TRADE: Truce Between Argentina, Brazil Just a Lull in the Storm

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Sep 30 1999 (IPS) - An agreement between paper and cellulose industrialists in Argentina and Brazil sealed a truce Thursday and averted a trade war between the two largest members of the Southern Common Market (Mercosur).

But analysts say the truce, which brought to an end months of tension on the commercial front, is really just a lull in the storm.

The fact that turmoil continues to lie just below the surface is highlighted by the number of small pending sectorial disputes, and by Brazil’s decision to suspend rather than lift its threat to slap restrictions on imports of 400 products from Argentina.

The agreement on footwear formalised Wednesday in Montevideo – the administrative capital of the trade bloc, which is also comprised of Uruguay and Paraguay – was the first sign that the two countries were willing to make peace.

Brazil’s footwear makers agreed to limit their sales to Argentina in the last quarter of the year to 1.7 million pairs, worth around 15 million dollars.

In the last quarter of 1998, Brazil exported 4.9 million pairs of shoes to Argentina, and in the first nine months of this year sales were 71 percent up from that period last year.

For the first half of the year 2000, Brazil will export 4.4 million pairs to Argentina, 20 percent less than in the first half of this year.

Carlos Bueno, president of Argentina’s Chamber of the Footwear Industry, told IPS that Wednesday’s agreement would ward off the closure of factories in Argentina and subsequent loss of jobs.

The deal signed Thursday in Buenos Aires by paper and cellulose manufacturers, meanwhile, set a quota of 5,000 tonnes on sales of Brazilian paper to Argentina for the last quarter of the year. Brazil had violated previous agreements.

The latest conflict in Mercosur broke out when Brazil devalued its local currency, the real, in January, which undercut the competitiveness of Argentinian exports, subject to Argentina’s currency board, which holds the peso on par with the dollar. Since then, trade between the two countries has contracted by 30 percent.

Paper producers – whose agreement covers only one kind of paper – and footwear makers thus resolved two conflicts jeopardising the unity of the bloc, which accounts for 80 percent of South America’s combined Gross Domestic Product (GDP).

But the tension is still simmering, and other disputes over market share between sectors on one side of the border and the other are still pending.

The Brazilian government went ahead Thursday with the health inspection of products from 13 Argentinian dairy companies, annoying that sector in Argentina.

Brazil’s business community has accused Argentinian exporters of milk, rice and wheat of “dumping” their products at below- market prices in a bid to gain market share.

And Argentinian produce farmers dumped a truckload of tomatoes from Brazil, demanding that they be inspected.

A study by the Adimar Schievelbein consultancy found that the number of “anti-dumping” complaints filed by Brazil before the World Trade Organisation soared from nine in 1997 to 47 in 1998.

But Brazil did not head the list of developing countries in terms of the number of anti-dumping complaints filed with the WTO. It came in second place – after its partner Argentina, which has repeatedly accused Brazil of unfair trade practices.

Analysts say the calm is only temporary, and will likely last until Dec 10, when the winner of Argentina’s Oct 24 elections takes office.

President Fernando Henrique Cardoso is planning a visit to Buenos Aires in November, to meet Argentina’s president-elect and begin to discuss questions of interest to the two countries with a view to the coming round of multilateral trade talks.

Once the pressing items on the agenda have been addressed, the two governments will have to turn again to negotiations on how to deepen integration between the two countries, at a time when Mercosur is experiencing the sharpest recession since its creation in 1991.