After almost twenty years since the initial steps towards the development of a bi-regional strategic relation between Mercosur and the European Union were taken, and ten years after the inception of the formal negotiation process, the situation reached a standstill in October 2004 which has lasted until the present day. However, recent events might suggest that a new window of opportunity has opened up. The most favorable hypothesis indicates that this could even lead to the conclusion of the negotiations for an association agreement during the year 2010. These are events that indicate the presence of certain basic conditions that are necessary in order to originate a stable strategic association with an economic integration purport between both institutionalized regional spaces. Such conditions are, as per the experience on integration between countries and regions gathered in the last decades, a political will and a strategic vision that reflect the specific national interests; an external context that generates the perception of political and economic challenges, even threats, and a network of cross-interests in the economic and social planes.

The recent announcements made at the highest level would indicate that there is a perception, both at the government and business level, that it is convenient and possible to advance in the negotiations for a bi-regional agreement that is ambitious and balanced at the same time. Additionally, other elements suggest that there is an acknowledgement that a strong political commitment on both sides and a certain dose of flexibility regarding the methods of negotiation to be used, the crafting of the commitments and the instruments to be employed will be needed in order to move forward.

Although it is still too early to make any forecasts on the possibility that substantial advancements in the bi-regional negotiations can be made at the upcoming LAC-EU Summit of Madrid, it is possible to affirm that a window of opportunity has opened up and that this is has been understood by the governments and the respective business sectors.

Political will and strategic vision that reflect the concrete national interests; external conditions that generate the perception of economic and political challenges, even of threats; and a network of cross-interests in the economic and social planes are some of the basic conditions that explain the origin of the integration agreements between countries and, eventually, between regions. These are agreements which, regardless of their modalities and of the market integration techniques employed - for which there are no single models - are entered voluntarily and aspire to continue in time. They are also multidimensional in scope since at the same time they have political, economic and even social implications due to their effect on the level of wellbeing and the expectations of the respective populations.

At least this is indicated by five decades of experiences developed not only in Europe - so far the most successful in terms of sustainability and depth - but also in other regions and even in Latin America. The presence or absence of such conditions, as well as their respective weight, may account for the successes or failures in the history of integration processes.

However, it should also be noted that the abovementioned conditions have a dynamic character and tend to change with time. This is the reason why the enthusiasm and energy present at the moment of the inception of an integration agreement are weakened by any changes in the original circumstances, as well as by the perception - in one or all of the partners, especially in the citizenship - of the actual or expected future results. This can be exemplified somehow by the cases of the Andean Group - later the Andean Community of Nations - and by Mercosur itself.

Additionally, more personal factors become relevant in order to explain the origin and strength of the respective agreements. Political leaders and negotiators with different interests, priorities and qualities may help explain the founding moment of an integration process - or of an institutionalized strategic association between two regions - as well as those other instances when inertia prevails or when the necessary drive to continue building what was originally imagined begins to wane.

The previous thought seems to apply in the case of the negotiations for the establishment of a bi-regional strategic association between Mercosur and the European Union. One of its main purports would manifest precisely in the plane of economic and commercial integration between both regional geographic spaces, with the format of a free trade area in the sense of what is established in article XXIV of the GATT-1994.

After almost twenty years since the initial steps were taken for the advancement of a special bi-regional strategic relation, and after ten years of the inception of the formal negotiation process, in practice the situation reached a standstill in October 2004 which has lasted until the present day. (On the process of bi-regional negotiations see the document by the European Parliament included under the Recommended Readings Section of this Newsletter. See also the article by Graciela Molle, "Negociación Mercosur-Unión Europea", in Revista del CEI, nº 11, May 2008, p. 95 and ss, on http://cei.mrecic.gov.ar/revista/11/revista.pdf.). However, recent events would indicate that a window of opportunity has opened up now. This could even lead to the conclusion of the negotiations for an association agreement during the year 2010.

These are facts that would be indicating the presence of the abovementioned conditions which are necessary to create a stable strategic association with an economic integration purport, in this case between two institutionalized regional geographic spaces. It is yet to be seen if they carry the necessary weight so as to produce the expected results.

