Last week, two members of Mercosur, Brazil and Argentina, reached a landmark trade agreement, hailed by the governments of both countries. But if you think the agreement is supporting free trade between the two countries – afterall, free trade is what Mercosur is all about – think again. How about “regulating” trade?
The Competitive Adaptation Mechanism proposed by Argentina a year ago and agreed to in a meeting that ended Wednesday morning in Buenos Aires, allows either of the nations to apply safeguards in the event that imports from its partner begin to hurt its local industry.
Rhetoric on protectionism is not new, especially in Latin America. The ironic part of this story is that the agreement uses the word “competitive” to describe its purpose. But there is nothing “competitive” in what such an agreement accomplishes. On the contrary, if there is anything competitive about it is that it is “anti-competitive” – protectionist measures reduce competitiveness of firms, increase the prices, reduce the quality of products, drive away the investments, and hurt prospects for job creation. Although in the short run such measures do preserve jobs and keep companies afloat, protectionist experiments, not just in Latin America but elsewhere around the world as well, do not have a positive track record.
If anyone knows about the negative effect of protectionist measure on development of enterprise, it is Brazil – see an write-up about the country’s experience with trying to protect its computer industry from foreign competition in the 1980s-1990s in CIPE’s Foreign Investment Prosperity Paper (pp.4-6). I am surprised, to say the least, to see such an agreement being developed between the two biggest members of Mercosur. Said Argentine Economy Minister Felisa Miceli:
the agreement “is a triumph for cooperation and working together.”
The agreement may be a triumph for cooperation and working together, but it is definitely not a triumph for free trade nor it is a triumph for free market reforms.
Published Date: February 06, 2006