1. MERCOSUR - A NEW ADDRESS FOR U.S.
INVESTMENTS
BV ERICA AOKI
Professor Ralph Steinhardt
SUMMER 1995
THE GEORGE WASHINGTON UNIVERSITY • NATIONAL LAW CENTER

2. TABLE OF CONTENTS
- INTR oD U CTI ON - 1
CHAPTER I. - THE NEW ECONOMIC DEVELOPMENT TRENDS IN
LATIN AMERICA 4
CHAPTER 11.- A BRIEF HISTORY OF MERCOSUR. 8
CHAPTER 111.- DESCRIPTION OF MERCOSUR INSTITUTIONS 13
CHAPTER IV. - THE INTEGRATION OF POLICIES 17
CHAPTER V. - THE ATTRACTIVENESS OF MERCOSUR FOR US.
INVESTORS 21
- CO N CL USI O N - 27

3. INTRODUCTION
The dominant economic trend of the 1990s is the division of the world
into regional trading blocs.l/ According to a study published by the
International Monetary Found (IMF), there are current1y 10 regional
agreements between European countries, 11 of such agreements in the
Americas, 8 in Africa and 5 in Asia and the Middle East. 2./
This paper will describe what is perhaps the most ambitious effort of
economic integration in the Americas: the Common Market of the Southern
Cone (flMercosurfl). Mercosur was originally intended to be a bilateral
regional trading agreement between Argentina and Brazil that would be
established within the context of the Latin American Integration Association
.
(ALADI)~/ system.:l/ Today, Mercosur has evolved and continues to evolve
as a regional common market between four countries: Argentina, Brazil,
Paraguay and Uruguay.
Currently, there are many different types of trading areas in the
world.,2/ However, what is exceptional about Mercosur is the fact that it
1 Over the last twenty years the world trading system has increasingly moved toward regional
trading blocs. This evolution is part of a recognizable trend: as nations move toward market-
oriented systems, volumes of trade increase. As volumes of trade increase, pressure to remove
trade barriers increases. Jeffery E. Garten, American Trade Law in a Changing World Economy,
29 Int'l Law. 15, 26 (1995).
2 Jacob Paulo Kunzler et al., Mercosul e o Mercado Internacional, Sao Paulo, Ortiz, 99 (1995).
3 Ten Nations of South America and Mexico signed in August 1980, the Treaty of Montevideo,
creating the Latin American Integration Association (ALADI),to replace the Latin American
Free Trade Association (ALALC). "The Montevideo Treaty's main purpose is to promote
regional and sub regional partial tariff preference agreements as a means to eventual
multilateral of mutual concessions. James R. Holbein et al., Trade Agreements and Dispute
Settlement Mechanisms in the Western Hemisphere, 25 Case W. Res. J. Int'l L. 531 (1993).
4 Keneth W. Abbott et al., Economic Integration in the Americas: A work in Progress, 14 NW. J.
Int'l L. & Bus. 493, 498 (1994).
5 Trading blocs are defined as preferential economic arrangements between two or more countries.
These arrangements may have 6 different grades of integration:
a) Preferential trade arrangement: trade preferences in the form of freer access to the market.
(e.g. Caribbean Basin Initiative).
b) Free trade area: the tariffs between the members are eliminated, however non-members are

4. canstitutes the first concrete effort to establish a full fledged integrated market
in the Americas. Neither the North American Free Trade Agreement
(NAFTA)º-/, nor other trade arrangements in Central and South America
achieved such a leveI af integratian.
As with Mercasur and NAFTA, many ather arrangements are in the
offing as regional interests come to the forefront of international relations and
the five major trade pacts of Latin America are at various stages of
development.Z/ Hawever, nane af these arrangements compares with
Mercosur in its potential impact on international trade. The four Mercosur
member cauntries - Argentina, Brazil, Paraguay and Uruguay plus Chile
cansists af: nearly 210 million consumers; a grass domestic product (GDP) af
taxed by the tariffs rates of each state's tariff structure. (e.g. United States-Canada Free Trade
Agreement conc1uded in 1988).
c) Customs union: The members liberalize trade among themselves and erect a common tariff
wall (Common External Tariff - CET) against non-members states. (e.g. The 1969 South African
Customs Union).
d) Common market: The members remove restrictions on the internal movement of the means of
production. (e.g. The European Union of today).
e) Economic union: is a common market with unified fiscal, monetary and social policy. It
combines all the features of a common market and adds harmonization of the different
macroeconomic policies of all different member states.
f) Total economic integration, presupposes the unification of monetary, fiscal and social
policies and requires the establishment of a supranational authority whose decisions are
binding on all the member states. See Thomas Andrew O'Keefe, An Assessment of Mereosur' s
Present Legal Framework and institutions and How They Affeet Mereosur's Chanees of Sueeess,
6-AUT Int'l L. Practicum 14, 38 (1993).
6 North American Free Trade Agreement, Dec. 8 and 17, 1992, Can.-Mex.-U.5., 32 LL.M. 296, 32
LL.M. 605 (hereinafter NAPTA).
7 The so-called G-3 Agreement between Mexico, Colombia and Venezuela creates the second
largest free trade are a in the region. "Colombia and Venezuela have been in a customs union
since 1992, and along with Bolivia and Ecuador form the Andean Free trade Zone, under the
Andean Pact, which recently established a common external tariff. The five Spanish-speaking
countries of Central America (with the exception of Panama) have revitalized the Central
American Common Market and are seeking, as a group and individually, bilateral free trade
agreements with Mexico, Colombia and Venezuela. The Caribbean Common Market
(CARICOM), established in 1973 and comprising the English-speaking Caribbean countries, is
taking further steps to lower its common external tariff and further liberalize inter market
trade. CARICOM is also seeking free trade agreements with Mexico, Colombia and Venezuela.
Garten supra note 1, at 26.
2

