By Mario Osava
RIO DE JANEIRO, Sep 26 2001 (IPS)

Trade negotiations with the United States and with the European Union (EU) have revived the strategic side of Mercosur (Southern Cone Common Market), forcing its two leading members, Argentina and Brazil, to seek solutions to the bloc’s internal problems.

The economy and foreign ministers and central bank presidents of the two nations are to meet “as soon as possible,” say officials, to discuss the bilateral disputes plaguing Mercosur and to outline ways to overcome the differences in monetary policies.

The planned get-together was announced in Washington as foreign ministers Adalberto Rodríguez Giavarini, of Argentina, and Celso Lafer, of Brazil, met this week with their other Mercosur colleagues (from Paraguay and Uruguay) and US Trade Representative Robert Zoellick.

The Washington meeting served as a relaunch of the consultation mechanism known as “four plus one”, created in 1991 to promote trade cooperation and agreements between Mercosur and the United States, but which was all but abandoned just years later.

The five countries, within this format, agreed Monday to set up four working groups that are to formulate proposals for expanding agricultural and industrial trade, investment and electronic commerce.

The decision opens up a third front in the simultaneous external negotiations of Mercosur, which was founded in 1991 by the four Southern Cone nations and is home to 210 million people. Mercosur represents approximately 80 percent of the combined South American gross domestic product (GDP). Bolivia and Chile are associate members.

Mercosur is already discussing an expansion of trade liberalisation and cooperation agreement with the EU, and is engaged in the process to establish the Free Trade Area of the Americas (FTAA), in which 34 countries are involved.

By the end of October, Mercosur must present the EU with its counterproposal on market opening in response to the European plan, laid out in July in a bid to speed up closer ties between the two.

A fourth arena of talks could appear in October if the ministerial conference of the World Trade Organisation (WTO) decides to launch a new round of multilateral negotiations. In that case, the South American countries have already determined that their rallying point would to demand the elimination or sharp reduction of subsidies and import barriers that distort global agricultural trade.

The urgency and the multiplication of trade negotiations are proving to be a strong motivation for Mercosur to overcome its internal divisions, such as the problems arising from the asymmetry in currency policies and the trade conflicts that have proliferated since 1999.

Brazil’s currency, the real, has depreciated 30 percent with respect to the US dollar since January, aggravating the economic troubles in neighbouring Argentina, which has begun its fourth year of recession and is seen by many as being on the verge of bankruptcy.

The Argentine peso has been kept at one-to-one par with the dollar for the last 10 years, backed by the “convertibility” law. In contrast, the real, is now worth – in dollars – just 45 percent of what it was in 1999.

The weakness of the real, sensitive to any international financial turbulence, has provoked harsh criticisms from Argentine Economy Minister Domingo Cavallo since he assumed the post in April.

The Mercosur customs union has also suffered several blows from Cavallo through measures that have annulled the bloc’s common external tariff on a number of products.

The Brazilian government’s approach has been to tolerate the accusations and initiatives of the Argentine minister, apparently because it considers that the top priority is to help Argentine overcome its financial crisis.

But Brazil took a more hard-line stance last week. Its special ambassador to Mercosur, José Botafogo Gonçalves, announced that Brasilia may cut back on imports of automobiles manufactured in Argentina, given that the quotas set for the sector have already been met. The car industry is a delicate area for both countries.

Furthermore, Brazil has gone before the WTO to question the minimum prices Argentina has set for its imports of Brazilian chickens since July 2000, charging that the measure is a case of disloyal competition, or dumping.

Buenos Aires will face additional legal actions if it does not change its position once the Argentine parliamentary elections Oct 14 have concluded, reported ‘O Estado de Sao Paulo’ daily, citing statements from unidentified diplomatic sources.

In response to Cavallo’s criticisms of the depreciation of the Brazilian real, Botafogo asserted that the largest country of the four-nation bloc cannot adapt its monetary policy to that of a smaller economy.

A more conciliatory voice is that of the new development minister in Brazil, Sergio Amaral, who says he would go along with a temporary suspension of Mercosur’s common external tariff if that is what the rest of the bloc’s members want – particularly since, in practice, government measures have already been undermining its effectiveness.

But Amaral has urged, in exchange for flexibility on the external tariff question, that protectionist measures be lifted, especially by Argentina.

If the numerous fronts on which Mercosur is engaged in international trade talks are able to pressure Argentina and Brazil into resolving their differences, it would strengthen the bloc as it comes up against the demands of more powerful interlocutors – like the EU and the United States – and could ultimately be Mercosur’s salvation.

Excerpt: