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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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TOWARD AN ERA OF MACRO INTERREGIONAL PREFERENTIAL TRADE AGREEMENTS?
The options for Mercosur-EU negotiations in the new international context

by Félix Peña
February 2013

English translation: Isabel Romero Carranza


 

The announcement by President Obama on the negotiation of a "Transatlantic Trade and Investment Partnership" with the EU opens a new international framework in which to analyze the future of Mercosur-EU relations. Such announcement is accompanied by the fact that, in his address to Congress, the US President also mentioned the "Trans-Pacific Partnership" but said nothing regarding the conclusion of the Doha Round.

In this context and in light of the results of the recent CELAC-EU Summit in Santiago de Chile, it would be fitting to place a vision of the options open for the negotiations between Mercosur countries and the EU with the aim of establishing a bi-regional association. In fact the bi-regional Ministerial Meeting on occasion of the abovementioned Summit seems to have generated a kind of parenthesis of nine months, if one takes into account what was agreed in the joint statement and in the declarations made by some of the main protagonists and, in particular, ,by the Presidents of Argentina and Brazil.

The signs of life revealed do not exclude the questions posed by the future of these negotiations. At times they lead to options reflected by proposals aimed at materializing some form of agreement of bilateral scope, for example between the EU and individual countries of Mercosur. It has even been suggested that it could be in the framework of a multi speed bi-regional agreement.
Each of the countries that today form Mercosur should take advantage of the parenthesis mentioned before so that all the sectors involved can review the imaginable options to address the relationship with the EU, whether in the context of a bi-regional agreement or under other form that is acceptable for all stakeholders. However it would not seem to be a realistic option to fragment, through bilateral agreements, the relation of the EU with each one of the Mercosur member countries.

Perhaps the business sector, first within each country and then with the other Mercosur members and at a bi-regional level with the European counterparts, could have more possibilities of undertaking this examination. The Mercosur EU Business Forum still exists. It could be the milieu where to advance collective reflection and propose realistic ideas, even with the participation of other sectors and using a "multi-stakeholder" methodology, the most appropriate to ensure effective economic diplomacy.


In his address to Congress on the State of the Union, President Barak Obama announced the start of talks between the US and the EU with the aim of agreeing a comprehensive "Transatlantic Trade and Investment Partnership" - TTP). In making his announcement, the U.S. President also referred to another pillar of its foreign trade strategy which is the "Trans-Pacific Partnership" - TATIP). At no time did he refer to the need to conclude the Doha Round within the scope of the WTO (see the speech of President Barak Obama, delivered on February 12, 2013 at http://www.whitehouse.gov/; see the US-EU joint statement issued on February 13 at http://www.ustr.gov/ and at http://europa.eu/, which also published the "Final Report - High Level Working Group on Jobs and Growth", of February 11, 2013).

After the experience with the hemispheric FTAA negotiations, it seems premature to venture a more serious prediction about the possibility that the two abovementioned initiatives can be realized at the time announced or estimated (the TPP in October of this year and the TATIP within two years). But given the fact that it is hard to imagine that the Doha Round can be concluded within a reasonable time, it would seem advisable to work under the assumption that we are entering an era of macro interregional preferential trade agreements that could have clear geopolitical connotations. This is a stage where on the one hand there are weak multilateral disciplines and at the same time large "private clubs" of a discriminatory trade character towards the non-participating countries, not so much by means of tariffs but through other measures affecting trade flows and investments, especially those resulting from the various regulatory frameworks. At a recent conference in Delhi the Director General of the WTO, Pascal Lamy, referred to the return of geopolitics at the table of international trade (see the recommended reading section of this newsletter). His words lead to install a necessary reflection on the geopolitical effects of a possible scenario in which a multiplicity of different forms of bilateral trade agreements, regional and inter-regional, co-exist with a less than effective multilateral framework.

Following the recent CELAC-EU Summit, held in Santiago de Chile on 26 and 27 January, it can be argued that Latin American countries and the current EU remain committed to building a space for interregional cooperation. Without prejudice to other relevant European players, the presence of Chancellor Angela Merkel symbolized the relative importance that European countries assign to their relation with Latin America.

