TRADE-MERCOSUR: Argentina and Brazil Take Steps to Save Bloc

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Oct 10 2001 (IPS) - Ministers of foreign affairs and of economy from Argentina and Brazil met Tuesday in Sao Paulo and agreed to establish ’a bilateral and temporary safeguard mechanism” in a bid to overcome the current crisis afflicting Mercosur (Southern Common Market).

The measure, to be discussed and honed with the bloc’s two other members, Paraguay and Uruguay, sometime in the next two weeks, is inspired on the rules of the World Trade Organisation (WTO), said a communiqué released following the ministers’ meeting.

The officials from Brasilia and Buenos Aires reaffirmed their commitment to Mercosur and to ’the crucial nature of the common external tariff,” which was threatened with being abandoned, according to the position of Argentine Economy Minister Domingo Cavallo that was adopted by Brazilian Development Minister Sergio Amaral.

’Determination” to create a common Mercosur currency in the medium term was another commitment coming out of the bilateral meet that, in addition to Cavallo and Amaral, involved Argentina’s Foreign Minister Adalberto Rodríguez Giavarini, his Brazilian counterpart, Celso Lafer, and Brazil’s Treasury Minister Pedro Malán.

Maintaining the common external tariff – that is, the unified trade protection with respect to the rest of the world that defines a customs union – had already been agreed by President Fernando de la Rúa, of Argentina, and President Fernando Henrique Cardoso, of Brazil, at a meeting Monday in Brasilia.

The safeguard, however, is an unusual mechanism for a bloc that seeks to practice free trade internally and a unified trade policy externally. The measure implies applying tariffs or quotas that limit commercial exchange between the four partners.

But it was the option selected to avoid totally suspending Mercosur’s common external tariff and other measures that formally affect the trade integration of the bloc and its external negotiations.

The mechanism is temporary and is a response to an exceptional situation of global economic stagnation that was aggravated by the Sep 11 terrorist attacks against the United States, said Malán.

The safeguard refers to the ’flexibility” necessary for confronting specific situations, and avoiding ’fundamentalist approaches,” added the Brazilian minister.

The agreed mechanism ’saves the bloc from the danger” of losing its identity under the pressures from the economic crisis, stated fellow official Lafer.

The consolidation of the common external tariff and of other integration mechanisms is indispensable for Mercosur to negotiate as a unified bloc with the European Union (EU) and the United States, and for wielding greater power at the Geneva-based WTO, noted Argentina’s outspoken minister Cavallo.

In past months, Cavallo had repeatedly attacked the customs union, defending the idea of returning to a mere free trade area so that each Mercosur member could implement its trade policies independently, even signing trade accords with other countries or blocs.

Mercosur is home to more than 200 million people and represents at least 80 percent of South America’s combined gross domestic product (GDP).

The lack of definitions in the safeguard mechanism proved frustrating to Brazilian business leaders. Horacio Lafer Piva, head of the Sao Paulo Federation of Industries, complained that the ministers did not say how the details of the measure will be determined, whether the process will include the business community, or which sectors will be affected.

The possibility that the safeguards would be applied only in defence of Argentine companies worries Osvaldo Douat, president of the Brazilian Entrepreneurial Coalition.

The ministers gathered Tuesday in Sao Paulo said the adoption of the Argentine proposal on safeguards is aimed at neutralising the frequent devaluation of the Brazilian currency, the real, which shifts the balance of competition between the two largest Mercosur members, especially given that the Argentine peso has been fixed at one-to-one parity with the US dollar for the last decade.

The real has lost 55 percent of its value with respect to the dollar since Brazil adopted the floating exchange system in January 1999. The result has fuelled numerous trade conflicts with Argentina, making it difficult to maintain Mercosur a completely free-trade system.

The divergent policies on currency exchange were not included in Tuesday’s discussions. The two countries will continue with their current currency regimens, said Malán and Cavallo. The creation of a common Mercosur currency, however, would force them to overcome these differences.

The application of safeguard measures, according to WTO rules, requires the verification of damage caused to a specific economic sector as a result of a sharp rise in imports.

In general terms, Argentina does not have much to complain about in its trade relations with Brazil, given that it enjoys a surplus in bilateral trade, in spite of the ongoing devaluation of the real. Last year, Argentina recorded a favourable balance of 604 million dollars, and there is a tendency this year is for an even greater surplus.

The economic recession in Argentina – already in its fourth year – has greatly reduced imports, neutralising the competitive advantage of Brazilian products resulting from the weak real.