5. $800 billion (in 1993); a per capita income of $3,500;and representing 55
percent of the Latin American market. In 1994, the global imports of the five
countries were $65 billion, of which around 30 percent were capital gaadsJU
Mercosur represents the fourth largest economic area, after NAFTA, the
EU and Japan. Its market is bigger than Russia. All af its members have put
in place market-oriented economic policies and have opened their markets to
foreign trade and investments. Most of their public enterprises have been
privatized in recent years or expect to be privatized in near future. AIso,
Mercosur's members are committed to the new World Trade Organization
(WTO). Freedom and democracy are today well established in this region and
nobody can seriously complain about the performance of these countries in
the human rights field.
The changes in the economic policies of the Southern Cone countries
coincide with a renewed US. interest in increasing exports and investment in
this region. In addition to EU~/ and NAFTA countries, Latin America
countries are of prime importance to the US. Securing markets in Latin
America have been considered as a priority for US. investors10/ and since
1988 the region has experienced a tremendous growth in imports from the
US. In 1993 for example, U.S. exports ta the region reached almast $80 billion.
By the end of 1995 it is expected that US. exports to Latin American countries
8 Felix Pena, New Approaches to Economic Integration in the Southern Cone, 18 Wash.L.Q.
(1995).
9 The rnernbers of the European Union are: Gerrnany, Belgiurn, Denrnark, Spain, France, Greece,
Ireland, Italy, Luxernbourg, Portugal, Holland, United Kingdorn, Austria, Finland and Sweden.
10 Prepared Staternent of Barbara Urzua Executive Vice President - Arnerican Charnber of
Cornrnerce in Chile (AMCHAM - Chile), Hearing of Accession of Chile to the North Arnerican
Free Trade Agreernent, The House ways and rneans, Cornrnittee Trade subcornrnittee- United
States House of Representatives, June 21, 1995.
3

6. will reach dose to US$ 100 billion.ll/
The recent political and economical developments achieved by
Mercosur countries will provide a unique opportunity for American investors
as will be discussed later in this paper. The first chapter will examine the
economic development trends in Latin America. The second through fourth
chapters will present a brief history of Mercosur, a description of its
institutions, and its main policies. In the last chapter, analysis of the current
importance of Mercosur members for U.s. investors as well as if Mercosur's
rules will accelerate incentives for U.S. investment.
CHAPTER I - ECONOMIC DEVELOPMENT TRENDS IN LATIN
AMERICA
Thirty years ago, Latin America was largely rural, with widespread
illiteracy,12/ For almost 30 years, import substitution policies dominated
economic growth strategies throughout Latin America,13/ These policies were
seen as the only road to industrialization. After all, import substitution was
viewed as the only path to development. The basic premise behind the policy
of import substitution was the protection of "infant" industries from foreign
11 Ursula M. Odiaga, Recent Trade and investment Initiatives in Latin America and Caribbean,
Prac. Law. Inst. CorpoLaw. 69 (1994).
12 Howard J. Wiarda, The Future of Political Reform in the Southern Cone: Can Democracy be
18 Wash. L. Q. 89 (1995).
Sustained?,
13 "Under these import substitution policies, alI types of vested interests preferred the higher
rents generated by protected markets, rather than to subject themselves to the risks associated
with foreign competition. The result was the fostering of unproductive industries which were
unable to compete in the world economy." Emilio Cardenas, The Regional Approach to
Hemispheric Integration: a modular road towards free trade, ISW. J. Trade Am. 49, 51 (1994).
See also Joseph Grunward, The Rocky Road Toward Hemispheric Economic Integration: A
Regional Background with Attention to the Future, in The Enterprise for the Americas
Initiative: Issues and Prospects for a Free Trade Agreement in the Westem Hemisphere, Roy E.
Green ed., 123 (1992).
4

7. competition, while concurrently promoting self-sufficiency for the local
demand.l4/ Furthermore, state intervention in the economy was sustained by
nationalistic policies in vogue in Latin America during that period. For
instance, foreign investors' property was expropriated; in some cases without
compensation. Such activities discouraged foreign investment and
contributed to the classification of Latin America as a high risk market.
After dramatic economic declines and severe debt burdens experienced
by most Latin American countries in the first half of the 1980s, these
government carne to the conclusion that replacing the import substitution
policies with free market economic policies15/ was preferable. These changes
were implemented by many of the democratically elected governments that
carne to power in Latin America in the end of 1980s.
Presently, with a doubled per-capita income, increased
industrialization, and more diversified economies, Latin America is in the
process of rapid transition to modernization.l6/ In the last few decades,
beginning in the mid 1980s, Latin American countries have changed toward
market-oriented economies, free trade, and democratically-elected civilian
governments17/. These factors contributed to the region becoming one of the
14 Cardenas, supra note 13, at 50.
15 lhe four countries of Mercosur choose as a development model, a model of open economies and
their insertions in the international economy, as part of a process of transforming their forme r
import substitution model. Export activities and import competition are now important
instruments for the development and the stabilization of their economies - Vera lhorstensen,
Commercial Defence Policy and its Instruments - A compara tive analysis of US and EC
experiences with anti-dumping, countervailing measures and safeguards as a frame of reference
to the development af Mercasul Policy , Inter-American Development Bank; First Draft (1995).
16 Wiarda, supra note 12, at 89.
17 Willian R. Long, Regional Outlook Look out, Nafta! Latin Trade Bloc is Growing. The Four
Nation Mercosur is LÇlrger than Europe and Boasts two Economic Powerhouses: Brazil and
Argentina, L.A. Times, Jan. 24, 1995.
5

8. fastest growing markets in the world.
Extensive economic and political modernization programs developed
the necessary framework to enable open and competitive economies to
flourish. 18/ The role of the state was radically revised. This contributed to the
adoption of different economic guides: an economy open to international
competition, liberalization of trade; and the privatization of the state-owned
enterprises. Clearly, direct state intervention in the actual production of goods
and services is fading away in most sectors of Latin American economies.l9/
As a result of these dramatic economic and political changes of the last decade,
Latin American countries, but mainly Southern Cone countries, started to
strongly support the notion of economic integration20/ and political
cooperation.
The Mexican peso crisis of December 1994 harmed the economies of the
entire region. However, as pointed out by Bill Perry,21/ the effect of the
Mexican peso crisis on Southern Cone nations was minimal. In any case, the
negative implications of the Mexican peso on this region have been largely
18 Cardenas, supra note 13, at 51.
19 Cardenas, supra note 13, at 52.
20 "Until the late 1950s, trade and other economic links were marginal. Then the idea of
preferential trade relations was introduced. As a result, the Latin American Free Trade
Association [ALALC] was established in 1960...[including ali South American countries and
Mexico.] ALALC's practical results were limited. The formal goal of a free trade zone was never
achieved, mainly because it was not compatible with the prevailing idea of import
substitution ... In 1980 ALALC was transformed into the Latin American Integration Association
[ALADI] ... Within this [ALADI] framework, Mercosur, the Andean Group, the Group of 3
(Mexico, Venezuela and Colombia), the Chile-Mexico Free Trade Agreement, and many other
mostly bilateral agreements were concluded." Pena, supra note 18, at 89.
21 Bill Perry is the director of the Institute of the Americas and advisor to former presidents
Ronald Reagan and George Bush.
6

