MercoPress. South Atlantic News Agency

Argentina has ignored Mercosur rules and is now harvesting the benefits

President Cristina Fernandez de Kirchner

Even when Uruguay and Brazil are in the course of reaching understandings with Argentina regarding the latest trade restrictions to be implemented by President Cristina Fernandez de Kirchner administration, ‘which are not targeted against Mercosur members’, the Brazilian press presents another angle.

“Argentine president Cristina Kirchner has ignored Mercosur rules and is harvesting the benefits”, says O Estado de Sao Paulo which is a newspaper close to Sao Paulo’s powerful Industry Federation, FIESP.

To avoid trade restrictions on imported goods a growing number of Brazilian companies have opted to invest and produce directly in Argentina: today is the case for 270 companies which represent a 170% increase since the year 2000.

The article mentions several companies that have lately decided to open shop in Argentina, forgetting about Brazil because “Mercosur does not guarantee them the free movement of goods”.

And with the positive results of its protectionist strategy, the Argentine government is further closing the siege: last week it increased by 50%, from 400 to 600, the number of goods submitted to the non automatic licensing system for imports, a mechanism clearly created to make paperwork even more bureaucratic.

The article mentions a company in particular from the northeast of Brazil involved in the manufacturing of batteries for cars: the company reached an agreement at the end of 2010 and is setting up a factory in Pilar, 60 kilometres south of Buenos Aires which will be its platform for sales to Southern Cone countries. The factory that demanded 30 million US dollars investment and will create 250 jobs is to be inaugurated next November.

“We perceived it was inevitable that we strengthen the Argentine auto parts industry given the strong growth of the domestic market. Restrictive trade measures imposed by Argentina only quickened our decision” admitted Elisa Correia, head of the company’s exports department.

“The deal was closed in the midst of a complicated negotiation between both countries to ‘voluntarily restrict’ the sale of Brazilian products”, added Ms Correia.

In an official release distributed last week Argentina’s Industry minister Debora Girogi said that the “strategy of administered trade to safeguard jobs has been of positive results for our industry, which has managed to substitute imports to the value of 9.2 billion US dollars during the last year”.

H0owever in spite of this situation Brazil still has a trade surplus with Argentina because the local industry is not in condition to supply domestic demand. In 2010 Brazil’s bilateral trade surplus with Argentina reached 4.1 billion US dollars.

Expectations are that the administration of President Cristina Fernandez de Kirchner will further adopt restrictive measures to help balance the situation.

However a former Argentine Industry minister Dante Sica points out that companies are also attracted to Argentina because of a weak exchange rate which cuts the cost of labour and energy is extremely cheap.

“Mobile phones and textiles are industries with low investment costs and mature fast. Why keep waiting and suffering with the restrictions?”