Mercosur is more than a free-trade economic pact: the central idea behind it is the creation of a regional environment that would encourage democracy, productive transformation, and the competitive participation of its member countries in the world economy. The group is a result of a common strategic vision its individual members share as to the requirements for their own internal political and economic modernization, as well as for their own ability to participate competitively in an increasingly multipolar and globalized world. From the outset, however, the pooling of markets and resources among countries enjoying full membership in Mercosur-Argentina, Brazil, Paraguay, and Uruguay-also has been closely associated with the re-establishment over the past decade of the values, social attitudes, and institutions of democratic society.

This relationship between integration and democracy is one of the distinguishing characteristics of Mercosur. To be sure, it does not imply that the present democratic system in each of the member countries will be able to sustain itself solely due to the existence of the pact. Nor does it necessarily mean that Mercosur will always be able to play a decisive role in preventing a backslide into non-democratic systems by any of its members-especially those with the least developed economies.

That relationship does, however, highlight two critically important facts. The first is the fact that the predominance of democratic values and institutions creates an appropriate climate for neighboring countries to opt to work systematically together, gradually developing a fabric of de facto common concerns and willingness to compromise. This in turn generates an environment of moderation and rationality, promoting peace and stability within a given region and, thus the effective consolidation of democracy.

Second, the success of integration efforts in the economic arena makes it possible for member countries to stabilize their own efforts to transform their productive sectors and improve their competitive edge in world markets, thus facilitating the development of an economic basis for sustaining democracy.

The connection between integration and democracy was evident in 1996 as Mercosur played a crucial role in overcoming the first serious attempt against the nascent democracy of Paraguay when a general in the armed forces attempted to overthrow President Juan Carlos Wasmosy. The governments of Argentina and Brazil (together with the US) warned the insurgents they would not tolerate a return to dictatorship in Paraguay. Their pointed messages made cooler heads prevail.

Indeed, that incident led to approval at the next presidential Mercosur Summit of the "democratic clause" which conditions participation in Mercosur on the existence of fully democratic institutions before a country can become a member. That clause stipulates that "any change in the democratic regime constitutes an unacceptable obstacle to the continuation of the process of integration underway with respect to the affected member state." For such cases, the clause provides for consultations among member countries and the adoption of measures, including the suspension of Mercosur rights and obligations for the country whose democratic process was interrupted. Both Chile and Bolivia, which are now associated with Mercosur through free-trade agreements, have formally endorsed this democratic commitment.

So Near, Yet So Far

Geographic proximity prevents Mercosur's member countries from ignoring each other. What is novel, however, is that in the course of the past ten years they have made the political decision [to work together, authorizing reciprocal access to their respective markets and resources and gradually developing similar approaches particularly with regard to macroeconomic and foreign trade policies.

Until Argentina and Brazil launched a bilateral integration program in 1986-which was a direct precursor of Mercosur created by the Treaty of Asunci6n five years later- their relationship was marked by potential and real conflicts which led occasionally to tensions and even, in the remote past, to direct confrontations of limited; scope. The two countries were uncomfortable, distant neighbors suspicious of each other.

In point of fact, they knew very little of each other. The identifying characteristic of their international involvement in all spheres, including the economic and cultural, was the rest of the world, particularly Europe. Even today, 80% of their trade is with other countries, chiefly with those of Europe, the US, and other Latin American nations. Most of their financial and direct foreign investment flows originate in the OECD countries.

These two countries, as well as Paraguay and Uruguay, had common borders of separation, not of integration. Physical infrastructure was not designed for ease of intra-regional communication. The absence of bridges over shared rivers also was symbolic of a tendency within the region toward the predominance of the forces of fragmentation, not unification of economic and political forces.

The change in the relationships among the Mercosur countries that occurred beginning in the 1980s resulted in part from the worldwide technological revolution and the expansion of world trade. However, the main sources for these countries' growing closeness are essentially internal to each of them.

