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On occasion of the VI Latin America and the Caribbean - European Union
Summit (LAC-EU) that took place in Madrid on May 18 (on its results see
the Madrid Declaration and the Action Plan approved by almost sixty Heads
of State and Government on http://www.eu2010.es/
or click
here; for a detailed information on the trade relations between the
EU and LAC and with Mercosur see http://trade.ec.europa.eu/),
it was announced that the much delayed negotiations between Mercosur and
the European Union (EU) will be re-launched (see the text of the Joint
Declaration of the IV EU- Mercosur Summit on http://www.eu2010.es/
or click
here). Initiated ten years ago these had remained at a standstill
after the failed attempt to conclude them in October 2004. Their aim is
to achieve an agreement of bi-regional strategic partnership (on the relations
between Mercosur and the EU during the last two decades refer to the work
published on our webpage - http://www.felixpena.com.ar.
On the state of these negotiations as from the 2004 failure, see the following
editions of this Newsletter: October 2004; February 2005; September 2005;
March 2006; May 2006; October 2006; June 2007; October 2007; April 2008;
September 2008; October 2009, and December 2009).
Of the three main aspects of the agreement the one that apparently motivated
the standstill was that of preferential trade (for an analysis of the
Mercosur-EU negotiations from its beginning see the article by Graciela
Molle, "Mercosur-European Union Negotiation", published in the
Magazine of the Center of International Economy of the Argentine Ministry
of Foreign Affairs, May 2008, number 11, pages 95 to 119, on http://www.cei.gov.ar).
Behind the negotiation closed doors it is usually claimed that the two
remaining components (political dialogue and cooperation) have already
been settled. However no written word on this regard has been released
to the public.
It is deemed probable that the attempts to conclude the bi-regional negotiations
will be made next December at the end of Lula's Presidency of Brazil.
According to the joint declaration of the Mercosur-EU Summit of May 17,
"Both sides stressed their commitment to strive for the conclusion
of the negotiations without delay. A first negotiating round will take
place by early July at the latest". At the time of the Summit Argentina
still held Mercosur's pro-tempore presidency which was later passed on
to Brazil.
The combination of three factors could explain why after such a long
standstill the negotiations will be resumed and even concluded in a short
period of time (otherwise it could be concluded that they had not been
re-launched at the highest political level).
The first is the fact that both the governments of Spain an Argentina
- while holding the joint presidency of the Madrid Summit - developed
and intense political and diplomatic action aimed at achieving such result.
Months before the Summit they were responsible for bringing back a possibility
that even a few days before was considered remote or even impossible.
The results indicate that this was an effective action if we take into
account the two remaining factors that are mentioned bellow.
The second factor is the general idea that the Doha Round does not offer
any realistic expectations for its conclusion in a relatively short period
of time. This would be inducing many countries and even the EU to attempt
to intensify the development of their own network of preferential trade
agreements, i.e. those concluded within the scope of article XXIV of GATT-1994.
The third factor is the perception that, within a context of deep transformation
of the map of global economic competition and of the financial crisis
whose effects still continue to unfold, China's economic prominence will
continue to grow in the world in general and in Latin America in particular.
This is perceived as a great challenge by several companies doing business
in the region - certainly by European ones but also by those of the region
itself -. A sector which is particularly vulnerable to future Chinese
competition is the automotive one which in Mercosur has been characterized
by a strong European presence. The investments and the demand for equipment
and capital goods that will result from the discovery of hydrocarbon sources
in the South Atlantic - until now off the coasts of Brazil - may be another
driving force behind the interest on the European side to re-launch the
negotiations with Mercosur and to conclude them promptly (on the investment
requirements that will result from the discovery of new sources of hydrocarbons
off the coast of Brazil see the article by José Sergio Gabrielli
de Azevedo mentioned in the Recommended Reading section).
