TRADE-MERCOSUR: Sugar Accords Blocked by Social and Energy Issues

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Sep 28 2000 (IPS) - The difficulties confronting Latin America’s Southern Cone Common Market (Mercosur) in adding sugar to its free trade regimen are rooted in the problems afflicting its member countries, such as expanding poverty in Argentina and an energy deficit in Brazil.

The decision to define a programme by the end of the year that would put an end to sugar tariffs within the bloc comes at a particularly bad time.

With unemployment surpassing 14.5 percent, and poverty on the rise for the last several years, Argentina cannot allow the loss of jobs in its sugar sector. The cane-producing region, in the nation’s north, is the poorest in the country and has suffered a prolonged economic and social crisis.

But an increase in unemployment in Tucumán and Jujuy provinces would be inevitable if the Argentine government removed its import taxes on sugar from Brazil, where production costs are much less.

Mercosur’s two other partners, Paraguay and Uruguay, impose minimum price limits on refined sugar imports.

Brazil says its programme of adding cane-based fuel alcohol to gasoline is non-negotiable, but Argentina demands a halt to the practice as a condition for accepting liberalised sugar trade.

Argentina’s trade officials say the Brazilian government’s cane alcohol programme constitutes a subsidy to the sugar industry, and distorts the conditions of competition within Mercosur.

But Brazilian authorities say they would not accept the Argentine demand under any circumstances, much less in the current situation, as high petroleum prices are causing heavy damage to the country’s trade balance.

Experts calculate that Brazil, which imports approximately 30 percent of the petroleum it consumes, will spend an additional 2.2 billion dollars this year due to the high international oil prices.

In 1999, petroleum imports cost Brazil 4.3 billion dollars. This year the sum is expected to reach 6.5 billion dollars, according to Foreign Trade secretary, Lytha Spíndola.

This situation further complicates Mercosur’s chances of reaching an agreement on adding sugar to its list of free trade commodities. The bloc, which has a total population of more than 210 million, is responsible for nearly 80 percent of South America’s combined gross domestic product (GDP).

The special taskforce designated to discuss the sugar issue made some progress this week toward agreement on four points, according to Brazilian negotiator and diplomat Ruy Carlos Pereira.

Argentina, Brazil, Paraguay and Uruguay agree that a transition period is necessary, and that parallel to the gradual reduction of sugar tariffs, public policies affecting free competition in the sector should be eliminated.

The four partners also accept that sugar acquired outside the Mercosur area must pay a higher tariff than the one imposed on intra-bloc trade.

But while Argentina wants a 10-year transition period, and Paraguay is calling for 20, Brazil maintains that it should be limited to just one year: 2001.

The Brazilian proposal establishes a three-stage reduction in the tariffs its partners currently impose on its sugar. The three cuts would be finalised by the end of 2001, leaving sugar trade completely free in 2002.

Argentina currently applies a tariff of 18 percent above the import price of Brazilian sugar, with additional taxes that vary according to international exchange rates.

Paraguay and Argentina want to postpone the initiation of a tariff-reduction process. Asunción calls for the transition to begin in 2013, ending in 2020. Buenos Aires, meanwhile, would initiate cuts in 2005, reaching a zero-tariff in 2013.

Uruguay, meanwhile, did not set a time period, but demands the elimination of the tax incentives Brazil offers its sugar producers.

Mercosur’s three smaller partners are calling on Brazil to halt its public policies that support production of sugar cane for use in its fuel alcohol programme because the measures indirectly favour sugar production in general.

They also demand that Brazil eliminate subsidies for its least productive sugar-growing areas, like the northeast.

Brazil also provides subsidies for the transport of fuel alcohol produced in its central eastern states. But negotiator Pereira pointed out that this financial support has already been slated for elimination by 2004.

Argentina’s demands concerning the Brazilian cane-based alcohol programme rule out any related trade agreement if the subsidies stay in place.

The fuel alcohol polices were implemented 25 years ago, after the first global oil crisis, in order to reduce Brazil’s dependence on fossil fuel imports.

A large portion of the cars manufactured in the country were adapted to run on fuel alcohol, which is also added to gasoline – a proportion that now reaches 22 percent.

In addition to the return of high oil prices, environmental reasons justify the measure today as alcohol substitutes polluting ingredients such as lead.

Sugar cane’s importance as an energy source has already begun to overtake its role in food production, not only because of the high oil costs, but also due to growing electricity demands.

In June, Brazil began importing electrical energy from Argentina and will have to increase imports in the coming years. The nation also purchases electricity from Venezuela and Bolivia, in addition to using Bolivian natural gas in its thermoelectric plants.

Great potential also lies in sugar cane pulp. The waste created in sugar and alcohol production could help generate 20 percent of the electricity consumed in Brazil, says Eduardo Pereira de Carvalho, president of the Sao Paulo Sugar Cane Agro-Industrial Union, the sector’s largest organisation.