Mercosur, a South American Trade block is a :

Question

Prepp Team · Accepted Answer

Understanding Mercosur: A South American Trade Block

The question asks about the classification of Mercosur, a prominent trade block in South America. To answer this, we need to understand different levels of economic integration among countries.

Levels of Economic Integration

Countries can integrate their economies in several ways, forming different types of trade blocks. These levels typically build upon each other:

Free Trade Area (FTA): Member countries eliminate tariffs, quotas, and preferences on most goods and services traded among themselves. However, each member maintains its own external trade policies towards non-member countries. An example is NAFTA (now USMCA).
Customs Union: This level builds upon an FTA. Members eliminate internal trade barriers AND adopt a common external trade policy (CET) towards non-member countries. This means all members negotiate trade agreements with external parties as a single bloc. An example is the East African Community (EAC).
Common Market: This level builds upon a Customs Union. In addition to eliminating internal barriers and having a common external policy, it allows for the free movement of factors of production – labor, capital, and services – among member countries. This is also sometimes called a single market. An example is the European Economic Community (EEC) which was a precursor to the EU single market.
Economic Union: This level builds upon a Common Market. Members coordinate and unify economic policies (like monetary policy, fiscal policy, competition policy). The European Union (EU) is an example, especially the Eurozone.

Level of Integration	Internal Trade Barriers Eliminated	Common External Policy	Free Movement of Factors (Labor, Capital, Services)	Harmonization/Unification of Economic Policies
Free Trade Area	Yes	No	No	No
Customs Union	Yes	Yes	No	No
Common Market	Yes	Yes	Yes	No (Partial Coordination Possible)
Economic Union	Yes	Yes	Yes	Yes

Mercosur's Classification

Mercosur, officially known as the Southern Common Market (Spanish: Mercado Común del Sur), was established by the Treaty of Asunción in 1991. Its primary goals included the free movement of goods, services, and factors of production among member countries, the adoption of a common external tariff, and the coordination of macroeconomic and sectoral policies.

Based on its stated objectives and operational characteristics, Mercosur aims to achieve:

Free transit of goods, services, and factors of production among member states.
Establishment of a common external tariff (CET).
Coordination of macroeconomic and sectoral policies.
Harmonization of legislation in relevant areas.

While the full implementation of free movement of factors and complete policy coordination have faced challenges and are ongoing processes, the founding treaty and the bloc's structure define it as aspiring to be, and operating with the characteristics of, a Common Market, including aspects of a Customs Union (CET) and aiming for free movement.

Comparing Mercosur's characteristics to the definitions:

It goes beyond a Free Trade Area because it has a common external tariff.
It goes beyond a Customs Union because it aims for and facilitates the free movement of labor, capital, and services.
It aims for policy coordination but is not a full Economic Union with unified policies like a common currency or fully integrated fiscal policy.

Therefore, Mercosur is best classified as a Common Market.

Why Other Options Are Less Suitable

Free Trade Area: Incorrect, as Mercosur has a common external policy (CET), which is a characteristic of a customs union or higher.
Customs Union: Partially correct as it includes a CET, but Mercosur also aims for and facilitates the free movement of factors, which defines a common market.
Economic Cooperation: While Mercosur involves economic cooperation, this term is too broad. Trade blocks like Mercosur represent specific, structured forms of economic integration, not just general cooperation.

Based on its structure, goals, and functioning, Mercosur fits the definition of a Common Market.

Revision Table: Mercosur and Economic Integration

Term	Key Characteristics Relevant to Mercosur	Does Mercosur Fit?
Free Trade Area	Internal trade barriers eliminated; independent external policies.	No (Mercosur has a common external policy)
Customs Union	Internal trade barriers eliminated; common external policy.	Partially (It is a Customs Union, but aims for more)
Common Market	Internal trade barriers eliminated; common external policy; free movement of factors (labor, capital, services).	Yes (Its structure and goals align with this level)
Economic Union	Common Market features plus unified economic policies (e.g., currency, fiscal).	No (Mercosur does not have fully unified economic policies)

Additional Information on Mercosur Trade Block

Mercosur's full members are Argentina, Brazil, Paraguay, and Uruguay. Venezuela is a signatory member but has been suspended since 2016. Bolivia is in the process of becoming a full member. Other South American countries have associate or observer status.

The block represents a significant economic force, accounting for a large portion of South America's GDP and population. While it has successfully reduced internal tariffs and implemented a common external tariff (though with exceptions), achieving the full free movement of factors and harmonizing all policies remain ongoing challenges.

Understanding trade blocks like Mercosur helps in analyzing regional economics, international trade patterns, and the political dynamics between member states.