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MERCOSUR and Beyond: The Imminent Emergence of the South American Markets

Masaaki Kotabe, The University of Texas at Austin

Over the years, U.S. business executives and academics have seldom paid serious attention to South America for its market potential and research opportunity, respectively. The ratification of the North America Free Trade Agreement (NAFTA) among the Unite d States, Canada, and Mexico, which had taken effect on January 1, 1994, awakened them to look to the south of the U.S. border. Exactly one year later, on January 1, 1995, another major free trade agreement, known commonly as MERCOSUR (Mercado Comú;n del Sur), went into effect among the four countries in the Southern Cone region of South America---Argentina, Brazil, Paraguay, and Uruguay. Subsequently, in June 1996, Chile and Bolivia agreed to join MERCOSUR, extending the frontiers of the South Am erican trading bloc. Chile's participation took effect on October 1, and Bolivia's formal association with MERCOSUR will begin on January 1, 1997. Indeed, MERCOSUR's goal is to incorporate all South American countries by 2005 before linking up with NAFT A.

This book portrays what is currently taking place in MERCOSUR and a few major South American countries in and outside MERCOSUR. By focusing on a few major countries, this book aims at highlighting the hot spots of the region that will set a signi ficant tone for future development in the region. The reader will appreciate the dynamic changes taking place in different parts of South America, which may blossom into a contiguous chain of freely trading and prosperous economies in the South American continent.

CHAPTER 1: MERCOSUR: An Emergent Market in South America

The MERCOSUR is indeed a socioeconomic experiment in rapid evolutionary change, with a regional common market in South America expected to be formed by 2006. Since 1991 the regional trade tripled in monetary value. Before the Asunción Treaty, it was worth US$ 3.6 billion. In 1994, the MERCOSUR trade with Brazil alone amounted to US$ 10.5 billion. Regional trade is bound to grow in the future. The growth potential of trade among the MERCOSUR member countries is vast, not only in the traditional area of product trade, but increasingly in the area of services, technology, investments and human resources. The trade among Argentina, Brazil, Paragu ay and Uruguay has grown significantly. In 1987, the imports and exports among the four countries totaled US$ 2.7 billion. In 1994 this was close to US$ 12 billion, and is expected to double by 2000.

CHAPTER 2: Brazil: The Largest Economy in Latin America

Brazil is the largest economy in Latin America and has about 2.5 times as large a GNP as Mexico. Now that Brazil has been successful in containing its hyperinflation with the Real Plan, the country is bound to emerge as a leading market force in Latin Am erica. Furthermore, Brazil is a principal country in MERCOSUR, a Latin American free trade area, comparable to the NAFTA. Today, Brazil finds itself in the middle of the regional liberalization open to international trade and investment.

CHAPTER 3 Chile--One Emergent Market in Latin America: Can A Country be Re-engineered?

Through a process of major reforms and re-engineering of its laws and government, Chile has achieved high rates of economic growth over the past 20 years and is expected to join the elite group of developed nations in the world by the year 2000. During t he 1985-95 period, the Chilean economy experienced an average annual growth rate of 6.9 percent.

Chapter 4 Integration of Venezuelan and Colombian Markets

Since 1991, Venezuela and Colombia have strengthened their commitment to integration through the signing of the Barahona Act (1991) and the Maiquet’a Declaration (1992). These agreements were aimed at establishing a free trade area between Venezuela and C olombia which the other Andean countries could eventually join, eliminating internal tariffs by 1992, and introducing common external tariffs by 1994.

Professor Masaaki Kotabe of the University of Texas at Austin, while visiting Fundação Getœlio Vargas, São Paulo, Brazil, collaborated with five leading scholars from Brazil, Chile, and Venezuela in this state-of-the-art analysis of t hese South American markets.

Center for International Business Education and Research (CIBER), Graduate School of Business, The University of Texas at Austin, Austin, TX 78712 / USA / Tel (512) 471-1829 / Fax (512) 471-7556 / e-mail: ciber@bus.utexas.edu, web site: http://www.bus.utexas.edu/~ciber/ Price: $10.00