Analysis: Latin American trade barriers seen backfiring

Mon Apr 30, 2012 2:26pm EDT
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By Krista Hughes

PUERTO VALLARTA, Mexico (Reuters) - Import restrictions imposed by Argentina and Brazil may end up harming the very domestic industries they are trying to protect and also could affect other economies in Latin America.

Trade experts and policymakers from trading partners are dismayed by signs of protectionism creeping back to the region, which embraced free trade only in the 1980s after decades of inward-looking policies.

Brazil bullied Mexico recently into a deal to limit car imports and Argentina has upset trading partners with arbitrary import controls and the planned expropriation of Spanish-controlled energy company YPF (YPFD.BA: Quote).

The moves mark a flare-up in trade tensions, which had remained largely absent even during the global financial crisis.

Import restrictions have a direct impact on trading partners, such as Uruguay, where exports to Argentina fell in the first quarter after a 15 percent jump in 2011, and Mexico, which will have to limit car exports to Brazil to an average $1.55 billion in the next three years.

More broadly, experts say the measures will backfire on domestic industries and also run a risk of disrupting the supply chains vital to $18 trillion in global trade, which involve specialized production of many different components used in finished goods.

Latin America is now more linked to global trade networks than ever before. The region's dependence on trade has increased by about 40 percent since 1980, with imports and exports now equivalent to 42.1 percent of the region's gross domestic product (GDP), according to International Monetary Fund data.

This makes it more vulnerable to supply chain upsets.   Continued...

A man waves a flag with the YPF logo in front of the Argentine Congress in Buenos Aires April 25, 2012. REUTERS/Marcos Brindicci