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  Félix Peña

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  American Chamber of Commerce in Argentina | Junio de 1992

MERCOSUR: Top foreign strategy priority

Argentina is focusing its current strategy for insertion into the world economy on four main foreign negotiation fronts: the foreign debt, the liberalization of world trade, the development of the idea implicit in the so-called Enterprise of the Americas Initiative and Mercosur.

The four are closely inter-linked. And even though they have distinct time dimensions given that their effects are graduated differently in time, they are mutually conditioning because the evolution of each necesarily takes into consideration what goes on in the whole.

For example, the evolution of the strategy of the development of Mercosur will depend to a large extent on the progress reached in the GA TI talks to achieve international trade discipline which makes it possible to offset current protectionist tendencies and discriminatory unilateral actions in the OECD and to achieve the introduction of radical changes in the agricultural policies of industrialized nations, including a substantial reduction in agricultural export subsidies.

The Foreign Debt

The negotiating front regarding the fo· reign debt is basically focused on current talks with the lnternational Monetary Fund and creditor banks to obtain, in the context of the so-called Brady Plan, a substantial reduction of the fiscal charge which implies fulfillment of the obligations contracted in the past, with c1ear inflationary implications, and thus fully reestablish the country's financial credibility and ability to participate actively in the flow of international financing. [1]

It could be said that the objective is to reestablish the normalcy lost in the decade of the 1980s in order to consolidate solid and reasonable macroeconomic conditions for the national effort for international competitiveness.

The other three negotiating fronts take as givens the achievement of such competitive macroeconomic conditions and are strongly centered on substantially improving the conditions of the country's access to the major foreign markets and thus attract national and international investors toward productive activity geared to both the domestic and world market.

Mapping out the respective negotiating strategies for these fronts begins from the recognition of an international economic reality dominated by the formation of mega-markets and a strong pro pensity toward protectionism and administered trade. It shares the analysis of Arthur Dunkel in the sense that the precariousness in access to world markets constitutes one of the most efficient forms of non-tariff restrictions to world trade.

It recognizes that all of our competitors seek to form alliances with other nations in economic blocs to obtain a sort of insurance against protectionism, transforming their access to the markets of the respective bloc in a legally protected right and not in a unilaterally granted privilege, likewise easy to unilaterally and eventually arbitrarily take away.

From it come conceptual and practical consequences of the motivations which for example led Canada to negotiate a free trade zone with the United States, and later Mexico, on beginning the current trilateral negotiation towards creating the NAFTA.

GATT and access to OECD markets

The negotiations in the Uruguay Round aimed at obtaining greater openness of world markets and guaranteeing international multilateral discipline in world trade are critical for our country, especially for its trade relations with the OECD nations. That has been the country's position in the framework of the Cairns Group, especially in relation to the changes it hopes to introduce in the farm policies of industrialized nations, not only the EEC, and, in particular, in relation to export subsidies.

Only in the context of international multilateral talks that end strengthening GA TT and its ground rules is it considered possible to achieve radical change in EEC agricultural policy and in the so called "farm subsides war" which has caused so much harm to our country's farm trade.

The experience of the last two decades has clearly shown that Argentina's isolated efforts, both regarding the EEC and the United States, were incapable of bringing about the minimum amount of change needed for a highly efficient and competitive economy in farm trade.

One indication of the relative importance of this question for Argentina 's economy is the fact that a fourth of our total exports are presently made up of agricultural based primary and manufacturing products geared toward the EEC market.

The country's enormous agricultural potential would doubtlessly benefit by a greater opening and greater security of access to OECD markets and fm the substantial reduction of the so-called protectionism of third markets obtained through a policy of US and EEC farm export subsidies which have displaced, placed a ceiling on or surrounded in uncertainty our own access to third country markets, especially in the developing world.

Without a doubt, together with the factors originated in our own macroeconomic policies, the limitations and uncertainties in our access to world markets in recent years has been a powerful dissuasive factor fm investment focused on expanding the country's agricultural production.

