Other Customs Unions

This excerpt is from Roberto Bouzas, Mercosur and Preferential Trade Liberalisation in South America: Record, Issues and Prospects (Buenos Aires: Latin American School of Social Sciences, May 1995), 4. The Economist Intelligence Unit, Country Report: Brazil, 1st Quarter 1995. London: 1995, 23. Unfortunately, this page is no longer available. If you know of his presence on the Internet, please contact me.


The Common Market of the Southern Cone was created on March 26, 1991, when Argentina, Brazil, Paraguay and Uruguay signed the Treaty of Asunción. The two main instruments of the Treaty were a four-year Trade Liberalization Program and a commitment to implement a common external tariff by January 1, 1995. Preceding the Asunción Treaty was the signature in 1986 by Argentina and Brazil of the Acta para la Integración Argentina-Brasileña. This new accord aimed at expanding bilateral trade among the two countries by adopting a sectoral approach. Two other accords preceded Mercosur: the Tratado de Integración in 1989; and the Acta de Buenos Aires in 1990. A meeting held in August 1990 with other Southern Cone countries led to the Asunción Treaty in March 1991.

On December 17, 1994, the presidents of the four Mercosur countries met at Ouro Preto in Brazil to sign a document that set January 1, 1995 as the implementation date of a common external tariff (CET) for 85 percent of the products imported from third countries. The meeting also agreed on a number of exceptions to trade liberalization. The CET ranges from 0 percent to a maximum of 20 percent. Each country was allowed a list of exceptions which will be phased out in five years. In fact, for each of these products, the tariff will fall automatically every year on a linear basis until it becomes equal to the CET in 2001. Domestic tariffs will converge to 14 percent by 2001 for Brazil and Argentina and by 2006 for Uruguay and Paraguay in the case of capital goods, and to 16 percent by 2006 for information technology products. Finally, 90 percent of goods traded began circulating freely as of January 1, 1995.

The Common Market Council is Mercosur's policy-making body. It is composed of the four countries' foreign and economy ministers. The Common Market Group is the executive agency in charge of overseeing and implementing the Treaty. Mercosur also has a Secretariat based in Montevideo, a Trade Commission and a Dispute Settlement Tribunal in Asunción.

In early 1995, Brazil increased its tariffs from 32 percent to 70 percent on 109 products exempted from the customs union. Examples include cars, audio equipment, and consumer durables. The government of Brazil has emphasized that this increase will be in place for one year only, just to help Brazil to overcome its internal economic difficulties. The Common Market Council met in Asunción on April 25, 1995, and adopted a decision that will allow Brazil to increase its exception list from 300 to 450 products for the next year. Argentina and Uruguay are still entitled to 300 exceptions from the bloc's common external tariff, while Paraguay has 399.

Andean Group

The members are Bolivia, Colombia, Ecuador, Peru, and Venezuela. The Andean Group was established in 1969 when Bolivia, Colombia, Chile, Ecuador and Peru signed the Cartagena Agreement. Venezuela joined the group in 1973, and Chile left in 1976. The main objectives of the Andean Group were to eliminate trade barriers within the Group; to create a customs union with a common external tariff; to harmonize economic, social, and economic policies; and to adopt a joint industrialization program.

In the early years of the process, at the beginning of the liberalization program, intra-subregional trade increased between member countries whose markets had few preexisting links. However, shortly thereafter the deadlines for the fulfillment of the liberalization program and the adoption of a common external tariff were practically abandoned. In 1987, the Quito Protocol acknowledged this fact and modified the Cartagena Agreement by, inter alia, providing for more flexibility in the achievement of the group's goals. In addition, a new safeguard clause and tariff quotas were introduced.

