I. A GENERAL INTRODUCTION TO MERCOSUR
The establishment of a common market among Argentina, Brazil, Paraguay, and Uruguay was the main purpose of the Treaty of Asuncion signed on March 26, 1991.1 The creation of a common market, called the Common Market of the South Cone (Mercosur), implied the need to accomplish the free movement of goods, services, and factors of production between state parties; the establishment of a common external tariff; and the adoption of common trade policies vis-à-vis third states or groups of states. It also involved the coordination of regional as well as international economic and commercial positions and the coordination of macroeconomic and sector policies in different areas such as foreign trade, agriculture, industry, fiscal and monetary matters, customs, transport, communications, and any other areas that Member States could agree upon with the aim of ensuring proper competition among them.
The main goals behind Mercosur were tied to the belief that the expansion of Member States' domestic markets, through integration, was a vital prerequisite for accelerating their processes of economic development combined with social justice, and that the integration of large economic areas would secure Member States a proper place in the international economic scene.3
From the very beginning, the establishment of a common market was perceived as an integration process that needed to be strengthened, step-by-step, during successive time periods. In that context, state parties assumed commitments to harmonize in due course their respective internal legislation with recommendations and agreements reached through the intervention of Mercosur organs. Mercosur did not establish supranational institutions.4 Its original institutional organs included a Common Market Council with responsibilities for the political leadership and for decision making in order to ensure compliance with the objectives and time limits set for the final establishment of a common market. The other relevant original organ was the Common Market Group, which was designed to be the executive organ and coordinated by the ministry of foreign affairs of each state party. The basic institutional structure of Mercosur was based on intergovernmental organs with decision-making processes pending consent or close cooperation among the four Member States.5 The common market was based on the reciprocity of rights and obligations between state parties.6 Constant negotiations were then the basic tools for developing a general consensus toward economic integration.
In spite of its institutional structure, Mercosur has been organized on the basis of flexibility and gradual negotiations in order to complete a sound, able economic integration process among Member States.7
II. THE DISPUTE SETTLEMENT SYSTEM
From the very beginning, the settlement of disputes concerning the interpretation or application of Mercosur rules was foreseen as a provisional and temporary scheme until the main objectives of a common market system could be accomplished.
The Treaty of Asunción determined that during the so-called transition period, which was to last from its entry into force until December 31, 1994, state parties were to adopt a system for the settlement of disputes in order to facilitate the formation of a common market.8
Within 120 days of the entry into force of the Treaty, the Common Market Group was to propose to Member States a system for the settlement of disputes, which was to apply during the transition period.9
Meanwhile, Annex III of the Treaty of Asunción established that any dispute arising between state parties as a result of treaty applications was to be settled by means of direct negotiations. If direct negotiations failed, state parties were to refer the dispute to the Common Market Group, which, after evaluating the situation, was to make recommendations to the parties within sixty days. …