9. overcome.22/
Today, Latin American countries are making a serious commitment to
economic liberalization and regional integration based on the free flow of
goods and capita1.23/ The new economic policies adopted by Latin American
countries have created attractive investment opportunities for foreign
investors. Also, they have increased trade flows through the region. In 1990s,
Latin America absorbed 80 percent of the total direct investment that flowed
into developing countries. In 1991, accumulated foreign investment in Latin
America reached US $ 36 billion.24/ These figure confirmed the confidence of
international investors in the Latin American countries. According to the
US. Department of Commerce, by the year 2010, U.S. exports to the region will
exceed exports to Europe and Japan combined.25/
The economic importance of Latin America in the current world
economy is undeniable. Among the countries in the region, Mercosur
members are the most important. After all, these nations account for 35
22 Sergio Jellinek, United States: Integration with Latin America A Good Deal, 6/29/95 Inter
Press Servo 1995 WL 2262066.
23 Major Latin American Trade Agreements*
Bloc Pop GNP Intragroup %Imports %Exports
(millions) Trade From u.s. to u.s.
Andean Pact 97 $142 $2.94 36% 41%
Group of Three 141 $406 $2.37 62% 67%
LAIA 395 $1,162 $22.72 45% 43%
Mercosur 198 $676 $9.35 23% 17%
NAFTA 372 $6,960 $296.57 67% 80%
Note: Populations are listed in millions.GNP, intragroup trade, imports and exports are in
billions of D.S. dollars.
* Source: Export Today April1995.
24 Kunzler, supra note 2, at 148.
25 Urzua, Supra note 10.
7

10. percent of the Latin American market.26/
Current discussions regarding the possible expansion of Mercosur to
inc1ude Chile and Venezuela increase the attractiveness of this trading bloc for
foreign investors. In order to analyze the importance for foreign investors in
looking for investment opportunities Ín Mercosur, I will present the historical
background for the creation of Mercosur and its current institutional design
and operation.
CHAPTER 11- A BRIEF HISTORY OF MERCOSUR
Since its inception under the Treaty of Asuncion,27/ the members of
the Southern Common Market (Mercosur) - Argentina, Brazil, Paraguay and
Uruguay have worked towards greater economic integration. The current
formation of Mercosur was spawned from trade negotiations between
Argentina and Brazil initiated in 1984 and culminated in 1985 with the
signing of the Declaration of Iguaçu.28/ The Declaration formed a bilateral
commission for cooperation in the economic integration of Argentina and
Brazil. In 1986 Argentine-Brazilian Program for Integration and Economic
Cooperation (better known by its Spanish acronym PICAB) was formed,29/
This accord established open trade between both countries and its 12 Protocols
may be considered as the "embryo" of Mercosur.
26 Abbot, supra note 4, at 499.
27 Treaty of Asuncion, Mar 26, 1991, Arg.-Braz.-Para.-Uru., 30 LL.M. 1041.
28 Argentine-Brazilian Iguazu Act, Nov. 30, 1985, Arg.-Braz.
29 The primary goal of PICAB was to increase bilateral trade and thereby improve each
country's respective economy and insure the political stability of the two new democratic
regimes recently emerged from years of harsh military rule.
8

11. In order to expand trade between Argentina and Brazil the Treaty of
Integration and Economic Cooperation 30/ was signed in 1988. This treaty
proposed the creation of a common market between these countries by the
year 2,000. However, in 1990s,so as to accelerate trade integration between
these countries, Carlos Menem, the President of Argentina, and Fernando
Collor de MeIo, then president of Brazil, agreed to establish a bilateral
common market with free movement of capital, services, and workers as of
December 31, 1994.31/
Paraguay and Uruguay, fearing that they would be denied entrance into
a common market between two of their largest trading partners, negotiated
their accession by signing the Treaty of Asuncion. The Treaty of Asuncion)U
created Mercosur. The goals of Mercosur are defined in the first article of the
Treaty. Mercosur's objectives do more than simply discuss tariff preference
agreements characteristic of other prior Latin American integration
schemes.33/ Rather, Mercosur's aims are: to eliminate barriers to the
30 In 1988 the them President of Brazil Jose Sarney and Argentinean President Raul Alfonsin
signed the Treaty of Integration and Economic Cooperation (the "1988 Treaty").
31 The general guidelines for this bilateral accord were included in ALADI Economic
Complementary Accord No. 14 (ACE No. 14), signed in December 1990s. See generally Bervery
M. Carl, The New Approach to Latin American Integration and Its Significance to Priva te
Investors, 2 ICSID (World Bank): F. Inv. L.J., 225 (1987).
32 Which was later incorporated into the ALADI framework as ACE No. 18 in November 1991.
Is important to emphasize that the Treaty does not supersede the bilateral accord between
Argentina and Brazil (incorporated in ALADI framework as ACE No. 14). The Article 8 of the
Treaty, the signatory states specifically preserve their obligations under any previous ALADI
agreement, which means that Argentina and Brazil retain the right to continue with the
Mercosur process under ACE No. 14, should the Treaty prove unworkable. See Thomas Andrew
O'Keefe, An Analysis of the Mercosur Economic Integration Project From a Legal Perspective, 28
Int'l Law. 439, 440 (1994).
33 "The economic integration of Latin America, or of South America alone, has been a powerful
concept, even an ideal, for many years. This ideal inspired the formation of ALALC in 1960, and
it is the explicitly stated goal of ALALC's successor ALADI today. As amended in 1967, the
Charter of OAS (Organization of American States) contains a commitment to accelerate the
integration process, with a view to establishing a Latin American common market in the
9

