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I. Identification1. The Issue The international economic slowdown has shifted away from Southeast Asian countries and travelled to the Southern Cone of Latin America. The Argentine central government is facing a regional economic meltdown under MERCOSUR (Southern Cone Common Market). Argentina, in particular, is growing increasinly alarmed as its enormous trade balance with Brazil risks sliding from surplus into deficit. The steep fall in the Brazilian currency (Real) has created an intra-hemispheric, bilateral economic tensions. The devaluation of the Brazilian "real" is beginning to undercut Argentine exports, particularely in rice industry. Argentine rice companies in Entre Rios (province that links Buenos Aires with Paraguay and Brazil also known for its wetlands) are complaining that Brazilian companies are beginning to break their purchase contracts because they lack capital. Entre Rios rice exporters are pressing the Argentine government to take action to protect domestic industries. Statistically, Enre Rios produces 55% of total Argentine rice output. Argentine rice producers also facing a second delima: they are unable to find other Latin American buyers because Entre Rios rice, whose grains were designed to be long and thin to be fried in Brazilian dishes, may not satisfy other national states (Venezuela, Costa Rice, Ecuador or Colombia).
A. The Southern Cone Common Market (MERCOSUR)
A: MERCOSUR (Southern Cone Common Market) is made up of Argentina, Brazil, Paraguay and Uruguay.
The Southern Common Market-MERCOSUR represents a total population of 190 million individuals, living in
an area larger than the total surface of the European Continent. Argentina is the second largest
MERCOSUR member and also the second largest economy in the Southern Cone.
The objectives of MEROSUR is to eliminate tariffs and adopt a partial customs union and a
common external tariff (CET) covering 85% of traded goods. MERCOSUR in the future will phase in
cumstoms union. Currently, Argentine and Brazil bilaterial trade represents a full 30 Percent of
Argentina's international trade with Brazil, creating a $1 billion in surplus for the Argentina trade account this year.
B: MERCOSUR under Global/Regional Pressures
The Two largest members of MERCOSUR, Argentina and Brazil are facing the most pressure from foreign investors and domestic industries. Brazil's January devaluation of its currency, the Real, has also hit MERCOSUR trade. For Argentina, the Real's devaluation has set back the course of economic prosperity. Since Argentina has pegged its peso to the US Dollar, exports are costing 25-30% more in reals, and risk being priced out of the market. However, domestic Argentine industries, such as rice exports have been hit the hardest due to the devaluation of the real. Also, Argentine firms fear an invasion of cheap Brazilian imports. Economist has suggested that for the first three months of 1999, Argentina's exports to Brazil have fallen by 20-25%. And also at the same time, Argentine firms are complaining those cheaper imports from Brazil such as steel; paper and chicken meat are a threat.
3. Related Cases Uruguay Case
II. Legal Clustersa. Geographic Domain: South America
b. Geographic Site: Eastern South America
c. Geographic Impact: Argentina
IV. Trade Clustersa. Directly Related to Product: RICE
b. Indirectly Related to Product: MERCOSUR
c. Not Related to Product:
d. Related to Process:
| Cultivated area in hectares | Cropped area in hectares | Production in tons | Yield kg/hectare | |
|---|---|---|---|---|
| 1995/1996 | 111500 | 103185 | 544350 | 5275.48 |
| 1996/1997 | 123300 | 123300 | 709400 | 5753.45 |
| 1997/1998 | 134200 | 134200 | 667800 | 5059.09 |
Cereals and oilseeds are significant elements in Argentina's economy: 40-45% of exports value, and around 40% of agricultural domestic product. During 1998, foreign trade has been under strong influence of the crisis that affected world markets, which has had repercussions primary in the agricultural sector: rice industry. The above table presents rice data. From 196/1997 production of rice in tons totalled 709400 tons and in 1997/1998 a total of 667800 tons. A decrease in the production of rice is obvious; however, information is lacking in measuring the cost of rice exports to Brazil for the beginning of fiscal year 1999.
17. Impact of Trade Restriction: High
The Argentine government is monitoring the imports of Brazilian goods. Differences in the macro-economic policies of Argentina and Brazi in relation to foreign exchange rates are growing wider. However, both governmetns are working to keep MERCOSUR together. 18. Industry Sector: CEREALS:Rice
V. Environment ClustersThe cultivation of rice is under a new agriculture program: higher levels of output and with lower environmental contamination. The new technique is to develop sustaintable crop systems , conservation tillage, direct seeding. Also, developing cultivars adapted for Argentina's different ecological regions, and different production systems.
21. Name, Type, and Diversity of Species:
Name:
Type:
Diversity:
VI. Other FactorsEntre Rios is not only an economic ventor between Brazil, Paraguay, but also a meeting point of Sambas and Tangos. This symbolic union of Argentine Churrascos (steak) and Sambas has opened cultural barriers between the historical hostilities between Argentina and Brazil.
26. Trans-Boundary Issues:YES
The opening of trade between Argentina and Brazil created a strong-based center of transporation in the province of Entre Rios, north of Buenos Aires. Entre Rios is known for its excellent roads liking Buenos Aires with Paraguay and Brazil and its three busy bridges connecting Argentina with Uruguay. Statitics indicate that Entre Rios produces about 55% of total Argentine rice exports. The rice also represents $600 million in total annau exports which two-thirds going to Brazil last year.
27. Human Rights: NO
Buenos Aires & Brasilia, "MERCOSUR Malaise." The Economist,April 24th-30th, 1999.
Krauss, Clifford, " For Argentina, an Economic Trickle Down From Brazil." New York Times, Feburary 12, 1999. Map of Argentina by province-Http://lonelyplanet.com/maps/sam/
Map of MERCOSUR-Http://www.americasnet.com/mauritz/mercosur/english/
Center For Production Research: Review of the Real Economy, #21, December 1998.Web site :http:www.mecon.ar/cep/national.htm
Sociologia y Economia Rural-Junta Nacional de Granos-Sectretaria de Agricultura. Produccion de cereales por principales cultivos, Provincia de Entre Rios: 1990-1997.
Financial Times Writer,"Currency: Brazil buffets Mercosur." Financial Times, Feburary 12, 1999.
Soltys, Michael, " Brazil: Carnival's Over." Buenos Aires Herald, Feburary 23, 1999. Web Page: Http://www.buenosairesherald.com Mace Gordon & Therien Jean-Phillipe: Foreign Policy & Regionalism in the Americas; London, Lynne Riender Publiers, 1996.
Munoz Heraldo & Tulchin Joseph: Latin American Nations in World Politics:Oxford; Westview Press, 1996.
Trade Compliance Center, Latin America and the Carribbean, 1998. Web Page: Http//infoserv2.gov/