useful information

MERCOSUR, is it an imperfect customs union?

05 de enero de 2015

Carlos Canta Yoy is one of our foreign trade advisors and also a friend.

Every day, we receive his news and in his peculiar way of writing, he answers the question in the title.

In this opportunity, we transcribe his answer because in many opportunities, our customers, both Uruguayan and especially foreign ones, while clarifying certain doubts, usually make this question, “but isn’t Mercosur a Customs Union?

In his particular way of writing, Carlos answers.

The bold characters are ours, the text was transcribed exactly as it was in his newsletter *

MISUNDERSTANDINGS

“When Adam and Eve realized they were naked, covered themselves with vine leaves”.  “They bark, Sancho, then we ride”. “The dead that you killed are in perfect good health”. “Origin is the last place where the goods were shipped towards Argentina”.  

”Mercosur is an imperfect customs union”. 

All these sentences, so frequently repeated, are not correct. Adam and Eve, according to the Genesis, were covered with fig leaves, not vine leaves. Dogs did not bark to Quixote or Sancho in the famous novel simply because that passage does not exist. Neither does the passage of the dead in good health supposedly mentioned by Jose Zorrilla in his famous “Don Juan Tenorio”.

As regards the origin of goods, it is a different story, frequently repeated by customs officers and foreign trade teachers and students. When in our classes or conferences, we ask which is the origin of certain goods we always receive the above-mentioned answer. The real question is: where did they get that?

All these sentences have something in common: people repeat them without thinking or checking their sources. As regards the origin sentence, Article 15 of the Customs Code, it clearly sets forth that the origin is the place where the goods were shipped to the importing country. It is frequent, in preferential agreements, that goods stay in transit in a third country not included in the agreement, and that does not mean that this third country is the country of origin if they were shipped from the exporting country towards the importing country, in this case, Argentina.

Collective contagious behavior and monotonous repetition are imitative attitudes (as studied by Gabriel Tarde, a sociologist and social psychologist unfairly forgotten, who created in the XIX century the “Laws of Imitation”). This mutual imitation among men, which was in some cases called monkey-like, because these people copy each other gestures and words, just like monkeys, without thinking at all, for one minute, about the truth of what they thoughtlessly express. And talking about words, it is also remarkably similar, and more exactly, to the repetitive chatter of a parrot, cockatoo and other kind of talking birds.

This is relevant because for a long time, at least one and a half decade, several individuals, experts or not in this subject, have been repeatedly telling us that “Mercosur is an imperfect customs union”.

Without taking into account that considering the forms of integration things are clearly defined, they are or they are not (1), the truth is that Mercosur is such an imperfect customs union that it actually it is not, or rather, it is only something remotely similar to the known integration forms. 

Let us see for example a few cases:      

1) A customs union has a Common Nomenclature and a Common External Tariff. Mercosur has a Nomenclature and a Tariff, which usually are not common, because in the particular case of Argentina, the delay in internalising regulations introducing the corresponding changes takes months and months to become effective. Meanwhile, Mercosur’s Nomenclature and External Tariff used in our country are not, in some cases, the same used in Brazil and Uruguay, for example.  

2) Currently there is not even closely one single customs territory. Therefore, any merchandise coming from a third country that has been nationalised by paying the corresponding import duties in a Mercosur country and going afterwards to another country member has to pay again the tariffs of this last country. This happens 16 years after the supposedly progressive creation of a customs union under incorporation, now starting its preparations for 2012.

3) Decisions of the Arbitration Courts are not complied with, as in the last case of the favorable decision awarded to the Uruguayan claim due to international ways of communication cut-off among Mercosur countries. Argentina does not comply with the award and Brasil stays out, saying that it is a “bilateral” issue, although Brazilian trucks many times cross over to Argentina across Uruguayan territory and using the bridges on Uruguay River. There are currently serious obstacles to free movement of products and persons, undue taxes such as export duties, non-tariff restrictions such as non-automatic advance licenses. All of this, that does not even happen in the sub-Sahara Africa, does not speak very well of the integration process.

4) There are no community policies in countless economic and commercial matters, such as, export incentives, import taxes such as the Argentine Statistics Tariff, coordination of internal taxes, monetary and Exchange policy, and so on.

The list of incongruences and contradictions between current reality and a proposed customs unit is so big that no one can even say that this peculiar situation we are suffering is a customs union, even imperfect, without blushing.

(1)  The World Trade Organization defines the different ways of integration (such as free trade zones or customs union, for example) considering also that they are exceptions to the enforcement of the Most Favorable Nation Clause. Definitions are very precise and based on them we can say that Mercosur is not a customs union, nor perfect or imperfect. It simply is not.

*Carlos A. Canta Yoy