12. movement of services, capital and workers; coordinate macroeconomic and
sectoral policies, including fiscal, monetary and exchange rate regimes; and
harmonize national economic legislation directed towards the expansion of
investment, the liberalization of capital movements, and the improvement of
Mercosur's international competitiveness.34/
In order to ease the brunt of the process of creating a customs union, the
Treaty established a transition period from November 29, 1991 through
December 31, 1994. During this period, Mercosur members countries were
expected to: eliminate completely tariff and non-tariff barriers among
themselves35/; establish a common external tariff (CET)36/;and coordinate
macroeconomic policies. Also, by the end of this transition period, the
shortest possible period. Abbott, supra note 4, at 515.
"The OAS Charter, primarily a codification and consolidation of the Inter American system
that existed from the previous half century, was based on the desire to enhance mutual security
in the region and to preserve the Inter American system, which was in danger of being
overshadowed by the United Nations." Charter of the Organization of American States, Apr.
30, 1948,2 U.S.T. 2394, 119 U.N.T.S. 4. cited in Paul A. O' Hop Jr. , Hemispheric Integration and
the Elimination of Legal Obstacles under a Nafta-based system, 36 Harv. Int'l L.J. 127, 1995.
34 Treaty of Asuncion, supra note 27, art. 1.
35 "The timetable for gradually eliminating inter regional tariffs to zero by the end of the
transition period are found in Annex No. 1 to the Treaty. Certain goods exempt from this general
tariff reduction schedule are included in speciallists that must be annually reduced by 20
percent as to be completely eliminated by December 31,1994. Because Paraguay and Uruguay
joined Mercosur approximately one year after ACE No'. 14 took effect, those nations are given
another year to totally eliminate their lists." O'Keefe, supra note 32, at 441.
Mercosur's almost complete elimination of reciprocal trade barriers is a success. Since January
1995 around 90 percent of trade between Argentina and Brazil has been zero-tariff, including
agricultural products. See Pena, supra note 8, at 89.
Also, during the transition period, Annex IV to the Treaty permitted a member to impose
quantitative restrictions on imports from another Mercosur country whenever a sudden surge in
imports would substantially harm or threaten to harm the importing country's economy. The
language in Annex IV makes clear, however, that a quota cannot be imposed when the import
surge is due to the exporter's use of better technology or is the result of a shift in consumer
preference. The sudden increase must be due to disloyal trading practice such as subsidized
exports or dumping. The quota can only be imposed for a maximum of one year, although it may
be extended continuously but not intermittently. O'Keefe, supra note 32, at 442.
36 A COffiffionexternal tariff was implemented in January 1995. However, some sectors such as
capital goods, chemicals and informatics have an additional period of 5 to 10 years for the
implementation of the common external tariff.
10

13. harmonization of conflicting national legislation was expected to be
completed.
Two major Mercosur protocols have been signed since the
establishment of the Treaty of Asuncion. For example, on December 1991, the
presidents of the four Mercosur member countries signed the Protocol of
Brasilia,37/ which delineates the definitive rules for resolving disputes38/
among the member countries with respect to interpretation, application, and
failure to adhere to obligations arising under the Treaty of Asuncion and
decisions and resolutions of the Common Market Council and Common
Market Group.39/
Analogously, the Ouro Preto Protocol,4o/ signed in December 1994 by
the presidents of the four member countries complemented the Treaty of
Asuncion and re-defined the institutional profile of Mercosur.
Mercosur successfully achieved its target of establishing a customs
union by January 1, 1995 with the reduction of tariff and non-tariff barriers
among the member countries and by modifying the CET.41/ However, the
37 lhe Protocol was subsequent1y ratified by the legislatures of all Mercosur's member countries
and entered into force on April, 1993. Protocolo de Brasilia Para la Solucion de Controversias,
Dec. 17, 1991, 6 Inter American Legal MateriaIs 1 (1992).
38 lhe General Agreement on Tariffs and Trade (GATT) "provides the fundamental mechanisms
common to many nations in the Westem Hemisphere for resolving trade disputes and therefore
provides the context or framework for comparison with Other trade agreements ... (...the primary
dispute resolution under Mercosur remains negotiation and consultation but the addition of the
new avenues of referral to the Common Market Group ar to arbitration offer the possibility of
more objective and efficient decisions ..." Holbein, supra note 3, at 531.
39 O'Keefe, supra note 5, at 30.
40 Additional Protocol to Asuncion Treaty about the Institutional Structure of Mercosur (Ouro
Preto Protocol), Dec. 17, 1994, Arg.-Braz.-Para.-Uru.
41 lhe only requirement the Treaty of Asuncion imposed was that the CET be low enough to
encourage the competitiveness of MERCOSUR industries on the international market. In
Montevideo on Dec. 28, 1992 the member countries agreed to a flexible pseudo CET, whereby each
country have to had an individual external tariff that does not exceed twenty percent in place
11

14. lack of a supranational42/ authority in Mercosur's institutional bodies makes
it difficult to aehieve the harmonization of rules neeessary to effectuate
Mercosur's goal as originally scheduled.43/ AIso, unilateral actions by
member nations sueh as Brazil, have made it impossible to coordinate
macroeconomic policies among the member eountries.44/
Consequently, what developed by Mercosur's original target date of
1995, is a customs union with a modified CET,45/ instead of the common
market as expected. Nevertheless, Mereosur's record thus far is an enormous
success in view of Latin America's previous attempts at integration.46/
Mereosur' s sueeesses are several-fold: a dramatic inerease in intra-
regional trade flOWS,47/ignificant job creation, and new business
s
by June 1993. Thought each member state is permitted to change a tariff of up to 35 percent on a
very limited number of imports included in a speciallist of items. The member states must
within 6 years after January 1, 1995 begin reducing the tariff on these goods to under 20 percent.
Id. at 40.
42 See page 17, Chapter III.
43 O'Keefe, supra note 32, at 444.
44 However, the implementation of the Real Plan in 1994 by the Brazilian governrnent and its
success, changed the mood quickly in favor of Mercosur for a while. The restrictive policies
taken by the Brazilian government against car imports affected again the mood of Mercosur.
This development will be discussed later.
45 "In August 1994, the member countries agreed on a common external tariff (CET) that is to take
effect on January 1, 1995. In fact, the agreement calls for a modified form of CET, one that is less
than fully "common". A cap will be placed on national tariff rates, several important items
will be excluded from this cap for particular countries - the major issue has been Brazilian
tariffs on computers and telecommunications equipment - and extra item has been given to phase
these tariffs down to the standard cap." Abbot, supra note 4, at 500.
46 Most of past attempts to establish a free trade zone never achieved their goals mainly
because the prevailing idea of import substitution was not compatible with the idea of
integration. Mercosur however, could achieve its goal sustained by the return of the democratic
institutions and the opening of the economies to the international trade and investment, which
further stimulated the notion of working together in the Southern Cone.
47 Trade between Argentina and Brazil has increased 200 percent in only 4 years, from US$ 4
billion in 1990s to nearly $12 billion in 1994. Pena, supra note 8.
Mercosur's combined gross domestic product in 1994 was about US$ 800 billion. Its total exports
were US$ 61.5 billion and its imports were US$ 56 billion. See Long, supra note 17.
12