But for Argentina, the Uruguay Round of talks are not only important for their agricultural significance. They are looked on as the beginning of a broader negotiating process in which, starting from the final conclusions of the current round, a multilateral framework is obtained which effectively disciplines principle world trade leaders.

The national interest of a medium weight country with limited importance in world markets, which has opened up to international trade and has reasonable prospects of being an efficient competitor, necessarily relies on the effectiveness of world trade ground rules, which offset the unilateral arbitrary actions of countries or blocs and substantially reduce unfair trade practices and guarantee fluid access lo the more developed markets of OECD nations.

That explains the importance to our country; for example, of an efficient system lo solve trade disputes, ground rules or world economic competition and even ecological norms and practices which influence our exports. These are some of the core GATT issues that Argentina should act on in the future in its character as a contracting party, joining other contracting parties with like interests just as it has done in recent years in the framework of the Uruguay Round.

The Enterprise for the Americas Initiative and Access to the US Market

The development of the idea implicit in the Enterprise fm the Americas Initiative represents another negotiating front of undoubtable importance for the national interest (lf an Argentina determined to be an efficient world market competitor. lt is a crucial negotiating front for Argentina's economic relation with the United States, to which it currently exports a reduced number of goods considering the dimension of the North American market.

The idea implicit in the initiative is that there is a shared interest among all nations of the Americas to develop an hemispheric free trade system that grants great fluidity in the flow of trade and investment in the region. lt counts on the development of an alliance for trade and investment between the United States and Canada and the rest of the countries of the hemisphere, open to trade with the entire world.

Argentina's objective regarding the Initiative is for it to help create a regional economic context favorable to its efforts for international competitiveness, centered on fluid and guaranteed access to the US market, and also for establishing ground rules in all countries of the hemisphere which facilitate the movement of capital and the flow of technology.

Another priority objective is strengthening and thoroughly overhauling ALADI as a framework for expanding the trade of its Latin American member states and openly integrating them into the world economy. ALADI can even be visualized as a precedent of an institutional methodology and a highly flexible guideline, extendable on a hemispheric scale, for a common discipline in mutually opening markets and compatibilizing actions aimed at economic integration between pairs or groups of countries.

There are no formal negotiations geared to giving content to the trade and investment aspects of the Enterprise for the Americas Initiative. There has been an initial period of exploring ideas around the concept of an hemispheric free trade system in the framework of the OAS Trade Conference (October 1991).

A financial structure has been set up in the Inter-American Development Bank through the Multilateral Investment Fund to strengthen the institution's role as a catalyst of foreign financing for the region and its private sector. There have also been exploratory ideas among the Latin American ALADI members about the development of the trade aspect of the Initiative (September and December 1991) and also among the SELA states. A framework accord for free trade between the United States and the four Mercosur nations (Argentina, Brazil, Paraguay and Uruguay) have been set up and its Advisory Council has already held two meetings (November 1991 and May 1992).

It is very probable that in these USMercosur Advisory Council meetings and also OAS and ALADI encounters, as well as private sector gatherings in the framework of the IDB, efforts will continue to develop ideas concerning future forms of hemispheric trade and investment. These exploratory sessions will be strongly conditioned by the outcome of the current Uruguay Round, by the talks underway for creating the NAFTA and by the evolution of the proocess of Latin American economic inteegration, especially Mercosur.

Will NAFTA and Mercosur be the main axes for developing a hemispheric free trade system, bearing in mind the relative participation of the countries innvolved in the industrial product and trade of the region? Is it possible to envision an association between both schemes of free trade and integration? Or, on the contrary, will NAFTA be the principie magnet to which the other counntries, or groups of countries in the heemisphere will have to gradually gain acccess to, to the extent that they fulfill the macroeconomic conditions and ground rules for trade and investment needed to participate in what is more and more cooming to be called a quality free trade area?

