How to stop the deterioration of the commercial relationship with Brazil

LA NACIÓN – There were four months this year in which for the first time in three decades Brazil ceased to be Argentina’s main trading partner: between April and July, that place was occupied by China. The data lights an alarm light in a relationship that deteriorated in the last year due to the ideological differences of the presidents of each country, due to disagreements with Mercosur and, obviously, due to the tail-flick of the coronavirus pandemic. The issue is not minor for the local economy, which depends a lot on its neighbor in order to grow and which would greatly benefit from a recomposition of the link.

Some data reflect the current situation, which is emerging in the midst of a pandemic, but was born a few years ago. Argentine exports to Brazil in the period from January to August fell 31.2% year-on-year, the highest drop among those of the country’s main trading partners. For example, exports to China in the same period rose 8.8%. The item most affected was that of industrial manufactures: sales fell 42% in the accumulated January-August, compared to the same period of 2019, going from US $ 4.437 million to US $ 2.564 million.

But, in addition, what is worrying is the red that Argentina has in the trade balance with Brazil. According to an analysis by the Ministry of Foreign Affairs, International Trade and Worship of the Nation, bilateral trade had a deficit result for the country for 16 years, from 2004 to 2019. Thus, an imbalance of US $ 52,000 million was accumulated.

Marcelo Elizondo, economic analyst on international issues, explains the reasons for these figures. “In the last decade, Argentina lost competitiveness, which reduced total exports by almost 25% from the record of 2011 and affected the ability to access Brazil, while other suppliers in this country grew; the recessions reduced reciprocal demands and also other markets gained participation for our exports ”, he affirms.

Marisa Bircher, former Secretary of Foreign Trade of the Nation, believes that the relationship with Brazil, which has historically generated productive chains and investments on both sides, is currently in an uncertain scenario and it is crucial to reverse this. “Today we have a Brazil that looks at the world as a great opportunity and with a strong interest in integrating multilaterally and bilaterally, so it is important to be close and continue a strategic dialogue, since whenever they did well, we too ”, It says.https: // InitialWidth = 597 & childId = undefinedpymnro0 & parentTitle = C% C3% B3mo% 20frenar% 20el% 20deterioration% 20de% 20la% 20relaci% C3% B3n% 20comercial% 20con% 20Brasil% 20-% 20LA% 20NACION & parentUrl = https% 3A% 2F% 2Feconomia% 2Fcomercio-relacion-argentina-brasil-reactivate-nid2475072

Meanwhile, in the Ministry of Foreign Affairs they believe that ideological differences should be put aside and focus on trade. “Our commercial relationship with Brazil has a deficit structure for Argentina, which we seek to balance in the medium term”, expressed Jorge Neme, Secretary of International Economic Relations of the Ministry of Foreign Affairs, in the presentation of the Trade Promotion Plan with Brazil “Proposals for a plan of 2020-2022 action ”.

The challenge is by no means less, since to the difficulties mentioned we must add one more: Mercosur today is under discussion. “The high common external tariff, which almost triples the world average tariff, is considered by Brazil an obstacle for the internationalization of its companies, so potential trade agreements with other markets are seen by the largest country in the region as a requirement. But Argentina does not appear as an enthusiastic adherent of these positions and for that reason, thinking about a common future, the link is blurred “, analyzes Elizondo.

In this way, in addition, potential investments are affected. And we must not forget that Brazil is fourth in the ranking of countries that invest the most in Argentina. To make matters worse, the pandemic and its impacts have further weakened what was already affected, so that everything is weaker in the bond of the partners.

Marcela Cristini, an economist specializing in foreign trade at the Latin American Economic Research Foundation (FIEL), points out that the economies of Brazil and Argentina have undergone a substantive change in terms of their trading partners in the last decade. “On the one hand, while what was expected was an intensification of intra-agreement trade, what has happened is a loss of intensity of trade relations within Mercosur, especially between its two main partners. After the initial boost in the 90s, when trade between the four members of the bloc reached 25% of its total trade, that share was reduced by half and in 2019 it was only 9.8% ”, he indicates.

This is a consequence, in part, of the increase in the trade of basic products in the productive pattern of the partners (their exports grew in products of the agribusiness and mining to the rest of the world and the exchange of Mercosur was, mainly, of industrial goods). “Elsewhere, this reduction is due to the emergence of China in Latin American trade as a supplier of industrial goods. Thus, Argentina reduced its share of Brazil’s total imports from 11.2% in 2001 to 6% in 2019, while China increased that share from 2.4% to 19.9%, ”says Cristini.

For the FIEL economist, this last aspect is of great interest, because it requires modifying the underlying strategy of using Mercosur as an instrument to promote greater industrialization, while maintaining strong trade protection at the border. “In the case of industrial imports, in 2007 Argentina received 32% from Brazil and that percentage dropped to 20.8% in 2019. Similarly, in 2007, 6.8% of Brazil’s industrial imports came from of Argentina and in 2019 that percentage was reduced to 5.4%. Therefore, it is to be expected that the growth of Brazil will continue to be a driving force in Argentine exports, but with less and less intensity ”, explains the specialist.

In this context, Cristini believes, trying to diversify sales to Brazil is a move in the right direction in the short term; But, to respond to the challenge presented by all the competition from East Asia in the Latin American market, Argentina and Brazil should modify their strategy within Mercosur, to gradually achieve a model that is more open to the rest of the world, enhancing the link trade with Chile, Peru and Colombia. “And this should be done with an explicit program within the bloc, which allows increased investments to improve competitiveness,” he says.

