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Mercosur eyes protectionist steps as trade war looms

Dow Jones Newswires 19.12.2011

Mercosur eyes protectionist steps as trade war looms

 Regional summit to discuss measures to battle impact of slowing global economy
 Brazil, Argentina want to expand list of goods subject to bloc’s common tariff on imports
 Capital goods, textiles and chemical imports could face higher tariffs

By Shane Romig, Dow Jones Newswires

MONTEVIDEO, Uruguay — South American presidents and finance ministers from the Mercosur trade bloc gathered Monday in Uruguay’s capital for a summit to discuss measures to shield the region from a slowing global economy.

In recent months, Argentina and Brazil have voiced fears that Asian exporters might seek to offset soft demand in the U.S. and Europe by flooding Latin America with cheap manufactured goods.

Brazil’s Finance Minister Guido Mantega said Monday that Brazil and Argentina want to expand the list of goods subject to Mercosur’s common tariff on imports from outside the bloc.

Mercosur neets to step up efforts "to defend the Latin American markets from this invasion of goods," Mantega told reporters following a meeting of regional economy ministers and central bankers.

Talks are ongoing, but Brazil is pushing for a larger list of products carrying an import tariff of 35%, Mantega said. Capital goods, textiles and chemical imports are being eyed for the higher tariffs.

The Mercosur customs union was founded in 1991 by Argentina, Brazil, Uruguay and Paraguay, with Bolivia, Chile, Colombia, Peru and Ecuador participating as associate members.

But protectionist measures within the union are a frequent source of discord. Earlier this year, Argentina and Brazil slapped nonautomatic import licenses on a range of goods exchanged between the two nations that had industrialists on both sides of their common border howling in protest. Meanwhile, Uruguayan businessmen have complained for months that Argentina is blocking imports from their tiny country.

South America exited the 2008-09 global financial crisis relatively unscathed owing to solid banking systems, a short-lived drop in commodities prices and sound public finances that gave many nations the wherewithal to engage in countercyclical fiscal spending to support their economies.

But the region’s economic boom of the last two years might quickly fizzle if recession and stagnation in the West dent Asia’s demand for Latin America’s raw materials like iron ore, copper and grains.

The officials discussed the crisis and are worried that it may stunt credit and global capital flows, Mantega said. The group will work to beef up existing regional credit institutions including the CAF regional development bank and the Inter-American Development Bank, he said. Reciprocal credit lines between countries will also play a role, he said.

Brazil is betting that declining interest rates, tax cuts and government loans to industry will allow Latin America’s biggest economy to grow 4%-5% in 2012, after expanding by an estimated 3% this year.

Argentina’s economy is already showing signs of slowing even as growth is expected to hit 9% for a second straight year in 2011. The government and central bank have forecast 5% to 6% growth next year.

Mercosur’s founding nations are also scheduled to discuss Venezuela’s stalled membership bid.

Venezuela has sought to join Mercosur as a full member since 2006, but Paraguay’sCongress has refused to ratify the treaty. A number of Paraguayan congressmen argue that Venezuela’s leftist President Hugo Chavez doesn’t have the democratic credentials to join Mercosur.

Chavez, who abolished term limits through a plebiscite in 2009 and is looking to run again in next year’s presidential election, is expected to attend the Mercosur summit.

"We need to solve the Venezuela issue, because it can’t keep waiting as a second-class citizen. Venezuela has been a partner and friend to countries who have needed it in the most difficult times," Argentina’s Foreign Minister Hector Timmerman said in a statement.

According to the Paraguayan press, Mercosur leaders might revise the organization’s bylaws to allow Venezuela to join even without Paraguay’s ratification.

Mercosur is also expected to sign a free trade agreement with Palestine on the second day of the summit following a similar deal signed with Israel in 2007.

Mercosur’s founding members have formally recognized the Palestinan state and threw their support behind its recent attempt to gain full United Nations’ membership, although Palestine was only able to secure observer status.

 source: Dow Jones