A vision on the future of negotiations between Mercosur countries and the EU, with the aim of concluding a bi-regional association agreement should be placed in such framework. This initiative gained momentum at the beginning of the nineties. Spain and Portugal played an important role. In fact some of the main drivers were officials in Brussels of Iberian origin. But it was also influenced by the fact that the US had launched its Enterprise for the Americas Initiative, which opened the way for the then frustrated negotiations of the so called FTAA negotiations. In Europe this was interpreted as a clear signal that the US sought preferential access to the Latin American markets and, in particular, to South American ones. This coincided with the initiative of Argentina and Brazil to create Mercosur, originally conceived as a much more ambitious project than the bilateral one launched by Presidents Alfonsin and Sarney midway through the eighties.

For various reasons, many of them with deep roots, European countries attributed a special nature to their relation with the sub-regional space called Mercosur, as if it were the core of the strategic bi-regional EU-Latin American relation. Cultural affinities, nourished by the strong presence of migrants from Europe as well as economic ones, reflected by a meaningful stock of direct investments, especially in various industrial sectors, among which the automotive stands out, and significant bi-regional trade are some of the reasons that were taken into account. Plus the idea of being able to counterbalance the presence of American companies if these obtained preferential access to South American markets.

But another strong motive of geopolitical scope had to do with the idea of a "European style" integration of a sub-regional geographic space in South America, as an important condition for global governance. In this perspective the EU would have in Mercosur a sort of "twin brother" or, at least, an "akin little brother". It heralded a world in which global governance could be based in a dense network of regions organized through multiple integration agreements within the framework of the WTO.

The years passed. The dreams were diluted. The negotiations for a bi-regional association agreement Mercosur-EU lost their dynamism. At times they stagnated. And one of the factors that drove the initial momentum disappeared after the explicit shipwreck of the FTAA in the Summit of the Americas in Mar del Plata (2005). At the same time the fact that the Doha Round also entered into a state of starvation contributed to cool down the negotiating mood on both sides of the Atlantic. We should keep in mind that the WTO negotiations were perceived as the ambit that would eventually help unleash one of the most complex knots in the bi-regional Mercosur-EU relations, which is agriculture, especially for the distorting effects that are rightly attributed to the Community's agricultural policy. In turn, in European eyes Mercosur was losing credibility and therefore attractiveness. Today, the changes in the global economic environment find both protagonists of this relationship going through their own identity crises.

In Santiago de Chile, once again, Mercosur and the EU reaffirmed their political will to conclude a bi-regional association (see the final communiqué of the bi-regional Ministerial Meeting on January 27, 2013, at http://www.itamaraty.gov.br/sala-de-imprensa/notas-a-imprensa/reuniao-ministerial-mercosul-uniao-europeia.-santiago-do-chile-26-de-janeiro-de-2013.-comunicado-conjunto). This is not the first time they do it. They did it before on the occasion of the Madrid Summit in 2010. They have been negotiating for thirteen years. Now they have agreed that in the last quarter of this year "at the latest" they will make the delayed exchange of offers. They seem to still maintain the idea that such offers should lead to the release of substantially all the trade, conceived from a dogmatic interpretation but without a solid legal foundation in GATT-WTO rules, and according to which coverage of at least 90% of the bi-regional trade should be ensured.

The signs of life manifested in Santiago do not exclude the strong questioning posed by the future of these negotiations. At times they lead to options that are reflected in proposals aimed at materializing some form of agreement of bi-lateral scope, for example, between the EU and individual Mercosur countries. It has even been suggested that it could be within the framework of a multi speed bi-regional agreement. Such proposals are usually made manifest in business sectors, especially of Brazil. Sometimes they come from the European side. They were even reflected in the press on the occasion of the 6th EU-Brazil Business Encounter held at the National Confederation of Industries on 23 January. For example, the president of the Brazilian Poultry Union defended the idea of a progressive agreement between Mercosur and the EU in case that not all partners were in a position to take part of it now (reflected in statements in the newspaper Valor Econômico of January 24, 2013). An editorial in the newspaper Valor Econômico from 30 January clearly concludes this. Among others one of the reasons is the fact that next year Brazil will be excluded from the Generalized System of Preferences of the EU. The announcement of a possible free trade agreement between the US and the EU can generate more incentives to advance these proposals.