15. opportunities. Yet, a fully functioning customs union is expected to be
achieved on1y after 1999 when alI the interna1 tariff and non-tariff barriers will
be eliminated.48/ The creation af a common market is an even longer range
project, with fruition expected only after the year 2005.
CHAPTER lU - DESCRIPTION OF MERCOSUR INSTITUTIONS
The Treaty of Asuncion created two institutions to oversee the
administration and implementation process of Mercosur during the
transition period:49/ the Common Market Council (CMC) and the Common
Market Group(GMC).51!/ The CMC is the more powerful of the two bodies.
The CMC consists of the Ministers of Foreign Relations and Economics of each
member state.51j Meanwhile, the GMC is ma de up of representatives fram
each member state' s Ministries of Foreign Relations, Economy (or its
equivalent responsible for Industrial Policy, Foreign Commerce, or economic
48 Mercosur has its own rules of origin which stipulate the minimum regional content necessary
for a good to qualify for duty free treatment. As a general rule, these guidelines (found in Annex
II of the Treaty of Asuncion) determine that goods made of inputs originating outside the region
can only receive duty free treatment if: a) the value added in one of the four countries was
enough to change its position in ALADI's tariff schedule, or b) the inputs originating outside the
region do not constitute more than 50 percent of the final goods export value (FOB). The
Mercosur rules of origin are rather liberal when compared to other regional integration schemes.
For example, in the NAFTA, passenger automobiles and light trucks will need 62.5 North
American content in order to qualify for preferential tariff treatment when the NAFTA's rule of
origin are fully planed in. O'Keefe, supra note 32, at 444.
49 Treaty of Asuncion, supra note 27, art. 9.
50 The Common Market Council is an executive body that supervises the implementation and
operation of the agreement. It's main responsibility is to ensure that the Mercosur project is
implemented on schedule. The Common Market Group oversees the operation of 10 working
subgroups on trade, regulatory, and macroeconoffiÍc issues between the countries. Three new
working subgroups were added in December of 1991 dealing with labor relations, education and
tourism. The Group is also the Mercosur body to which a country petitions for authorization to
impose a temporary import restriction.
51 The administra tive secretariat of the CMC is located in Montevideo, Uruguay. The
secretariat coordinates meetings, issues press releases, and handles public relations. Ouro Preto
Protocol, supra note 40, art. 3 through 9.
13

16. coordination), and Central Bank.52j
The fact that the CMC and GMC have, as representatives, individuaIs
that are involved in setting foreign and economic policy in each country,
helps to guarantee that Mercosur will continue to play an important role for
the achievement of wider policy goals. This can be considered the most
significant difference from previous Latin American economic integration
projects where the institutional bodies were controlled by bureaucrats whose
work soon became irrelevant to the policies actually being pursued by their
home countries.53/ Another important feature of Mercosur is the emphasis
placed on private sector participation. Artide 14 of the Treaty expressly
authorizes the GMC to invite private sector representatives to devise and
propose concrete measures to further the integration processo This measure
demonstrates the recognition in Mercosur of the crucial role that the private
sector plays in insuring the success of any type of integration project.
The nega tive features of the CMC and GMC is the lack of any real
authority to enable the achievement of the harmonization of laws54/
necessary to create a true common market. This stems from the fact that any
decision adopted by CMC or GMC must be ratified by each member state' s
respective legislature.
The Ouro Preto Protocol re-defined the administrative bodies, and
terminated the working subgroups. In their place, it created Commissions
52Ouro Preto Protocol, Id. art. 10through 15.
53 O'Keefe, supra note 32, at 44.
54 The legal sources of Mercosur are: (i) The Treaty of Asuncion, its protocols and other
additional or complementary instruments; (ii) Agreements celebrated in accordance with the
Treaty of Asuncion and its protocols; (iii) decisions of CMC, resolutions of GMC and directives of
CCM adopted since the enforcement of Treaty of Asuncion.
14

17. which have not yet been installed. However, CMC and the GMC are still the
highest administrative bodies. An important change introduced by the Ouro
Preto Protocol, is the empowerment of Mercosur to act on behalf of member
countries in trade negotiations with other countries or groups of countries.
This change helps to expedite negotiations and guarantee a higher degree of
harmonization of decisions as a real integrated bloc.55/ The CMC is the
administrative institution with authority to fully exercise the judicial
personality of Mercosur.
The Commissions created by the Ouro Preto Protocol are several fold.
First, the Commission of Trade of Mercosur 's (CCM) responsibility is to assist
the GMC. The CCM guarantees the application of the common commercial
political measures accorded by the member countries in arder to effectuate the
custom union. AIso, the CCM is charged with following-up and revising the
topics and subjects related to common commercial politics between the
members of Mercosur and third countries. 56/ Second, the Joint
Parliamentary Commission (CPC) is the representative institution of the
Parliaments of member countries in Mercosur. The members of the CPC are
selected by the respective national Parliaments, in accardance with their
internal procedures. 57/ Third, the Social Economic Consultive Forum (FCES)
is the representa tive institution of the economic and social sectars. The FCES
55 The article 34 of the Ouro Preto Protocol determines: "The Mercosur will have judicial
personality of International Law". This will allow Mercosur to negotiate trade agreements as an
unified entity with other countries or group of countries. This implies a new experience for
Mercosur, because its members need to reach a higher degree of internal coordination to negotiate
with non member countries. Pena, supra note 8, at 89.
56 Ouro Preto Protocol, supra note 40, art. 16 through 21.
57 Id. art. 22 thrbugh 27.
15

18. will be camprised af the same number af representatives fram each member
country. FCES will have a consultive function and will make
pronouncements upon request of GMC. It has not yet been established
because of parliamentary delay. 5.8./ Fourth, the Administrative Secretary of
Mercosur (SAM) will have one Administrative Secretariat as an operational
support institute. SAM will be responsible for providing administrative
services to other institutions of Mercosur and will have permanent
headquarters in Montevideo. 59/
Mercosur does not have its own court to solve disputes arising among
member countries. Rather, state parties to a dispute have to enter in to direct
negotiations before they refer their dispute to the GMC. The GMC has to
render a decision within thirty days.60/ If a decision is not reached, then the
matter is referred to a three-member arbitration panel, which has to render a
judgement within ninety days. The arbitration panel's decision is not
appealable. Also, since the panel's decision is confidential it is difficult to
establish a body of Mercosur law which could provide precedential value for
future disputes. AIso, Mercosur's rule of not allowing dissenting opinions to
a judgement goes against the standard practice of arbitration clauses found in
other international treaties. 61/
Meanwhile, individuaIs may file a camplaint' with the National Section
of the GMC against a member state. If the complaint is not resolved within
58 Id.art. 28 through 30.
59 Id. art. 31 through 33.
60 Protocol of Brasilia, supra note 33.
61 O'Keefe, supra note 5 at 40.
16

