Representatives of the grouping -- which includes Argentina, Uruguay, Paraguay and Brazil -- met in the town of Luque, just outside Paraguay's capital Asuncion, to discuss ways of strengthening local manufacturing.
Like other emerging markets, Mercosur members are grappling with cheap Chinese exports that have hammered sectors such as Brazil's shoe industry. The four economies are keen to reduce their dependence on commodity exports.
"The bloc needs to deepen the process of import substitution ... in a way that increases the scale of production within the zone," Argentine Industry Minister Debora Giorgi said in a statement.
Such a policy would increase the region's competitiveness and help it integrate with the world economy, she said, adding that "defensive trade measures" were needed to protect the industrial base of Mercosur countries.
The proposal was welcomed by regional powerhouse Brazil.
"Our concern is that our markets ... will be invaded by products from countries that do not have anyone else to sell to," Brazil's Finance Minister Guido Mantega said.
Fernando Masi, an official with Paraguay's industry ministry, told reporters cheap products from China were of particular concern.
"There are a lot of problems in the sense that Mercosur has few defenses against the invasion of Chinese products," he told reporters.
Mercosur is a major exporter of grains and other commodities while it imports most of its consumer goods.
While demand is seen increasing for food, energy and the mineral wealth of Mercosur countries, Brazil's Foreign Minister Antonio Patriota said he wants the bloc to increase its offering of manufactured exports as well.
"We don't want to continue selling commodities and importing value-added products," he said.
Mercosur will explore the idea of including Bolivia and Ecuador as full members in the bloc, Patriota added.
Car Wars
Also on the agenda of the Mercosur meeting is Argentina's proposal for a unified automotive policy for the bloc.
Early this month Argentina and Brazil took steps to ease a trade spat over cars, although barriers in the automotive sector that are at the core of the dispute remain in place.
The two countries have been at odds since Brazil decided last month to delay import licenses for foreign-made autos.
The dispute had garnered some attention from international investors worried about greater protectionism among emerging markets at a time when distorted currency values and uneven global economic growth have caused special strains.
"The problem is there is no credible mechanism within Mercosur to resolve trade disputes," said Boris Segura, a senior economist at Nomura International Securities. "So, if trade increases within the bloc, there are bound to be more trade wars among members."
Argentina and Brazil had about $32 billion in trade in 2010, with a $4 billion surplus in favor of Brazil.
Argentine car manufacturers send about 80 percent of their exports to Brazil, and the auto industry has been critical to Argentina's economic growth in recent years.
"Intra-Mercosur trade has been one of the keys to getting over the international crisis, which is why we are looking at different tools to help us keep moving forward. One of them has to do with trading in local currency," Argentine Economy Minister Amado Boudou said. (Reuters)
