TRADE-LATAM: Argentina and Brazil Start to Patch Things Up

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Mar 24 2000 (IPS) - In a climate of optimism and understanding, Argentina and Brazil ended negotiations Friday in the Argentine capital designed to get the Southern Common Market (Mercosur) back on track.

The talks had begun Wednesday amidst mutual threats and accusations, and ended with a long-awaited agreement on trade in cars and auto-parts.

Argentine Foreign Minister Adalberto Rodríguez Giavarini described the negotiations as “far-reaching”, and said they would help “strengthen and relaunch” the trade bloc, which has been bogged down by serious internal trade disputes since 1998.

Brazilian ambassador to Mercosur, José Botafogo, said the trade negotiators “completely agreed” that a “balanced” solution could be found for the disputes pending between the two largest members of the bloc, and that the solution would allow the problems to be solved “from the roots up.”

Satisfied with the agreement on a common regime for trade in automobiles and parts, announced Thursday night, the two countries indefinitely postponed the search for solutions to the rest of the conflicts, which involve trade in chickens, pigs, footwear, sugar, textiles and steel.

The talks on bilateral trade in cars, which have dragged on without results for two years, finally came up with a solution at a time when tension is running high in Mercosur.

South America’s largest trade bloc is also comprised of Paraguay and Uruguay. It is a free trade zone of more than 200 million people, eventually aimed at becoming a common market with the full incorporation of associate members Chile and Bolivia.

This week’s talks in Buenos Aires also agreed on the creation of a permanent dispute settlement body, designed to keep the members from having to turn to the World Trade Organisation (WTO), as has already occurred with conflicts in textiles, footwear and other sectors.

The worst disputes to break out in the past few months were the result of the January 1999 devaluation of the Brazilian currency, the real, which triggered an imbalance in trade in the subregion.

Another hot issue has been the tax breaks and other incentives offered by several Brazilian states to draw investment, which have drawn fire from the governors of a number of Argentine provinces as well as the Industrial Union business association, which have complained loudly of an “exodus” of companies to Brazil.

But relations between the two partners were shaky even before the crash of the real.

Argentina and Brazil fell into recession in 1998, due to the fallout from the Asian and Russian financial crises. Against that backdrop, the cumulative effect of the devaluation of the real and slumping international commodity prices spelled serious trouble for the subregion.

The stability of the real once again became a thorny issue between the two countries early this week, when Argentine officials and politicians suggested establishing mechanisms to compensate Brazil’s partners in case of a new devaluation of the real.

But the heads of the delegations to this week’s talks agreed Friday that having different exchange policies did not create an obstacle for progress towards integration in the bloc.

They stressed, on the other hand, the need to address the specific sectorial problems, and give productive sectors time to boost competitiveness.

When he took office Dec 10, Argentine President Fernando de la Rúa committed himself to “relaunch” the Mercosur. But three months later, negotiations in the bloc seemed unable to get beyond the stage of mutual declarations of goodwill, without any progress towards concrete agreements.

In that context, the signing of the accord on bilateral trade in cars served as a sort of balm for the government, the press and the general public in Argentina.

The agreement, which will now be negotiated with Paraguay and Uruguay, sets a 35 percent duty for cars purchased outside the bloc, and 8.5 to 16.5 percent duties for auto-parts, to be in effect until 2005.

Car-makers consented to the agreement because it will create an atmosphere of stability and thus help draw new investment.

But auto-part manufacturers criticised the tariffs agreed on as too low, complaining that once the accord is implemented, companies will go under and jobs will be lost.

The trade negotiators meeting in Buenos Aires also announced that they would push for a common policy for development in the subregion, involving joint investments in infrastructure.

A meeting was scheduled for next Tuesday in Buenos Aires between President De la Rúa and the head of the ‘Plan Avanza Brasil’, José Paulo Silveira.

The Brazilian programme projects 400 billion dollars in investment in infrastructure, 35 billion of which is to be spent in Mercosur areas of influence.

This week’s talks in Buenos Aires thus marked the renewal of negotiations that had been derailed, largely by the crisis in the region and the change of government in Argentina.

The governments of the Mercosur members will now continue preparing for the April summit in Argentina in a warmer, friendlier climate.