BRASILIA Brazil escalated a growing trade fight with Argentina on Monday by increasing the bureaucratic obstacles for importing a list of perishable products, a senior government official told Reuters, putting at risk its involvement in a major regional trade group.
The senior Brazilian government official, who spoke on condition of anonymity, said it would now be harder to import about 10 perishable products, including apples, raisins, potatoes, wheat flour and wine.
While trade disputes between the two members of the Mercosur trade group are relatively frequent, the latest confrontation will raise fears of growing protectionism in South America and put the countries' trade, worth $39.6 billion in 2011, at risk.
"We have been heading toward this confrontation," said Pedro de Camargo Neto, head of Brazil's Association of Pork Exporters in Sao Paulo. "Exports were practically blocked, there was no negotiation."
In February, Argentina expanded import licenses and reviews for all imports. In April, average daily exports from Brazil dropped 27 percent compared to a year earlier.
The dispute is becoming the biggest crisis to face Mercosur, the customs union and trade group comprising Brazil, Argentina Uruguay and Paraguay, since it was founded 21 years ago.
"I don't know what Argentina will do," Camargo Neto said. "I believe Brazil will have to reconsider Mercosur."
Under Mercosur accords, nearly all trade is supposed to pass freely between member countries.
Argentina, which has also told local companies import licenses may be denied if they don't "balance" them with equivalent exports, alleges it is facing a destabilizing flood of imports.
The imports and capital flows that go with them have undermined President Cristina Fernandez's efforts to expand government control of the Argentine economy.
Brazil had a $5.8 billion surplus with Argentina in 2011, or an average excess of exports over imports of $484 million a month. The Argentine measures have helped cut that by a third to $328 million a month in the first three months of 2012.
BRAZIL WEAKENS CURRENCY
While Brazil may be concerned about Argentina's actions, it has been tightening its own defenses against imports. Blaming the United States, Europe and China for artificially keeping exchange rates low and slashing interest rates, it has moved to weaken its own currency to promote exports.
On Monday, Brazil's real weakened to 2.00 the dollar for the first time in 34 months. Brazil has also raised taxes on automakers who don't meet minimum local content rules for their vehicles and beefed up inspections on Chinese manufactures.
The latest Brazilian decision will end automatic import licensing for about 10 perishable products, including some cheeses, the government official said.
The Brazilian official said the measures would not affect the supply of food in Brazil, even though Argentina is one of its main suppliers of wheat.
While the Brazil licensing change applies to all countries, the source said, neighboring Argentina is a major producer of the targeted imports. Inspectors have up to 60 days to consider license applications, raising the risk cargoes will rot at the border before winning permission to enter.
When Brazil's cancellation of automatic licensing for car imports in May 2011 is included, about 70 percent of Argentine exports to Brazil now require a license that can take up to 60 days to receive, the Brazilian government official said.
Argentina has increased import-licensing requirements on imports from Brazil and other countries, hoping to protect local manufacturers, keep its currency from weakening against the dollar, and maintain stocks of foreign exchange.
Brazil is not alone in its concerns. Argentina's measures led to attacks on its policies at the World Trade Organization (WTO) by the United State, European Union and Japan in April.
The EU plans to file a formal WTO complaint, Reuters reported on Monday, citing Spanish government officials.
The trade tensions with Argentina have been exacerbated by the government's decision to nationalize YPF, the local subsidiary of Spain's Repsol.
The Brazilian licensing decision was made jointly by Brazil's development and trade ministries and foreign office, the government source said. A spokesperson for the trade ministry declined to comment.
(This story corrects direction of trade flow, paragraph 5)
(Reporting by Ana Flor; Writing and additional reporting by Jeb Blount in Rio de Janeiro; Editing by Gary Hill, Carol Bishopric and Paul Tait)