An Investment Under the MERCOSUR Trade Center

Joining a Regional trade Bloc has proven to be of great advantages to its member nations, but there are also drawbacks that these nations must consider before joining one. This paper aims to investigate if Venezuela's affiliation to MERCOSUR, South America's leading Trade bloc is indeed an intelligent decision.

Venezuela's trade is mostly concentrated on the petroleum sector, which accounts to toughly one-third of the country's GDP and over half of the government's operating profits. Venezuela is also an agricultural country, producing products such as corn, sorghum, sugarcane, rice, bananas, vegetables, coffee; beef, pork, milk and eggs. There trading status is already known in the international scene as stable but MERCOSUR was seen as an another way of boosting their annual revenue.

About MERCOSUR

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An organization with an important operating network specially in Argentina, Brazil, Chile, Uruguay and Paraguay

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Offers specialized services in international trade aiming that customers/members could get an advanced increase in their business profitability, risks spread and enhanced competitive conditions.

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The trade bloc is the fourth largest integrated market after the European Union (EU), North American Free Trade Agreement (NAFTA) and Association of South-East Asian Nations (ASEAN). Its purpose was to create a common markets union among the participating nations on the basis of various forms of economic cooperation that was drawn between Argentina and Brazil since 1986.

The Benefits

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MERCOSUR offers outstanding credibility, ethics, professionalism and renowned trading methodology and concepts for the strategic development of all its members

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MERCOSUR can advertise an investment in the international trading scene in its principle to support and fuse the presence of foreign enterprises globally. Members will find a natural ally who will be continuously searching potentials to add value and expand its business; an ally who will solve problems in a global and incorporated way that yields guaranteed results.

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MERCOSUR also guarantees its member new opportunities and trade business.

The Drawbacks

One of the drawbacks of MERCOSUR is that the member nations recurrently change the agreement's rules and the tariff level and structure. In such cases, members have distorted the rules of the agreement on a one-sided basis. Another is Trade Diversion, which will divert a country's trade away from a more efficient supplier outside the bloc, towards a less efficient supplier within the bloc. Often times, trade diversion reduces a nation's national welfare; thus a loss on its economic revenue. Also, there are agreements in MERCOSUR that propose tough rules on intellectual property rights (IPRs). In exchange for profits and alleged benefits for a few exporting agribusiness sectors in the bloc, nations are hindered from the transfer of technologies and there will be an illegitimate fraud of knowledge linked with biodiversity use and supplementary legal guarantees for European investors. MERCOSUR also lacks total transparency with which negotiations are being administered.

MERCOSUR on Venezuela

Venezuela officially gained entry into the South American trade group MERCOSUR on December 9, 2005. This move was pursued by President Hugo Chavez for the bloc to aid the country in strengthening regional agreements and spoil a U.S.-sponsored agreement for the hemisphere. The President further believed that in joining the bloc, they are laying a fundamental corner-stone for the new liberty of the people of South America.

Venezuela's entry to the MERCOSUR will eventually spread the nation's influence across the region through its energy projects and acquisitions of government debts. This, according to the Venezuelan President will strengthen Venezuela's position on its confrontation against the United States. The move signifies not only the President's strategy of diversifying the nation's customers and suppliers but also his political plans.

MERCOSUR on New Investments

It will be beneficial for a Venezuelan investment to venture on a new trade after the Venezuelan President signed the MERCOSUR Agreement. One advantage is MERCOSUR already has a number of international trading partners and joining the bloc means becoming a part of the international market. Also, MERCOSUR offer tariff reductions and exemptions that is greatly beneficial for exports and imports; thus allowing them to divert tax expenses to production and administration expenditures. Being a member of the MERCOSUR, Venezuelan investors has greater chances of hiring more qualified employees located in all other nations within the bloc.

But joining the MERCOSUR will not only widen Venezuela's market, it will also introduce more competitors in the same sectors. This will "force" the investors to spend more on marketing and research to maintain customer satisfaction as well as think of innovations in strengthening its market. Also, reducing tariffs will increase trades with less efficient products and decrease trades of more efficient products from countries outside the MERCOSUR. This in return will result to unsatisfied consumers in the country.

Conclusion

For an investment to become successful under the MERCOSUR Trade, it must establish a positive relationship with other countries and/or other investments in the bloc. This will in turn set up a chain of positive relationship with other international traders. The investors must also keen on producing globally-competitive products so as to survive the tough competition within the trade bloc. Also, it may need to employ local people in each of the member nation of the region so as to investigate and understand fully the needs of each nation; thus, increasing its market.

References

1. MERCOSUR Trade Center - http://www.mercosurtc.com

2. Spanning the Western Hemisphere: Free Trade Area of the Americas -
http://www.frbatlanta.org/invoke.cfm?objectid=35024872-4380-4DAB-84E2077B3A5F0429&method=display

3. Regional Trade Agreements: Effects of the Andean and MERCOSUR Pacts on the Venezuelan Soybean Trade and U.S. Exports -
http://209.85.165.104/search?q=cache:Pdbzh9Kwgr4J:hotdocs.usitc.gov/docs/pubs/research_working_papers/ID-11soybean.pdf+%22Venezuela+on+MERCOSUR%22&hl=tl&ct=clnk&cd=1&gl=ph&client=firefox-a

4. Venezuela gains Mercosur entry, deepening relations - http://www.bilaterals.org/article.php3?id_article=3227

5. Mercosur - The Southern Common Market, Should Venezuela Join? -
http://www.associatedcontent.com/article/16507/mercosur_the_southern_commom_market.html?page=4

6. Venezuela Officially Joins Mercosur Trade Block - http://www.venezuelanalysis.com/news.php?newsno=2003