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Mercosur-EU Relations - Historical background and perspectives

Eyes on Europe | 20-05-2006

Mercosur-EU Relations - Historical background and perspectives

Écrit par Adriano Jose Timossi

The Relations between the European Union (EU) and Mercosur have a centuries-long historical and cultural background. Circumstances have changed significantly since World War II, as the influence of the United States (US) has outweighed that of Europe in many areas. It is important to stress the fact that, although US influence rises in the region, Europe remains the largest recipient of South American agricultural exports. More recently, the 1995 US project to create a Free Trade Area of Americas (FTAA) has brought a new impetus to the relationship between the EU and Mercosur. As part of their strategy, South American states looked to the EU to establish an effective counterweight to US dominance. In addition, the FTAA was perceived by some EU sectors as a threat to Community interests in the region and generated the political momentum leading to a 1995 framework agreement (Interregional Framework Co-operation Agreement) to conduct negotiations between EU and Mercosur in order to create a political and economic association agreement. The latter included the intention to establish a free trade area.

The Mercosur-EU Framework agreement entered into force in July 1999 and the first round of trade negotiations (Bi-regional Negotiations Committee - BNC) started in April 2000. The purpose of the agreement was to prepare for the creation of an Interregional Association Agreement between the EU and Mercosur to create a Free Trade Area - FTA between the two blocs with liberalization of trade in goods and services. If established, this agreement would lead to the creation of the largest trade area in the world, bigger than NAFTA, with a population of nearly 700 million consumers covering a surface of 12 million km² and performing the largest inter-regional association agreement in the world and the first one among both blocks.

Regardless of the potentialities of this agreement, however, since April 2000 nearly 20 rounds of negotiations have been undertaken leading to no economic agreement. The main difficulties include EU sensitivities about agriculture (mostly political) and Mercosur’s unease about concessions on services and manufacturing tariffs. In addition both blocs (particularly Mercosur) were reluctant to finalise an agreement before the current WTO Doha Round is completed.

Agricultural issues are for both sides one of the most sensitive topics on the table of negotiations. For Mercosur countries, agricultural exports are their most important source of trade revenue whilst the EU works to protect its farm sector. These positions make agriculture a so-called "noyau dur" or hard core of negotiations. This was more evident in the negotiations of the WTO Doha Round in Hong Kong in December 2005. Mercosur (in particular Brazil) together with India and China, created the G-20 standing against the EU and its agricultural distorting support measures especially in the phasing out of export subsidies. These subsidies are considered one of the most damaging policies for developing countries for distorting international market prices and restricting access to third markets.

Mercosur, as an agricultural trade bloc, has been very determined to get better market access and puts pressure for reducing distorting support for agriculture in the EU as well as in other developed countries. Considering the importance of this sector to Mercosur economy it is obvious that any bad deal would be agreed in the wait for some promises from other multilateral talks. As previous experience illustrates, it is clear this will depend on the results of the current Doha Round at the multilateral stage where Mercosur plays an important role.

This explains why Mercosur and mainly Brazil did not agree to sign an accord even when the region needed it the most like during the 2001-2002 crisis. On the other hand, the EU puts its efforts to get a good agreement in the sectors of its interest such as market access for its industrial products, and commercial services mainly. Agricultural areas such as the Geographic Indication are a sensitive topic of negotiations, on which consensus cannot be reached at multilateral talks. Despite the difficulties of achieving an agreement between EU and Mercosur, it seems that both regions could benefit from it.

Some authors identify Mercosur’s reluctance to reach an agreement with the EU as a strategy of the regional leader: Brazil. Its intention was to delay the negotiations, given that its views were that a conclusion on EU negotiations would neutralise the positive effects on Brazil’s position in the FTAA ongoing negotiations. Similar circumstances occurred within the FTAA talks last December in Argentina at the Summit of Americas where Mercosur leaders refused an agreement in favour of focusing on the multilateral talks at the Doha Round before signing any agreement with the North major player.

For Mercosur the agreement with the EU would mean, in principle, getting a better market access for its agricultural products. In other words, earn more by trading in a quite "trouble-free market". The dismantling of trade barriers in the EU for its agricultural products can be an important instrument to Mercosur to improve its growing manufacturing capacity which is most linked to this sector as the example of Biofuels shows, and to put an end to its strong dependency on raw material products. The development of a manufacturing capacity mainly in agricultural products, which is more accessible for these countries, is a crucial point to provide Mercosur countries with a sustainable development and to provide conditions to face internal problems such as poverty reduction and social exclusion.

One important point in the field of agriculture for the EU is the fact that this agreement would be an opportunity to reach a good sanitary agreement providing predictable and legal security in trade in the EU foods Chain for issues of interest to the EU, considering the fact that the EU is highly dependent on Mercosur for food supply in the context of extra-EU trade. Further, it would be an opportunity to get support for strengthening regional integration process following the EU model with a closer institutional and political co-operation. The approximation with the EU would finally contribute to the Southern bloc’s creation of a certain degree of independence in the geopolitical sphere. The re-approximation with the EU would enable Mercosur to play with more space with the United States, which is the region’s hegemon since the Second World War.

For the EU it would also imply the preservation of its business community interests (services, manufactures) not only in Mercosur countries but in South America more generally, thus counter-weighting the FTAA (the United States’ standing 1994 proposal to create an FTA for the Americas excluding Cuba). This is important especially considering the recent developments such as the creation of the Community of Nations of South America and the entry of Venezuela as full member of Mercosur in December 2005. With a consumer market of nearly 400 millions people the region is one of the most dynamic growing economy in the world.

The progress of these negotiations would also be an opportunity for the EU to reinforce Mercosur’s integration once the agreement is obtained. The success of Mercosur’s integration is, in a way, an important instrument for the EU to legitimise its proposed model of integration and counter-weigh the US and its FTA agreement proposal. This is even more important now that the European bloc faces a period of "reflection" after the "no" in France and Netherlands, budget disagreements, etc. Despite larger EU interests, the bloc was not successful in its attempt to convince its South American partners to transfer its historical and cultural backgrounds for an economic agreement in the XXI century.

However, it is important to note that, despite the promised benefits for both sides, and in particular for Mercosur, there are few chances for significant changes to occur in the EU’s protectionism in its agricultural sector which would favour Mercosur. Considering this, Mercosur countries should be more concerned that the signature of an agreement based on limited market access concessions for few products is not an important step forward. Mercosur needs a more valuable package-deal which could also provide instruments to protect its industry and embryonic services sectors which are important for the bloc members to go beyond the position of mere exporters of agricultural products. In this context, Mercosur’s expected benefits from an agreement with the EU could be reached only with the signature of an "asymmetric deal" which would enable Mercosur countries to have access to the EU market for products of its interests and on the other hand to maintain certain protection of their industry and services. This is an essential condition for Mercosur countries to maintain their path of industrialisation which is an important instrument with respects to the welfare of their economies and population.

Adriano José Timossi is an analyst on agricultural trade and international development issues and former stagiaire at the EU Commission - DG Agriculture and Rural Development - Unit 5 Agricultural Trade and Policy Analysis. This article is part of a Master Degree in European Studies thesis "Mercosur-EU Relations - An Overview of Agricultural Issues" at Collegio Europeo di Parma

 source: Eyes on Europe