The measure spells relief mainly for Argentine manufacturers who have called for protectionist measures to fend off what they call an "invasion" of cheap Brazilian goods, particularly shoes and household appliances.

"This mechanism we have just negotiated will allow for stronger industrial investment and for the reorganization and modernization of industry without harming trade," Mauro Viera, Brazil's ambassador in Buenos Aires said at a news conference.

Brazilian business groups called it a step backward in the march toward regional free trade.

Brazil and Argentina are the two dominant partners in the South American trade bloc Mercosur, which also includes Uruguay and Paraguay. Mercosur, created in 1991, knocked down barriers for trade and set a common external tariff.

But Brazil exports much more than its Argentine counterpart. Argentina's trade deficit with Brazil last year doubled to $3.6 billion from 2004, despite an overall trade surplus of $11.32 billion.

Economy Minister Felisa Miceli called on industrialists, who are still struggling to recover from Argentina's 2001-2002 economic collapse, to invest and expand now that the government has helped fend off unfair foreign competition.

Under the new plan, when either country detects an influx of goods that hurt local producers, the affected companies in both countries must automatically negotiate a solution.

If they fail to strike an accord, a panel of experts will study the case and decide whether to impose import quotas or other barriers to regulate the trade. The restrictions would be imposed for a minimum of one year and maximum of four.

Leading manufacturers' groups in Argentina applauded the deal. The Argentina Industrial Union said the deal "filled a vacuum in the Mercosur accord," which does not address trade imbalances caused by Brazil's huge size advantage.

The accord allows Argentina to break out of the mold of mere provider of raw materials and put it on even ground to industrialize along with Brazil, showing a "mature attitude" by both countries, Argentina's secretary of industry, Miguel Peirano, said in a television interview.

Brazilian business groups were not pleased.

The Federation of Industries of Sao Paulo State, Brazil's most powerful business lobby, said the accord was contrary to the spirit and letter of Mercosur and established an arbitrary mechanism that would yield uncertainty for Brazilian business.