Chapter 3 - Pearson Learning Solutions

86 PART 2 • THE GLOBAL MARKETING ENVIRONMENTCommon Market of the South (Mercosur)March 2006 marked the fifteenth anniversary of the signing of the Asunción Treaty. The treatysignified the agreement by the governments of Argentina, Brazil, Paraguay, and Uruguay to formthe Common Market of the South (Mercado Común del Sur or Mercosur; see Figure 3-4 andTable 3-7). The four countries agreed to begin phasing in tariff reform on January 1, 1995.Internal tariffs were eliminated, and CETs of 20 percent or less were established. In theory,goods, services, and factors of production will ultimately move freely throughout the membercountries; until this goal is achieved, however, Mercosur will actually operate as a customs unionrather than a true common market. Today, about 90 percent of goods are traded freely; however,individual members of Mercosur can change both internal and external tariffs when it suits therespective government.Much depends on the successful outcome of this experiment in regional cooperation. Theearly signs were positive, as trade between the four full member nations grew dramaticallyduring the 1990s. The region has experienced a series of financial crises; for example, Brazil’scurrency was devalued in 1995 and again in 1999.Argentina provides a case study in how a country can emerge from an economic crisis as astronger global competitor. Argentina’s economy minister responded to the financial crisis of2001–2002 by implementing emergency measures that included a 29 percent currency devaluationfor exports and capital transactions. Argentina was allowed to break from the CET andraise duties on consumer goods. The crisis had a silver lining: virtually overnight, Argentina’swine exports to the United States were worth four times more when dollar revenues were convertedinto pesos. The currency devaluation also makes Argentine vineyard property cheaperfor foreign buyers. Low prices for land, inexpensive labor, and ideal growing conditions for theMalbec grape have combined to make Argentina’s wine industry a major player in world markets.As one winemaker noted, “You can make better wine here for less money than anywherein the world.” A new challenge looms, however; the dollar’s weakness relative to the euromeans that winemakers are paying 25 percent more for oak aging barrels imported fromFrance. 9The trade agreement landscape in the region continues to evolve. In 1996, Chile becamean associate member of Mercosur. Policymakers opted against full membership because Chilealready had lower external tariffs than the rest of Mercosur; ironically, full membership wouldhave required raising them. (In other words, Chile participates in the free trade area aspect ofTABLE 3-7 Mercosur Income and Population2006 GNI(in millions)2006 Population(in thousands)2006 GNIper CapitaArgentina $201,347 39,134 $5,150Bolivia* 10,293 9,354 1,100Brazil 892,639 189,323 4,710Chile* 111,869 16,433 6,810Ecuador* 38,481 13,202 2,910Paraguay 6,016 8,461 1,410Peru* 82,201 27,589 2,980Uruguay 17,591 3,314 5,310Venezuela 163,959 27,021 6,070Total/Mean GNI per capita** $1,524,396 333,831 $4,050***Associate members that participate in free trade area only**Indicates meanSource: Reprinted by permission of Warren Keegan Associates, Inc.9 David J. Lynch, “Golden Days for Argentine Wine Could Turn a Bit Cloudy,” USA Today (November 16, 2007), pp. 1B, 2B.000200010270740623Global Marketing, Sixth Edition, by Warren J. Keegan and Mark C. Green. Copyright © 2011 by Warren J. Keegan. Published by Prentice Hall.