Argentina's 'got milk' and wants to export more of it

As the world changed over the last decade, so did Sancor, Argentina's largest dairy-products company. An example of a company in a developing country that took the expanding international market place seriously, Sancor now sells its milk as far away as the United States.

But Sancor would like foreign doors to open even wider to its milk cans. So like many other developing countries looking for lower trade barriers to their farm products, Argentina has its hopes set on the current international trade talks in Seattle.

The problem is, European farmers - as well as US farm bailouts - may get in the way.

Argentina is one of a group of agricultural export countries sending a clear message to World Trade Organization delegates gathering this week. That is, without agriculture on the table, the talks will not fly. Argentina wants better global access for its wheat, soy, beef - and Sancor's milk products. In exchange, developed countries want better access to service industries and government contracts.

The message the world's trade players send out of Seattle will determine the enthusiasm in countries like Argentina for staying on the global trade track.

So far, however, the European Union, which is responsible for 85 percent of the world's trade-distorting farm subsidies, doesn't seem ready to cut its multibillion dollar farm-aid program. Doing so would mean almost certain confrontation with Europe's farmers, who periodically dump their produce on highways at any hint of lower subsidies.

But Argentine officials are categoric about the front seat agriculture must take in Seattle. "Agriculture cannot be treated as something separate; it must be fully integrated," says Felix Pea, Argentine undersecretary of foreign trade.

Not just the EU, but also Japan and South Korea, oppose liberalizing their agricultural sectors, arguing that farming is a "multifunctional" sector that represents more than just trade to their countries' cultures. But Mr. Pea says his "strong words" should not be taken as an empty threat. "Remember Montreal," he says, referring to a 1988 meeting of trade ministers when farm producers like Argentina paralyzed the last round of international trade talks, called the Uruguay Round. But even with the Montreal paralysis, farm producers were disappointed that developed countries weren't forced to open up to agricultural products from non-subsidizing countries.

Argentina is not alone in saying that won't happen again. "If there are no agriculture negotiations [in these talks] there will be no round at all," says Brazilian trade minister Marcus Pratini de Morais.

Australia and Canada also support barrier-free farm trade, while the US is calling for elimination of farm subsidies and access for genetically modified products. The EU and other farm producers like Australia are calling the US stand for zero subsidies hypocritical, however, since US emergency farm bailouts rose to over $14 billion last year.

Argentina is an example of a mid-size, developing country that over the last decade has opened a closed economy to international investment and growth through exports. It has hitched its wagon to two horses: regional trade, through the Mercosur customs union whose other big member is Brazil; and international trade. Argentina's focus on exports has grown along with Mercosur. Since 1992, the share of Argentina's exports destined for Mercosur countries has jumped from 19 to 35 percent. Over the last decade Argentina has increased its share of global trade from 0.5 to 0.7 percent. Sancor, for example, which six years ago sold only 2 percent of production outside Argentina, now counts on exports for 20 percent of sales.

But with less than 10 percent of its gross domestic product generated by trade, Argentina is still a long way from such export-driven economies as Spain or neighboring Chile.

Argentina's competitive economy could see its export sector grow to 20 percent of GDP over the next five to 10 years, says Marcela Cristini, a senior economist with Buenos Aires's Foundation for Latin American Economic Research. But reaching that goal will depend on a return to economic growth within Mercosur and on the Seattle international trade round.

"What happens in Seattle will set the tone for other regional negotiations on international trade," says Ms. Cristini.

Mercosur has had a "difficult year," says Mr. Pena, highlighting a steep devaluation of Brazil's real that made Argentine products more expensive for its principal trade partner. Brazil's products on the other hand became suddenly cheaper, causing Argentina to slap protective tariffs on products including shoes and paper.

In the first six months of the year, trade within Mercosur, which also includes Uruguay, Paraguay, and associate member Chile, fell off by 30 percent.

Mercosur has weathered crises in the past and Brazil has bounced back from economic dips with positive reforms and better access for Argentine products, says economist Cristini. "But this time the crisis in Brazil is different," she adds. "The worst may have past, but there are still doubts about how far Brazil will go with its reforms this time."

Countries like Argentina and Brazil need clear signals from their bigger trading partners that the international market-place is going to include benefits for everyone, analysts here say. But what the current difficulties demonstrate is that regional trade accords like Mercosur require clear rules and mechanisms that address destabilizing and trade-distorting crises like devaluations and recessions.

"The trouble we're having in Mercosur isn't an argument against trade, but a sign we need regulations to address these challenges," says Argentina's Pea. In Argentina's eyes the big test in Seattle is agriculture. But for Mercosur the problem on the plate is the automobile industry. The bulk of regional car production is in Brazil, but current negotiations within Mercosur will determine whether Argentina keeps an auto industry and sends a signal on Mercosur's prospects.

"We have until Dec. 31," says Pea, noting the auto talks' deadline. But, "the important thing is that we're talking."

(c) Copyright 1999. The Christian Science Publishing Society