What are the advantages of regional trade agreements?

You have to solve the case study in a form of an essay.

Structure of the essay:
Introduction – short summary of the situation
Body – answer the guiding questions
Conclusion – your personal opinion
Case study: Trade diversion in South America
In 1991, four South American nations, Argentina, Brazil, Paraguay and Uruguay, created a free trade area called Mercosur. The agreement had a drastic and immediate effect on trade: in four years the value of trade between these nations tripled. The region’s leaders proudly affirmed that Mercosur was a great success, that it was part of a much larger package of economic reforms.
But while Mercosur has managed, with clear success, to increase intraregional internal trade, the theory of preferential trade areas tells us that even though agreements are working out, their outcome does not have to be positive: if the new trade occurs at the expense of trade that, in other circumstances, would have occurred with the rest of the world (if the pact diverts trade, instead of creating it) could, in fact, reduce welfare. Indeed, in 1996 a study prepared by the World Bank’s chief trade economists concluded that, despite Mercosur’s success in increasing regional trade (or, rather, precisely because this success has occurred at the expense of other trade) the net effects in the affected economies are probably negative.
In essence, the report affirmed that due to Mercosur, consumers in member countries were induced to buy expensive products from their neighbors instead of cheaper products bearing heavy tariffs from other countries. Specifically, due to Mercosur, Brazil’s highly protected but relatively inefficient automobile industry has acquired a captive market in Argentina, displacing imports from elsewhere. “These conclusions”, stated the first draft of the report, “appear to constitute the most compelling and surprising evidence produced to date regarding the potential adverse effects of regional trade agreements.”
But that was not what the final report that was published claimed. The initial draft was leaked to the press and generated an angry protest from the Mercosur governments, particularly from Brazil. Under pressure, the World Bank revised the publication, and ended up issuing a lighted-up version that included a series of allegations. Even so, in the published version, the report made a defense of the fact that Mercosur, if not totally counterproductive, has nevertheless produced considerable trade diversion.
Source: Krugman, P., Obstfeld, M. y Melitz, M. (2012) Economía Internacional. Teoría y política, 9ª Ed. Madrid: Pearson Educación.
Guiding questions
What are the advantages of regional trade agreements? List at least 5 advantages (in the social, economic, or political realms).
What are the disadvantages of regional trade agreements?
What positive and negative effects of Mercosur does the text mention?
Are these effects restricted to Mercosur or are they part and parcel of every regional agreement? Use arguments to explain your point of view.

Last Completed Projects