Saturday, May 19, 2012

Brazil, Argentina and trade policy - Trade wars ahead?

(Courtesy Wikipidea: The President of Brazil, Dilma Rousseff, and the President of Argentina, Cristina Kirchner, during Rousseff's state visit to Buenos Aires.)
Reports of the EU approaching the WTO against Argentina's import licensing rules are surfacing. I have blogged about Argentina's measures earlier here, here and here. Brazil, Argentina's largest trading partner, also showed signs of confrontation with Argentina. In 2010, as per the Observatory of Economic Complexity,  Argentina exported the most (21% of its exports) to Brazil followed by China. Brazil also topped its imports share being 42% in 2010. It is evident that the South American neighbour is Argentina's most active trade partner. Is the Brazilian measure a sign of a trade war hinged on protectionist tendencies?

The Argentinian response to the EU step was exemplified in Argentina's Secretary for International Economic Relations Cecilia Nahon reaction that Argentina was being made into an example to discourage developing countries from using legitimate economic policies. The question comes back to what is legitimate domestic policy choice in the context of WTO rules? Does it signify "protectionist" measures? Do developing countries have the leeway to exercise aggressive trade policies on the grounds that their national interest demand so? Do developed countries also pursue such policies during a crisis?

A detailed analysis of trade policy conduct of Argentina and Brazil is found in "Colliding paths Trade policy making in Brazil and Argentina during the global financial crisis" by Thomaz Favarro and makes interesting reading.

One will have to wait and watch as to the contours this dispute will take and its implications for South Amercian trade, WTO and multilateral rule making.

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