In first place, the fundamental conditions of political will and strategic vision are present in the announcements made by the two governments that will hold the respective temporary regional presidencies during the first semester of the upcoming year. On the one hand is Spain, which will be the nation to hold the temporary presidency of the European Union for the last time. On the other hand is Argentina, which will hold the temporary presidency of Mercosur during the first semester of 2010. Both nations will have thus a leading role at the Summit of Latin American, Caribbean and European countries that will take place in Madrid on May 16-17 (on this issue refer to the 2009 June and October editions of this Newsletter).

On this regard, it should be noted that the final declaration of the XXXVIII Mercosur Summit held in Montevideo on December 8, stated in paragraph 16 that the Presidents "celebrated the Meeting between Mercosur and the European Commission in Lisbon on November 4 to 6, 2009, and expressed their support to furthering the relations, inclusively before the end of 2009, between the future Pro Tempore President of Mercosur (Argentina) and the European Commission as well as advancing work in order to reach the greatest possible progress in the negotiations in view of the presidential meeting scheduled within the LAC-EU Summit for May 2010 under Spain's EU Presidency". (Translation is ours. See the full text of the Presidents Joint Declaration on http://www.mercosur.int/).

At the same time, in her speech at the Summit, President Cristina Fernández de Kirchner stated that "other issue which I believe poses a great challenge…is that next year in Madrid will take place the meeting between the European Union, Mercosur and Latin American and Caribbean countries and I believe that we can, from within Mercosur, settle a debt of twenty-three years, which is precisely the birthday of Mercosur, and finally be able to reach an agreement with the European Union".

Later she referred to the work method that will be proposed by Mercosur, which she sated has already been discussed with the Spanish government and that would consist of "starting backwards from what is normally done…we have to start by reviewing and closing the chapters on which we agree: integration, cooperation, services, government purchases; if there is an agreement, to move forward into the commercial chapter which is surely where we will have the greatest differences. Europe most probably will be on the side of agricultural subsidies and we, most certainly, of the industrial issue but what is true is that, in regards to these two issues, we can also have competitive adaptation mechanisms establishing periods of time to be fulfilled according to the weaknesses of each one of the sectors or the political demands that each will have, be it the European Union, be it Mercosur, from its own businessmen and producers". She added that "we should have the idea that we will be able to agree this competitive adaptation mechanisms which, at the same time, will serve as an incentive for those sectors that are lagging behind their European counterparts and vice versa, and then be able to unify criteria" (Translation is ours. For the full text of the speech of the President go to http://www.casarosada.gov.ar/).

The other two conditions - the perception of an external context favorable for joint work between the two regions and the existence of cross-interests - are reflected in the most recent announcement made by businessmen. In fact, on occasion of the Montevideo Summit, the presidents of the Mercosur-European Union Business Forum (MEBF), Iñaki Urdangarín on the European side and Carlos Mariani Bittencourt on Mercosur's side, handed in to the Heads of State of the four Mercosur member countries the text of a MEBF Declaration related to the need to conclude the negotiations. The main paragraphs of this text state that (boldface by the author): "During these years, the MEBF has issued several declarations, with specific recommendations in all relevant areas of the negotiating agenda and a clear motto in all of them: the business representatives claim for the importance of signing a successful, ambitious and well-balanced FTA that will bring prosperity to the peoples and societies of both regions. We firmly believe that the political and economic reasons that triggered this process at its beginning are now even more important than before: in addition to the growing importance of EU-Mercosur trade relations, political and economic interests between the regions are becoming broader. The EU continues to be the major investor in Mercosur and, on the other hand, important companies in Mercosur are increasing their investments in the EU. This process is not only contributing to the expansion of bilateral trade but also to the incorporation of new issues in the bilateral agenda such as sustainable development".

Next, the MEBF businessmen express their vision on the future of negotiations in the following terms: "Now we perceive signs that indicate a new hope for the Agreement: recent statements of high level officials favoring the return to the negotiating rounds; the inclusion of this issue in the agenda of the next Spanish Presidency of the EU; and the overall consensus that, among others, open and free commercial relations are important and necessary components of the recipe to combat the current economic crisis. We need the highest degree of political leadership, commitment and flexibility to reach an FTA that takes into consideration the differences concerning the degree of development of the regions and the countries involved, while trying to help reducing them and fostering the necessary conditions in terms of market access and predictability that exporters and investors from both blocs require, as for example through the elimination of NTBs and subsidies. Both sides need to look at creative solutions to the blockages through a renewed negotiating effort".

