NAFTA. The European Union. Mercosul. Free-trade agreements sure have some crisp-sounding names. Like it's all laid out in black and white. Then something unexpected comes along to disrupt the machinations of the global economy. Something like the Garlic War. What does garlic have to do with plastics? The subject came up last month when I interviewed an Argentine businessman at the Argenplas trade show in Buenos Aires. I had one of those transformational, but grounded-in-plastic, experiences that always seem to happen the first time you travel to a new country for a plastics show. The conversation veered from compounding extruders to the Mercosul free-trade zone to, yes, the strong-smelling herb.
The 9-year-old Mercosul pact is supposed to mean open borders between neighboring countries of Brazil, Argentina, Paraguay and Uruguay. But, my Argentine source scolded, Brazil always changes the rules. He pointed to the garlic embargo.
At Argenplas, it wasn't hard to find people willing to criticize Brazil. How times change.
At first, trade exploded under Mercosul, and the two neighbors enjoyed close ties. But early last year, Brazil devalued its currency in the face of a financial meltdown. The Argentine government has pegged its peso one-to-one with the U.S. dollar since 1991. That strategy gave Argentina very low inflation, and monetary stability, but at a cost: Brazil became a whole lot cheaper place to run a business.
Now some businesses are leaving Argentina for Brazil. Plastics companies apparently have stayed put, so far. But many of their customers have moved, or considered it, so it's only a matter of time before plastics gets hit.
Direct foreign investment could dry up, as Brazil wins even more new factories from multinational corporations. Brazil already has been a magnet for foreign investment, racking up a record $29 billion in 1999.
It's tempting to draw parallels between the tensions of Mercosul and our own North American Free Trade Agreement. Free trade certainly has made people in North America nervous, especially U.S. and Canadian factory workers whose companies threaten to move jobs to Mexico.
But the Mercosul situation is too different. The huge U.S. economy can withstand a lot of pummeling. The economies in Brazil and Argentina are fragile.
Now the cheap Brazilian real is damaging relations between two major trading partners. At the plastics show, many people said that Argentina, with just 37 million people, simply has to export to the 164-million powerhouse of Brazil.
For frustrated Argentines, garlic is the least of their worries.
Senior reporter Bregar covered the Argenplas 2000 show April 3-8.