Regional Trading Bloc Paper
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Introduction
The role of regional integration involves two cases: economic and political. (Hill, 2004, p.271, 1) The trading bloc MERCOSUR is the focus of this paper and addresses the advantages and disadvantages of MERCOSURs trade policies, compares and contrasts the economic development stages of the countries within this trade bloc, and briefly shows the ramifications of this trading blocs economic development for global business. To begin, this paper starts by describing the trading bloc and giving brief background information.
MERCOSUR
MERCOSUR is a trading bloc, which is an area of free trade based on specific tax and tariff agreements made among a group of countries, in South America. This particular trade region is made up of four countries: Argentina, Brazil, Paraguay, and Uruguay. (“Mercosur,” 2005, 1) The trade bloc began in the late 1980s with two countries and by the early 1990s incorporated two additional countries with hopes of boosting economic growth, achieving a full free trade area, eliminating customs duties and tariffs between members, and eventually becoming a customs union. (“Mercosur,” 2005, 4)
Advantages of Regional Integration
Advantages of the regional integration of MERCOSUR include a decline in trade barriers among member countries, reduced tariffs, creates positive growth for member countries, and the draft of the Ouro Preto Protocol, which establishes the framework for making decisions within MERCOSUR and allows for certain exceptions for specific national industries that are important to the South American economy. (“Mercosur,” 2005, 6) Trade barriers among member countries are likely to drop gradually allowing MERCOSUR to advance slowly but steadily. Reduced tariffs will also give this trade bloc the opportunity to trade more, which could eliminate products and services from becoming stagnant. The adoption of the Ouro Preto Protocol should ensure that important industries have certain allowances as the economy changes giving MERCOSUR a chance to keep consistency in conducting business. Another advantage in MERCOSURs favor is that with successful intra-regional trade comes external trade from countries outside the region, which can lead these other countries to believe that MERCOSUR is successful and worthy to conduct business with, which is significant when disadvantages such as inflation costs and economic swings happen.
Disadvantages of Regional Integration
Disadvantages of the regional integration of MERCOSUR include political changes, lower GDP growth compared to other trade blocs around the world, inflation costs, exchange rates, economic swings, and dependency of other world economies successes. Political changes that is not consistent such as increasing and decreasing policies, taxes, and tariffs can cause MERCOSUR member countries to face sudden loss in revenue. Since MERCOSUR resides in an area that is not as developed as most successful trade blocs being compared with other blocs growth rate can hinder business even though yearly growth may be consistently increasing for the South American trade region. Fluctuating inflation costs and exchange rates could possibly make the regional integration unsteady if business does not increase enough to make up what is lost due to inflation and exchange rates inconsistency. Economic swings and the dependency of other world economies means MERCOSUR needs the rest of the world to be economically secured or this trade bloc may risk having any business ventures at all. Closely watching over the development stages of the member countries could reduce or better prepare the trade bloc when the disadvantages cause road blocks.
Economic Development
Economic development stages for each of the four countries of MERCOSUR shared similarities over the years but also contrasted sharply as political and economic twists fluctuated. After a little less than one decade the four member countries of MERCOSUR had a steady economic growth. “Trade between MERCOSURs four core members quadrupled between 1990 and 1998. The combined GDP of the four member states grew at an annual average rate of 3.5 percent between 1990 and 1996, a performance that is significantly better than the four attained during the 1980s.” (Hill, 2004, p. 288)
Currently, all four member countries are experiencing some form of upswing in various areas:
Argentina – Gross Domestic Product (GDP) has increased from 214.3 billion in 2006 to 247.7 billion in 2007. The countrys unemployment rate also fell by the third quarter to 8.9% down from 10.2% as recorded for the previous quarter. The Argentine peso increased slightly from 3.05% in 2006 to 3.11% the following year, which still makes the countrys currency weak. The high interest rates in Argentina jumped significantly over one year from 8.6% to 10.1% in 2007 despite the increase in GDP. (EIU Country Intelligence, 2007)
Brazil Ð- In sharp contrast to Argentina the GDP for this country reached the trillions increasing over one year from 1,067.4 in 2006 to 1,285.7, which is an increase of 1% for the period. Brazils unemployment rate dropped merely .2% to end at 9.8% for 2007. The exchange rate in Brazil dropped from 2.14% in 2006 to 1.82% in 2007 making the Brazilian currency weaker. Interest rates in Brazil are astoundingly higher than any of the four member countries. In 2006 interest rates were recorded at an average of 50.8% dipping down to 43.5% by the end of 2007. (EIU Country Intelligence, 2007)
Paraguay Ð- On the opposite scale as Argentina and Brazil this country only reported 9.2 million GDP in 2006 but increased significantly to 11.6 million in 2007, which means the rate of increase over one year was only .2% (EIU Country Intelligence, 2007) However, in 2006 Paraguay reported its unemployment rate as an alarmingly high of 16% but over the next year this figure dropped to a low of 9.4% in 2007, which is very comparable among the other member countries. (Index