As a conclusion, they state that: "Again, the MEBF members declare their readiness to join efforts and to establish even closer links with the negotiating teams in order to keep pace with the latest developments of the process and being able to provide meaningful and useful inputs to it. We strongly encourage the teams to use our help to analyze the recent evolution of markets and international economic scenarios in order to re-launch the negotiation process and to achieve the results the companies of both regions need, in line with the objectives defined by the G20. We urge the Governments on both sides of the Atlantic, to take advantage of unique and exceptional conditions offered by the window of opportunity that represents the next Spanish EU Presidency" (for the full text go to www.mebforum.org).

From the transcribed declarations, we can envision that there is, both in the government and business planes, the perception that it is convenient and possible to advance in the negotiations for a bi-regional agreement that is balanced and ambitious at the same time. Furthermore, we find that there is an acknowledgement of the fact that, in order to move forward, it is necessary to have a strong political commitment on both sides and a certain dose of flexibility in regards to the methods to be used in the negotiations as well as in the crafting of the commitments and instruments to be employed. Multi-speed and variable geometry formulas would seem to be strongly advisable both in these negotiations as well as within Mercosur itself, particularly in its expanded version.

Likewise, it will also be necessary a reciprocal understanding of the different realities of both regional geographic spaces and of their respective integration processes. On the side of Mercosur this implies taking into account the fact that the European Union is very sensitive to the precedents that the eventual bi-regional agreement could have on other preferential negotiations that unfold within its global strategy. On the side of the European Union this implies recognizing the particular characteristics of Mercosur, which was not developed following the European model and in which the formal ground rules are oftentimes interpreted through the concrete actions of each partner, and sometimes implicitly accepted by the other partners. From there, the image of precariousness of Mercosur which is far from desirable but that allows to continue with an integration process which, even with imperfections, is preferable to the prevalence of fragmentation or the consequences of conflicts that lack any institutional background which has been accepted by its stakeholders (on this issue, refer to the November 2008 edition of this Newsletter).

The inclusion in the bi-regional negotiations of new issues of the global agenda such as those related to, among others, climate change and migrations also helps add value to an existing instrument that has seldom been used: the Framework Agreement for Interregional Cooperation signed between Mercosur and its member countries and the European Community and its member countries, which was concluded in 1995 and ratified after its approval by the respective Parliaments (see the full text on http://eur-lex.europa.eu/). This instrument offers the necessary background and joint work mechanisms to advance in multiple aspects of the bi-regional relation which even go beyond what could be comprised in the association agreement currently being negotiated.

Even when it is still too early to make any reliable forecasts on the possibility that substantial progress could be made in this bi-regional negotiation at the next EU-LAC Summit of Madrid, it is possible to affirm that a window of opportunity has opened up and that both governments and the respective business sectors understand this to be so.

A good use of this window of opportunity might bring benefits for both regions. In the case of Mercosur it can contribute to its more than necessary strengthening as an ambit for productive integration that is functional to the consolidation of a democratic, peaceful and politically stable space in the South of the American region.

Recommended Readings of Recent Publication:

• Atkinson, Robert D.; Andes, Scott M., "The Atlantic Century: Benchmarking EU & U.S. Innovation and Competitiveness", The Information Technology and Innovation Foundation (ITIF), 2009, en http://www.itif.org.
  
• Baldwin, Richard (ed.), "The Great Trade Collapse: Causes, Consequences and Prospects", The Graduate Institute - Geneva; Centre for Trade and Economic Integration; Centre for Economic Policy Research (CEPR), A VoxEu.org Publication, November 2009, en http://www.VoxEu.org.
  
• Bayne, Nicholas; Woolcock, Stephen, "The New Economic Diplomacy. Decision-Making and Negotiation in International Economic Relations", G8 and Global Governance Series, Ashgate, Hampshire - Burlington 2003.
  
• Berlinski, Julio (coord.), "Ganancias potenciales en el comercio de servicios en el Mercosur: telecomunicaciones y bancos", Red Mercosur de Investigaciones Económicas, Montevideo 2008.
  
