South American Trade Group Raises Import Tariffs

Members of South America's Mercosur trade bloc decided at its annual summit Dec. 20, 2011 to slap steep tariffs on a host of cheap imports to shield the region from a slowing global economy.

The members agreed to impose a 35% tariff on 100 additional goods subject to Mercosur's common tariff on imports from outside the bloc, according to a statement from the Brazilian delegation. The new tariffs will be imposed until December 2014. Capital goods, textiles and chemical imports are the likely target.

In recent months, Argentina and Brazil have voiced fears that Asian exporters might seek to offset soft demand in the U.S. and Europe by flooding Latin America with cheap manufactured goods.

Mercosur needs to step up efforts "to defend the Latin American markets from this invasion of goods," Brazilian Finance Minister Guido Mantega said.

The Mercosur customs union was founded in 1991 by Argentina, Brazil, Uruguay and Paraguay, with Bolivia, Chile, Colombia, Peru and Ecuador participating as associate members.

But protectionist measures within the union are a frequent source of discord. Earlier this year, Argentina and Brazil slapped nonautomatic import licenses on a range of goods exchanged between the two nations that had industrialists on both sides of their common border howling in protest. Meanwhile, Uruguayan business leaders have complained for months that Argentina is blocking imports from their tiny country.

South America exited the 2008-09 global financial crisis relatively unscathed, owing to solid banking systems, a short-lived drop in commodity prices and sound public finances that gave many nations the wherewithal to engage in counter-cyclical fiscal spending to support their economies.

But the region's economic boom of the last two years might quickly fizzle if recession and stagnation in the West dent Asia's demand for Latin America's raw materials like iron ore, copper and grains.

In addition to the tariff deal, Mercosur signed a free-trade agreement with the Palestinian territories, matching a similar deal signed with Israel in 2007. Mercosur's founding members have formally recognized the Palestinian state and thrown their support behind its recent attempt to gain full United Nations membership, although the Palestinians were only able to secure observer status.

Other than the increased tariffs and Palestinian deal, the Mercosur leaders were unable to agree to much more.

Despite making a last-minute decision to fly to the summit, the hopes of Venezuelan President Hugo Chavez for full membership in Mercosur were dashed as a bid to sidestep opposition from Paraguay's opposition-controlled congress hit a dead end.

There was support for Venezuela's bid to join from all presidents assembled for group's the annual summit, including Paraguay's Fernando Lugo, but ratification of a new member of the group is needed from each of the countries' parliaments.

Leaders of Paraguay's Senate warned Mr. Lugo that they would push for impeachment proceedings if he allowed Mercosur to skirt the requirement of legislative ratification by each country before bringing in new members. The legislators claim Mr. Chavez lacks the democratic credentials needed to join and has blocked Venezuela's membership bid since 2006.

Mr. Chavez assumed the Venezuelan presidency in 1999 and had term limits removed by a referendum in 2009. He is expected to run again in the upcoming vote.

"There is a lot of bureaucracy in the way...lots of hairy hands that want to divide us," said the leftist leader, alluding to "old oligarchs" he compared to gorillas.

Chavez ally President Rafael Correa of Ecuador also came to Montevideo in a drive for his own country to become a voting member of the bloc. A working group will be formed to study and prepare for Ecuador's membership, Uruguay's President Jose Mujica said.

Mr. Chavez was skeptical. "We've been waiting a lot of years," he said, referring to the prospects for Ecuador's bid.