Brazil & Southern Cone - September 2011 (ISSN 1741-4431)

President José Mujica pulled no punches in a statement published on the official presidential website on 23 September, accusing Brazil and Argentina of protectionism and of completely undermining the concept of the Southern Cone trading bloc, Mercosur, as an integrated customs union. Mujica even publicly alluded to the possibility (albeit still remote) of Uruguay leaving Mercosur. This, however, smacked more of his desire to convey the extent of his disenchantment with one particular decision - by Brazil – to effectively lift tariffs on imported cars by 30%, which has already had repercussions.

On 15 September Brazil’s finance minister Mantega announced a 30% increase in the local tax on industrialised products (IPI) for vehicles (buses, cars, tractors, light trucks and trucks) that have less than 65% local content and are made outside the South American Common Market (Mercosur) or Mexico. Though the measure is ex-Mercosur, in order to be eligible all Mercosur-based manufacturers must comply with the tougher regional content rules. The measure is effective until December 2012. Mercosur manufacturers that invest in technology and meet higher environmental standards will be exempt.

Mujica said that the decision might very well be a response to the “instability” in Europe and the US but it conspicuously failed to take into account the “disparities in development” within Mercosur as well as trade asymmetries - a constant gripe for the Mercosur minnows Paraguay and Uruguay. Mujica expressed his bewilderment that the measure could have been applied with no exceptions. He also said that it was “a political mistake” and conspired against integration by “strengthening the arguments of those who argue against (it)”.

Mujica emphasised his “integrationist spirit” and commitment to resolving any dispute diplomatically but he was prepared to raise the issue of leaving Mercosur, even if he stressed this could not be a unilateral decision by the government, and would have to go to congress. The threat to leave Mercosur was more a reflection of Mujica’s annoyance than his harbouring any real intent to leave the trading bloc.

Strong pressure is clearly being exerted on him, however, by Uruguay’s industrial sector to make a stand. The Unión de Exportadores del Uruguay called for the adoption of “defensive measures”. A car parts firm, Effa Motors, in the southern department of San José, laid off 400 workers after temporarily suspending its business as “unviable” in the wake of the Brazilian announcement. The Unión de Exportadores claimed that protectionist measures in Mercosur would soon affect the textiles, wood and biotechnology sectors.

Uruguay’s deputy economy minister, Luis Porto, led a team to meet Brazilian officials on 27 September to try and negotiate an exemption for the country from the car tariff. Brazil’s secretary for production development of MDIC (Ministry for Development, Industry and Foreign Trade), Heloísa Menezes, said the petition would be considered “with much love”. Menezes conceded that the tariff would have a huge impact on Uruguay, while the impact on Brazil if Uruguay were granted an exemption would be negligible. Uruguay imports 15,000 cars a year to Brazil for some US$150m.

In a political compromise, the Brazilians agreed that automotive imports from Uruguay would not have to meet the 65% local content requirement. Instead, Uruguay and Brazil will continue to adhere to a previous bilateral automotive accord, which contemplates lower local content rules. The Brazilian government agreed that the prior accord took precedence

• Wind power

Uruguay will launch a third wind farm tender in November. The energy ministry and the state power company (UTE) have set a maximum price of US$65/MWh. Uruguay has announced a very ambitious target of installing 500 MW of renewable energy capacity by 2015, of which 60% will be wind energy. Wind energy currently supplies just 1% of Uruguay’s total energy needs, but by 2015 the government wants to increase this to 25%.