MERCOSUR-SUGAR: Bittersweet Free Trade

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Jun 4 1997 (IPS) - Sugar, excluded from the free trade accords in South America’s Mercosur bloc, is emblematic of the troubles presently plaguing Brazil and Argentina, the two largest member states.

Brazil, which has already accumulated a trade deficit of 4.26 billion dollars so far this year – compared with 5.5 billion for the whole of 1996 – urgently needs to take advantage of any opportunity to increase its exports, such as that offered by sales of sugar within the Mercosur (Southern Common Market).

But with its 17.4 percent unemployment rate, Argentina cannot afford to lower its resistance to the inclusion of Brazil’s lower- cost sugar, which would threaten the tens of thousands of jobs provided by its own sugar sector – especially since they are concentrated in the north, currently shaken by widespread protests and roadblocks.

The “social explosion” which has spread throughout Argentina was heightened in recent weeks with violent protests in the northern province of Jujuy, after the closing of a large sugar refinery led to the dismissal of thousands of workers.

Under the pressure of its growing trade deficit, Brazil wants to get sugar included in Mercosur accords on the gradual lifting of tariffs by 2001 or 2006.

It got the question accepted in the bloc’s negotiations, and hopes to see some progress at the next meeting of the Common Market Group – the Mercosur’s executive organ – to be held in two weeks, said Pedro Cabral da Silva, director of the Ministry of Industry and Commerce’s Department of Alcohol and Sugar.

But this would seem to be the worst possible moment for attempting to overcome Argentina’s resistance. The government of President Carlos Menem is not only facing the widespread social unrest, but also a rebellion in parliament on the sugar question.

Congress unanimously approved, on Apr. 30, a draft law that would condition the lifting of tariffs on sugar on the elimination of subsidies supposedly enjoyed by that sector in Brazil.

Although Menem vetoed the bill, on the grounds that it was incompatible with the Mercosur, the legislators are hammering out a new proposal designed to protect national products.

The opening of Argentina’s market to Brazilian sugar is impossible, says the president of the Argentine Sugar Centre, Jorge Zorreguieta. Without tariff protection – which currently amounts to 25 percent according to Cabral da Silva – Brazil’s exports would devastate Argentina’s sugar sector and push up the country’s already soaring unemployment rate.

But free trade in the sector would mean additional sales of one million tonnes a year for Brazil, estimated Cabral da Silva. Producers in the rest of the Mercosur – Argentina, Paraguay and Uruguay – would be left with a tiny sliver of the market.

Argentina’s sugar yield in 1996 was 1.29 million tonnes, according to the Sugar Centre – equivalent to the country’s entire domestic consumption, and to one-tenth of Brazil’s total production.

Argentina argues that the lower costs in Brazil are due to its large-scale production, favoured by a policy that since 1975 stimulates, with subsidies, the production of fuel alcohol as a substitute for gasoline.

A full 63 percent of Brazil’s sugar cane goes to the production of fuel alcohol, says Henrique Malta, the Federation of Industries of the State of Santa Catarina’s foreign trade coordinator, and Brazil’s representative in the Mercosur Subcommission on Sugar.

But Malta rebuts Argentina’s argument, contending that sugar is not subsidised in Brazil, but simply produced at lower cost and with far superior productivity.

One tonne of sugar cane provides 85 kgs of sugar in Argentina, compared with 140 kgs in Brazil, he underlined. Argentina’s humid, temperate climate with frequent frosts and scarce sunlight does not favour production.

Argentina’s argument is “an excuse” for its inability to compete, says the Brazilian business leader, who does not anticipate any Mercosur accord on the issue of sugar in the near future.

The private sector’s search for alternatives has been fruitless, he added. “It is a government matter, which will depend on the steadfastness of the Brazilian government” in demanding a solution.

Cabral da Silva is more optimistic, pointing out that Brazil abandoned its proposal and joined Uruguay’s suggestion of a more gradual cutting of tariffs starting in 1998. The question now is whether Argentina and Paraguay can be convinced.