19. fifteen days, it is then referred to the full GMC. The full GMC has thirty days
to resolve the complaint. However, individuaIs have no further recourse
beyond the GMC unless a state party a:dopts the individual's complaint and
requests arbitration. Furthermore, individuaIs may not direct1y challenge a
state's failure to adhere to Íts obligations under Mercosur. This particular
limitation contrasts with the situation in the European Union (EU). In the
EU, individuaIs who meet the standing requirements can directly challenge a
state's failure to adhere to obligation arising under the Treaty of Rome.
Mercosur needs to develop stronger and well defined institutions to
better adjudicate the interests of each member countries. AIso, since there are
no supranational consequences arising from Mercosur' s jurídical and
institutional safeguards, (neither at the decision-making stage nor at the
enforcement stage of integrative measures) member states' consent is essential
to validate both the enactment and the enforcement of Mercosur legislation.
In order to ensure that the regional rules are correctly observed, Mercosur
needs to create a supranational machinery like the European Court of Justice.
Such an institution would make the community law enforceable over
nationallegislation. As a result, there will be more confidence among
Mercosur members.62j
CHAPTER IV - THE INTEGRA TION OF POLICIES
As widely recognized, the Treaty of Asuncion was not conceived as a
foundational framework but instead, its primarily purpose was only to
62 See generally Ferrari, Marta Haines, A new madel af Latin American Ecanamic Integratian?,
25 Case w. Res. J. Int'l L. 413,427 (1993).
17

20. provide a preliminary legal framework for the organization of the common
market.6.3./ mong Argentina, Brazil, Paraguay and Uruguay.
a
As prescribed in its provisions, the Treaty is a temporary agreement. It
is not intended to explain the rationale for the coordination of national
economic policies, sectorial agreements, and the harmonization of national
legislation.64/ Furthermore, the Treaty prescribed precise mechanisms
devoted to the freedom of interstate goods circulation. Yet, it failed to specify
the tools to establish the common market.
The compulsory character of the measures adopted for the
implementation of a free trade area implied the obligation of member
countries' under internationallaw to adjust their domestic legislation and
guarantee its enforcement. However, for the implementation of a common
market, Mercosur members have to: negotiate the content and modalities of
pending aspects essential to attaining the common
market; sign new agreements complementary to the Treaty's65/ text; and
obtain parliamentary approval for their juridical validation.
The early phase of integration, which was a complete success, created a
customs uni~n since Mercosur countries resolved initial disputes over the
63 The achievement of the common market envisioned by the Treaty of Asuncion will result in:
(i) Free circulation of goods, services and production factors within the territories of the four
countries involved, to be achieved by the elimination of tariffs and non-tariff barriers; (ii)
establishment of a common external tariff; (iii) coordination of macro-economic policies among
the member states and (iv) the harmonization of the countries respective internal regulations.
64 Ferrari, supra note 62, at 440.
65 By analyzing the Mercosur's legal structure, it is important to emphasize that neither ACE
14 nor the Treaty of Asuncion established the necessary legal rules of a functioning common
market. Instead, both agreements merely lay down the general, broad guidelines for
establishing such a common market, and leave the specifics to later agreements to be signed by
the member states.
18

21. CET.66/ Subsequently, they were able to accommodate divergent economic
conditions of the four member countries (e.g., by setting an extended
timetables for each member countries67/ to comply with eventual
convergence). These efforts emphasized the interests and strong
commitments of the Mercosur' s leaders to liberalize trade as quick as
possible.68/
Regardless of this initial success of implementing a customs union, the
recent action by Brazil sparked a trade dispute by creating barriers to auto
exports from Argentina, raised some doubts with regard to the real
achievement of Mercosur.69/ Hopefully, this temporary setback will not
permanently reverse the steps taken thus far by its members. In addition, it
66 "Although the member states were able to agree on CET levels for four-fifths of their
products, the remaining products have proven to be more problematic. For example, Argentina,
which is anxious to modernize its infrastructure, has been negotiating for low duties on imported
computers and capital equipment, but Brazil has been reluctant to lower barriers protecting its
own industries in these fields." O'Hop Jr., supra note 33, at 127. However, those sensitive areas
such as capital goods and information technology will be gradually phased in and should be
completed between 2001 and 2006.
67 "First of all, every country submitted by October 1994, a list of exceptions to the CET; up to 300
items for Argentina, Brazil and Uruguay and up to 400 items for Paraguay. With regard to
capital goods, there was an agreement on an external tariff of 14 percent by the end of the
transition period. This represents a compromise between Argentina, which favored a lower
tariff and Brazil, which advocated more external protection for its capital goods industries.
Paraguay and Uruguay will not adopt this tariff until2006. The common external tariff for
computer equipment will be reduced up to 16 percent by 2006. At this juncture both for computers
and capital goods there is not as yet agreement on the calendar for convergence of tariffs on
levels agreed to for CET. Finally, intra regional tariffs on "sensitive products" will continue in
force for a transition period of four years. The details for this as well as for the convergence
procedures on the exception items have to be worked out by October 31." Arturo Vera, Financing
Infrastructure and Other Investment Projects in Mercosur, Interamerican Development Bank,
Integration, Trade and Hemispheric Issues Division, 1994.
68 Mercosur became free trade zone far in advance of NAFTA timetable.
69 The Brazilian Government imposed limits on car imports for the rest of the year. Brazil is
seeking with this measure, widening trade deficit, which has swung from a large surplus since
economic stability measures known as Real Plano This tension is a result of several issues,
however, the main problem was that Argentina has been commonly preferred to Brazil as
manufacturing location since the move to free trade between the countries began last year,
because of the more stable politic and economic environment and a more favorable legislation for
the car manufactures. Matthew Doman Afr, Brazil, Argentina Car dispute Threatens Trade
Group, Australian Financial Review, June 23, 1995.
19

22. may be considered as just one action occurring during an economic
adjustment period. More specifically, a time when member countries worked
to maintain stable economies70/ and protect their divergent interests.
Mercosur member countries should not forget that a customs union
means more than removing barriers, harmonizing regulatory policies, and
eliminating cross-border trade and investment restrictions. It also leads to the
adoption of a sound macro-economic policies as well as the implementation
of comprehensive and well functioning integration structure. In addition, the
leaders of the member countries should remember that the immediate first
priority should be the consolidation of what has been achieved.71/
Furthermore, a continuous and hard political and economic coordination
among the regional partners is essential to complete its task in becoming a
common market. However, despite the intensive work of alI four member
countries to identify and eliminate the obstacles to inter-regional trade,72/
much still has to be done before Mercosur fully meets its goal of becoming a
common market.
Presently, under Mercosur, free trade is in place for goods. AIso, steps
70 In March, 1995, the Brazilian Government raised the tariff on 109 products. President
Cardoso, declared that this measure is a "very temporary measure" only taken to keep the trade
balance in "equilibrium". The Bureau of national Affairs, Inc. , Coal Df Free Trade Area Df
Americas by 2005 is Feasible, Brazil's Cardoso says, Daily Report for Executives April 24, 1995,
1995 Der 78d22.
71 In February, Brazil raised tariffs on imported automobiles from 20 percent to 32 percent and
then proceeded to raise levies on 109 imported consumer items by as much as 70 percent. In June,
Brazil create barriers to auto exports from Argentina. These measures have been taken as a
response to the recent increase of the Brazilian trade deficit. Nevertheless Mercosur adds a dose
of credibility to South America for foreign investors as economic reforms take hold. Some
observers have said that this conflict could actually grease the wheels of Mercosur relations.
72 Mercosur has the advantage that it can learn from the US and Europe experience. NAFTA
and EC models are of great importance to Mercosur, not only as a basis to learn what type of
policy and how to construct a policy, but also to learn what should not be practiced to achieve
faster the proposed goals.
20

