AGRICULTURE-MERCOSUR: Market Access a Matter of Life and Death

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, May 23 2002 (IPS) - The crisis afflicting Mercosur (Southern Common Market) has been aggravated by the Argentine catastrophe, complicating the negotiation of trade agreements precisely when the four-nation bloc needs new markets for its agricultural commodities, which are its most competitive exports.

The trade panorama for Mercosur (Argentina, Brazil, Paraguay and Uruguay) grew especially gloomy with the economic and social crisis that erupted in Argentina in December.

And it is under darker clouds since the United States recently enacted an 80-percent increase in its farm aid programmes and a tariff hike on steel imports.

Furthermore, President George W. Bush is having a hard time winning “fast-track” authority – in the form he seeks – to negotiate trade agreements. The U.S. Senate is set to vote Thursday evening on the measure.

The negative climate was evident at the Latin American, Caribbean and European Union Summit over the weekend in Madrid. Mercosur was unable to convince the European Union (EU) to formalise any of the commitments it sought, such as a timeframe for concluding a trade accord between the two blocs and an EU reduction of farm subsidies.

The pessimistic attitude originates in the U.S. law enacted earlier this month at increases government subsidies to farmers to more than 180 billion dollars over the next decade and of a prior move that raises U.S. tariffs on steel imports to “safeguard” the domestic steel industry.

The EU, “which has always been very protectionist, is taking advantage of the moment” to reinforce its inflexible stance, Mario Marconini, executive director of the Brazilian Centre for International Relations and former secretary of foreign trade, told IPS.

The U.S. “farm bill” strengthens the arguments of the EU sectors that oppose changes to the common agricultural policy, which – like the U.S. policy – establishes hefty subsidies for farmers. The EU Trade Commissioner, Pascal Lamy, admitted as much in an interview with the Brazilian daily ‘Valor’.

Argentina’s Foreign Minister Carlos Ruckauf said this week that his country would join forces with Brazil to seek the creation of a panel by the World Trade Organisation (WTO) Dispute Settlement Body to determine the legality – under the rules of the multilateral trade system – of the U.S. farm bill.

World trade has grown in recent decades, driven by the major economic powers – United States, Japan and EU -, which are united in favour of expanding exchange, but that process has always depended on the United States leading the way, said Marconini.

Washington has led the trade liberalisation process since the 1930s, with one objective being to prevent conflict and even war, which is why “the tendencies of the current government are cause for concern,” said the expert.

The protectionist initiatives of the U.S. Congress are to be expected, said Marconini, but the new aspect is that now the executive branch is accepting it due to “electoral reasons because it lacks the strength to resist the pressure” from the sectors demanding protection.

The outlook could become even gloomier Thursday as a result of possible restrictions on the U.S. president’s Trade Promotion Authority (TPA), or fast-track, a legislative bill that grants the president power to negotiate trade agreements that Congress would then approve or reject, but would not be able to alter.

In general terms, by granting TPA, the U.S. lawmakers give up the right to amend a trade agreement or to reject portions of it.

But the Senate modified the fast-track bill last week so that it would allow Congress to partially reform treaties it believes threaten national trade interests, a nod to the strict laws against dumping (selling at prices below production costs) in force in the United States.

The restrictions added to the bill pose a serious threat to Mercosur’s dream of gaining access to the world’s big agricultural markets through agreements with the EU or the Free Trade Area of the Americas (FTAA), a project being negotiated by 34 countries of the Western Hemisphere, with the notable exception of Cuba.

If the U.S. Congress does not approve fast-track, or if it imposes strict limitations, the round of multilateral trade talks convened in November by the WTO’s fourth ministerial conference will lose significance, and that is the only arena in which a substantial reduction of farm subsidies can be negotiated, commented Lamy.

In that case, a treaty between Mercosur and the EU could not include “major changes”, he added.

In the last few days, several Brazilian officials – including President Fernando Henrique Cardoso – have expressed their discontent with the direction that the Mercosur talks are taking.

The Argentine crisis is no reason for halting efforts to build closer ties with the EU, said Cardoso.

Clodoaldo Hugueney, head of integration policy at the Brazilian Foreign Ministry, criticised in Washington the latest U.S. protectionist measures, saying they could paralyse the FTAA negotiations, which are to take up the matter of tariff reduction next year.

The difficulties of hemisphere-wide integration are also cooling European enthusiasm for a political and commercial agreement with Mercosur, an accord originally promoted as a means to prevent the United States from obtaining total hegemony in the Americas.

And the economic problems of the four Mercosur nations, accentuated by the crisis in Argentina, make farm trade liberalisation a crucial matter for the bloc.

Agriculture is a sector in which these countries are very competitive and maintain a trade surplus – approximately 20 billion dollars annually in the Brazilian case. For Argentina, it is a matter of life and death: farm trade is essential for overcoming the current crisis.

As such, the Argentine government is willing to accept an EU proposal to expand its import quotas from the bloc in order to push ahead in the talks, given the apparent impossibility of convincing Europe to eliminate its barriers and subsidies in the agricultural sector.

The Brazilian government, initially opposed to the idea, has been giving signs of switching its position under pressure from Argentina and Uruguay, that latter suffering the consequences of its neighbour’s crisis.

Brazil may agree to accept an increase in quotas, but only with reciprocity. That is, with Mercosur also setting limits for the imports of manufactured products from Europe, said Pedro de Camargo Neto, farm secretary at the Ministry of Agriculture, Wednesday.