SUNS4514 Thursday 23 September 1999

Trade: 'Eye for an Eye' poisons Argentina-Brazil relations



Rio de Janeiro, Sep 21 (IPS/Mario Osava) -- Tension between Argentina and Brazil continued to escalate this week, with new restrictions on imports adopted by Brasilia in reprisal for similar measures taken by Buenos Aires.

The latest dispute between the two largest members of South America's leading trade bloc, the Southern Common Market (Mercosur) - comprised of Argentina, Brazil, Paraguay and Uruguay - seems to be heading toward a trade war, since Brazil slapped restrictions Monday on 400 products imported from Argentina.

Mercosur has found itself on a downward slope with no brakes, now that Brazil is attempting to back Argentina up against the wall with increasingly stiff retaliations until it yields and agrees to negotiate and lift its latest barriers to Brazilian goods.

Brazilian Agriculture Minister Marcus Pratini de Moraes threatened to impose "extreme" requirements, which could curb imports of farm products from Argentina, especially rice and dairy products.

The minister pointedly remarked that there were many countries interested in exporting their abundant grains and milk. He added that the balance in agricultural trade between the two countries

was in Argentina's favour, and that curtailing imports would boost domestic production in Brazil.

The Agriculture Ministry had already imposed health inspections on rice from Argentina, which could hold up shipments on the border for several weeks, as well as inspections and a new register of Argentinean companies that sell dairy products to Brazil.

The measure that went into effect Monday meant the loss of automatic licensing - the clearance of imports in 24 hours - for 400 Argentinean products, which are now subject to red tape in the form of monitoring and delays in payments.

The decision will have a heavy impact on Argentina's main exports, such as vehicles, food, textiles and chemical products.

But according to the Ministry of Development, Industry and Trade's secretary of foreign trade Lytha Spindola, the measure is simply a response to similar restrictions imposed by Buenos Aires.

Brazil's diplomats had initially attempted to put off negotiations of the trade conflicts until Argentina's Oct 24
elections, on the assumption that the new government would be less vulnerable to pressure by that country's less competitive industrial sectors.

But a new problem spurred the government to action. Since Sep 9, Brazilian-made footwear has been kept from entering Argentina by the demand that it obtain a government licence - which takes three months to issue.

One million pairs of shoes and other footwear are stuck in customs or warehouses pending authorization for sale. And given the change of season, from the southern hemisphere winter to spring, the entire lot could go out of style - meaning as much as $80 million in losses for Brazilian exporters.

A diplomatic mission sent to Buenos Aires late last week lobbied the Argentinean administration to postpone the restriction on footwear, until Brazil was able to negotiate with the new government elected next month.

Brazil responded to Argentina's refusal to postpone the restriction on footwear by announcing Friday night the suspension of automatic licensing for 400 products as of Monday.

The secretary of the Chamber of Foreign Commerce, Jos Botafogo Gonalves, who participated in last week's failed diplomatic mission, said he feared that new trade disputes between the two countries would erupt before the elections, given the current political conditions in Argentina.

His greatest concern was a draft law to be approved by the Argentinean parliament within the next few days, which stipulates that 50% of the components of vehicles assembled in Argentina must be locally produced - a measure designed to bolster the national auto-parts industry.

The new law will bury Mercosur's shared automobile industry regime, and will lead Brazil to treat vehicles made in Argentina as products coming from outside the bloc, which pay a 35% duty. The new law will mean "bankruptcy for Argentina's automobile industry," warned Botafogo Gonalves.

The integration process between the two largest partners of Mercosur has been deteriorating since Brazil devalued its local currency, the real, in January. Argentina, Paraguay and Uruguay unsuccessfully lobbied for compensations for the impact of the crash of the real.

Brazil contends that its exports to Argentina diminished instead of growing, and points out that it continued to suffer a deficit in the trade balance between the two countries - $412 million up to August.

In a surprise visit to Brasilia in late July, Argentinean President Carlos Menem successfully defused a similar crisis. The Brazilian government of Fernando Henrique Cardoso had refused to participate in Mercosur meetings, due to an Argentinean decision - later annulled - to apply safeguards against products imported
from its Mercosur partners.

But now that Brazil seems to have resorted to the principle of an "eye for an eye," solutions to the climate of confrontation taking shape between the two countries are looking increasingly complex.