The choice of a scenario of different modalities of bilateral agreements between countries of Mercosur and a third country or group of countries would confront a legal obstacle in Decision 32/00 of the Council of Mercosur, which requires member countries to negotiate jointly with third countries. It is an argument that was put forward especially on the Brazilian side when the then government of Uruguay attempted to initiate bilateral negotiations with the US.

However it is a limited obstacle because the rule refers to "agreements of a commercial nature…in which tariff preferences are granted". Besides that this could eventually be contoured if the option of a multi speed bi-regional agreement is used, it is a known fact that the essence of contemporary preferential trade negotiations does not necessarily involve tariff preferences. Regulatory frameworks, access to public procurement, investments, services, intellectual property, among others, are the strongest components and also the most controversial of the respective international trade negotiating agendas. As noted above it is revealed, for example, by the Trans-Pacific Partnership negotiations and will also be the case of the free trade negotiations between the US and the EU. In this sense, if tariff preferences are not included, the above mentioned Mercosur rule would not mean an insurmountable obstacle for a scenario of future bilateral agreements between member countries and the EU -especially if diplomatic elegance is used-. Nor, indeed, would be the case with countries such as the US and China, without prejudice to others.

However the above scenario also has sensitive political edges. It would weaken to a dangerous extent the distinction between "us and them" that since the Alfonsin-Sarney agreements has been a central feature of the strategic relation between Argentina and Brazil, with all the unfoldings that it has had since its origins and that still has today. These certainly transcend the political and economic. They contribute to something that is of great value for each one of the two countries and that can be called the "quality of the neighborhood" in terms of peace, democracy, political stability and social and economic development of all South America. This includes most notably the existing bilateral agreements in the nuclear field that are undoubtedly an example of understanding in a more than sensitive issue that transcends the region.

In fact the bi-regional meeting of Santiago seems to have opened a period of reflection on the future of the negotiations -a kind of parenthesis of about nine months- if we take into account what was agreed according to the joint statement and the declarations made by some of the major players and, in particular, the Presidents of Argentina and Brazil.

This interval could be used to rethink many aspects of the negotiating strategy, even what kind of agreement is intended. Much water has flowed under the bridge since the first years of the nineties when the idea that led to this bi-regional negotiation began to take shape. The world, each of the two regions and relative economic asymmetries were very different. Today there are many more relevant players in global economic competition. The shifts in relative economic power have been strong and it appears that they will continue in the future. The WTO multilateral framework shows marked signs of weakness that might be accentuated by the proliferation of preferential trade agreements involving large economic areas. All countries have multiple options for their insertion in world trade. For Mercosur countries, even in their South American dimension, the EU has been and still is important. But certainly it is not the only option for the negotiating agenda of Mercosur and its member countries.

In each of the Mercosur countries all the sectors involved -government, business, labor, academic- should take advantage of this parenthesis to jointly examine the advantages and disadvantages of the options that can be realistically imagined to address the necessary relation with the EU, whether in the context of a bi-regional agreement as the one that has been sought in recent years, or through other modalities that may arise and that are acceptable to the partners. However, it does not seem to be a realistic option to fragment, through bilateral agreements, the preferential relationship of the EU with each of the Mercosur countries as has been suggested on several occasions.

The time available is not much as a similar exercise should necessarily be carried out among all Mercosur members. Perhaps the business sector, first at country level then at a regional level with Mercosur countries and later at a bi-regional level with the European counterparts, may have more interest and possibilities of reviewing the options as was previously suggested. The Mercosur-EU Business Forum (MEBF) still exists. It could be a milieu where to advance collective reflection and make realistic proposals that are acceptable to all, even with the participation of other sectors, that is, with a "multi-stakeholder" methodology which is the most appropriate to ensure effective economic diplomacy.


