The Southern Cone & Mercosur

Francisco A. Laguna & Francisco Moran

This is first of a 7-part series on the Southern Cone and the member countries of Mercosur. The series will be published in two parts, starting with a brief explanation of the Southern Cone, then two country profiles for Argentina and Uruguay.

thOver the past year, TransLegal has worked extensively in the Southern Cone, assisting companies understand the regulatory requirements for products and services in areas such as biotechnology, bioprospecting, genetically modified foods and animal feed and novel foods. We have also helped our clients implement trade strategies to maximize the benefits of operating in Mercosur.

It is difficult to generalize about the region. An ever changing and complex political scene makes it volatile and difficult to evaluate. The only way to analyze the region accurately is by comprehensively understanding the relationships between the countries. This series of articles aims to explain these relationships and provide you with the facts and analysis that you will need to successfully understand the region.

mercosurThe Southern Cone is the southern region of Latin America and is comprised of Argentina, Brazil, Chile, Paraguay and Uruguay. Although parts of the region maintain strong indigenous roots, the majority of the population of the southern cone has been transformed by immigration from the Iberian Peninsula beginning in the colonial period. The most obvious influences of this immigration – all shared by each of the countries – include the predominance of the Spanish language (Portuguese in Brazil) and the widespread practice of Christianity. All five nations gained independence through revolutionary struggle in the early 19th century. Each country experienced its own challenges to solidify democratic governments. These struggles included a series of dictatorships during the 60’s and 70’s. As elected governments emerged, they often attempted to distinguish themselves from the former repressive, right-wing regimes by adopting socialist, more left-wing policies.

Each country is now a constitutional democracy, and each has adopted civil law, based on the Napoleonic code. Still, each country has a unique legal culture and approach, due largely to differences in the strength of the rule of law and internal socio-economic conditions.

Today, a highly uneven distribution of natural resources and a contrast of financial conditions characterize the region. A unifying link among the countries is a Mercosur (Common Market of the South), a free trade area formed by Argentina, Brazil, Uruguay, Venezuela and Paraguay (temporarily suspended). Mercosur promotes free trade among the member countries and guarantees the regional fluid movement of people, goods and currency. Chile is the only country of the southern cone that has opted out of the organization, instead preferring to engage each country individually in bilateral trade agreements. Nevertheless, because of its geographic location, Chile often follows Mercosur policies.

With the full membership of Venezuela in 2012, Mercosur has become a powerful market that essentially spans the eastern half of South America. The common market affords businesses operating in the region a strong platform to commercialize products and services.

Photo Credit: YVKE Mundial Radio

Photo Credit: YVKE Mundial Radio

Each country’s socio-economic reality has resulted in different economic strategies. Argentina, for example, has struggled with economic instability that began in the early 90s and culminated in a crisis point in 2001. In response to the crisis, Argentina has nationalized many industries, turned its attention to social welfare policies, implemented de facto trade barriers to non-Mercosur goods and severed traditional ties to first world allies, preferring, instead, to seek support from within the region.

Brazil has focused its efforts on economic growth and the development of national companies (such as Petrobras and Odebrecht) that have become power giants in the region. This was a movement initiated in the 90s by then-President Fernando Henrique Cardoso, called Plan Real, a successful policy that has been supported and expanded by Cardoso’s successors.

Chile remains the main ally of the United States and Western Europe in the region and continues to be influenced by policies introduced by Washington Consensus of 1989 (a series of political guidelines which included debt-paying, foreign investment protection, and financial policies, among other matters).

Paraguay has a commodity-based export economy that has seen modest economic growth in the past few years. Much of the territory is still sustained by rural economies, and poverty continues to be a serious problem despite the government’s attempts to establish economic redistribution policies. Suspended from Mercosur since mid-2012, it is too soon to understand fully the possible financial effects of not being a full-member of the common market.

Uruguay has a small economy that is dependent on regional alliances. Historically, Uruguay has modeled its trade policies after those in the region. Uruguay has made an effort to show itself as a transparent and investment-friendly option, attracting foreign investment, especially after the Argentine economic crisis that destroyed investor confidence.

Venezuela is a case study onto itself. A country rich in oil and other natural resources, it has plunged into a far-left wing socialist regime that some characterize as semi-dictatorial. Venezuela has aligned itself with other similarly-minded countries, including Cuba and Iran. It uses its petro-revenues to purchase loyalties, without affecting true economic growth and opportunity for the country’s poor.

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