The 2020 photo, meanwhile, is not good at all. As mentioned, in terms of exports, industrial manufactures were the most affected, particularly those in sectors such as footwear (-88%), textiles (-49%) and vehicles (-49%), but also agro-industrial ones showed bad results. Cereal shipments, the main agroindustrial export item to Brazil, fell 12.8% in the first eight months; those for fishing fell 28%, and those for dairy products, 1% (see infographic).

Elizondo concludes that this situation is suffered by the exports of industrial SMEs, but also a large part of those dedicated to agriculture. “The impact of Covid-19 is something that has been added now, but the weakening of the link and the less common bilateral agenda, issues that came from before, put us in doubt about the quality of the destination,” says the international business consultant.

Blow for the industry

Eugenio Marí, an economist associated with the Fundación Libertad y Progreso and a specialist in international economics, highlights that the current crisis has particularly affected bilateral trade with Brazil. “According to data from the Ministry of Industry of Brazil, in the first nine months of 2020 Argentine exports to that destination were the lowest since 2005, about US $ 5.55 billion. If we compare with 2019, we see a drop in the exported value of the order of 28% year-on-year, the largest drop among our main trading partners. This has hit the industry especially hard; for example, exports from the automotive sector, which accounts for some 75,000 jobs, fell 50% year-on-year, from a value that was already low last year, ”he emphasizes.

In Marí’s opinion, what is needed is to begin to change this dynamic to open doors towards the recovery of Argentine companies. It should not be forgotten, he emphasizes, that Brazil is the first destination in the number of Argentine exporting companies (30% of the total), so any export promotion scheme must include that country as a central axis. “However, faced with this situation, Argentine foreign policy has opted for confrontation. So far this year we have seen political clashes between the presidents, the threat of Argentina to leave the Mercosur negotiating table and a severe lack of dialogue ”, laments the economist.

For Marí, not having dialogue and positioning oneself as an unreliable partner is not gratuitous, but rather implies losing position and markets. “In these moments of uncertainty, Argentina needs to rebuild a joint agenda with Brazil and be an active partner of Mercosur, for example by supporting the agreement between this bloc and the European Union,” he suggests.

Bircher’s vision is not far from the above. As he says, this bilateral relationship must be viewed in a context of crisis such as the one we are experiencing today, where economic growth is needed that will come from foreign trade. “We must have a dialogue with Brazil, but also with the European Union, with Asia and with the United States. The international relations agenda that Argentina needs today must be drawn up urgently, but what I see is that it is still not clear, ”he says. An optimal international dialogue, Bircher analyzes, will mainly benefit small and medium-sized companies (SMEs) that need to export to get out of the crisis and to promote economic development that can only be achieved by foreign trade, which in addition to providing foreign currency also generates employment, something that today is more than necessary.

Against this background, the Ministry of Foreign Affairs presented six promotion proposals, within the aforementioned promotion plan for the 2020/2022 period: increase exports, balance the balance and reduce the deficit; increase the insertion in markets and non-traditional regions for the commerce of Argentina in Brazil; promote services (especially knowledge-based ones); promote investments in the energy and mining area; revitalize and increase the number of bilateral chambers of commerce, and increase Brazilian tourism in the country.

Neme remarked, in the presentation of this plan, that what is sought from his area is to reach every corner of the main Mercosur partner with the different companies and local productive sectors. “Brazil is a semi-continent; there is a Brazil of the south, the center, the coast, the northeast, the Amazon. We Argentines have little familiarity with Brazil that has nothing to do with the south or the coast. Rather we know him as tourists. We have not explored the possibility of doing business in the interior of Brazil, in regions that are not familiar to us, ”he said.

The official idea, Neme stressed, is to establish links not only in traditional markets, but to try to penetrate the heart of Brazil. “It is difficult for us to reach the final consumer. There are few Argentine products in supermarkets. The opportunity is there, we have the conditions to compete, the connections, an embassy with clear objectives that established a set of contacts at the highest political, economic and business level. We are not just talking about agri-food. We are talking about clothing, industrial products, cultural industries, the world of creativity, the knowledge-based economy, design ”, he explained.

Analía Canale, executive director of the Argentine-Brazilian Chamber of Commerce, Industry and Services (Cambras), is optimistic when it comes to thinking about an improvement in the bilateral relationship and believes that the current situation is favorable. “The coronavirus has had a strong impact on global value chains and has revealed their fragility, since in many cases the supply of key products and inputs is concentrated in a few points. In this framework, world production will undergo a transformation with the possibility of three poles emerging: North America, Europe and Asia ”, he describes.

In this context, Canale estimates, regionalism will be strengthened, which may constitute an opportunity to rethink an approach of greater integration between the countries of South America in general, and Argentina and Brazil, in particular, especially if the model integration aims to promote the addition of value and the generation of employment.

Without a doubt, Canale continues, the commercial relationship between the two countries requires greater dynamism. “In the context of the pandemic, Brazil ceased to be Argentina’s main trading partner for four months (between April and July), largely as a result of the stoppage of industrial activities. In September, this has been reversed and Brazil returned to first place, but this temporary castling should be a signal to build a new roadmap, “she warns.

In the private sector it is understood that there is an agenda to work in order to strengthen the bilateral business relationship, where there are opportunities in various sectors and products. “In some cases, such as food, the two nations show high global competitiveness and trade in both directions is fluid, but there is still room to advance in greater coordination in regulatory matters and the recognition of certifications, which will speed up exchanges ”Adds Canale.

The challenge of rebuilding, oiling and developing the bilateral relationship with Brazil is enormous, but so are the advantages that this would bring to the local economy. As an impulse, it may be good to remember the words that Roque Sáenz Peña spoke in 1912, when he visited Brazil as president-elect: “Nothing separates us. Everything unites us ”.

By: Carlos Manzoni