ARGENTINA-BRAZIL: Twenty Years of a Complicated Friendship

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Nov 28 2005 (IPS) - Presidents Néstor Kirchner of Argentina and Luiz Inácio Lula da Silva of Brazil will meet Wednesday to celebrate 20 years of a sometimes stormy partnership, at a moment when relations are once again strained by trade disputes.

In 2002, Argentina enjoyed a 2.4 billion dollar surplus in its trade with Brazil, but a sudden shift in the balance turned that surplus to a 1.8 billion dollar deficit in 2004, which has since climbed to some three billion dollars between January and October of this year, according to Brazilian official figures.

These figures illustrate the reasons behind the increasingly vocal protests from Argentina on the eve of the Nov. 30 summit in the Argentine border city of Puerto Iguazú, which will serve as both a celebration of Argentine-Brazilian Friendship Day and the occasion for the signing of new cooperation agreements.

On the same date 20 years ago, the presidents of Argentina and Brazil at the time – Raúl Alfonsín (1983-1989) and José Sarney (1985-1990), respectively – took part in a historic meeting in the same tourist area, but on the Brazilian side of the border, in Foz de Iguaçu.

The Declaration of Foz de Iguaçu signed at that 1985 meeting, formally ushered in a new era of bilateral relations, replacing “a policy of confrontation with one of closer ties and solidarity,” said Alfonsín in an interview published Friday in the Brazilian newspaper Valor Econ- mico.

The two neighbours successfully left in the past a history of mutual distrust and rivalry, opting instead for cooperation in a range of different sectors. This transformation laid the groundwork for the creation six years later of the Southern Common Market or Mercosur, with the addition of Paraguay and Uruguay.

Since then, trade between Argentina and Brazil, the most visible indicator of the change, has undergone a spectacular rise from two billion dollars in 1990 to close to 16 billion dollars this year.

Nevertheless, coexistence among the members of the trade bloc has rarely been peaceful, especially between the two largest partners, Argentina and Brazil. Over the years, mutual accusations, trade disputes and disagreements over international issues have sparked a number of crises and setbacks in the integration process.

The current friction, which threatens to cast a cloud over Wednesday’s celebration, stems from an Argentine proposal to establish a “competitive adaptation clause” that would allow for the adoption of import quotas and tariffs to protect a given area of the national economy threatened by the entry of products from another member of the bloc.

Argentina’s immediate goal is to curb the flood of Brazilian manufactured products, which Buenos Aires views as an obstacle to the country’s “re-industrialisation”.

According to reports over recent days, Brazil would be willing to accept the clause, but on the condition that a mechanism is created to determine whether or not such safeguard measures are justified on a case-by-base basis. This would allow for the country affected to appeal and potentially overturn the adoption of these measures, thereby preventing abuses.

But according to Rubens Barbosa, a former Brazilian ambassador to the United States and currently the president of the Foreign Trade Council of the Industrial Federation of Sao Paulo (FIESP), barriers like these are “contrary to the spirit” of a free trade bloc and customs union like Mercosur.

For cases of unfair competition, there are already “anti-dumping” measures in place, he told IPS.

Barbosa maintained that Mercosur is functioning well from the commercial perspective, since trade among the four member nations is growing rapidly and disputes are settled among the business sectors involved themselves.

Lately, threats of barriers to Brazilian products like footwear, textiles and refrigerators have been resolved through agreements in which Brazilian companies have consented to limiting their exports.

“Mercosur’s problem is institutional,” said Barbosa, referring to the constant violations “by all of the partners, including Brazil,” of the treaties and rules established by the bloc.

“There is a lack of political will on the part of the governments to comply with the rules that they themselves have set,” he added.

Barbosa cited the example of the common external tariff, a key component in any customs union, that in the case of Mercosur is “riddled with holes” by all of the parties, thanks to hundreds of exceptions that should be eliminated, but which Argentina wants to maintain for many more years.

The Argentine Industrial Union has accused Brazil of “unfair competition” for granting “fiscal and financial incentives for production, exports and also, in recent years, the purchase of companies abroad.”

Argentine manufacturers argue that a bloc with asymmetries contradicts the original goals of Mercosur.

But according to Barbosa, “the current asymmetries are in Argentina’s favour,” rather than vice versa, given that the Brazilian currency is overvalued and Argentina’s economic growth is far superior to Brazil’s – almost three times greater this year.

Brazil has registered a surplus in bilateral trade since last year, but over the previous 10 years it accumulated an enormous deficit, he added.

For his part, Tullo Vigevani, a professor at the State University of Sao Paulo, told IPS that Mercosur is suffering from “structural problems” that remain unsolved because of a “lack of capacity in terms of planning for integrated development” and funds for investment in economic restructuring.

There is fierce competition among the member nations in the agricultural sector, he noted, with rice producers in southern Brazil blocking imports of Argentine and Uruguayan rice, while the governments of Argentina and Brazil fight over markets for their meat and soybean production.

Initiatives aimed at fuller integration, such as those established in the energy sector, are limited and insufficient, and no progress has been made in meeting the crucial need for joint industrial development, said Vigevani.

In the meantime, unresolved matters continue to pile up, weakening the unity among the partners and leading them to pursue their own courses of action, he said, pointing to Uruguay’s plans to sign an investment agreement with the United States, and the presence of members of the U.S. military in Paraguay.

Mercosur will not disappear, but it could suffer serious setbacks and come to represent nothing more than a partial free trade area, a fate that would frustrate the original expectations behind its founding, he warned.