Eduardo Amorim

Mercosul customs advantages

The Brazil Business

Updated

10 September 2012

The South Common Market aimed to bring advantageous measures and deals to its members. But 21 years after its foundation, can we say Mercosul has really met its purposes?

The treaty that created the South Common Market (Mercosul in Portuguese and Mercosur in Spanish) was signed in 1991, with the following objectives:

Free movement of goods, services and production factors
Abolition of restrictions over the reciprocal trade
Establishment of one single external tariff
Adoption of common trade policies towards to countries that do not belong to Mercosul
Coordination of macroeconomic and sectorial policies.

Despite of its 21 years of existence, Mercosul is quite far from achieving the status of a Common Market. Currently, the group is defined as a full customs union.

Mercosul Member States

Brazil
Argentina
Uruguay
Paraguay

Mercosul Associated States

Bolivia
Chile
Colombia
Ecuador
Peru

Since 2006, the Bolivarian Republic of Venezuela is in accession process to the Mercosul, but has not become a member yet.

Institutional Regimes

Mercosul is a free-trade zone, which means that its members have eliminated all tariff and non-tariff barriers that could affect their economies. Therefore, tariffs on goods traded between the partners are exempted.

A good example is the Import Tax, that has zero rate aliquots in the transactions between Mercosul members. The only requirement for the exporter companies is to posses a Certificate of Origin.

Certificate of Origin Mercosul

In order to benefit from the preferential treatments celebrated by the Mercosul agreements, the products to be exported must have a proper Certificate of Origin.

According to the Regime of Origin, for products to be considered from Mercosul, 60% of their inputs must be produced inside the country, aside from capital goods, whose index is 80%.

In Brazil, the Certificates of Origin are issued by the state Industry Federations.

Common External Tariff (TEC)

Mercosul counts with a series of institutional regimes to achieve the customs union. The Common External Tariff (TEC, in the Portuguese acronym) is the most important of them.

As we have seen, the Mercosul treaty establishes the non-existence of Import Tax (zero rate) in the commerce among its members. But when imports involves a third country (that does not belong to Mercosul) the Common External Tariff is be applied.

The TEC's rates vary from 0 to 20%, depending on the goods involved in the transaction. On the one hand, the Common External Tariff prevents Mercosul countries to compete with each other; and on the second hand, it increases the competitiveness with the other countries, outside the bloc.

A major issue concerning he Common External Tariff is that the exporters outside Mercosul suffered with the Double Taxation phenomenon. If a product entered through Paraguay, for example, and then was exported to Brazil, the TEC was charged twice. Since January 2012, the Double Taxation of TEC was eliminated.

Some Mercosul issues

Although Mercosul has improved in a lot of aspects (especially in what concerns to the free movement of people), there is still a lot of work to be done in the economic area. Among the main issues of Mercosul are:

Dispute among Mercosul members

Centuries of war and stimulated rivalry have created a very distrustful community in South America. There are countless examples that prove that the Southern Cone's mentality is egocentric. The countries are always working for themselves, even in times when a partnership with the neighbors seems much more advantageous.

The ideological fight between the countries holds the negotiations back, which pretty much explains why Mercosul seems to have advanced like two years in 20.

Spoiled Argentina

The country is constantly opposing to Mercosul decisions, what difficults the improvement of the union. Also, Argentina has a strong historical rivalry with some Mercosul associates, like Peru and Chile. Because of that, those countries prefer to do bilateral agreements with Brazil, Paraguay and Uruguay, instead of agreeing with Mercosul as a whole, what also weakens the union. With the Falcklands issue, Argentina became even less trusted in the European Union. EU has been openly putting up resistance in accepting the country as a Mercosul member.

Great economic disparity among members

The bloc's smaller members, Paraguay and Uruguay, complain of restricted access to markets in Argentina and Brazil and have even sought to set up bilateral trade deals outside Mercosur, which is forbidden by the union's rules. On the other hand, Argentina and Brazil do not seem very interested in helping their other two partners to rise, which in a long-term basis would benefit Mercosul as a whole. Another reflex of the egocentric mind of the South American countries.