports represented circa 17,5 per cent of the Argentinean, 16,4 per cent of the Paraguayan and 23,3 per cent of the Uruguayan imports. 2 Mercosul's viability, therefore, depends to a large extent on successful institutional developments in Brazil. In spite of the daunting challenge ahead, the business sector greeted the initiative with enthusiasm, encouraged by the measures seeking to achieve trade liberalization and by the commitment to democracy and to free initiative. 3

Accordingly, trade within Mercosul (in billions of US dollars) increased at an admirable rate: 4

Such trade has become extremely relevant to the member states, as evidenced by the following table: 6

In fact, in 1993 sales in Latin America were the main component behind the increase in Brazilian exports to the amount of US$ 2,92 billion -- from a total of US$ 35 billion in 1992 to US$ 38 billion in 1993. This resulted in a trade surplus of approximately US$ 13 billion. In terms of percentage the increase of Brazilian exports to Latin America (20,4 per cent) was much larger compared to the rest of the world (4,8 per cent) 7 . As we shall see later, this formidable performance played a decisive role in the formulation of present Brazilian foreign policy of which Mercosul is one of the main pillars. 8 The following table illustrates the trade partner profile of Brazil's export sector:

ORGANIZATIONAL STRUCTURE AND ARBITRATION WITHIN MERCUSOL

The Treaty of Asunción also created a mechanism for the resolution of disputes. The system, which was perfected by the Protocol of Brasília and signed in December 1991, institutes the following procedures: direct negotiations, conciliation and arbitration. These remedies are available to the member states as well as to private parties to ensure accessibility to the markets and fair competition. Direct negotiations can be freely pursued by the member states and may not exceed fifteen days, unless the parties concerned mutually agree to extend the period. Recourse to conciliation may be taken when direct negotiations have failed and a member state submits its grievances against another to the Common Market Group. A maximum term of thirty days is allowed to conclude the respective proceedings. Arbitration may be started by a communication to the secretariat of the Common Market Group. An arbitration panel is then formed which has to announce its decision within a maximum period of ninety days. 11

A major problem with Mercosul's arbitration system is that the mechanism does not allow private parties to contest their own or other governments on Treaty matters without the approval of their own government. This is obviously unacceptable as it places unreasonable restrictions on the means available to private parties to enforce their definitive rights. Another point which justifies reservations about the arbitration system pertains to the confidential nature of the decisions and the disallowance of dissenting opinions. 12 With the creation of the customs union in Mercosul, effective from 1 January 1995, numerous cases will arise requiring modification of the arbitration system. In my view, the resolution of disputes should eventually evolve in the direction of a supra-national court of justice, possibly along the lines of the European Court of Justice.

Concerning judicial co-operation, a protocol was signed at Las Leñas on 23 June 1992. This dealt satisfactorily with numerous problems inhibiting the administration of justice, such as the appalling situation where rogatory letters in the past took years to be served. More recently, on 4 August 1994, another protocol was signed in Buenos Aires. It deals with international jurisdiction on contractual matters and attempts to isolate the most significant problems pertaining to conflicts of law -- a most relevant matter.

PERSPECTIVES

This shortcoming did not come as a surprise to the experienced observer. The factor preventing full implementation of the common market was the free flow of capital -- an essential commodity for any common market. In the case of Mercosul this was not conceivable at the time because of the lack of stability in the Brazilian economy. Despite some degree of exchange liberalization, it prevented the country from making its currency freely convertible.

Nonetheless, a major achievement was reached with the creation of the Common External Tariff (CET) for Mercosul countries, applicable from 1 January 1995 when the customs union commenced. The CET will vary between zero and 14 per cent for most products. Every member state country observes the exception of 300 items, which exclude products in the areas of informatics, capital goods and telecommunications. Capital goods CETs are subject to a linear and automatic reduction until they reach a level of 14 per cent on 1 January 2001, likewise informatics and telecommunications CETs until they reach 16 per cent on 1 January 2006. With the exception of goods produced in free trade zones there will be no CET for internal trade within Mercosul between its members.

Furthermore, a Commission of Commerce for Mercosul was created on 4 August 1994 to co-ordinate macro-economic policy and to oversee the works of the customs union, including matters pertaining to the rules of origin. With regard to the latter a complementary detailed regulation was passed on the same date. The rules of origin are comparatively 13 liberal and allow for an extra-regional component of 40 per cent with a regional component of 60 per cent. Some exceptions allow an extra-regional component of 50 per cent with a 50 per cent regional component.

The extraordinary success of Mercosul contributed to the definition of the Brazilian government's official policy, namely that promotion of the social, political and economic integration process in South America is the safest course towards its incorporation in global trade. 14 Further integration into what has been called the Area of Free Trade of South America (ALCSA) has also become the official goal of Mercosul, and all the ALADI treaties expiring on 31 December 1994 will be renegotiated with this goal in mind -- it is hoped, towards the establishment of ALCSA within ten years. 15

With the expected stabilization of the Brazilian economy, present exchange controls 16 will be lifted. By removing this last factor that prevents the common market from becoming a reality, Mercosul can be established as a very important trade block as well as one offering excellent prospects for investment.

NOTES

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