Integration once again: The Brazilian Northeast in the context of EU-Mercosul trade relations

Integration has meant great changes for Brazilian Northeast since its becoming part of the regional division of labour that allowed the constitution of a single domestic production system in the country in the 1950s. This process required the Northeastern economy to adjust to the extent of embarking into new industrial sectors and dismantling old industrial capacity, such as textiles. This adjustment has however developed the region's industrial capacity and competitiveness which allowed it to improve exports - both foreign and interregional - and reduce its so-called "structural" trade deficit in the 1980s. This context has changed by the constitution of the South American Common Market - the Mercosul. The new trade block has inspired northeastern polititians and diverse analysts to argue that the regional economy is to become less important for Brazilian domestic market and production system, as the interindustrial links are to enhance among southern and southeastern firms. Government expenditures as well as private investments concentrated in these regions gives them the explanation for their belief. The recent moves towards increasing the commercial links between the European Union and the Mercosul bring new facts to the context. The Northeast could emerge as holding competitive advantages out of this integration process into which the Brazilian economy is getting. There could be argued that the region's historical backwardness could decrease in the context of fusions, acquisitions and the like by European capital? Would not this be the case of moving backwards to the period in which there was no integrated domestic market and the Northeast, as other regions in Brazil, basically traded with European partners. These are the main questions this paper is to answer.