Europe's Challenge to the US in South America's Biggest Market the Economic Power of the Mercosur Common Market Is Indisputable

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French President Jacques Chirac's recent 10-day tour of Latin America was rich with symbolism (echoes of Charles de Gaulle's historic 1964 visit) and substance (promotion of European and French goods and technology).

While laying the groundwork for a major conference of European and Latin American officials to be held next year, he made no bones about his ultimate objective, stating repeatedly his wish that Mercosur - the burgeoning common market of South America - look to Europe rather than the United States for future trade growth.

President Clinton has delayed until October a similar mission to the region to promote the long envisioned Treaty of the Americas. Fully 25 percent of Mercosur's imports are now supplied by the US, and as Mr. Clinton noted pointedly in his State of the Union address, Latin America is the second fastest growing region in the world, after East Asia, with 5 percent annual increases in gross domestic product (GDP) forecast for the next five years. In light of this high-profile economic diplomacy, and the recent Mercosur agreements concluded with Chile and Bolivia, it is a good time to take a closer look at this dynamic new entity in South America. Known also as the Southern Cone common market, Mercosur was created on March 26, 1991, when the Treaty of Asuncion was signed by Argentina, Brazil, Uruguay, and Paraguay. The Treaty guarantees free movement of assets, services, capital, and people within Mercosur; abolition of customs duties among members; and the establishment of a common external customs duty. Mercosur became operational on Jan. 1, 1995. Last October, Mercosur's doors opened to Chile and, just last month, to Bolivia. A full customs union is to be established on Jan. 1, 2001. In effect, Mercosur is in a period of transition comparable to that of the European Union (EU) between 1958 and 1968. The degree of economic integration that it has achieved places it - vis-a-vis the rest of the world - midway between NAFTA's commercial free-trade area and the EU's combination of economic integration and partially integrated foreign policy. Mercosur's sheer economic power would be hard to overstate. With Chile and Bolivia included, it can lay claim to a GDP of $1.1 trillion, which represents three-quarters of South America's economic activity. Mercosur accounts for three-fourths of the continent's trade, nearly three-fourths of its population, and more than three-fourths of its land mass. Some experts, however, have raised questions about whether this system truly serves the interests of its member states' consumers. …