The sliding export taxes rule, which applied to grains and oilseeds, triggered a 100-day conflict in Argentina between farmers and the administration of President Cristina Fernandez de Kirchner reached the Mercosur summit in Tucuman and was rejected.
Argentina wanted to include the principle in the Mercosur Customs Code currently being drafted by member countries, but Uruguay objected arguing that such "intra" taxes should be decided by the whole block.
"They must be regulated within the community, consensually and not unilaterally" said Uruguayan Economy minister Danilo Astori underlining they have an impact in the economic development of other country members since they increase the value of imports.
Although Brazil made no official presentation given the "sensitivity" of the issue, off the record Brazilian diplomats agreed that the export taxing system applied by Argentina distorts prices. The objection was a blow to Argentine diplomacy which was intent in closing the six months Mercosur chair with the signing of the group's Customs Code.
Only Venezuela' President Hugo Chavez supported the position of President Cristina Fernandez de Kirchner, praising Argentina's effort to redistribute the country's wealth. But following a bilateral meeting with Mrs. Kirchner, President Chavez went further and accused Argentine farmers and street pans protestors of conspiring to overthrow a legitimate government.
"It's an oligarchy contrary to changes which has charged against government," said Chavez. "I faced something similar back in 2002 with the coup that tried to overthrow my government."
"Actually there are several technical issues regarding circulation of goods which have yet to be addressed, so the signing has been delayed," admitted Argentina's International Economic Relations Secretary Alfredo Chiaradia.
The fact is that export taxes were also contested by protesting Argentine farmers before a federal court arguing that such duties are not legitimate in a free trade block.
Brazilian diplomacy was more cautious and Foreign Secretary Celso Amorim said that "these substantial issues (export taxes) should not be an impediment to go ahead with the Customs Code," adding he expects the matter will be solved in the second half of the year when Brazil holds the Mercosur pro tempore chair.
"We understand what is happening in Argentina, it's a very sensitive issue and it does not add positively to question the principle," said Bruno Bath head of Brazil's Mercosur Department.
But the Brazilian diplomat did admit that for years Brazil has opposed Argentina's export taxing system which favors overseas sales of flour (with added value) instead of wheat that supports significant higher levies.