TRADE: Mercosur Needs Productive Integration to Leave Behind Recurrent Crises

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Jul 20 2004 (IPS) - Palliative measures are not enough to overcome the trade disputes that break out within South America’s Mercosur trade bloc with damaging frequency, and economic and productive integration must follow trade, say analysts in Brazil.

If the underlying problems are not tackled, crises will continue to periodically recur, hurting the credibility of Mercosur (Southern Common Market) and the bloc’s negotiations with the outside world, they warn.

For that reason, a “re-thinking” of the bloc is necessary, including a “diagnosis” of the problematic areas, and the assessment of shortcomings in technology, equipment or capital should be used to encourage “integration and complementarity in chains of production,” Michel Alaby, president of the Association of Brazilian Companies for Integration in Mercosur (ADEBIM), told IPS.

Mercosur must “perfect free trade,” but it also has to “advance towards the integration of member economies, through common agricultural, industrial and social policies,” said Marco Aurelio García, presidential advisor on International Affairs, in an article published in Brazilian newspapers last week.

Mercosur, one of the world’s biggest trade blocs, is made up of Argentina, Brazil, Paraguay and Uruguay, with associate members Bolivia, Chile and Peru. Venezuela is also set to become an associate, and Mexico is seeking to join as well. Brazil and Argentina are the largest partners.

The main problem is that Argentina has “a less competitive industrial sector” than Brazil, as a result of policies which have been weakening it since 1976, said Tullo Vigevani, a researcher at the Modern Culture Research Centre and a professor at the public University of Sao Paulo.

Meanwhile, even under its most economically liberal governments, Brazil has always supported and encouraged some industrial sectors, through state instruments like the National Bank for Economic and Social Development (BNDES). Besides, labour in Argentina is more costly, he added.

Vigevani, an expert in international relations, said the difference in scale of the national markets is not a factor in the imbalances, calling that “a false problem.” Free trade potentially offers each member state access to the entire market, he argued.

In his opinion, common development policies are needed, but “without renouncing the logic of competitiveness,” and “fomenting modernisation,” which requires an increase in long-term credit, possibly with an association between the River Plate basin development fund – Fonplata -, the BNDES, the Andean Development Corporation and the Inter-American Development Bank.

So far, announcements of integration of production chains involving all Mercosur countries “have remained in the realm of rhetoric, as mere intentions,” he said. The block will soon see if the Brazilian administration of leftist President Luiz Inácio Lula da Silva will be able to turn such promises into reality, the analyst added.

But Vigevani pointed to one hopeful development that could help to extend integration into other areas: the Brazilian Association for the Progress of Science will be meeting with its Argentine counterpart Nov. 1-5 in Buenos Aires to discuss joint programmes for scientific and technological development within Mercosur.

But Alaby believes it is better to wait for more favourable circumstances before holding “broad, high-level negotiations” on definitive solutions to achieve true economic integration.

This is “a time of animosity, where emotions rule over reason,” he said. He noted that Argentina wants to limit imports of Brazilian home appliances by means of quotas, and automobiles are next on the list.

In tense negotiations in Buenos Aires last week, business representatives from both countries agreed Brazil will limit exports to 90,000 stoves this year and 47,500 in the first half of 2005.

For refrigerators, a quota of 42,370 units was set for the Jul. 20-Sep. 30 period, during which a technical committee will set future quotas. Wrangling continues over washing machines. Argentina is offering 35 percent of the market to Brazil, but the Brazilians want a larger share.

Brazil loses exports with these agreements, but this is “the only solution possible” in the current climate of tension, said the president of Brazil’s National Confederation of Industry, Armando Monteiro Neto.

These disputes have cropped up regularly since 1999, when Brazil devalued its currency adopting a floating rate. Argentina immediately complained about the “flood” of Brazilian textiles, chickens and footwear, and the same palliative measures of quotas or “voluntary restrictions” were agreed, said Alaby.

But Brazil has also restricted rice and dairy product imports from its Mercosur partners, setting minimum prices, he pointed out.

That is to say, all of the members have broken the rules at one time or another, Alaby added.

The situation began to heat up again when Argentina announced “unilateral measures” on the eve of the Jul. 7-8 Mercosur summit in that country, “diverting attention” from issues that are crucial to the bloc, to the latest trade conflict, said Alaby.

“We will continue discussing the same issues ad nauseum if we insist on forgetting the past, repeating the same mistakes over and over,” warned the business leader.

In his view, “re-thinking Mercosur” means each country must have clear objectives; not only dispute settlement panels but production chains must be supranational in character; and certain sectors must be chosen for reconversion, while creating the financial and other conditions to allow each country to produce what it is best suited to make.

Without joint policies to put in place the necessary conditions, the bloc will disappear, because “Argentina cannot simply allow Mercosur to accentuate its de-industrialisation,” said Vigevani.

Argentina’s ambassador to Brazil Juan Pablo Lohlé said in a conference in Rio de Janeiro last week that Argentina, Paraguay and Uruguay should be allowed to employ safeguards to deal with differences of scale with respect to Brazil, Latin America’s largest country.

The trade surplus of a small country does not threaten the economy of its larger partner, but “if it is the other way around, it does,” he underlined.