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Integration reality check

Mercosur has successfully expanded trade and investment among Argentina, Brazil, Paraguay and Uruguay, but the trade pact faces big challenges in the future, according to a report by the Institute for the Integration of Latin America and Caribbean (INTAL).Trade within Mercosur has grown to $16 billion a year, or one-fifth of the total external trade of all its member countries. However, intra-Mercosur trade has not yet reached its full potential, particularly if compared with Southeast Asia, according to the first report on the trade pact by INTAL, an IDB affiliate based in Buenos Aires. The report was the subject of a recent seminar at the Bank's Washington, D.C., headquarters.

According to Roberto Bouzas, coordinator of the INTAL report, the trade pact's initial success has been due to the natural partnership between its member countries that "was repressed during several decades by (protectionist) policies."

Mercosur was also helped by the fact that its four member countries have followed similar macroeconomic policies during the past four to five years and by their decision to use automatic mechanisms to govern the process of trade liberalization, leaving negotiations only for exceptional cases.

But the job of sustaining a common market is not easy. "Mercosur is reaching a point where institutional and organizational issues are becoming the key," said Bouzas. Some trade pact policies are not working as expected and need to be more efficiently implemented. For instance, tariffs are charged twice--when a country imports a product from outside Mercosur and then reexports it to another Mercosur member country. And information sharing among member countries is still very limited.

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