Brazil, Argentina Plan Integration

PAULO MILANI, like many strapped Latin American businessmen, is trusting to regional integration to help get his company off the hook. ``Some Argentines came to see me in Sao Paulo, offering a price 58 percent cheaper than I can get in Brazil. The quality is better, and they'll give me 180 days to pay, while in Brazil I have to pay in 15 days,'' says Mr. Milani, a conveyor belt distributor flying south to the Argentine capital. As the lights of Buenos Aires come into view out the aircraft window, he says sales are falling and prices at home are too high. ``There's a cartel in Brazil. Only two companies make conveyor belts.''

The governments of Brazil and Argentina are hoping that neighborly competition will increase business efficiency and help to lower inflation.

Brazil has a population of 150 million, many natural resources, and a developed industrial base. Argentina is smaller, but it has cheaper skilled workers, natural gas, petroleum, minerals, and a competitive food industry. Neighboring Uruguay and Paraguay will also join in the bloc these two are forming. The move may help these nations compete better abroad, as regional economic blocs begin to form the basis for world relations in the 1990s.

In line with President Bush's goal of hemisphere-wide free trade, the four nations are discussing a free-trade zone with the United States.

Commerce between Brazil and Argentina grew about 30 percent this year, to an estimated $2.4 billion. But many economists are skeptical about uniting two such problematic countries. ``You can't expect integration to solve the problems of macroeconomic instability,'' says Guillermo Rosenwurcel, an Argentine economist.

Skeptics also point out that Chile, the only southern cone country whose economy is doing well, is not interested in joining its poorer neighbors.

Brazil and Argentina first moved to cut tariffs on each other's imports in 1985. Last July Presidents Fernando Collor de Mello and Carlos Sa'ul Menem agreed to bring the date for full integration forward by five years, to December 1994. The two nations are cooperating on nuclear energy, aircraft manufacture, a border bridge, and standardizing social security benefits and weights and measures.

The biggest obstacle to integration has been the two economies' ups and downs. Sancor, Argentina's largest dairy cooperative, saw its Brazilian sales of cheese rise 10 percent this year. Brazilian consumers have helped to make up for market losses in Argentina, which has been in a recession since 1985. But in the last few months Sancor has been selling at a loss because of the Brazilian cruzeiro's depreciation against the austral.

Sancor has profited from integration, but many companies on both sides of the border are resisting it. Argentine sugar producers have so far prevented tariff cuts on Brazilian sugar.

``The real test is not finding Argentine products in Brazilian supermarkets, ... but when each economy becomes specialized in what it's efficient at,'' says Jorge Bogo, an Argentine economist. ``The day Nestl'e Brasil stops making powdered milk and Nestl'e Argentina stops making coffee.'' He says Argentina's steel and auto industries would lose jobs.

Freight costs are also a stumbling block. Both countries rely heavily on expensive truck transport, because railroads are scarce and inefficient, and the two countries' tracks are incompatible. Sanbra, a Brazilian unit of the Argentine Bunge & Born conglomerate, is planting sunflowers in southern Brazil, although Argentina itself could export sunflower seed oil to Brazil.

Varying track widths, planned to hinder an invasion, also pose a problem on a route connecting ports in Brazil and Chile.

Meanwhile, the economic situations in Brazil and Argentina have taken local investment to all-time lows, while scaring off potential foreign investors. Economists also say Brazil and Argentina must do more to align their tax, labor, and business laws.