Brazil escalated a growing trade fight with Argentina last week by throwing up extra bureaucratic obstacles to import certain perishable products, a senior government official said, imperilling 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 ten 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 (Dh145 billion) in 2011, at risk.

In February, Argentina expanded import licences and reviews for all imports. In April, average daily exports from Brazil dropped 27 per cent 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.

Under Mercosur accords, nearly all trade is supposed to pass freely between member countries.

Argentina, which has also told local companies import licences may be denied if they don't "balance" them with equivalent exports, says it is facing a destabilising flood of imports.

Imports and capital flows have undermined President Cristina Fernandez's efforts to expand government control of the Argentine economy.

Brazil had a $5.8 billion (Dh21 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.

While Brazil may be concerned by Argentina's actions, it has been tightening its own defences 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 against 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 as well as beefing up inspections on Chinese manufacturers.

The real's decline of more than six per cent against the dollar in 2012 is one of the steepest among the more than 150 currencies tracked by Reuters. Brazil's Finance Minister Guido Mantega has called the trade and exchange rate moves "a currency war".

"We are not concerned about the real weakening," he said last Monday. "This will help slow imports and promote exports." 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, neighbouring Argentina is a major producer of the targeted imports. Inspectors have up to 60 days to consider licence applications, raising the risk that cargoes will be left to rot at the border before winning permission to enter.

Tensions

When Brazil's cancellation of automatic licensing for car imports in May 2011 is included, about 70 per cent of Argentine exports to Brazil now require a licence 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 Organisation (WTO) by the United States, the European Union and Japan in April.

The EU plans to file a formal WTO complaint, Reuters reported last Monday, citing Spanish government officials. The trade tensions with Argentina have been exacerbated by the government's decision to nationalise 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.

 

— Reuters