These are only some of the questions that are beginning to fIoat throughout the hemisphere regarding the trade and investment aspect of the Enterprise for Americas Initiative. The answers to these and other questions which will doubtlessly arise during consultations and negotiations will have a profound political and economic impact on the fuuture of the Inter-American system.

They will be answered, among other factors, in function of the trade expecctations generated from a trade alliance with the United States and the macroeeconomic effects which can be expected as a consequence of such an alliance, beecause not all countries can give such a dear answer as that which results from the analysis made from the perspective of an economy aIread y very integrated into the US as is the case of Mexico.

In the immediate future, the answers to these questions will be strongly connditioned by the future behavior of the US economy, which in Argentina's case carries heavier weight due to the effect of servicing the foreign debt and reduucing interest rates, of the impact that US recession has on the economies of the OECD countries and their inclination tooward protectionism than on the behavior of Argentine exports to the United States given the low elasticity of incoming deemand of the country's main agrooexports.

Mercosur and Access to the Brazilian Market

The Mercosur negotiating front is al present the top priority for Argentina. First, because it is not looked on as conntradicting the negotiating strategies of the other fronts. On the contrary, for Arrgentina, Mercosur and the development of an hemispheric free trade system in the contextof strengthening trade disciipline and opcning world markets thhrough GATT are indivisible parts of its stategy of insertion into the world ecoonomy.

Second, because lhrough an ecoonomic alliance with Brazil and the other Mercosur partners, Argentina hopes to acquire greater capacity to compete and negotiate in a world economy ever more influenced by the mega-markets and the strong prolectionist temptations of the OECD nations.

Where does Mercosur stand now? It has made suhslantial progre ss in defiining the ground rules and giving clear signs to the world market what the four countries that make it up hope to achieve during the transitional period which will culminate in December 1994.

As far as the ground rules go, lhe Treaty has been ratified by the Parliaaments of all four countries, which means Mercosur is wholly huilt on demacratic legitimacy. lts executive bodies, based on the experience Argentina and Brazil gained in their process of bilateral inteegration begun in 1985, are already functioning, especially the Common Market Group and its 11 working groups, which are the axes of the system of negotiating and execution of the sub-regional integration process.

At the first Mercosur Council meeting (Brasilia, December 1991) the maximum decision-making body made up of the heads of state signed or approved important instruments which will reguulate the functioning of the Common Market, such as:

  • The Protocol on Settling Controverrsies, which includes obhgatory arbitraation and provides mechanisms for individual parties to defend the rights granted them in the Treaty of Asunción.

  • The decision on sectorial accords, which lays down the guidelines that buusinessmen must follow in arder to make intrasectorial integration and specializaation compatible with the goals of Merrcosur.

  • The decision establishing administrative sanctions for non fullfillment of the requirements of origen, which are cruucial in a process of integration.

As regards signs for the world markel, the governments have reafffirrned at the highest political level that the mechanisms and timetable for eliminating trade tariffs will be met to the full. On December 31 last year -and again June 30 this year (2)- the preferred tariffs scheme was automatically implemented, as it will be at the end of each semester until arriving on December 31, 1994 with zero tarriff on all trade.

Each of the countries also met its commitment to eliminate a percentage of its products included in the Exemption Lists, with both Argentina and Brazil having to further reduce 20% of their respective lists at the end of 1991.

Work has also begun on the methodology for defining the common external tariff which should facilitate the foreign competition of their respective economies as well as the steps Brazil announced February 19 to stimulate its exports, including an anticipation of the timetable for reducing its protective tariffs expliciting reiterating that a common external tariff will be in force as of January 1, 1995.

One of Mercosur's main concerns is the coordination of economic policies, to the extent necessary to facilitate the establishment of a Customs Un ion. In December 1991, the four presidents reiterated the three key economic policy priorities already identified by their Economy ministers and Central Bank chairmen: a) economic stability achieved through strict fiscal and monetary policies, b) more open economies for more competitive insertion into the world economy, and e) more modern economies through deregulation and privatization.