A revival of the Andean Group began in 1989 when the Heads of State of the Andean Group countries assumed direct leadership of the process and set up clear guidelines for the entry into force of a free trade agreement and the adoption of a common external tariff. In December 1991, the Act of Barahona was signed in Cartagena. It provided for the establishment of a free trade zone by January 1, 1992, and the definition of a common external tariff with four levels (from 5 percent to 20 percent). Since then, Colombia, Venezuela, Ecuador and Bolivia have gradually created a free trade area. On February 1, 1995, a common external tariff (CET) was implemented by Colombia, Venezuela, and Ecuador. As authorized by the Act of Barahona, Bolivia maintained its national tariff schedule, and Peru is subject to transitional arrangements whereby its trade is regulated through bilateral agreements and its implementation of the common external tariff is gradual. A recent decision of the Commission of Cartagena -the policy-making body of the Andean Group- allows Peru to maintain its transitional arrangements until January 1, 1996. For most goods, the schedule is as follows: 5 percent for raw materials; 10 and 15 percent for semi-finished products; and 20 percent for finished goods. Although the CET cannot exceed 20 percent, there is an exception for the automobile sector with a tariff of 40 percent.

Central American Common Market (CACM)

Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. The General Treaty for Central American Integration (known as the Managua Treaty) was signed in 1960, and entered into force in 1961 for four countries. Costa Rica joined the Treaty in 1963. It provided for immediate free trade on 95 percent of all goods. In October 1961, the Permanent Secretariat for Economic Integration -SIECA- was established in Guatemala. SIECA along with the Central American Bank for Economic Integration (BCIE), which is headquartered in Tegucigalpa, Honduras, have been the main regional institutions responsible for the administration of the economic integration efforts in Central America.

The CACM flourished as the most advanced and successful regional integration scheme of Latin America in the 1960s. In 1970, following the conflict between Honduras and El Salvador, Honduras withdrew de facto by imposing tariffs on imports from Central America. Then came almost two decades of political unrest and economic difficulties (e.g., low international commodity prices and overvalued exchange rates) which meant that CACM survived in name only.

The agreement was reinvigorated in the early 1990s. In a June 1990 presidential summit in Antigua, Guatemala, the Plan de Acción Económica para Centroamérica (PAECA) called for the revival of economic integration in Central America. Since then, the presidents have met several times, setting the bases for a new and distinct strategy for regional economic integration compatible with external openness. In 1992, Honduras was "readmitted," and created, with El Salvador and Guatemala, the Northern Triangle. This led to the establishment of a free trade area in 1993, which Nicaragua later joined to create the Group of Four. They agreed on a common external tariff with four sub-tariffs of 5, 10, 15 and 20 percent. These countries signed the Guatemala Protocol in October 1993, a program aimed at modernizing the Managua Treaty of 1960. Its main objective is the establishment of an economic union.

The five CACM members and Panama showed their commitment to integration by establishing a new organization, the Sistema de Integración Centroamericana (SICA), which began its work in February 1993. Early in 1995, Costa Rica and Guatemala both increased their tariffs to try to solve their fiscal problems. Costa Rica added an 8 percent surcharge to its initial customs tariff. The Guatemalan decision to adopt a flat rate tariff in April was reversed ten days later. Moreover, at the 16th Presidential Meeting held in San Salvador on March 30, 1995, the region's ministers of economy signed an agreement to extend the tariff reductions implemented by El Salvador. As of April 1, 1995, El Salvador has cut its tariffs on capital goods from 5 percent to 1 percent.


Antigua and Barbuda, the Bahamas (not a member of the Common Market, only of the Caribbean Community), Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St.Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. Suriname joined the Organization in February 1995, and will take its seat at the Guyana summit to be held in July 1995.

The Caribbean Free Trade Association (CARIFTA) was created in 1967 as a limited free trade agreement. It was superseded by Caricom when Barbados, Guyana, Jamaica, and Trinidad and Tobago signed the Treaty of Chaguaramas on July 4, 1973 to create the Caribbean Community. All Commonwealth Caribbean countries are members of the group. In July 1989, the Heads of Government adopted several measures aimed at stimulating and promoting economic and political integration. One of the main objectives of the Organization is a phased common external tariff on most goods by 1998.

An agreement was signed with Chile in January 1995 to prepare preliminary studies that will analyze the prospect for a free trade agreement.