ARGENTINA-BRAZIL: Mixed Reviews for Bilateral Safeguard Mechanism

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Feb 10 2006 (IPS) - A bilateral safeguard mechanism agreed upon by Brazil and Argentina in response to demands from Argentine manufacturers represents a setback for South America’s Mercosur trade bloc but is welcomed by some sectors in Brazil’s farm industry.

This was the assessment of the new mechanism by the president of the Rio Grande do Sul Agricultural Federation (FARSUL), Carlos Sperotto, who stressed that Brazilian farmers had been calling on the government of President Luiz Inácio Lula da Silva since last November to adopt safeguard measures against imports of Argentine rice, wheat, wine, onions and milk products.

The measure was initially proposed for implementation in accordance with World Trade Organisation (WTO) rules, but was finally put in place through a bilateral agreement signed last week, Sperotto told IPS.

Brazil could very well be the first to make use of the new mechanism, which establishes the safeguards Argentina has been demanding for over a year to confront the trade imbalance between the two countries.

Argentine manufacturers have loudly protested the flood of Brazilian industrial products like home appliances, textiles and footwear, which are accused of seriously threatening some industrial sectors and hindering the country’s “reindustrialisation”.

The Argentine government of centre-left President Néstor Kirchner stepped up the demands to confront the “asymmetries” in Mercosur (Southern Common Market) that favour Brazilian manufacturers.

The smaller full members of Mercosur, Paraguay and Uruguay, seem to have been relegated once again to the role of silent partners while the trade bloc’s two largest, most powerful members hammer out bilateral deals.

Pressure from the business community has led the Argentine government to impose various restrictions on imports in recent years, and at times it has managed to convince the Brazilians to voluntarily limit their exports to the neighbouring country.

But these selective and intermittent protectionist measures were not enough to curb a growing imbalance in trade between the two nations.

By late 2005, Brazil had accumulated a surplus of almost 3.7 billion dollars in its bilateral trade with Argentina – double the figure for the previous year.

Brazil’s exports to Argentina last year totalled over 9.9 billion dollars, and 92 percent of that amount corresponded to manufactured goods.

It was better to adopt a more flexible and organised approach to bilateral trade relations than to remain subject to unilateral measures like the ones adopted in recent years by Argentina, argued Brazilian diplomats in defence of the new safeguard mechanism, which was harshly critcised by manufacturers in Sao Paulo, the country’s industrial hub, as “a step backwards in the integration process.”

Moreover, the agreement is not limited to the safeguard measures demanded by Argentina, which would have “violated the spirit of free trade and Mercosur.”

Brazil managed to condition the application of the new mechanism on several requirements: effective proof of harm to specific sectors as a result of a large increase in imports; prior negotiations and procedures, including arbitration by international experts; and instruments to prevent trade deviation, such as the replacement of Brazilian exports with goods from other countries.

In addition, the sector benefiting from these temporary protectionist measures must present a restructuring plan that will boost its competitive power and eliminate the need to resort to the safeguard mechanism again in the future.

According to the current agreement, the mechanism can remain in effect for a maximum of four years, although industrialists in Brazil are worried that the time frame could be extended.

Although created to protect Argentine industry, the safeguard mechanism will be a boon for farmers in southern Brazil, who have periodically mobilised against “invasions” of farm products – mainly rice from Argentina and Uruguay û by blocking the borders with their tractors or even their own bodies.

Rio Grande do Sul produces 6.5 million tons of rice annually, which amounts to half of total domestic consumption, said Sperotto, who stressed the economic and social importance of the crop in the southern Brazilian state, also a major producer of wheat, soy beans, grapes and tobacco.

“Within 30 days we will be able to initiate the process” of seeking safeguards against Argentine rice under the new mechanism, Sperotto announced. At the same time, however, he acknowledged that the measure is a precarious one, since the real solution would be to “harmonise” production and agricultural trade in the two countries in order to avoid harmful competition during harvest seasons.

The current imbalance is due in part to the fact that fertilisers and pesticides are much cheaper in Argentina, while Argentine farmers also have greater access to farming machinery, which is subject to extremely high taxes in Brazil, said Sperotto.

When combined with the more fertile soil found in Argentina, this means that farmers there can produce rice at a cost that is roughly 20 percent lower than in Brazil.

Brazilian producers face similar disadvantages when it comes to wheat, wine, onions, garlic and milk products, he added.

In a more general sense, Sperotto remarked that he was “concerned by the weaknesses” of Mercosur, of which the safeguard mechanism is an acknowledgement.

The barriers imposed “both there and here” and the open and public rejection of Brazilian products by Argentine retailers essentially refute the fact that the two countries are members of a trade bloc, he commented.

For Silvia Portela, a sociologist and consultant to the Central Unica dos Trabalhadores (CUT) û Brazil’s largest trade union federation û on international affairs, the safeguard mechanism “is not bad” as a temporary measure while the search continues for definitive ways to overcome the trade imbalances and disputes between Mercosur’s largest members.

This flexibility was necessary on Brazil’s part, she admitted, given its enormous trade surplus with Argentina, despite the unfavourable exchange conditions, with the Brazilian real overvalued since last year and the Argentine peso much weaker against the U.S. dollar.

But the mechanism will achieve nothing if Mercosur fails to move forward in the process of integrating the production chains in the bloc’s member countries and if Argentina does not implement a genuine policy of industrial development, she told IPS.

Portela also criticised the fact that trade unions were completely excluded from the negotiations on the safeguard mechanism and other Mercosur agreements, for which the government solely consulted the business community.

“It is unfortunate and undemocratic,” since these issues affect the entire population, and not only private companies, she maintained.