Argentina-Brazil: A commercial superclassic with a good performance, but it could be more

Brazil is Argentina’s main trading partner and a huge potential market, with a population of over 212 million. Marcelo Elizondo, consultant and international economic analyst, explains that “Brazil is the fourth largest investor in Argentina and the largest destination for SME exports. It is the 12th largest economy in the world. Historically, the commercial and political relations between the two countries have been very harmonious. Through Mercosur, we have reduced tariffs between us and logistics facilities, which Allows Brazil to be a destination for products that Argentina does not export to other parts of the world, such as industrial products, especially the automotive industry.“, it is said.

The report of the Ministry of Productive Development shows that Brazil is the most important trade partner for Argentina. This is due to Mercosur, geographical proximity and also due to productive integration in the automotive sector. However, in the last decade, its weight in the total commercial exchange of Argentina has decreased: from about 25-26% in the 2000s, it has fallen to 17% in 2020.

The data of INDEC and the Ministry of Foreign Affairs confirm that St During the first eight months of 2022, Argentina’s main trading partners were Brazil, China and the United States.. Exports to Brazil reached USD 8,147 million (representing 13.6% of Argentina’s total foreign sales and main purpose is). Imports amounted to 10,971 million USD (19.1% of foreign purchases). Brazil is Argentina’s second largest importer after China. The country’s trade deficit during this period amounted to 2,824 million US dollars.

The two countries have everything to do in terms of optimizing the exchange, but for at least three years they are facing a barrier: Two presidents who don’t speak. This is not the best for the challenges that Argentina has to export more to the neighboring country. According to Elizondo, the distance between Bolsonaro and Alberto Fernandez is “a rarity that greatly affects the relationship between the countries and also with Mercosur.”

In this sense, for the economist Dante Sica, former Minister of Production and Labor and former Secretary of Industry, Trade and Mines at the national level, “when Argentina and Brazil begin to agree with each other in terms of dialogue, Mercosur will gain momentum.” He adds that a more dynamic agenda for opening international negotiations and stronger integration is needed, especially now that “Russia’s invasion of Ukraine changes geopolitics and raises much more important market expectations. There should be a much stronger dialogue between the two presidents. They can’t be talking”question.

The priorities for the founder of the consulting firm Abeceb are: quickly closing the Mercosur-EU agreement, opening new trade talks to take advantage of the changing global scenario and advancing institutional changes that allow Mercosur to be more flexible.

Sica deals with other complications for exporting to Brazil.There is a whole bureaucracy that makes it very difficult for us to enter this market. need a Greater regulatory convergenceCertification of standards, which will cost us a lot. For example, on the subject of laboratories, They do not recognize Argentine certificatesSo you have to do the tests in Brazilian labs and they give long-term changes,” he asserts. A similar thing happens with food products.

Another clear example cited by the former official is that Argentina “has a hard time selling agricultural machinery because the transaction is mostly carried out on credit. However, Brazil has a line of credit from its development bank [el Bndes] With differential rates when the machine has more Brazilian parts, so Argentine agricultural machinery cannot compete, not in terms of quality, but in terms of financing. So there are some credit hurdles, regulations, etc. Which makes it very difficult to penetrate this market,” says Sika. These are relevant issues in which diplomacy plays a fundamental role.

According to consulting firm Biglobal, trade between Argentina and Brazil has historically depended on the ups and downs of economic activity in both countries. In years of economic contraction, there was a decline in bilateral trade, as was the case in 2009, 2012, 2014, 2016 and 2019. While expansion years have seen recovery, as seen in 2003-08, 2010-11, 2013 and 2017. countries needyouThey grow and can do so in a global context of high demand for energy and food.

For Elizondo, Mercosur “Argentina and Brazil have tied their destinies to each other, to the extent that it prevents countries from negotiating unilaterally with other countries.. but also Brazil is Argentina’s main export market. This year as a whole, Argentina is expected to export between $11,000 and $12,000 million to Brazil, which is not much different from the historical average. No other country exports so much. Argentina’s next trading partners, namely China and the United States, receive half of Argentina’s exports to Brazil,” he adds.

For Sica, “Argentina has an advantage. Exports to Mercosur, mainly to Brazil and the rest of Latin America, are the highest value-added component. They are more industrial. In particular, it is the market of the local automotive industry. More than 50% of trade between Argentina and Brazil belongs to this sector. The more the economy moves, the more the volume increases, and in recent years the complementation has been consolidated. We don’t make the same cars on both sides of the border.”

However, he concludes that “all the obstacles and problems that Argentina has are driving away investment and companies that are in both countries decide to invest and expand in Brazil.”

According to analysts, what will happen next is unclear. “I was in San Pablo twenty days ago and the business sector is not sure about either candidate. It is difficult to determine who will be better for Argentina. Lula was changing the word. A month ago, there was a proposal to revise the agreement with the European Union, and now he says that he will close it in three months. Based on the statements he has made so far, Lula would try to stop some of the important things that Bolsonaro has achieved, such as the privatization of the energy sector and some concessions that lead to a lot of investment and employment. It is true that Lula maintains a discourse of a very ecological agenda, and this gives him a stronger appearance in the world, but it gives the impression that he is dragging a very ideological discourse, which raises doubts in the electorate. On the other hand, note that if you win, You will not have Parliament in your favoursomething that will not allow him to carry out the reforms of the center-leftSika says.

For his part, Elizondo believes that Mercosur is going through unprecedented bad times. “Bolsonaro’s Brazil wants openness (a vision it shares with Uruguay and Paraguay) and unilateral tariff cuts that are not allowed in the bloc.” Argentina does not want such an open policy,” he asserts. “Bolsonaro is also looking at free trade agreements in other markets. As well as Canada and South Korea, which Argentina does not agree with either,” the economist claims.

On the other hand, if Lula were to win, he would be more likely to appeal to Mercosur because he wants Brazil to lead Latin America, according to analysts. Bolsonaro, on the other hand, sees Brazil as a major global actor, not just a regional one.