International Business Environment in Mercosur Nations

Abstract

Mercosur is the latest common market in Latin America with Argentina, Brazil, Paraguay and Uruguay as its full members, along with Bolivia and Chile as associate members. Mercosur is an acronym for Mercado Comun Del Sur meaning the Southern Cone Common Market. Mercosur, with its original four member nations, has a total population of 200 million and a combined GDP of $1,000 billion (Fidler 1997, Pilling 1997). If Mercosur were a single country, this would make it the world's fourth most populous nation with the seventh largest economy.

Since the Treaty of Mercosur, also known as the Asuncion Treaty, the four full members have made tremendous strides towards achieving most of their objectives within the specified time periods. However, the agreement which called for the full implementation of a customs union by January 1, 1995, has not been fully realized. This has given rise to some concern among foreign investors about the practicality, and the attractiveness of the proposed Customs Union. The purpose of this paper is to evaluate the general business environment of the four Mercosur-member nations through an examination of the agreement itself, followed by a brief investment risk assessment using a country risk assessment model, and conclude with some implications for prospective investors. The analysis is limited to the economies of the four full member nations mainly because of two reasons: (1) the study focuses on issues concerning this group's transition to a customs union and eventually to a common market, and (2) there are continuing negotiations with countries such as Colombia, Mexico, Peru, Ecuador, and Venezuela for their accession into Mercosur as associate members. Therefore, the term Mercosur Nations in this paper refers to the four nations who are full members of Mercosur.     

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