Brazil & Southern Cone - May 2012 (ISSN 1741-4431)

On 15 May in Brasília the Argentine and Brazilian foreign ministers firmly rejected a suggestion by their Spanish counterpart that the stop-start trade talks between the European Union (EU) and the Southern Common Market (Mercosur) go ahead without Argentina.

Spain’s foreign minister, Jose Manuel García-Margallo, was due in Brasília on16 May for talks with his counterpart Antonio Patriota. Speaking alongside Argentina’s Héctor Timerman, Patriota said the idea was “inconceivable”, stressing that there was “no other hypothesis” to bilateral (bloc-to bloc) talks. Timerman added, “We lament the Spanish foreign minister’s attitude. It seems like we are returning to colonial times, when Spain decided.” The same day in New York, the Spanish oil company Repsol sued Argentina for breach of contract, seeking unspecified damages over its recent seizure of Yacimientos Petrolíferos Fiscales (YPF).

While Patriota and Timerman put on a united external front, there is nothing but disunity inside Mercosur; the two men again agreed to disagree on their respective trade barriers, as President Cristina Fernández reported that Argentina posted a US$4.7bn trade surplus in the first trimester.

Days of unfruitful talks between lower level officials took place prior to the meeting between Patriota and Timerman. Brazil is again losing patience with Argentina’s convoluted efforts to engineer a trade surplus. On 14 May Brazil announced that it would end automatic import licensing for about 10 perishable products including apples, some cheeses, potatoes, raisins, selected wines and wheat flour. The measure applies to all countries, but was immediately interpreted as retaliation against Argentina. Key Brazilian perishable exports like pork have been subject to similar Argentine measures for an extended period.

Latest trade figures begin to flatten out

In the first four months of 2012, Brazil’s average daily exports to Argentina fell 11.7% year-on-year in volume terms and 7.1% in value terms (to US$5.9bn from US$6.5bn in the same period of 2011), on latest available figures from Brazil’s development, industry and external trade ministry (MDIC). Its imports from Argentina fell 7.3% in the same period (to US$4.9bn from US$5.2bn), meaning that Brazil still posted a small trade surplus with Argentina, of just under a US$1.0bn. Brazil posted a hefty US$5.8bn overall trade surplus with Argentina in 2011.

The increasingly isolated Argentina needs to retain Brazil’s political support, not least against Spain and the EU over the Repsol-YPF affair, and so Timerman pledged that the various restrictions on Brazilian imports would be dealt with on a case by case basis, starting with the pork sector. The two men agreed to set up a bilateral commission to supervise bilateral trade. “The idea of this working meeting…is to help reduce the commercial deficit that Brazil has with Brazil”, Timerman said cryptically. The committee will hold a first meeting in June; “with the objective of reducing Argentina’s commercial deficit”, underlined Timerman.

Only last year, Presidents Dilma Rousseff and Cristina Fernández asked their respective trade ministries to do likewise, under a bilateral framework whereby ministry officials would meet every month to discuss cross border commerce. Clearly, that forum hasn’t been a total success. Moreover, back in Buenos Aires, Argentina’s tough-talking domestic trade secretary, Guillermo Moreno, the author of most of the trade barriers, was less amenable, stating that the quotas placed on Brazilian imports would be resolved “naturally” once Brazil began to import more Argentine products. Moreno argues that Argentina has the capacity to export US$2.0bn worth of additional goods to Brazil (citing by way of example citrus fruits, grapes, fish and pharmaceuticals).

Timerman also revealed that Argentina, which is the current chair of Mercosur, intends to propose to the Mercosur council that Mercosur ask the World Trade Organization (WTO) for permission to raise its common external tariff for certain products to the maximum allowed ceiling (of 35%) under WTO rules (see sidebar).

The perennial problem in Mercosur is that the two dominant members, Argentina and Brazil, interpret the bloc’s rules to suit themselves, using them more as loose guidelines, usually to the detriment of the smaller partners, Paraguay and Uruguay, which are heavily dependent on trade with their big neighbours. Argentina and Brazil also negotiate disputes directly between themselves at the highest political levels, undermining Mercosur’s still underdeveloped institutional framework. Despite paying lip service to the need to strengthen this framework, neither country has consistently shown the political will or leadership necessary to that end. Meanwhile the two minnows, Paraguay and Uruguay, complain on the sidelines but are effectively powerless.

Businessmen seek solutions

A 580-strong delegation of Argentine businessmen led by foreign and the domestic trade, Guillermo Moreno and Beatriz Paglieri respectively, met Brazilian entrepreneurs in São Paulo in early May. Moreno said that the goal of the meeting, organised by the Argentine government and São Paulo’s Industry Federation (Fiesp) was “to develop new business opportunities and obtain a more balanced bilateral trade by diversifying the products traded and promoting the integration of production chains in the two countries”.

Ahead of the meeting Fiesp released a study in which it found that 24% of Brazilian firms did not import any products from Argentina because of a “lack of knowledge”. However the study also found that 45% of 221 Brazilian firms polled considered that substituting their current imports for Argentine imports would be “viable or very viable” in the next five years. Paulo Skaf, the Fiesp president, said that the study showed that Brazilian firms “could buy more from Argentina”. Skaf has previously been very critical of Argentina’s behaviour in Mercosur. Paglieri said the meeting allowed Argentine businessmen to establish valuable contacts, and, like Moreno, stressed that “Argentine businesses have the capacity to compete in the Brazilian market”.