Samenvatting

This paper analyses the regional integration possibilities for MERCOSUR, which is a regional integration scheme in South America. The initial goal of MERCOSUR was the creation of a common market. However, MERCOSUR was not able to reach this goal and it created a customs union instead. This paper analyses the possibility for MERCOSUR to create a common market. Regional integration is the processes by which states provide common rules, regulations and policies for a region. The main reasons why states choose for regional integration are economic benefits, protection of their own interests, attracting new trade and investment flows and promoting democracy and peace. Two important conditions for regional integration to develop are demand and supply conditions. Demand conditions refer to the level of regional interdependence between the states. The regional integration should lead to economic benefits in order to create a demand for integration. Interdependence leads to functional spill-over for further integration. The supply conditions refer to the presence of a regional leader who will provide demand for regional institutions during the integration process and to the establishment of commitment institutions. A regional leader could be a country who is willing to serve as paymaster and pay a larger share of the regional integration costs. The creation of commitment institutions are institutions who will ensure the compliance with treaty obligations. Regional integration in Latin America came in different waves and protectionism has always been an important stance for the different countries. Presidential diplomacy has dominated in the regional integration schemes. MERCOSUR is an intergovernmental organisation were the control rests on presidential diplomacy. MERCOSUR did not create any supranational body. It has several internal problems which hold back further integration. The asymmetries between the Member States are huge. Some differences are size, power, economy, wealth and integration ideas. The larger states prefer more protectionism, while the smaller states would like more trade and create supranational institutions. A significant problem in MERCOSUR is the implementation problem. Many laws are not implemented by the Member States. The reasons for this problem are the lack on supranational control institutions and the fact that the presidents of the Member States are in charge. A region cannot integrate any further if its own laws are not being implemented. A common market cannot function properly without common rules and common policies. The explained needed demand and supply conditions are not met in MERCOSUR. Its market size is too small and export base to narrow to generate demand conditions for regional integration. The region also lacks a leader which could take the paymaster role. Brazil is the only possible candidate for this role but is not willing nor able to do so. Furthermore, MERCOSUR has no commitment institutions which can ensure the compliance of treaty obligations. Malamud stresses the importance of a third condition, which is the inertial condition. This condition refers to
the creation of supranational or autonomous institutions. MERCOSUR did not meet this criteria either.
To conclude, the creation of a common market is not a feasible and realistic objective for MERCOSUR. This because MERCOSUR is not able to meet the demand, supply and inertial conditions. Furthermore, the internal problems of MERCOSUR make further integration very complicated.