Development of Regional Economy Within Mercosur and the European Union

¶ … Regional Economy within MERCOSUR and the European Union

The world has been changing very fast and is having no borders in terms of economies. This is helping people as development in one area is helping people in all areas. This is putting to an end to the belief prevalent in the 19th century that when the interests of individual states were looked after, then the entire society will progress. This is now expected to be covered through mutual cooperation. This quality of mutualism can be seen clearly when the state owned enterprises are being privatized, the streamlining of business is taking place and there being many mergers and acquisitions. The joining up of businesses makes it clear that competition is now a choice that the companies indulge in as and when they desire. The companies are not in a position purely on competition to set the prices that they would want. (Santis, 1999)

The process has led to a rapid increase in regional trade agreements all over the world as is the Southern Common Market or MERCOSUR. The numbers have increased sharply over the last few years and there have been as many as 33 new arrangements that started between 1990 and 1994. The beginning of these arrangements has led to a lot of arguments between economists, political parties and special interest groups. It may be seen that these arrangements are regularly being made among countries that are geographic neighbors and these arrangements end up in the trade between these neighbors increase at a much faster rate than the annual rates of increase of world trade, and this has been happening from 1975. There are some suggestions that the increase in trade among neighbors often come from a low distance for trade and political-cultural similarities between neighbors. This increase in trade has also happened among the MERCOSUR countries. That started only after they gave up their inward looking policies pursued during the 1960s and 1970s and changing over to a freer rate from 1980s. (Diao; Roe; Somwaru, 1999)

The same policy has also led to increased growth in agricultural imports from non-MERCOSUR countries. Thus overall the policy has created more opportunities for agricultural trade, though many of the countries here are themselves major exporters of agricultural products. It is also clear that trade was increasing among MERCOSUR countries was increasing even before the agreement took place. On the other hand in blocks like the European Union there has been a decline in agricultural trade. This can be held to be the responsibility of the group as their policies appear to divert trade to member countries, and this has not created additional opportunities for world trade in agricultural products. (Diao; Roe; Somwaru, 1999)

A historic change came over the American continent in 1995 -- the end of observation of the Monroe doctrine -- with the signing of the Framework Cooperation Agreement between the European Union and MERCOSUR, the Common Market of Brazil, Argentina, Paraguay, and Uruguay. The pact was to result in a free trade agreement between the two blocs of countries and this would ensure links in terms of politics economics and social-cultural. The process of negotiations was long and took more than ten years, and it is sure to evolve into a very powerful trading bloc in the world. The alliance would have effects on the countries in both the pacts -- the countries in Europe as also Latin America. This would also affect the future of G-20 which is a coalition intended to protect the interests of some developing countries. The biggest effect in Europe will be on their agricultural policy as that aims to protect the local farmers from external competition. (EU-Mercosur Free Trade: U.S., a Third Wheel?)

This is due to the high cost of cultivable land within Europe and this makes the European Union provide subsidies, import quotas and tariffs so that agriculture can be kept alive in that area. Till now these policies have kept MERCOSUR products out of the market in that area, as there has been no reduction on the tariffs that were required to enter that market, or also increasing of any quotas by them. Still the new processes of negotiations have led to some important concessions so that the process of imports can be made easier. The farm subsidies in Europe have been reduced through the European Common Agricultural Policy of 2003, and there have been increase in import quotas as also a lowering of tariffs. This process is making MERCOSUR more confident. An important meeting was held on May 28th, 2004 between the two groups at Guadalajara in Mexico for the progress of negotiations.

MERCOSUR holds a lot of advantage in many agricultural products and they constitute more than half of the group's exports. At the same time, Europe has many industrial products and capital services in the areas of automobiles, telecommunications and banking. The situation seems to be good foe free trade with the partners specializing in different areas of strength. At the same time, both groups have protection for the industries that they are weak in, and these are the main areas of contention. Progressive thinking is required for the removal of such obstacles. The present decision has been tentative but it has been to open the markets to foreign competition. The European Union and MERCOSUR have both shown willingness for making the required concessions so that the negotiations can succeed. MERCOSUR has realized the importance that an agreement means and is willing to open up telecommunication and banking industries. (EU-Mercosur Free Trade: U.S., a Third Wheel?)

There have been efforts by Europe in Latin America even earlier, and this can be seen from the cases of Colombia and Peru where formal democracy is now regular, but as in other countries, this has to be coupled with political stability, an independent press, transparency, accountability, respect for ethnic minorities and a continuing fight against corruption. The example of help from Europe can be seen in the 321 million Euro aid packages that were allocated to Colombia by European Union and its member states recently. They have also supported the Organization for American States when they have called for fresh elections in Peru. They are also on the point of providing technical assistance to Lima. These actions demonstrate that European Union is already trying to play its role for the promotion of democracy and stability in that area. The investment of Europe in that area has grown by ten times since the beginning of 1990s and has reached a figure of 34 billion Euros in 1998. This is 15% of all investments made by the group and is the same as the amount that has been invested in Eastern Europe, Southern and Eastern Mediterranean and ASEAN countries all put together. (Kenety, 2001)