Aside from the circumstantial difficulties in each country as a consequence, inevitable sometimes, of their policies of stabilization and productive transformation, the truth is that Mercosur is based on a common understanding of what is necessary to do inside each country to overcome economies and technological obsolescence and insert themselves competitively in the world economy.

It is in the dynamic context of a de facto coordination of their economic policies where we must analyze the asymmetric problems of relative costs which can still be seen as a consequence of the carryover effects of the macroeconomic policies which the four countries are finally determined to overcome.
The agenda of priorities for 1992, which the four Mercosur presidents set down in their meeting last December, illustrate the scope and nature of the integration process clearly aimed at the international competitiveness of the individual national economies:

  • intensify the search for the definition of the common external tariff starting from agreed-on methodology criteria.

  • Adopt the measures which guarantee real conditions for loyal competition in trade between the Mercosur countries and third nations.

  • Advance in deregulating transport between the four countries to substantially reduce costs and stimulate the necessary private investment.

  • Give maximum priority to actions geared toward obtaining technical norms which at the same time guarantee international quality and competitiveness, facilitate trade expansion between the Mercosur countries and the protection of the legitimate interests of the consumer.

  • Encourage initiatives aimed at completing projects which allow for taking greater advantage of Mercosur's energy resources.

  • Coordinate positions in multilateral economic fora, especially GAIT and the Carins Group.

In spite of the economic difficulties and the context of instability still observed in 1991, trade between Argentina and Brazil has continued to grow greater than overall foreign trade, especially in terms of exports, confirming the firm tendency seen following the agreements reached between the two countries in the framework of the bilateral Cooperation and Integration Program (PICAB) begun in 1985.

Also during 1991, the business community expressed keen interest in taking active part in sub regional trade, as seen in multiple accords on company-to-company bases or the recently negotiated iron & steel industry agreement (March 1992), which resumes -in the spirit of the new guidelines set forth by the Mercosur Council the efforts for intra-sectorial integration encouraged through PICAB

Both for Argentina and Brazil, the two main economies in the area which moreover are following their own process of bilateral integration (ACE 14 ALADI), Mercosur is looked on as a key instrument -in spite of the different relative importance that current bilateral trade represents for both economies- in their respective strategies for competitive insertion in world markets and, as such, of support for their processes of productive transformation within democracy.

Neither of the two countries considers it solely in function of advantages for their respective domestic markets, nor as an alternative to their necessary opening to world trade. The option between integration in Mercosur or integration in the world is not realistic, nor is it a question under practical consideration in either country. The only real choice is Mercosur in order to facilitate competitive integration into the world.

And what's more, in both cases the creation of Mercosur is part of a broader process of setting up a sub regional framework which facilitates cooperation in all areas and shores up the tremendous progress achieved over the years since the return to democracy in the nuclear field, gradually extending it to political, and especially, scientific and technological cooperation.

A Strategy of Multiple Alliances

Argentina's new strategy of insertion into the world economy, therefore, is focused on creating a system of multiple a11iances with all the countries in the region n and the world which share an interest in world trade that is more open and less discriminatory.

It is not centered on only one are a of international economic action. Even though the economic a11iance in Mercosur, based on the bilateral alliance with Brazil, has a privileged place, the strategy is open to integration in the framework of ALADI with the other Latin American countries, especially neighboring nations like Chile and Bolivia, and al so in the Americas to establishing a closer economic relation with the United States in the context of the evolution of the idea 1'ostered in the Enterprise for the Americas Initiative.

But at the same time. these regional economic alliances are part of the broader perspective of close links with the other world economies, especially the OECD and Southeast Asian nations, for which special priority is placed on developing multilateral international trade discipline through the GA TI'.