Recommended Reading:


  • Al Fahim Mohammed A.J., "From Rags to Riches. A Story of Abu Dhabi", The London Centre of Arab Studies, London 1995.
  • Ali, Syed, "Dubai. Gilded Cage", Yale University Press, Yale 2010.
  • Anónimo, "Las Mil y Una Noches", Traducción e Introducción de María Elvira Sagarzazu, Colihue Clásica, Buenos Aires 2009.
  • Archivos del Presente, "Revista Latinoamericana de Temas Internacionales", Año 16, Número 59, Buenos Aires, diciembre 2012.
  • Australian Government, "Australia in the Asian Century", White Paper, October 2012, en: http://asiancentury.dpmc.gov.au/.
  • Battûta, Ibn, "A través del Islam", Alianza Editorial, Madrid 2010.
  • Boulnois, Luce, "Monks, Warriors & Merchants on the Silk Road", Odyssey Books and Guides, Hong Kong 2012.
  • Di Biase, Hector, "Alianza del Pacífico, valioso ámbito para el Uruguay", Consejo Uruguayo para las Relaciones Internacionales, Estudios del CURI, Análisis 01/13, Montevideo 5 de febrero de 2013, en: http://www.curi.org.uy.
  • Dicken, Peter, "GlobalShift. Mapping the Changing Contours of the World Economy", The Guilford Press, New York - London 2011.
  • Fergusson, Ian F.; Cooper, William H.; Jurenas, Remy; Williams, Brock R., "The Trans-Pacific Partnership Negotiations and Issues for Congress", Congressional Research Service,7-5700. R42694, en: www.crs.gov.
  • Heyerdahl, Thor, "La Expedición de la Kon-Tiki", Edición Homenaje a Thor Heyerdahl, Editorial Juventud, 14ª. Edición, Barcelona 2002.
  • Kemp, Geoffrey, "The East Moves West. India, China, and Asia's Presence in the Middle East", Brookings Institution Press, Washington D.C. 2010.
  • Kiple, Kenneth F., "A Movable Feast. Ten Millenia of Food Globalization", Cambridge University Press, Cambridge - New York 2007.
  • Lamy, Pascal, "Putting geopolitics back at the trade table", speech at the IISS-Oberoi Discussion Forum in Delhi on 29 January 2013, en: http://wto.org/english/news_e/sppl_e/sppl264_e.htm.
  • Mirka Seitz, Ana, "Argentina y Venezuela. Las extraordinarias claves de su reencuentro en el siglo XX (1940-49). Proyecciones presentes y futuras", Ediciones FEPAI, Buenos Aires 2012.
  • Monnet, Jean, "Memorias", con Prefacio de José María Gil-Robles, Encuentro-CEU Instituto Universitario Europeo, Madrid 2010.
  • Pettis, Michael, "The Great Rebalancing. Trade, Conflict, and the Perilous Road Ahead for the World Economy", Princeton University Press, Princeton and Oxford 2013.
  • Puspadewi, Tijaja, "The Proliferation of Global Value Chains: Trade Policy considerations for Indonesia", TKN - IISD, Winnipeg, January 2013, en: http://www.iisd.org/tkn/pdf/global_value_chains_indonesia.pdf.
  • Sally, Razeen, "What can South Asia learn from East Asia?", East Asia Forum, 23 January 2013, en: http://www.eastasiaforum.org/.
  • Senor, Dan; Singer, Saul, "Start-Up Nation. La historia del milagro económico de Israel", Aleph, Madrid 2012.
  • Subramanian, Arvind, "Too much legitimacy can hurt global trade", East Asia Forum, 28 January 2013, en: http://www.eastasiaforum.org/.
  • Westad, Odd Arne, "Restless Empire. China and the World Since 1750", Basic Books, New York 2012.
  • Wood, Frances, "The Silk Road. Two Thousand Years in the Heart of Asia", University of California Press, Berkeley - Los Angeles, 2002.
  • World Bank, "Global Economic Prospects. Assuring growth over the medium term", Washington, January 2013, en http://zunia.org/.
  • Zhang, Yuhan, "How Chinese companies can do better overseas", East Asia Forum, 11 February 2013, en: http://www.eastasiaforum.org/.

Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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