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By MATT MOFFETT And PAULO PRADA
SAO PAULO, Brazil—Argentine and Brazilian negotiators met Tuesday to attempt to resolve a heated dispute over automobile imports, in talks that underscore Brazil's increasing muscle in one of South America's most complicated trade relationships.
As the two old rivals sat down to discuss one of their most serious commercial quarrels in years— Brazil's recent move to hold up import licenses for foreign-made cars—Brazil appeared to be in the driver's seat in the regional Mercosur trade bloc, economists said, with Argentina in the role of junior partner. One Argentine trade lobby group accused Brazil of behaving in an "imperialist" fashion.
Argentina secretary of industry Eduardo Bianchi and his Brazilian counterpart, Alessandro Texeira, met Tuesday in Buenos Aires for their second day of talks. Both sides agreed prior to the meetings to freeze recent protectionist measures.
In a statement after the meeting, Argentina said "the two sides advanced in the negotiations designed to gradually liberate the pending licenses" and said the sides would schedule more bilateral meetings to settle the outstanding issues.
The dispute emerged May 10 when Brazilian President Dilma Rousseff announced that Brazil would no longer automatically grant vehicle-import licenses. The move left some 3,000 Argentine-made vehicles stuck at the Brazilian border and sent a chill through an Argentine auto industry, which sends 85% of exports to its northern neighbor.
Brazil has been trying to defend its own industry, which is burdened by a strong currency that makes Brazilian-made products less competitive. But Brazilian officials conceded that their government was also responding to trade restrictions Argentina imposed just after Ms. Rousseff assumed office in January.
"This was a point of honor for a new administration," said Mario Marconini, a Sao Paulo-based trade consultant and former Brazilian trade secretary. "They're just getting started and have to show Argentina that it's not going to push them around."
In February, Argentina president Cristina Kirchner withdrew automatic import licenses for a long list of products, hurting Brazilian producers of refrigerators, air conditioners, tires and chocolates. Argentina has been trying to stem an erosion in its trade surplus, which narrowed by 24% during the first four months of this year compared to 2010.
"There was a mini-retaliation, but it doesn't have strategic reach," Marco Aurelio Garcia, an adviser to Ms. Rousseff, said of Brazil's auto restrictions.
To Argentines, the Brazilian restriction felt like a big blow. "The potential damage that reprisals can generate for Argentina is a very high cost to pay," said Mauricio Claveri, an economist at abeceb.com in Buenos Aires.
Argentina and Brazil are longtime competitors in business, diplomacy and soccer. Argentina, though much smaller in size and population, was the larger economy for five decades up to the 1940s. Brazil has emerged in recent years as a regional economic and political heavyweight. While Brazil will host the World Cup in 2014 and the Olympics in 2016, Argentina has drawn inward under the populist Mrs. Kirchner.
Over the past 15 years, Argentina's trade balance with Brazil has swung from a surplus to a deficit of around $4 billion last year, according to Brazilian statistics. Argentina has seen the bilateral balance deteriorate even though it maintained a strong, dollar-pegged peso during the 1990s and now keeps its currency weaker relative to the dollar.
In an article this week in the Buenos Aires daily La Nacion—called "We Can No Longer Compete with Brazil"—Argentine economist Orlando Ferreres said the change to a large extent reflects how Brazil has won the battle to attract foreign investment. Brazil has become a huge magnet for multinationals, pulling in $49 billion in investment last year to Argentina's $6 billion.
By contrast, he wrote, many investors have kept Argentina at an arm's length because of unpredictable regulatory climate fostered by Mrs. Kirchner and her late husband and predecessor, Nestor, who have nationalized some companies and hamstrung others with price and export controls. The factories built with foreign dollars in Brazil are pouring goods into Argentina faster than Argentina can hope to export its own products, Mr. Ferreres wrote.
Another problem is that the two economies aren't very strategically integrated, says Marta Bekerman, an economist at the University of Buenos Aires. In an ideal world, she said, Brazil would use its large industrial scale to produce products such as shoes for the mass market, while Argentina could use its fine leather and craftsmen to produce more expensive shoes.
But instead, she says, the shoe market is a jumble, with both sides producing all types of shoes. "There has to be political will to integrate, but instead the countries' industries often seem to be moving in different directions," she says.
The imbalances are unlikely to upend a relationship that remains vital to both countries. Despite growing trade with China and other big markets, Argentina remains Brazil's third-biggest trade partner, behind the China and the U.S. Trade between the two countries, according to Brazilian government figures, last year totaled just over $33 billion.
"Inevitably, countries grow more competitive in some areas and less competitive in others," said Joao LuizMascolo, an economist at Insper, a business school in Sao Paulo. "But with a little intelligence, countries can still figure out what is in each other's commercial interest."
