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Experts deeply split on prospects for quick EU-Mercosur free trade deal

Buenos Aires Herald, Argentina

Experts deeply split on prospects for quick EU-Mercosur free trade deal

By Guillermo Háskel, Herald Staff

7 April 2014

The European Union and the Mercosur bloc have been negotiating a Free Trade Agreement for about 15 years now and after a several-year impasse talks seemed to gather new impetus in 2010 but the opinions of pundits talking to the Herald are deeply divided about the prospects of a quick accord.

Those seeing a fair possibility of a deal stress that Brazil’s powerful Sao Paulo’s industrial sector is now more eager to expand trade.

They also downplay Argentina’s strong protectionism which at one point had been one of the main obstacles for an agreement between the two blocs, so much so that many raised the possibility of giant Brazil signing an FTA from outside the bloc which also includes, Paraguay, Uruguay and Venezuela.

Others see a new wait-and-see stance from the two sides on a wide range of factors, among which they cite the crisis after Russia incorporated Crimea, EU political infighting and problems in Latin America, with presidential elections this year in Brazil and next in Argentina, and bloody turmoil in Venezuela.

The two blocs started negotiations on a FTA in 1999 but the lack of progress forced them to suspend them in 2004. They only resumed in 2010.

EU Commission President José Manuel Barroso, after meeting Brazilian President Dilma Rousseff in February, said that after a high-level technical meeting the EU will be able to “see whether the necessary conditions are in place for a formal exchange of offers and then that could take place very quickly afterwards.

“It would be a shame not to have an ambitious accord such as this with our friends in Brazil and Mercosur; we should concentrate on the huge potential in this agreement,” Barroso added.

Rousseff, for her part, said: “It is in Brazil’s interest, other countries in Mercosur also have an interest in completing this process. Both sides are very much aware of the importance of this trade agreement.”

But a technical meeting late last month in Brussels ended in no agreement regarding objections to EU farm subsidies and Mercosur industrial policies.

The apparent lack of momentum is reflected in the subdued information on the issue.

Cabinet Chief Jorge Capitanich on Monday said that late last month Argentine Economy Minister Axel Kicillof had signed an agreement on a “common agenda” with Brazil with a view to an FTA between Mercosur and the EU. The information was provided by Argentina’s state-run news agency Télam, which gave no further details.

On Tuesday World Trade Organization director Roberto Azevedo, from Brazil, met in Buenos Aires with Argentine Foreign Minister Héctor Timerman to discuss WTO members’ talks known as the Doha Round of negotiations, Télam said briefly. It also said that Azevedo the same day Azevedo visited Uruguay where he launched a call to strengthen multilateralism which, he said, can “coexist” with bilateral and regional accords.

‘Good prospects’

Aníbal Jozami, the dean of the public Tres de Febrero University, referring to Argentina’s protectionism, said that this is an issue under debate in the whole world and there is increasing awareness that there are levels of protectionism which are acceptable. Besides, regarding Argentina and Brazil, “the protectionism at stake is just minor when compared to their trade volume.”

He also said that some business groups from Sao Paulo, and a large sector of the Brazilian government, are clearly aware of the need to integrate and of the continuity of Brazil’s integration within Mercosur.

“Sooner or later there will be an FTA between the two blocs,” he said.

Jorge Castro, a planning secretary during the administrations of neo-conservative Peronist Carlos Menem (1989-1999), said that there has been a shift in the EU’s stance directly connected to an accord it sealed last November with Canada, which includes an increase of agricultural exports to the European market.

“This EU view is also applicable to Mercosur.”

Besides, in Brazil, the whole agribusiness sector and a large sector of Sao Paulo’s industry advocate an increase of Brazil’s international trade.

Argentine protectionism, as reflected in exchange and import controls in force since the exchange crisis of October, 2011, is not an exclusive problem with Brazil but a problem that Argentina has with all the countries in the world, he said, adding: ‘What we have to consider is that Argentina has adapted itself to the presentation put forward by Brazil to the EU and this time there is a common stance of Mercosur countries. The possibility of Brazil negotiating on its own seems to have been left behind.”

“The prospects for an accord with the EU after 14 years of negotiations are fairly high,” Castro said.