Profound transformations have taken place in Mercosur's member countries, beginning with Argentina and Brazil that have gradually led them to recognize they have shared challenges and values. All the Mercosur nations are experiencing the three-pronged process of democratic consolidation, technological improvement of their productive sectors, and greater participation in the world economic arena.

The internal discipline resulting from their Mercosur commitments (especially the customs union) constrains the natural tendency of the member governments toward discretional, unilateral behavior. This discipline has a clear-cut impact by reinforcing attitudes favoring dialogue and commitment among members within each country's political system. In short, Mercosur is not only nourished by democratic values but also reaffirms those values.

The predominance of cultural values typical of open societies- particularly tolerance, moderation, and respect for others- has begun to permeate the foreign policies of Mercosur members, particularly those with their neighboring countries. The creation of a regional environment of stability and peace, then, becomes not only an outcome of the changes taking place in internal values and attitudes but also a value in and of itself that furthers the changes each country requires to modernize and to compete effectively in world markets. This regional momentum is similar to that of the rebuilding and modernization of Europe immediately after World War II, the subsequent democratization of Spain and Portugal, and the current transition in Central and Eastern Europe.

The creation of a regional environment of integration and democracy also has a clear impact on defense and security policies, as well as on the role of the military in the corresponding political systems. Mercosur reflects-and in turn supports-substantial changes, particularly in Argentina to Brazil, with respect to defense spending, subordination of the armed forces to civilian advantages it would gain. What is important to bear in mind is that in this type of voluntary integration process between sovereign nations, members decide to work together because they understand that it is in their own best interest and that it is better to be a member of the group than to remain an outsider. And this is not only desirability in economic rule, and nuclear and missile government policy.

Building on Self-Interest

As has occurred in other regions, the starting point in the creation of Mercosur is the national interest of all its members. This is the prism through which each country analyzes the desirability of membership. For example, Chile decided in 1990 that it was then not in its best interest to participate as a full member in what was later to become Mercosur; subsequently it did indeed become an associate member because of the terms; for example, the gains to be made from participating in reciprocal trade or of attracting foreign investments.

It is precisely the perception of a vision of mutual gains that explains the origin of this and other integration groups. In other words, it is the dynamic of creating and maintaining the potential for a "win-win" situation that explains the move by countries towards integration over time. When such a situation does not occur, this kind of integration process fails. Though almost never openly, the integration group disintegrates and the effort slides into economic and political irrelevance.

In short, Mercosur is part of the contemporary phenomenon of voluntary processes of integration between sovereign nations, which are in turn the result of voluntary agreements (of a greater or lesser degree of formality) between sovereign nations. Because they share a geographic and historic area, these sovereign nations have opted to work together in systematically opening their markets and: resources with a view to achieving the commonly valued objectives of increased well-being, peace and democracy, and negotiating capacity. The techniques used to open their respective markets may differ, from the many variants of free-trade zones, customs unions, and common markets-but most fall within the framework of Article XXIV of GATT.

An integration group's economic and political effectiveness will depend to a considerable extent on the perception of investors and third countries as to its, effective capacity to dynamically preserve the potential for mutual gains among its members. This, in turn, will be judged looking at the group's economic effects on each of its individual members:

• Does integration increase a member's reciprocal trade and economic growth, as well as result in gains in productivity and competitiveness?
  
  
• Does it enhance a country's rules of the game and their effectiveness to draw in foreign investment?
  
  
• Does it enhance the capacity of a country's institutions to reconcile national interests and enforce the integration commitments its policy makers have made?

In this dynamic vision of Mercosur, integration is not seen as a final product that will eventually supplant previously existing national elements. It is not a matter of a new autonomous unit of power someday replacing preexisting units. Nor is it a process of political federalization. Rather, Mercosur is a continuous and incremental process of joint efforts in which each party conserves its individuality within the framework of a shared vision and common rules of the game. It assumes the recognition by each member of the importance of the others for its own overall national development.

