A workshop took place at the INTAL-Lab on August 28 to present the Technical Paper “MERCOSUR–European Union Negotiations Twenty Years on from the Framework Cooperation Agreement: Quo vadis?”, written by Adrián Makuc, Ricardo Rozemberg, and Gabriela Duhalde and published by the Institute for the Integration of Latin America and the Caribbean (INTAL).
The meeting was an excellent opportunity for distinguished diplomats, academics, and private sector representatives from both the MERCOSUR and the European Union (EU) to discuss biregional negotiations, the opportunities and challenges present in the connection between the two blocs, and the integration process within the MERCOSUR.
The event was opened by INTAL director Gustavo Beliz and INTAL senior economist Alejandro Ramos. They stressed INTAL’s interest in analyzing topics related to the MERCOSUR and its track record in this regard, which has taken the form of a range of activities including its annual MERCOSUR Report (in Spanish) and the recent publication of a technical paper on agricultural trade (in Spanish) within the bloc, which was presented at a workshop in late July as part of the special events being organized to commemorate INTAL’s 50th anniversary (in Spanish).
Ricardo Rozemberg began the presentation of the paper (in Spanish) by underlining the profound changes that have taken place in the international context, within each of the blocs, and in bilateral relations between the two from the beginning of negotiations through the relaunching of these in 2010 and up until today.
First, he emphasized that when biregional talks began over 15 years ago, there was a great deal of optimism about the globalization of trade as a result of the creation of the World Trade Organization (WTO). Within the MERCOSUR, hopes were also high surrounding negotiations for the Free Trade Area of the Americas (FTAA) and the Interregional Association Agreement between the MERCOSUR and the EU. Fifteen years on, the context is very different: the Doha Round has not been concluded, FTAA negotiations have been abandoned, and the agreement between the MERCOSUR and the EU has yet to be completed. However, the world has become much more internationalized, notably with regard to the consolidation of regional and global value chains (in which the MERCOSUR participates relatively little), China’s new role in global production and trade, and the proliferation of regional trade agreements. More recently, the stagnation of the global economy and the lack of progress in the Doha Round have motivated a search for alternatives that resulted in the negotiation of mega-agreements. These involve the world’s major economies, are far reaching, and could reconfigure the rules of trade at the global level.
Second, Mr. Rozemberg discussed changes within each of the two blocs. Noteworthy developments in the EU include the bloc’s enlargement eastwards, incorporating 13 relatively less developed member states, several of which have comparative advantages in agriculture, a specialization pattern that is closer to those of the four founding members of the MERCOSUR than of Western Europe. Furthermore, over the past few years the EU has undergone a profound crisis that is still having serious effects on several of the weaker economies within it. The MERCOSUR, for its part, incorporated Venezuela as a full member—even though the country is not participating in these talks—and experienced difficulties over the suspension of Paraguay from the bloc, which have now been resolved.
Third, Mr. Rozemberg referred to changes in bilateral relations and highlighted the decrease in the share of biregional trade in each bloc’s total trade. This bilateral trade pattern is characterized by the MERCOSUR exporting natural resources to the EU and importing manufactures from it. One point worth underlining is that Europe continues to play a key role in the MERCOSUR through foreign direct investment (FDI): the EU accounts for 62% of FDI in the MERCOSUR, and European firms are actively investing in Brazil, consequently increasing their market share in the country. Another noteworthy point is the EU signed a Strategic Partnership Agreement with Brazil in 2007.
Over the last fifteen years, the EU has signed many partnership agreements and negotiated with major players, notably the United States (the Transatlantic Trade and Investment Partnership, TTIP). The MERCOSUR, in contrast, has signed few agreements—none with major world economies—and currently its only significant negotiations are with the EU.
Negotiations between the two regions are currently facing difficulties similar to those that led to talks being suspended in 2004. These are particularly related to the two blocs’ trade policies: there is significant tariff escalation and there are sector-specific regimes for activities that are key to bilateral relations, such as the EU’s Common Agricultural Policy (CAP) or the arrangements regulating automotive trade between MERCOSUR countries.
While negotiations may seem less attractive than when they were first launched, they have greater potential than at the start due to the consolidation of regional and global value chains and because European FDI in the MERCOSUR is no longer so concentrated in public utilities but rather in tradable sectors, which makes European companies more interested in a biregional agreement.
Adrián Makuc’s presentation focused on negotiations around trade in goods. He emphasized that the EU has sought trade liberalization that would involve similar commitments for the two blocs, while the MERCOSUR has attempted to obtain special and differential treatment.
On the one hand, the last offer submitted by the EU was considered unattractive by the MERCOSUR in agricultural matters: tariffs would never be eliminated on some products (market access would be improved through tariff rate quotas); tariff reduction would only apply to the ad valorem component of compound tariffs (when what makes them prohibitive is a specific component); many products would be excluded; and imports of processed agricultural products would be subject to numerous sanitary standards, and geographical indications and trademarks.
