ENDOGENOUS TARIFF FORMATION - THE CASE OF MERCOSUR

Mercosur appears as an interesting case study for analyzing the determ inants exceptions in regional trade agreements. Its member countries-A rgentina, Brazil, Paraguay, and Uruguay-intended to make Mercosur a fu ll customs union by January 1995. This goal turned out to be too ambit ious, and the Protocol of Ouro Preto and other agreements signed in De cember 1994 led to a hybrid solution. Overall, out of a total of 9,119 tariff lines, around 30 percent are subject, in at least one member c ountry, to either external deviations from the common external tariff or internal deviations from free trade. Thus an important set of holes remains under the existing agreement, leading some authors to conside r Mercosur an incomplete customs union. This article compares the resu lts of the theoretical literature on endogenous tariff formation with evidence from Mercosur. The results show that Mercosur's common extern al tariff and member countries' deviations from it and from internal f ree trade can be explained by sector or industry lobbying as predicted by the endogenous tariff literature. If a viable political economy is a key to success, then Mercosur is here to stay.