Forging Ties among Civil Society

Thus, the creation of trade and investment opportunities is a necessary but not a sufficient condition to keep Mercosur-and other integration groups-alive. Integration eventually becomes irreversible to the extent that all aspects of social life are involved by the new regional dimension. Hence economic integration has an impact on the cultural dimension-broadly defined as the ways of life of a society, its values, its interests, and its ways of thinking-and that leads to the development of a dense fabric of interactions between member countries' civil societies and their institutions. As a result of Mercosur, for example, an enormous network of linkages in the region has begun to take shape at the level of corporations, universities and scholars, municipalities and regions, political parties and labor unions, and many other areas of social life which are becoming the source of a common identity.

Examples of this growing reality abound. For example, look at the creation of a growing number of academic consortia and researchers who are working together in Mercosur. Or the forging of ties among women entrepreneurs in the region and the growing number of Mercosur film festivals that celebrate the work of artists in the four member countries. This growing social and cultural dimension gives Mercosur its internal legitimacy in each of the member's national communities. It is to the extent that the group is perceived by the masses as providing mutual gains that it will be possible to withstand natural tensions produced by integration. In particular, the occasional inequalities among member countries in the distribution of costs and benefits, for example, in trade flows or the location of investments, can be mitigated through public support of the group as a whole. In short, an integration group that has a low level of internal legitimacy in one of its member countries is much more susceptible to economic conflicts of interest.

Mercosur today enjoys the support of all the political sectors in its member countries and can count on widespread acceptance by the general public in each country as verified in periodic public opinion polls. This important dimension of Mercosur transcends the economic and is also reflected in concrete ways such as, for example, the fact that passports and other personal identification documents already bear in some member countries the word Mercosur, together with the name of the respective country.

The economic results achieved by Mercosur provide considerable room for optimism about its future. The path to integration does not necessarily follow a straight line. On the contrary, it tends to be plagued by contradictions, sporadic problems, and even by crises. Mercosur is no exception. It has not yet reached the point where it can be said with complete certainty that the process is irreversible. But the fact that between 1990 and 1996 reciprocal trade increased four-fold is encouraging. So is the fact that the number of firms in all sectors that develop marketing and investment strategies as a result of the existence of Mercosur continues to increase.

For example, in the automobile sector alone international investments on the order of $25 billion have been announced in Argentina and Brazil. Approximately $40 billion in investment outlays are underway for infrastructure projects, such as those in the energy sector, prompted by the increase in reciprocal trade and by natural economic complementation in Mercosur.

A Promising Outlook

Moreover, Mercosur is open to the world. While imports originating in member countries grew at an annual rate of 26% between 1990 and 1996, those coming from the United States rose 23% per year and those originating in Europe increased 22%. The average level of tariff protection in 1990 was 35%; today, it has dropped to a mere 12%. Global competitors from all of the OECD countries are making direct investments and participating in privatization projects in Mercosur's member countries.

The Mercosur countries' negotiations with the members of NAFTA regarding the creation of the Free Trade Area of the Americas and negotiations with the European Union-all of them within the framework of the regulations of the World Trade Organization-will make it possible to construct a triangle of regions characterized by their free-trade orientation.

The triangle is nourished by the common values of democracy: political and economic freedom, respect for human rights, and social solidarity. Its achievement may signify an invaluable contribution to peace and international stability in the twenty-first century.

"Mercosur is one of the greatest achievements of my administration. We have raised the flag of integration. In 1991, we signed in Asuncion the corresponding protocols for the creation of Mercosur with Brazil, Uruguay and Paraguay which have a combined population exceeding more than 200 million people. Since then, Bolivia and Chile have joined. And with Chile's incorporation our countries now, enjoy the advantages of being positioned both on the Atlantic and the Pacific oceans.

"By January 1995, we had established common outer tariffs covering many products, thereby spurring our nations' economic growth. In 1991, intra-Mercosur trade didn't reach $3 billion; now it totals approximately $15 billion. The gross domestic product of each member country has grown rapidly, so that today the combined economies of Mercosur's members exceed one trillion dollars." Carlos Menem, President of Argentina