INTEGRATION: Mercosur Credibility Bruised by Brazilian Initiative

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Apr 2 1997 (IPS) - Argentine economists and entrepreneurs, shocked into action by Brazil’s unilateral decision to restrict imports, were quick to state these unconsulted moves deal harsh blows to external credibility.

“Although no blood is running in the streets, the most worrying aspect of this Brazilian behaviour is that it demonstrates a lack of seriousness and legal insecurity to the Mercosur’s (Southern Cone Common Market) foreign investors,” said Alberto Alvarez Gaiani, vicepresident of the Argentine Industrial Union.

Brazil announced a measure restricting imports from all countries, including those within the block, last week, without first consulting with its Mercosur partners – Argentina, Uruguay and Paraguay – by forcing importers to pay for their purchases in cash.

Authorities and entrepreneurs in these three countries and even Chile, protested vehemently against the measure calling for the bloc member nations to be excepted. To start with, Brazil refused to treat them differently, but on Tuesday it decided to modify the measure in order to benefit the bloc.

The decision to leave key trade sectors marginalised by the resolution forced Argentina’s economy minister, Roque Fernandez, to make a lightning visit Brazil. But despite the final positive outcome, observers said the damage had already been done.

“We are accustomed to this type of behaviour from Brazil, we know they will back down in the end, although not to their original position, but what we cannot accept is having to deal with a new conflict each month as a result of the unilateral decisions taken by this country,” protested Alvarez.

The leader said there had already been problems because of a resolution by Brazil earlier this year – which was later revoked – imposing health controls on food imports from the Mercosur nations. Argentina sells Brazil some 1.6 billion dollars of foodstuffs per year.

He also said there is still a good deal of friction due the incentives Brazilian states offered foreign auto companies in order to setting up factories, measures which were not well accepted by Argentina – one of the main competitors.

This new Brazilian offensive, aimed to neutralise the debilitating effects of ist large trade and fiscal deficit on the domestic economy, change the rules of the game within the bloc.

“Many investors come to the country attracted by the Mercosur, aiming to direct their trade towards Brazil,” said Alvarez.

Other economists, like Beatriz Nofal and Eduardo Constantini also stated similar opinions. Nofal said the last Brazilian measures “affects the credibility of the Mercosur … measures which affect intrazonal trade cannot be adopted without consultation,” she added.

Meanwhile, Constantini said direct investments are made in Argentina considering the country to be an integral part of the Mercosur. In 1996, Argentina received direct foreign investments worth 5.464 billion dollars compared with the 7.473 billion of Brazil.

The economists and entrepreneurs also warned this type of conflict, even when resolved by consensus, wear away at the homogeneity of the bloc against initiatives from third parties, like the Free Trade Area of the Americas promoted by the United States.

“We cannot arrive at the May meeting in a weakened state,” said leader of the Argentine Chamber of Exporters, Enrique Mantilla, referring to the meeting of American ministers planned for Belo Horizonte, Brazil.

“The most serious aspect of this conflict is that it gives foreign investors the sensation that the Mercosur rules are constantly being modified in a unilateral manner,” said the economist Miguel Angel Broda.

Broda, in agreement with foreign ministry officials who preferred to remain nameless, said the Brazilian measure, even when applied to all branches, will only affect 100 million dollars worth of investments, out of a total of 6 billion dollars of Argentine sales to Brazil.

The economic impact is not actually as great as the repercussions implied, but observers said what had really shaken the customs union was the ease with which Brazil takes unconsulted measures, even when these affect trade with its neighbours.