SAO PAULO, Brazil—Argentine and Brazilian negotiators met Tuesday to attempt to resolve a heated dispute over automobile imports, in talks that underscore Brazil's increasing muscle in one of South America's most complicated trade relationships.
As the two old rivals sat down to discuss one of their most serious commercial quarrels in years— Brazil's recent move to hold up import licenses for foreign-made cars—Brazil appeared to be in the driver's seat in the regional Mercosur trade bloc, economists said, with Argentina in the role of junior partner. One Argentine trade lobby group accused Brazil of behaving in an "imperialist" fashion.
Argentina secretary of industry Eduardo Bianchi and his Brazilian counterpart, Alessandro Texeira, met Tuesday in Buenos Aires for their second day of talks. Both sides agreed prior to the meetings to freeze recent protectionist measures.
In a statement after the meeting, Argentina said "the two sides advanced in the negotiations designed to gradually liberate the pending licenses" and said the sides would schedule more bilateral meetings to settle the outstanding issues.
The dispute emerged May 10 when Brazilian President Dilma Rousseff announced that Brazil would no longer automatically grant vehicle-import licenses. The move left some 3,000 Argentine-made vehicles stuck at the Brazilian border and sent a chill through an Argentine auto industry, which sends 85% of exports to its northern neighbor.
Brazil has been trying to defend its own industry, which is burdened by a strong currency that makes Brazilian-made products less competitive. But Brazilian officials conceded that their government was also responding to trade restrictions Argentina imposed just after Ms. Rousseff assumed office in January.
"This was a point of honor for a new administration," said Mario Marconini, a Sao Paulo-based trade consultant and former Brazilian trade secretary. "They're just getting started and have to show Argentina that it's not going to push them around."
In February, Argentina president Cristina Kirchner withdrew automatic import licenses for a long list of products, hurting Brazilian producers of refrigerators, air conditioners, tires and chocolates. Argentina has been trying to stem an erosion in its trade surplus, which narrowed by 24% during the first four months of this year compared to 2010.
"There was a mini-retaliation, but it doesn't have strategic reach," Marco Aurelio Garcia, an adviser to Ms. Rousseff, said of Brazil's auto restrictions.
To Argentines, the Brazilian restriction felt like a big blow. "The potential damage that reprisals can generate for Argentina is a very high cost to pay," said Mauricio Claveri, an economist at abeceb.com in Buenos Aires.
Argentina and Brazil are longtime competitors in business, diplomacy and soccer. Argentina, though much smaller in size and population, was the larger economy for five decades up to the 1940s. Brazil has emerged in recent years as a regional economic and political heavyweight. While Brazil will host the World Cup in 2014 and the Olympics in 2016, Argentina has drawn inward under the populist Mrs. Kirchner.
Over the past 15 years, Argentina's trade balance with Brazil has swung from a surplus to a deficit of around $4 billion last year, according to Brazilian statistics. Argentina has seen the bilateral balance deteriorate even though it maintained a strong, dollar-pegged peso during the 1990s and now keeps its currency weaker relative to the dollar.
In an article this week in the Buenos Aires daily La Nacion—called "We Can No Longer Compete with Brazil"—Argentine economist Orlando Ferreres said the change to a large extent reflects how Brazil has won the battle to attract foreign investment. Brazil has become a huge magnet for multinationals, pulling in $49 billion in investment last year to Argentina's $6 billion.
By contrast, he wrote, many investors have kept Argentina at an arm's length because of unpredictable regulatory climate fostered by Mrs. Kirchner and her late husband and predecessor, Nestor, who have nationalized some companies and hamstrung others with price and export controls. The factories built with foreign dollars in Brazil are pouring goods into Argentina faster than Argentina can hope to export its own products, Mr. Ferreres wrote.
Another problem is that the two economies aren't very strategically integrated, says Marta Bekerman, an economist at the University of Buenos Aires. In an ideal world, she said, Brazil would use its large industrial scale to produce products such as shoes for the mass market, while Argentina could use its fine leather and craftsmen to produce more expensive shoes.
But instead, she says, the shoe market is a jumble, with both sides producing all types of shoes. "There has to be political will to integrate, but instead the countries' industries often seem to be moving in different directions," she says.
The imbalances are unlikely to upend a relationship that remains vital to both countries. Despite growing trade with China and other big markets, Argentina remains Brazil's third-biggest trade partner, behind the China and the U.S. Trade between the two countries, according to Brazilian government figures, last year totaled just over $33 billion.
"Inevitably, countries grow more competitive in some areas and less competitive in others," said Joao LuizMascolo, an economist at Insper, a business school in Sao Paulo. "But with a little intelligence, countries can still figure out what is in each other's commercial interest."