Mercosur: Integration and Industrial Policy

OMPRISING the majority of Latin America's population, land and economic output, the Southern Cone Common Market (Mercosur) represents the deepest attempt to date at economic integration in that region. Initiated by the Treaty of Asuncion in 1991, Mercosur aims to eliminate all internal tariff and non- tariff barriers on the flow of goods and factors of production, implement a common external tariff, and harmonise numerous macroeconomic and sectoral policies among Argentina, Brazil, Paraguay and Uruguay. If it is successful, Mercosur members will gain from greater production rationalisation, more efficient resource allocation and expanded consumption opportunities. More broadly, Mercosur is evolving into a core unit with which other countries and regional trading blocs can negotiate trade arrangements. Already agreements have been signed admitting Chile and Bolivia as associate members, and negotiations are taking place with the Pacto Andino countries and the European Union. Thus, Mercosur is engaged in simultaneous efforts to widen its membership and to deepen integration among its members. The immensity and difficulty of this task is demonstrated by the fact that despite more than two dozen attempts at regional integration in the world over the past four decades, only the European Union has successfully forged the path from free trade area, to customs union, to common market, and now towards imminent monetary union.1 The EU's experience has shown that the predicted welfare gains