• Bobbio, Norberto, "O Terceiro Ausente. Ensaios e Discursos sobre a Paz e a Guerra", Prefácio de Celso Lafer, Editora Manole em parceria com o Centro de Estudos Norberto Bobbio, Tamboré-Barueri, SP. 2009.
  
• Breakthrough Institute, "Rising Tigers Sleeping Giants. Asian Nations set to dominate the clean energy race by out-investing the United States", Breakthrough Institute - The Information Technology & Innovation Foundation (ITIF), November 2009, on http://thebreakthrough.org/blog/Rising_Tigers.pdf.
  
• Castro, Daniel; Andes, Scott, "American Competitiveness in a Post-American World", Policy Issues, WebMemo, The Information Technology & Innovation Foundation, November 11, 2009, on www.itif.org/index.php?id=312.
  
• Centro de Economía Internacional, "Comercio y cambio climático en el camino de Copenhague", CEI, Serie de Estudios nº 13, October 2009 on http://cei.mrecic.gov.ar/serie/pdf/libro13.pdf.
  
• Cooper Ramo, Joshua, "The Age of the Unthinkable. Why the new world disorder constantly surprises us and what we can do about it", Little, Brown and Company, New York - Boston - London 2009.
  
• Charnovitz, Steve; Steger, Debra P.; Van den Bossche (eds), "Law in the Service of Human Dignity. Essays in Honour of Florentino Feliciano", Cambridge University Press, Cambridge - New York 2005.
  
• Deere-Birkbeck, Carolyn; Monagle, Catherine, "Strengthening Multilateralism: A Mapping of Proposals on WTO Reform and Global Trade Governance", Discussion Draft, International Centre for Trade and Sustainable Development (ICTSD) and Global Economic Governance Programme, University of Oxford, November 2009, on http://www.ictsd.net and http://www.globaleconomicgovernance.org.
  
• Deese, David A., "World Trade Politics. Power, Principles and Leadership", Routledge, London and New York 2008.
  
• Development Partnership Program for South Africa, "Study on Intraregional Trade and Investment in South Asia", Asian Development Bank (ADB) and Australian Government (AusAID), Manila 2009, on http://www.adb.org.
  
• DIRECON, "Chile. 20 Años de Negociaciones Comerciales", Ministerio de Relaciones Exteriores de Chile, Dirección General de Relaciones Comerciales Internacionales (DIRECON), Santiago de Chile 2009.
  
• European Parliament, "Acuerdo de Asociación Global Interregional para la creación de una Zona de Asociación Global", Foreign Affaire, Directorate-General For External Policies, Policy Department, April 2009, on http://www.europarl.europa.eu/.
  
• Gotees, Anne Marie; Jenkins, Rob, "Reinventing Accountability. Making Democracy Work for Human Development", International Political Economy Series, Palgrav Macmillan, New York 2005.
  
• Halle, Mark; Wolfe, Robert (eds.), "Process Matters. Sustainable Development and Domestic Trade Transparency", International Institute for Sustainable Development (IISD), Winnipeg, Manitoba 2007, on http://www.iisd.org.
  
• Hufbauer, Gary Clyde; Charnovitz, Steve; Kim, Jisun, "Global Warming and the World Trading System", Peterson Institute for International Economics, Washington 2009.
  
• Martner, Gonzalo Daniel, "La Crisis y el Estado Activo. Una visión desde América Latina", Colección Pensamiento Iberoamericano, Centro Extremeño de Estudios y Cooperación con Iberoamérica, Badajoz 2009.
  
• The Boston Consulting Group, "Report: Measuring Innovation 2009. The Need for Action", A BCG Senior Management Survey, April 2009, on http://www.bcg.com.
  
• The Boston Consulting Group, "Focus: The 2009 BCG Multilatinas. A Fresh Look at Latin America and How a New Breed of Competitors are Reshaping the Business Landscape", BCG 2009, on http://www.bcg.com.
  
• Volpi, Jorge, "El Insomnio de Bolivar. Cuatro consideraciones intempestivas sobre América Latina en el siglo XXI", Debate, Editorial Sudamericana, Buenos Aires 2009.