Furthermore, he stressed that the MERCOSUR’s offer is not particularly attractive to the EU in terms of market access for manufactures. In particular, the MERCOSUR is seeking a slow tariff elimination process in which deadlines would be distant, most of the reductions would be concentrated towards the end of the process, and there would be less coverage of liberalized products. The EU, for its part, insists that tariffs should be eliminated on 90% of bilateral trade within a maximum period of 10 years. Regarding this last point, Makuc noted that the EU would be able to fulfill this requirement without difficulty since those products that are sensitive for it represent less than 10% of imports from the MERCOSUR because they are protected by tariff-rate quotas and prohibitive tariffs. For the MERCOSUR, on the other hand, reaching this figure of 90% would imply exposing less competitive sectors to European competition. The offer that the MERCOSUR has agreed upon and hopes to submit to the EU would cover close to 90% of trade within a maximum term for tariff elimination of 15 years, and approximately two-thirds of trade would only become duty-free in the last three years of that period.
While the defensive interests of the MERCOSUR are concentrated in the manufacturing industry—notably in the automotive sector—and those of the EU in agriculture, Makuc warned of profound differences between the sectoral support schemes in the two blocs. On the one hand, the EU’s CAP is very solid, while the MERCOSUR does not have a common automotive regime, only bilateral agreements. On the other hand, European companies are major investors in the MERCOSUR automotive industry, but the same thing is not true of MERCOSUR firms within European agriculture.
In negotiations beyond goods, the main challenges relate to intellectual property (in particular geographical indications), government procurement, services, and investments. Negotiations around these last three topics face additional difficulties because the MERCOSUR does not have shared regulations, so offers can only be made at the national level.
Export subsidies are included in negotiations, in contrast to domestic support, which is only discussed at the WTO: the MERCOSUR is arguing that the benefits of the agreement should not apply to subsidized products, while the EU wants to negotiate on a case-by-case basis.
In conclusion, Mr. Makuc said that if the EU does not provide the MERCOSUR with special and differential treatment, it would be difficult for negotiations to move forward.
The authors’ presentation was followed by comments from three experts. First, Félix Peña (ICBC Foundation, UNTREF) highlighted the significance of the technical paper given the absence of information about these negotiations. He also raised a series of questions, notably regarding the scope of the agreement and the treatment of sensitive sectors. He wondered why the MERCOSUR accepted the 90% requirement in 2010 instead of using it as a negotiating tool given the EU’s—particularly Spain’s—great interest in relaunching talks. With regard to sensitive sectors, he stressed that tariff elimination terms would be a very long process due to both the schedule itself and the delays that would take place between the end of negotiations and the agreement entering into force, which provide a significant margin for improvements in competitiveness and redirection of production.
Finally, he warned that the negotiations seem to be part bluff, part blame game, in which the strategic political dimension is not being taken into account.
Second, Jorge Lucángeli (IIEP, UBA) pointed out that it is striking that MERCOSUR is seeking to deepen its relationship with the EU, considering the serious difficulties the MERCOSUR is currently experiencing. He claimed that the agreement with the EU would only be attractive to the MERCOSUR if there was a significant opening up of the agricultural sector. As that is unlikely, he said he believed that the MERCOSUR must first build its strength as a trade platform and only then should it open up to the rest of the world.
Third, Viktor Klima (President of the Eurochamber in Argentina) argued that relations between the EU and the MERCOSUR are at a difficult, defining moment and that negotiations are not supported by political will. However, he clearly expressed that he was in favor of the agreement and recalled the importance of European investment in the MERCOSUR, stressing that the agreement would boost the confidence and stability of these firms.
He agreed with Mr. Lucángeli regarding the need to deepen the MERCOSUR integration process, but argued that this and negotiations with the EU are complementary rather than mutually exclusive, given that the Association Agreement would involve much more than free trade and would help improve integration within the MERCOSUR. He also suggested that the creation of supranational institutions would help define, implement, and monitor MERCOSUR regulations. Finally, he called for further discussion around the integration process to generate interest in the subject and influence political will.
Following this, other participants contributed to the debate:
- Francisco Cannabrava (Economic Counselor at the Embassy of Brazil in
- Argentina) highlighted the change in the Brazilian private sector’s position regarding these negotiations, as the manufacturing sector is now as interested in concluding the agreement as the agribusiness sector is.
- Nils Weller (Head of Trade Section for the EU Delegation in Argentina) said that the difference in relative development between the two blocs had declined since talks first started. With regard to the likelihood of the EU improving its offer to the MERCOSUR, he recalled that the former is in the middle of several concurrent negotiations and that there are conflicting conditions in terms of what it can offer in each of these processes.
- Julio Berlinski (UTDT) noted that there are trade complementarities between the two blocs in trade in services and provided evidence for this in the form of a study on the service-related linkages between Argentina and Germany.
- Claudio Farabola (Manager of the Italian Chamber of Commerce in Argentina) agreed with Viktor Klima regarding the private sector’s interest in the agreement and said that cooperation between firms had moved forward at a greater speed than government talks.
In conclusion, the workshop was an interesting, productive space for reflecting on the connection between the MERCOSUR and the EU at which government officials, businesspeople, and academics were able to exchange opinions and experiences.
MERCOSUR–European Union Negotiations Twenty Years on from the Framework Cooperation Agreement (Video [in Spanish])