New Market, Old Rivalry

Argentina and Brazil are working slowly toward setting up their Mercosur common market by the end of the year. If they succeed, the 4.6-million-square-mile area they create Jan. 1, 1995 with Paraguay and Uruguay will join such megamarkets as the North American Free Trade Agreement (NAFTA) and the European Economic Area.

Annual trade within Mercosur has already tripled to around $8.0 billion in the three years since the project began. But as the leaders of the bloc's four nations prepare for their half-yearly summit next Monday in Colonia, Uruguay, the soundtrack is one of gnashing teeth rather than romantic music.

Argentine and Brazilian officials - their rivalries fueled by the enormous difference between their economic achievements in recent years - are openly trading barbs and nasty remarks. Economy Minister Domingo Cavallo, who tamed Argentina's once-rampant inflation to just over 7 percent in 1993, said this week he was glad that his country was not following Brazil's example of more than 2,500 percent inflation last year.

Angered by such remarks and by Mr. Cavallo's comments that Brazil only exports surpluses, Brazilian officials pointed out that more than two-thirds of Argentina's exports are farm-based.

Meanwhile, Argentina, concerned about the loss of a traditionally secure market, is threatening to drag Brazil before world-trade arbiters over its purchase of what Buenos Aires charges is subsidized Canadian wheat.

The formal summit issue is the common external tariff that Mercosur will apply to imports from third-world countries - a must in any common market in order to prevent goods flooding into a member state at a lower rate than they would face next door.

While officials are predicting that leaders will miss the Jan. 1 deadline, tariffs have already been settled for about 85 percent of the 10,000 products covered by customs listings, either to come into force next Jan. 1 or on sliding scales between now and the year 2001.

The maximum tariff is 20 percent, which officials point out is well below the 35 percent cap recently agreed upon as part of the Uruguay Round of negotiations in the General Agreement on Tariffs and Trade.

``Mercosur is aiming for a low common external duty, [so as to be] a vehicle for the globalization of the economy and not an obstacle,'' says Jorge Herrera Vegas, Argentina's economic integration secretary.

Business leaders in Brazil and Argentina say they hope to profit from larger markets once Mercosur is in place, and major companies have already set up dozens of alliances in the past couple of years.

Uruguay, which envisions for itself a future in Mercosur akin to Luxembourg's role as a banker to the European Union, has said it is rooting for the project. So is Paraguay, which looks set to become the region's main electricity producer with its giant dams.

Chile, which spurned its neighbors' offers to join early on, has been invited to attend the summit this time, as has landlocked Bolivia - a would-be member cold-shouldered by the others because of its membership in the Andean trade pact.