Four Nations Move From Old Hostility To Friendly Trade

AT worst, the four nations were bitter enemies, as in the War of the Triple Alliance (1864-70) - the longest international war in Latin American history. At best, they ignored each other.

But now, these four South American nations are dropping their historic resentment to embrace new trade links aimed at forming the hemisphere's second-largest economic trade bloc.

On Jan. 1, the Southern Cone South American Common Market, known by its Spanish acronym Mercosur, will unite Argentina, Brazil, Uruguay, and Paraguay. This is a step toward creating an eventual Alaska to Tierra del Fuego free-trade zone by 2005 as 33 Latin American leaders agreed to at this month's Summit of the Americas in Miami.

``Free trade can solve an infinity of problems that have dragged us down for more than a century,'' Argentine President Carlos Saul Menem said in a recent interview.

If Mercosur were a single country, it would be the world's second in land mass (7 million square miles), fourth in population (190 million) and seventh in gross domestic product ($746 billion). Those numbers would dramatically increase after the expected entry of Chile and Bolivia, whose leaders are currently negotiating entry into the pact.

Last week - after more than two years of bickering - the trade agreement was signed by Mercosur's four presidents.

The signing recognizes what is already an economic reality.

In the three years since the four nations agreed to form Mercosur, commerce between them has increased annually from $2.7 billion in 1987 to $10 billion this year and is expected to rise to $12 billion in 1995.

Mercosur negotiators have agreed that 85 percent of commerce traded among the nations will be duty free on opening day. They hope not only to eliminate all tariffs within the bloc by the next decade, but recognize each others' university degrees, standardize their monetary systems, create a Southern Cone currency, and improve long-ignored trade routes.

Among the envisioned projects:

* A $4 billion 1,585-mile highway connecting Sao Paulo, Brazil, Montevideo, and Buenos Aires.

* A $1 billion, 2,134-mile waterway giving the four member nations and Bolivia access to the Rio de la Plata, Atlantic Ocean, and overseas markets.

* Nearly 3,000-miles of coast-to-coast train tracks between Iquique, Chile and Santos, Brazil.

Although most residents of the region applaude such ambitious projects, some fear that Mercosur will favor large, local, and foreign companies and drive thousands of smaller firms out of business.

Leading union, farm, and industry leaders in each nation have successfully won a five-year protection plan for some 1,600 products. Populist politicians remind voters that free trade must have a ``sensitive side.''

``The politics of Mercosur doesn't respect the little producer, who must be protected by government,'' said Carlos ``Chacho'' Alvarez, a likely leftist candidate in next year's Argentine presidential election.

Mr. Alvarez fears an influx of cheap Brazilian imports in a country already hit hard by record unemployment. In recent months, thousands of Argentine protesters have taken to the streets to protest Menem's free-trade policies.

Tradition-bound Uruguayans, meanwhile, worry free-trade economics will disrupt their social welfare state. ``We told the people that Uruguay had no alternative but to join Mercosur,'' says Foreign Minister Sergio Abreu, ``to avoid losing its alternatives.'''

Yet much more threatening than populist politicians is the long-time simmering rivalry between the pact's two giants, Brazil and Argentina.

Just this year, high-ranking Argentine officials angered Brazilian leaders by suggesting that Argentina would be better off joining the North American Free Trade Agreement (NAFTA) because of Brazil's hyperinflation, corruption scandals, and urban violence.

Despite the quarrels, Mercosur negotiators say the two neighbors will accommodate each other out of necessity. ``Argentina must expand its markets,'' says Alejandro Mayoral, Argentine sub-secretary for political economics. ``And Brazil needs our constant supply of cheap food for its huge population.''

Indeed, Argentina is more enthusiastic these days about its major rival, whose $475 billion economy accounts for half of South America's GDP.

In July, President-elect Fernando Henrique Cardoso introduced a new currency that has stabilized the world's 10th-largest economy and dramatically lowered inflation. Argentine exports to Brazil alone could reach $3.4 billion by the end of the year, an increase of 30 percent over 1993.