Regional Trading Bloc Paper

Introduction

The role of regional integration involves two cases: economic and political. (Hill, 2004, p.271, 1) The trading bloc MERCOSUR is the focus of this paper and addresses the advantages and disadvantages of MERCOSUR's trade policies, compares and contrasts the economic development stages of the countries within this trade bloc, and briefly shows the ramifications of this trading bloc's economic development for global business. To begin, this paper starts by describing the trading bloc and giving brief background information.

MERCOSUR

MERCOSUR is a trading bloc, which is an area of free trade based on specific tax and tariff agreements made among a group of countries, in South America. This particular trade region is made up of four countries: Argentina, Brazil, Paraguay, and Uruguay. ("Mercosur," 2005, 1) The trade bloc began in the late 1980s with two countries and by the early 1990s incorporated two additional countries with hopes of boosting economic growth, achieving a full free trade area, eliminating customs duties and tariffs between members, and eventually becoming a customs union. ("Mercosur," 2005, 4)

Advantages of Regional Integration

Advantages of the regional integration of MERCOSUR include a decline in trade barriers among member countries, reduced tariffs, creates positive growth for member countries, and the draft of the Ouro Preto Protocol, which establishes the framework for making decisions within MERCOSUR and allows for certain exceptions for specific national industries that are important to the South American economy. ("Mercosur," 2005, 6) Trade barriers among member countries are likely to drop gradually allowing MERCOSUR to advance slowly but steadily. Reduced tariffs will also give this trade bloc the opportunity to trade more, which could eliminate products and services from becoming stagnant. The adoption of the Ouro Preto Protocol should ensure that important industries have certain allowances as the economy changes giving MERCOSUR a chance to keep consistency in conducting business. Another advantage in MERCOSUR's favor is that with successful intra-regional trade comes external trade from countries outside the region, which can lead these other countries to believe that MERCOSUR is successful and worthy to conduct business with, which is significant when disadvantages such as inflation costs and economic swings happen.

Disadvantages of Regional Integration

Disadvantages of the regional integration of MERCOSUR include political changes, lower GDP growth compared to other trade blocs around the world, inflation costs, exchange rates, economic swings, and dependency of other world economies successes. Political changes that is not consistent such as increasing and decreasing policies, taxes, and tariffs can cause MERCOSUR member countries to face sudden loss in revenue. Since MERCOSUR resides in an area that is not as developed as most successful trade blocs being