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October 25, 2014

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Monday, August 25, 2014

Forget about WTO

By Andrés Federman
For The Herald

It’s no news Argentina indulges in protectionist policies. Predictably, a number of commercial partners exercised their right to take the matter to the World Trade Organization. It ruled against Argentina. At a time when all eyes are on the confrontation with the holdouts/vultures and Judge Griesa, a slap on the wrist on a trade issue is unlikely to trigger much excitement.

A default — be it temporary, partial or said to be non-existent — is much more of a clear and present danger than a trade controversy. The memories of 2001 are still around.

Even if the issue of default is being exaggerated — as some government members seem to believe — the confrontation between the rather picturesque New York judge and the president and her loyal followers has an epic appearance that makes it quite attractive. Griesa fits very easily in the role of the person you like to dislike. By contrast, only low-profile grey-haired bureaucrats deal with trade grievances at the WTO. Hardly an attractive target for a crusade. But foreign debt being the main conflictive element of many periods of Argentine history, Griesa and the holdout / vultures seem to be the perfect tailor-made enemy to play on patriotic sentiment. Free trade is not.

As a matter of fact, Argentina is far from having a tradition of free trade. Many local industrial fortunes and many well-paid jobs flourished behind the walls of protectionism. And although the love of imported goodies is part of Argentine culture, so were the days when prices and salaries depended only on local market conditions. Was this an impediment for the development of a viable, globally competitive, industry? Perhaps. But, at almost any moment in time, the short term benefits of protection were much more tangible — for many — than the long term benefits of competition. And Lord Keynes was very clear on this: “In the long run, we are all dead.”

There are also some practical reasons not to be too worried about the WTO. The next steps of this choreography are quite predictable. Appeals (possibly unsuccessful) will be followed by negotiations and requests for extra time to adjust. All this implies longish processes. (Lord Keynes, again.) Moreover, Argentina has a bit of a trump card. Because the bulk of exports to the main plaintiffs (US, EU and Japan) are agricultural commodities, the victors might have to think twice about imposing the sanctions allowed by the WTO because some could backfire on their own local importers.

However, before placing the country’s trade problems in the bottom drawer of government officials’ desks or at the back of the minds of politicians and commentators, there is a point to be noted. While at the WTO, Argentine protectionism is only one of many issues, it is an open wound for our next-door neighbours. The Brazilian business sector is less than happy with Argentina. But Brazil being Brazil, it has the means to contain the damage of a trade dispute. It will agitate business chambers, government officials, specialized journalists but hardly anybody else.

That is not the case with our smaller neighbours, Uruguay and Paraguay. They are much more vulnerable to the vagaries of Argentina’s trade policies. Uruguay presents the additional problem of its dependence on Argentine tourism which makes the country an unwilling partner of Buenos Aires’ foreign exchange restrictions. The popular saying is that when Argentina sneezes its neighbours get the flu. Not a fatal pneumonia, mind you. But the flu can be quite irritating. And it could be ideal as political ammunition.

In Uruguay, which is in the midst of a presidential election campaign, comments about “Pepe” Mujica’s excessive patience with Argentina are frequent enough to cause concern. In the case of Paraguay things are not much better. The recent presidential visit to Asunción did not break much ice, if one has to go by the editorial comments of the local media. Most of them focused on the country’s grievances with Argentina — trade was definitely one of them — and remarked that Buenos Aires has not yet replaced its Ambassador to Asuncion whom was called back at the time of Lugo’s ousting back in 2012.

Becoming part of the political agenda within another country is — almost always — bad news. It is difficult to counter negative views without becoming involved in local political infighting and making matters worse. And any uncontested views are likely to remain in the public’s glare. Any which way, you lose.

Ideally, Mercosur should be the supranational space where these matters could be sorted out. But it seems to have become a forum mostly limited to rhetoric. One exception were the sanctions against Paraguay on account of Lugo’s impeachment. Production of statements on several issues — like debt — has been generous. Conflict resolution within Mercosur much less so.

Do the two small neighbours need Argentina? Very much so. But nothing is cast in stone. And it would be a serious setback if one or both countries decide they are better off strengthening extra-regional alliances or prioritizing Brasilia over Buenos Aires. Argentina’s government and opposition could do worse than thinking about this in the time left free by Griesa and Co.

@andresfederman

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