Reaching a bi-regional agreement between the European Union and Mercosur
will not be an easy task. It will require much political determination
- on this regard the signals given off in Madrid may be considered positive
- as well as creativity in the technical plane in order to achieve commitments
that imply a reasonable balance between interests that appear quite divided
at times. The knots that need to be untied are well known and have been
thoroughly diagnosed on both sides. Some of them were even made manifest
in the negotiations for the Doha Round, a fact that generated links between
the bi-regional and the global multi-lateral negotiations. The issue of
agricultural products - including processed ones - is not the only one.
However recent declarations by EU member countries with strong agricultural
interests indicate that it will still be necessary to overcome many resistances
- real or apparent - in order to reach an agreement.
Furthermore, it should be noted that this is not an isolated negotiation,
neither would be the preferential trade agreement that is eventually achieved.
On the contrary, in order to fully understand the Mercosur-EU negotiation
in its full dimension it would be necessary to link it - from the perspective
of both regions and of its respective member countries- with the network
of agreements being promoted by the European Union. This without overlooking
the fact that a more complex approach would require taking into account
other negotiations as well, such as those that have been concluded or
are being developed by the U.S. and even by countries of the region such
as Peru, who has recently enacted its own agreement with China.
Within the framework of its global strategy, launched in 2006 (on this
subject see the paper "Global Europe", of 18 April 2007, on
http://trade.ec.europa.eu/
or click
here), the European Union has concluded, also in Madrid, the negotiations
for the preferential trade agreements - under different names and formats
- with Colombia, Peru an Central America. The texts still need to be polished
form the legal standpoint and translated into all the official EU languages.
This is probably the reason why they have not become public yet. They
will later need to be approved by the respective parliaments and eventually
by other relevant internal bodies, such as is the case in Colombia where
the Constitutional Court must be involved in order to be ratified and
gain validity (see the information on the agreement on www.portafolio.com.co
from 21 May, 2010). All this can take some time - between one and two
years at best -. At the same time, the European Union has initiated its
first negotiation with an ASEAN country - Singapore - and there is a possibility
that the negotiation with India, initiated in 2007, might be concluded
next October (see the information on http://www.ec.europa.eu/trade).
Knowing what the EU has negotiated with other Latin American countries
and particularly what is being negotiated with India might be of great
interest for Mercosur negotiators. Due to its relevance the negotiation
with India should be followed closely. It includes sectors such as the
agricultural, automotive, textile and clothing ones and issues such as
those related with services and intellectual property, whose approach
in the bilateral India-EU agreement could be useful for the bi-regional
Mercosur-EU agreement and vice versa.
An aspect that will require particular attention is how to approach in
both negotiations the requirement that the scope of a free trade agreement
should comprise what is "substantially all the trade" (article
XXIV - inc.8 of GATT-1994). It was a delicate matter in the Mercosur-EU
negotiating stage that ended in 2004. It is perhaps the specification
of such requirement - i.e. the definition of what is considered to be
"substantial trade" - that may offer a key for the degree of
flexibility that the commitments and instruments agreed in the bi-regional
agreement may have if there is an intention of achieving a reasonable
balance of the different interests at play. Such flexibility might be
even more necessary if we take into account that if the bi-regional negotiation
were to be concluded by the end of the current year it will happen before
the closure of the Doha Round.
There is no definition as to what should be understood by "substantially
all the trade" in order to appreciate the consistency of an agreement
that establishes a free trade area within the GATT rules. Qualitative
and quantitative criteria may be used. In fact several proposals have
been advanced on this issue both by countries which are now members of
the WTO and by experts. However no definition exists to bind those negotiating
a free trade zone. It is a known fact that the efficiency of the procedures
established by the GATT-WTO system to ensure the consistency of the different
modalities of preferential trade agreements with the commitments in the
multilateral plane is far from ideal. This is the reason why in the case
of the negotiations between India and the EU some specialists argue that
the concern for the requirement of what is understood as "substantially
all trade" should not be exaggerated. They even suggest that in such
agreement some relevant sectors should be excluded, specifically the agricultural
and the automotive sectors (see the book by Sangeeta Khorana and other
authors included in the Recommended Reading section of this newsletter,
particularly pages 10 and 11 and Chapter 2).