The strategy of multiple alliances reflects the diversity of Argentina's foreign trade, which is simultaneously oriented, both in exports and imports, to both the region n and the main world industrial markets.

There is no one dominant market. lt also reflects the diversity of sources of foreign investments in the country and the growing diversity of immigration inflow.
It is not just an external strategy, nor only governmental. It implies transforming domestic industry to obtain reasonable levels of systematic competition through controlling macroeconomic factors and business competitiveness, which is the result of a great effort for productivity)' and incorporating technological progress.

It also implies social mobilization within democracy and social equality so that it is society itself, including above all private business and trade unions, which takes up the task of making Argentina a competitive nation, projecting to world markets the country's capacity to produce goods and offer services with the price and quality standards that consumers in industrialized nations demand, and which are also more and more demanded by the Argentine consumer public.

Its success will depend on the answer of the business community and society to the new macroeconomic conditions and the competitiveness that results from the steps toward productive transformation now underway. And also to the challenges implied in further opening up the country's economy in the context of a world economy both charged with uncertainty and protectionist tendencies originated basically in the current difficulties of the OECD nations, but also in the opportunities presented by the globalization 01' the world economy -the fruit, not so much of the wills of nations, as of the powerful forces 01' technological and even ideological change.

NAFTA and by the evolution of the process of Latin American economic integration, especially Mercosur.

Will NAFTA and Mercosur be the main axes for developing a hemispheric free trade system, bearing in mind the relative participation of the countries involved in the industrial product and trade of the region? Is it possible to envision an association between both schemes of free trade and integration? Or, on the contrary, will NAFTA be the principie magnet to which the other countries . or groups of countries in the hemisphere will have to gradually gain access to, to the extent that they fulfill the macroeconomic conditions and ground rules for trade and investment needed to participate in what is more and more coming to be called a quality free trade area?

These are only some of the questions that are beginning to float throughout the hemisphere regarding the trade and investment aspect of the Enterprise for Americas Initiative, The answers to these and other questions which will doubtlessly arise during consultations and negotiations will have a profound political and economic impact on the future of the Inter-American system.

[1] In July the Paris Club agreed to write off 35% of Argentina 's debt with creditor banks, which have August and September to decide on accepting the payment proposal for the balance: 60% in Par Bonds and 40% with discount.

[2] At their second Mercosur Council meeting (Buenos Aires June 27), the four presidents formally approved the timetable for economic reforms that will lead to the full integration of their countries into a regional trading bloc by January 1995, The Joint Action Agreement stipulates that the deadlines for economic policy coordination may only be modified by officials and technicians who make up the Common Market Group and never be extended for more than three months.

The Joint Action Agreememt sets dates through to the end of 1994 to finalize trade, customs, technical, tax, monetary and land transportation agreements. It also sets deadlines for implementing measures covering maritime transport, energy use, labor regulations and industrial, techonogical and agricultural policies.

Among these, anti-dumping regulalions must be presented for the Common Market Group's approval by this Octobre, a timetable for progressively eliminating non-tariff regional trade barriers by December 1992 and the synchronization of export promotion schemes by September 1993.

On June 26, the four Mercosur member states plus Bolivia and Chile signed an immigration accord, which in Argentina's case should benefit some 300,000 illegal aliens who are citizens of the other five countries. All except Chile also approved a Paraguay-Parana River project to make the 2,077-mile waterway navigable 24 hours a day year round by 2001. There was also special interest in building an international highway linking Buenos Aires and Porto Alegre, with possible extension to the Pacific.

Félix Peña es Director del Instituto de Comercio Internacional de la Fundación ICBC; Director de la Maestría en Relaciones Comerciales Internacionales de la Universidad Nacional de Tres de Febrero (UNTREF); Miembro del Comité Ejecutivo del Consejo Argentino para las Relaciones Internacionales (CARI). Miembro del Brains Trust del Evian Group. Ampliar trayectoria. |

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