23. have been taken to liberalize capital movements and protect foreign
investment. Yet, there is no sight of an agreement on either services or labor.
AIso, numerous issues - - the development of a unified code of intel1ectual
property, competition policy, consumer protection, harmonization of tax
codes, harmonization of monetary and exchange policies, regulation of
foreign investments, incentives of exports, disloyal practice of inter-zone trade
and trade with third countries - - need to be addressed. However, the main
issue is to correct the current enormous differences in the legislation of all
four member countries. Among the laws that must be harmonized include:
minimum wages and labor laws, as wel1 as policies on subsidized electricity
and tax incentive for exporters. After all, disparities in such laws give one
country unfair, non-market advantages over other nations.
CHAPTER V - THE ATTRACTIVENESS OF MERCOSUR FOR U.S.
INVESTORS
Indeed, the Latin American market is important for u.s. exporters,
particularly for those selling manufactured goods.73/ In 1993, U.s. exports to
Latin America reached US$ 80 billion, twice as much as was exported to the
region in 1980.74/ In all of Latin America, the Mercosur region is attracting
73 U.s. exports to Latin American Countries grew 30 percent more than in any other region last
year. U.S. exports more products to Mexico than to Germany and France combined, and sells more
to Brazil than to China, while Venezuelan market provides more profits than Russia's.
J ellinek, supra note 22.
74 The United States concentrates its direct investment in Westem Europe (47 percent), North
America, i.e., Canada and Mexico (18 percent together), and Latin America (10 percent). Gary C.
Hufbauer et a1., Western Hemisphere Eeonomie Integration - Eeonomie and Politieal
Determinations of U.S. Poliey, Inter-American Development Bank, 3 (1994).
21

24. the greatest interest among foreign investors. With successful
macroeconomic and political stabilization, Mercosur provides the most stable
and favorable environment for foreign investors. If Chile accedes to
Mercosur, this region's economic importance will increase further.75j AIso,
Venezuela is expected to join Mercosur from January 1, 1996.761
Noteworthy, foreign771 and inter-regional~1 investment is rising in
the region. In addition to multiplying business opportunities in all four
countries, because of the enlarged market size, the Mercosur initiative has
opened enormous investment opportunities in transportation infrastructure,
energy, and in manufacturing.791
75 At the meeting held in Ouro Preto, Chile and Bolivia formalized their intention to join the
Mercosur. Chile will most probably enter in 1995, either as a full member or as a special partner
through some king of association agreement."Santiago 12th May: Chilean Economy Minister
Alvaro Garica stated today that by the end of June Chile and the Common Market of the South
(Mercosur) will exchange lists of sensitive and exceptional products, based upon which they
will begin the stage of free trade negotiations."Economy minister explains negotiations with
mercosur, Source: EFE news agency, Madrid, May 23, 1995.
" A Chilean diplomat here said on June 1 that Santiago was on target to sign a "good association
agreement" with Mercosur before the end of 1995, and that the only thing standing in the way
for full membership of Mercosur was some outstanding changes to Chile's tax system." Debra
Percival, Trade: EU Seeks Better Ties With Chile, Preferably Under Mercosur, Interpress
Service June 1, 1995.
76 The projects that are moving the process of integration of Venezuela forward, are the sale of
electricity to the north and northeastern regions of Brazil; the paving of highway in the
Amazon jungle and a joint oil venture. The joint venture known as Petroamerica between the two
state-run oil companies Petrobras and Petroleos Venezoelanos (PDVSA) is projected to operate
on an internationalleve1. The Venezuelan Senator Humberto Celli, gave speech pointing out
that Venezuela's entry into the Mercosur contributes to the basic aim of his institution: the
building of a Latin American community of nations. Integratian: Venezuela to jain Mercasul in
1996, 5/18/95 Inter Press Servo 1995 WL 2261154.
77 Multinational corporations in the motor industry are modifying their production lines in both
Argentina and Brazil, geared towards specialization in the wider Mercosur market. Vera, supra
note 67, at 3.
78 Brazilian firms have increased investment in the other Mercosur partners either through the
establishment of joint venture or the creation of subsidiaries. Vera, supra note 67, at 4.
79 Such regional development projects, many af which are receiving financing fram the
multilateral development banks, affer U.S. firms a variety af investment appartunities. One
large praject, along the Tiete-Parana waterway, will create a fluviallink between the faur
Mercosur countries and will provide a much cheaper means to shipping than the highway
22

25. The importance of Mercosur for the V.5. can be illustrated not only by
the amount of bilateral trade and investment,80/ but also by the fact that the
V.5. is presently working on a possibility of a trade arrangement with
Mercosur.81/
Mercosur's policy, has expanded greater efforts on external relations.
The idea is to gradually extend the zero-tariff concept to other South
American partners within the ALADI framework.82j Another important
item on the foreign relations agenda of Mercosur is the hemispheric
dimension.83j The Mercosur's member countries give priority to
hemispheric process with a strong relationship with NAFTA that has
compatible approach with Mercosur.84j Moreover, Mercosur and NAFTA .
probably will be the two mam pillars of a hemispheric system of free trade
system. Farming and agribusiness along the Tiete and Parana rivers are already noting
inereased investments.
80 Mereosur alone absorbs half of all US. exports in Latin Ameriea and reeeive almost two fifths
of US. direct investments. Vera, supra note 67 at 5.
81 For US. investors, the involvement of the US. government in a trade integration with
Mereosur will give a further advantage in the negotiations of favorable rules.
Among the issues upon whieh the presidents desired input are: (i) the means by whieh the
United States and Brazil, individually and through their respective memberships in the North
Ameriean Free Trade Agreement and Mercosur, ean jointly eontribute to attaining the FTAA-
Free Trade Area of the Amerieas and to aehieving eonerete progress toward that goal by the
year 2000; and (ii) the potential for establishing links between NAFTA and MERCOSUR
refleetive of linkages being established between other sub regional integration arrangements
and trading partners in the hemisphere. The Bureau of national Affairs, me., Coal of Free Trade
Area of Americas by 2005 is Feasible, Brazil's Cardoso says, Daily Report for Exeeutives April
24,1995 -1995 Der 78d22.
82 This idea originated in a Brazilian proposal for South Ameriean Free Trade Area. The
proposal was aeeepted by the Mereosur partners and negotiations are eurrently in progresso See
Pena, supra note 8, at 89.
83 Whieh is related to the follow-up of the Deeember, 1994 Miami Summit and to the eonferenee
that took plaee in Denver in June, 1995.
84 Pena, supra note 8, at 86.
23