The creation of a preferential trade and economic space between different
countries or regions does not necessarily need to be concluded in one
stage, as would be the case if it was required for example to guarantee
from the start the liberation of 90% of the trade of originating products.
It would be possible thus to imagine such creation as a gradual process
in which the first preferential stock - that may be qualified as "significant"
in a valid interpretation of the term "substantial" - is gradually
increased through the application, for example, of different modalities
and evolutionary clauses.
In the case of an agreement Mercosur-EU, a gradual process of creation
of a bi-regional preferential space consistent with GATT rules could be
bolstered by including clauses aimed at linking the different agreements
that form part of the network that the EU is creating in the region based
on the agreements signed in due time with Chile and Mexico. This would
enable to provide European businesses situated in different countries
- for example Mercosur plus Chile - more appropriate conditions to develop
productive integration strategies. Additionally they could benefit from
the reduction of duties and any future improvements on the quality of
the physical connectivity between the different markets. It would also
help articulate the preferential trade strategies with the other issues
of bi-regional cooperation that were included in the action plan approved
at the Madrid Summit including, among others, those pertaining innovation
and technological advancement, social cohesiveness, climate change, energy
and bio-diversity.
Is it possible that once that the Mercosur-EU negotiations are re-launched
they suffer more delays, become stagnant once again or simply fail? All
these are plausible scenarios, either because of the difficulties to untie
the knots that are still pending or because of a lack of consensus regarding
commitments and instruments that are flexible enough and at the same time
are consistent with WTO requirements.
The costs of not concluding the negotiations could be very high this
time. If there is sufficient political determination and technical creativity
it would be difficult for a country or sector to be willing to assume
the consequences of a failure. One outcome could be that instead of a
bi-regional agreement the final result is something similar to what happened
with the Andean Community of Nations. Due to the inability to move forward
in the joint negotiation, the EU opted to close agreements with two countries,
Colombia and Peru, with no limitation as to the possibility that the other
countries might be incorporated at a later date, as in fact could be the
case of Ecuador.
If this eventually happened in the case of Mercosur, it would imply a
strong blow to the fundamental idea of building a common market with a
deep strategic and political purport and to its natural consequence, which
is precisely to negotiate with one single customs territory, with no harm
to the flexibilities that it may have, taking advantage of the opportunities
provided by article XXIV, clause 8, a, of GATT-1994. A failure in the
negotiation that could not be attributed to the EU would imply a fracture
within Mercosur between those countries that are willing to negotiate
and those who are not, whatever the validity of the arguments used to
justify this position. The result could then be similar to what happened
with the negotiations between the Andean countries and the EU.
In a certain way, the high political costs of an eventual failure of
the Mercosur-EU negotiations would indicate that the moment of truth has
arrived for both the bi-regional relation, after such a prolonged "courtship",
and for Mercosur's own integration process.
Thereof, it would be reasonable to imagine as a possible and probable
scenario the full conclusion of a bi-regional agreement in which both
parties have invested much political capital, as was reflected by the
results of the Madrid Summit. The greater the flexibility in the planning
of the commitments that will be required and of the instruments that will
be used, the greater the chances that this scenario will be achieved,
even before the end of the current year. If this were the case, a door
would probably open for trade negotiations with other countries such as
the U.S and China, who would endeavor to obtain preferential treatment
in their trade relations with Mercosur as well. Additionally it would
also be more feasible to undertake the re-engineering still required by
Mercosur (on some advisable measures see the November 2009 edition of
this newsletter).
Such scenario - obviously an optimistic one - would allow to creatively
face other unresolved issues of the bi-regional relation or that involve
countries from both regions, including those issues of great complexity
or that have been dragging on for a long time. A bi-regional strategic
partnership agreement such as the one being sought may contribute a common
ground and an opportunity for an imaginative approach to all those pending
issues, even the most sensitive and complex ones.
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