Volume 6, Number 17, Page 4

MERCOSUR – Argentina-Brazil Trade Dispute

Negotiators from the world’s third-largest trade bloc were unable to agree on how to deal with the effects on relative prices and trade within MERCOSUR resulting from the 30 percent devaluation in January of Brazil’s currency. Uruguay urged ministers from the South American trade bloc MERCOSUR to narrow economic disparities in order to prevent disputes like the one caused by Brazil’s currency devaluation. However, representatives from MERCOSUR members – Argentina, Brazil, Paraguay and Uruguay – proposed different solutions and the issue was left for each country’s foreign and finance ministers to resolve.

A MERCOSUR meeting two months ago in Asuncion, Paraguay, called for the four MERCOSUR members to adopt a macroeconomic convergence policy similar to the European Union’s Maastricht Treaty, which bound economies together. Brazil called this emergency meeting last week when Argentina said it would unilaterally slap quotas on textiles, shoes, and apparel imports. Argentina quickly backed down and exempted MERCOSUR members from the quotas after Brazil postponed talks on auto trade, a key area of commerce for Argentina which ships more than 70 percent of its automotive output to its northern neighbor. While Brazilian negotiators repeatedly denounced Argentine projectionist measures as having no place within MERCOSUR, Argentine complaints of tax breaks and direct subsidies offered by Brazil did not go unnoticed.

Trade within MERCOSUR totaled US$15 billion worth of goods and services in 1998. But Argentina’s exports to its partners, fell 27 percent of the first five months of the year. According to government statistics, Argentina has seen a sharp rise in steel bar, apparel, and shoe imports from Brazil between January and June.

Argentina is frustrated because cheaper Brazilian imports are hurting domestic shoe and textile industries, seeking to impose temporary import quotas. However, Brazil argues this is against the spirit of MERCOSUR, that there is no need to compensate their fellow member of the US$1 trillion bloc for the devaluation. By more closely synchronizing their economies, MERCOSUR members would remove the risk of sudden imbalances among them such as those caused by Brazil’s devaluation.

According to Early Warnings’ last survey, 80.24 percent of Brazilian industrialists are displeased with the performance of their government. The Brazilian Department of Exterior Relations recently affirmed that he gravity of the “commercial war” which permeates Brazil and Argentina is concerned with Argentine productive sectors which were wasted during these last four years and the ones which were not prepared to complete both inside and outside MERCOSUR.

Ministers from Brazil’s Department of Exterior Relations, Development, Industry, and Commerce, appeared before the Commission of Exterior Relations and the House of Representatives National Defense Committee to describe the crisis that the custom union faces. The ministers emphasized that most industrialists in Brazil have prepared and invested to increase their competitiveness on Brazil’s government to not debilitate those who prepared well for MERCOSUR. Recognizing that in some sectors the presence of Brazilian products in Argentine markets was effectively increasing, Brazil is counting on the recovery of Argentina.

The following examples represent two of several disputed market areas in which friction has increased between Argentina and Brazil.

RICE

President Fernando Enrique Cardoso’s popularity also declined among industrialists since the devaluation. To illustrate, rice producers of the Brazilian state of Rio Grande de Sul once closed the international bridge over Uruguay’s river passage between the Free Passage (Argentina) and Uruguayan (Brazil) as a protest against dumping by its Argentine competitors. As evidence of such dumping, the Associate Federation of Rice dealers of Rio Grande de Sul, which organized the protest, affirmed that Argentine rice is more expensive than Brazilian rice but is sold in Brazil at a price that is cheaper than the Brazilian amount. Producers from the south of Brazil briefly took a bridge that connected with Argentina to review the trucks, in a demonstration that may unravel yet another conflict with MERCOSUR.

FOOTWEAR

The decision of Argentina to demand a seal of quality in footwear has been considered yet another chapter in the current “commercial war” with MERCOSUR’s principal member states. Argentina’s footwear industry requested that the House of Representatives and the Industry Commission dictate laws to prevent “the indiscriminate import” of soliciting a 35 percent raise on the tariff of footwear imports from countries outside MERCOSUR and place more restrictions on Chinese products (increase the internal tax return by way of exports).

Manufacturers and importers of footwear have thirty days to begin applying the new Argentine regulation. Brazil admits that it is not discriminatory because it also affects Argentine producers and importers, but it does identify itself as a new tie to Argentine sales. The Argentine footwear industry also wishes to reduce to four million pairs the Brazilian supply in its market, which were almost 12 million pairs in 1998. Brazilian sector industrialists agree that in order to adapt a new position they will have to invest “time and extra money.” They admit that their Argentine colleagues may impose limits on imports, but they find it unacceptable to reduce last year’s exported volume. n

Compiled and translated by Manuel Mascareñas.