26. and investment.85/
Moreover, Europe is another a priority in Mercosur's foreign relations
agenda. After all, more than 25 percent of Mercosur's total trade is with the
European countries. Similarly, 70 percent of European direct foreign
investment in Latin America is concentrated in Mercosur countries, mainly
in Argentina and Brazil. The EU-Mercosur framework agreement, negotiated
in 1995, and ultimately a transatlantic free trade area, should open the way for
GATT-plus inter-regional agreements. 86/
For companies already operating in the region, the Mercosur free trade
zone enables firms to streamline operations and redirect production to the
most cost-effective plants that can serve the entire market from one location.
All things being equal, foreign investor new to the region would prefer the
access afforded by a Mercosur member than a non-member.87/
The creation of Mercosur brought other positive developments besides
increase trade. With respect to capital movements and investment policies,
additional opportunities were hastened.88/ Also, Mercosur adopted the Basle
Committee Guidelines,89/ an agreement which accelerated the coordination
85 See generally, O'Hop Jr., supra note 36.
86 The Center for Strategic and International Studies and the Massachusetts Institute of
Technology The Washington Quarterly 1995 Summer - The Emerging Southern Cone; Vo118, No.
3 - New Approaches to Economic Integration in the Southern Cone.
87 O'Keefe, supra note 33, at 23.
88 e.g. the discussion of a floating exchange rate system aimed at narrowing exchange
disparities between Argentina and Brazil. By narrowing the exchange disparities, the foreign
investors will be able to invest in a more stable market and will have means to project their
investments.
89 Basle Committee of Banking Regulations and Supervisory Practices comprises representatives
of the central banks and supervisory authorities of the Group of Ten countries (Belgium, Canada,
France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, United Kingdom, United
States and Luxembourg). The Committee meets at the Bank of International Settlements, Basle,
Switzerland. July 1988.
24

27. of capital markets legislation. As a result of implementing this accord,
domestic and foreign investors gained greater protection of their
investments.90/
With the adoption of Protocol for the Promotion and Protection of
Investment Originating from non-Mercosur Countries, by Mercosur's
countries on August 1994, 91/ all member nations pledged to promote and
facilitate the entry of foreign investment in accordance with local laws.92/
Also, under this accord each Mercosur country agreed to provide national
treatment to foreign investors.93/
The removal of limits on foreign ownership as well as the easing of
90 Vera, supra note 67, at 5.
91 Types of foreign investment covered by this Protocol include: real esta te, mortgages, and
bonds; participation in companies such as stocks; credit titles; intellectual property rights,
including patents, industrial designs, trademarks technical procedures and know-how; economic
concession by law or by contract, including research, cultivation, extraction or exploration of
natural resources; and income, including ali sums produced by an investment, such as profits,
income, dividends, interest, royalties, etc. Brazilian Embassy in Washington, Fact sheet about
Mercosur.
92 "In spite of important political and economic advances in Mercosur, and other integration
schemes, the legal framework has been left in another era" said Chilean lawyer and diplomat
Raimundo Barros Charlin. 50, it is not clear whether the Calvo Doctrine has been implemented
with regard to foreign investments in Mercosur. As Barros Charlin added, " it is not clear
whether the legal conditions of the treaties have primacy over the individual nationallaw
systems", even in the case of integration schemes like the Mercosur. Marcelo Jelen, Latin
America: Integration in Legal Limbo, 5/22/95, Inter Press Servo 1995 WL 2261237.
93 Forms of protection for foreign capital under this Protocol include the following:
Transferrals: transferrals of the foreign investment and its related income will be
carried out without delay and in a freely convertible currency. Such transferrals include:
capital and additional sums needed to maintain and develop investments; profits, income,
interest, dividends and other current receipts; funds to repay loans; royalties; proceeds of sale or
liquidation of an investment; indemnities payments; and payment to employees authorized to
work with the foreign investment.
Dispute Settlement: Disputes between a foreign investor and a Mercosur member state
that are not solved in an amicable way and within a reasonable time frame, may be brought to
the local courts of the country where the investment was made or to intemational arbitration
(either an "ad hoc" arbitration court or an intemational arbitration institution). Arbitration
settlements will be defined and executed by the mercosur member state in accordance with its
legislation.
25

28. restrictions on profit and capital remittances is a future aim of Mercosur94/.
Greater liberalization in many service sectors would be helpful as well.22/
Furthermore, since the Mercosur formed its objective of a customs
union with GATT compatible rules, and its member have been active in the
GATT Uruguay Round96/, Mercosur can offer foreign investors additional
advantages of predictable rules.
CONCLUSION
Full economic integration with free movement of capital and further
macro-economic harmonizahon under Mercosur likely will occur in the
medium to long termo Nevertheless, some important steps to ensure the
establishment of a common market have already taken place. In order to
achieve complete integration, greater political commitment should be
maintained.
Similarly, the economic growth and positive developments related to
capital movements and investment policies undertaken by the Mercosur
countries (by the adoption of the Basle Committee regulations and other
measures to protect investors) contributed to the expansion of the
investments in the region.
Investing in Mercosur will not only ensure access to a significant
94 Simonsen Associados, Mercosul O Desafio do Marketing de Integracao, 53 (1992).
95 A country that significantly lags its neighbors in introducing investment reforms is Brazil.
Constitutionallimitations on private sector participation in certain sectors, statutory limits on
profit and capital repatriation, performance requirements, and restricted access to local capital
markets are major barriers. Gary C. Hufbauer et al., Western Hemisphere Economic lntegration
- Economic and Political Determinations of U.S. Policy , Inter-American Development Bank, 56
(1994).
96 Vera, supra note 67, at 4.
26

29. market, but also wiU facilitate access to other markets in the Western
Hemisphere. After all, Mercosur is considered a building block for
hemispheric integration.
However, there is always the possibility that the some of the goals of the
Mercosur will never be fulfiUed. Alternatively, the whole initiative may fail.
But, it would appear that the democratic and economic transformations
recently taking hold in the Southern Cone, wiU continue to be a priority and
reality.
27

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