MercoPress. South Atlantic News Agency

“Tariff war”

Brazil suspended all trade agreements with Argentina, following President De la Rúa's administration decision to lower import tariffs in the auto industry, telecommunications and computers for non Mercosur members. Argentina made the announcement that involves vital export areas for Brazil, alleging it needs to compensate the devaluation of the Brazilian currency and to improve the country's competitiveness. The confrontation that shocked Mercosur members is not entirely new: Brazil and Argentina have been at odds since Mr. Domingo Cavallo became Economy Minister and has insisted in "competitive" measures to pull Argentina out of its three years recession, particularly having access to cheaper components in those advanced industries. Argentina also objects to Brazil's protected area in Manaos, where the computer and telecommunications industries operate in highly subsidized conditions, but still with costs above world average. The Brazilian currency, Real, has lost 30% of its value to the dollar in the first six months of the current year. Argentina with a fixed exchange rate, that has ensured price stability for the last decade, considers this an "uncompetitive" Brazilian trade resource. However in spite of the differences a high level is scheduled this Friday in Montevideo and both sides after initial recriminations, have made conciliatory statements. Speaking from Rome, Mr. Cavallo said, "there's nothing more convenient for Brazil and Mercosur than a strong Argentina; similarly there's nothing better for Argentina and Mercosur than strong Brazilian growth". "We're working jointly and constructively", insisted Mr. Cavallo. In Brasilia, Jose Botafogo, Brazilian representative in Mercosur remarked that "if one side makes unilateral decisions without consulting the other partner, there's no way we can rebuild Mercosur. We would like an explanation and a correction". Both countries are also forced partners in the uncertainty regarding foreign investments in Mercosur, given Argentina's financial situation and Brazil's energy crisis.