Dow Jones Newswires

Argentine YPF Move Threatens To Sour EU-Mercosur Trade Talks

20 April 2012

BRASILIA – Argentina’s move to nationalize a 51% stake in the country’s YPF (YPF, YPFD.BA) oil company from Spain’s Repsol (REPYY, REP.MC) this week may hamper efforts to finalize free-trade talks between the European Union and the Mercosur trade bloc later this year, European officials said Friday.

The Argentine move, they said, has soured the mood on the European side for making concessions to Mercosur ahead of what might be a rare chance to seal a deal later this year.

"For the moment, we are still hoping to advance negotiations on an accord, but protectionist measures like this definitely complicate the talks," European Ambassador to Brazil Ana Paula Zacarias told Dow Jones Newswires.

Argentina’s announcement this week prompted immediate and forceful criticism from EU members. Mercosur had suspended talks on a free-trade agreement in 2004 after difficulties in negotiating market opening in the European agriculture sector. The talks were revived in 2010, but that chance may now be lost if lobbying in Europe against firming ties with Argentina succeeds.

"Either it’s now or never," Zacarias said on the sidelines of a lunch meeting of E.U. Ambassadors in the Brazilian capital.

The two regions had been set to discuss market offers at upcoming meetings in Brazil in July.

Zacarias said that while no specific response to the Argentine expropriation of Spanish assets had been announced, members of the European Parliament and trade officials were preparing to discuss courses of action at upcoming meetings.

Spain’s representative, meanwhile, said he was certain the oil-asset grab would have negative repercussions for Argentina as well as its regional partners.

"I think it will affect talks between Mercosur and the EU," said Spanish Ambassador to Brazil Manuel de la Camara Hermoso. "We have to look for negotiations without Argentina."

Hermoso and other Spanish officials have called the move "discriminatory," "uncivilized" and "clearly illegal."

In its measure, Argentina is moving to take 51% of YPF from Repsol, leaving it with a 6% stake, but leave other investors’ stakes untouched. Hermoso suggested the move was planned by Argentina to force lower share prices and bring an opportunity to buy back a controlling stake in the company.

Spain’s Hermoso said his country’s government would send a representative to talk to Brazilian trade officials about the Argentine move on April 25. He said Spain had not yet defined what measures it could take to retaliate for the move, but said that Spanish companies would likely look to buy products such as fuels, grains and materials from other suppliers such as Brazil. "Spain is now closed to Argentine products," he said.

The EU officials’ comments came after Argentina’s Planning Minister Julio de Vido was in the capital Brasilia Friday for talks with Brazilian Energy Minister Edison Lobao and Brazilian President Dilma Rousseff on drumming up investments from Brazilian state-controlled oil company Petrobras (PBR, PETR4.BR).

The Spanish official said Brazil has so far not taken sides in the dispute.

"Brazil has sought to adopt a neutral stance in the matter," Hermoso said. "Argentina is Brazil’s neighbor and an important trade partner for them so it’s natural that they adopt this position."

The Spanish official said his country’s government would send a representative to talk to Brazilian trade officials about the Argentine move on April 25.

Hermoso, meanwhile, recommended that Brazil rethink its investments in Argentina after the YPF move.

"There is no judicial security there," he said.