‘Not so upbeat’

Juan Gabriel Tokatlian, an international relations professor with the Di Tella private university, said: “I think that both sides are somewhat fed up. I don’t see that the two blocs may be now closer to an FTA. Perhaps, towards the end of this year, or next year, when the political and economical agendas of the two regions become more clear, and if the conditions are there, there may be some kind of accord, albeit a very limited one.”

A year and a half ago the EU identified Brazil as a “strategic partner,” a status they grant to a few key countries to show its readiness to reach some kind of association with them, and there was speculation that in the face of Argentina’s protectionism, Brazil could unilaterally seek some kind of accord with the EU but today there is no perception that Brazil may be seeking even a light agreement, he said.

Today there are clear indications that the main obstacles include not only Argentina’s protectionism but also Brazil’s own difficulties. “Brazil too is enclosed within itself, seeking to protect key production sectors, and also immersed in a situation in which the ruling coalition is not favouring an FTA. Besides, it is facing an electoral year. And Argentina is going through troubles too.” As for Europe, within the same unified voice on an FTA, there are nuances and, today, for the EU, a possible FTA negotiation with the US is much more transcendental, Tokatlian said.

‘Same bed, different dreams’

Carlos Pérez Llana, Argentine ambassador to France in 2000-2002, says that an FTA is highly unlikely before the European autumn, due to a series of factors, among them, the crisis sparked by Russia’s annexation of Crimea.

“Until now the issues at stake were economic, for instance, how to help Greece out of its crisis, but this is a new front, with a security dimension. Suddenly there is a redefinition of priorities, among them, what will be the relation between Europe and Moscow, particularly regarding Russian gas supplies.”

Additionally, Europe is concentrated on how to help Ukraine and to help other countries such as a Poland, Lithuania and Moldavia not to become eventually “other Ukraines.”

Also, there are relevant political changes, with recent elections in France and, on May 25, a vote to choose new European Parliament members and European Commission authorities, and there is infighting between the incumbent European Parliament President Martin Schultz and the rightwing representative, Luxembourg’s ex-premier Jean-Claude Juncker.

Another EU priority is Africa, where it does not want to lose ground to China, and it sees Mercosur in the same light. It is not that Mercosur may not be among the EU’s priorities but all of a sudden specific problems blew up, Pérez Llana said.

As for Latin America, although it shares the same economic problems of lack of investment, poor productivity and lack of infrastructure, it is highly fragmented from the political point of view, something made evident by “Latin America’s Crimea, that is, Venezuela,” he added.

In an Organization of American States (OAS) vote on Venezuela’s crisis Caracas’ resolve to discuss the case privately prevailed. That was attained mainly with the support of 14 Caribbean mini-states which, together with Cuba (although Cuba is not an OAS member), receive subsidized oil from Venezuela’s Petrocaribe company, something which costs Venezuela about US$9.5 billion. With the additional votes of Bolivia and Nicaragua they will always prevail. In the other corner are México, Canada, the US, Chile, Peru, Colombia, Panama, Costa Rica, etc.

“Latin American countries sleep in the same bed but dream different dreams.”

The countries of the Pacific rim have their own Pacific Accord and are engaged in the Trans-Pacific Partnership (TPP), the US is in the TPP and Trans-Atlantic accords but Mercosur is not engaged in any accord.

Meanwhile, Brazil is facing the World Cup and a presidential vote along with the emerging possibility that Rousseff may not attain a first-round win and, if she goes to a runoff, she will lose. Ex-president Luiz Inácio Lula Da Silva is not seeking to return. He wants to retire as an unquestioned, successful president. He knows that coming back would only be to manage “austerity big time. The country’s statistics are bogus and prices are subsidized. They have postponed any decision until after the election.”

The Brazilian sector most resistant to an FTA, the Sao Paulo industrialists, realized that Brazil suffers the same problems as Mexico and Chile, and for the first time started considering an accord with the EU. They were against it out of fear of losing their domestic market but they are losing it anyway and, as Brazil is not signing any accords, they are not winning any foreign markets either.

The EU knows well that the main problem is Argentina rather than Brazil, but there is also an issue which few seem to consider, within Mercosur you have Venezuela, and an agreement with Mercosur would imply “buying” a “mystery box.”