South America and the EU: an opportunity not to be wasted

Article published on March 12, 2003
community published
Article published on March 12, 2003

This article has not been vetted by an editor at Paris HQ

While Washington tries to seduce the countries of this region, the Union holds a clear advantage in its relationship with the Mercosur countries - provided, that is, that the CAP (Common Agricultural Policy) is reformed.

In the last ten years the political and economic relationship between Europe and America has undergone a definite evolution, principally because of the growth in power of European multi-national companies, the emergence of regional economic structures in America, and the evolution of the EU as single commercial block.

Thus, the leading players have been transformed: the EU and European multi-nationals with nation states that continue to exert an important influence on the Commission and its own multi-national concerns (through which many governments maintain a 'golden share') on one side, and Latin American governments on the other who, for the last decade, have been looking for forms of above all economic regional integration.

The issue of European multi-nationals (aspects of which have been dealt with by Gaston Garriga elsewhere in this dossier) merits a separate discussion of its own. Instead, here we will concentrate on the relationship between the EU, understood to be above all a commercial unit, and Mercosur, the regional economic organisation that brings together Argentina, Brazil, Uruguay and Paraguay, the majority of the economic and political burden being borne by Argentina and Brazil.


After the 1980s, which passed into history as the 'lost decade' of Latin America (zero growth, hyper-inflation, a crisis of public debt), the 1990s were fundamentally characterised by the drastic (and extremely controversial) stabilisation programmes imposed by the International Monetary Fund (IMF), and by the search for greater internal integration in order to cope with the progressive liberalisation of global commerce.

Mercosur (together with other regional organisations such as, for example, the Andean Pact) began with the intention of fostering inter-regional exchanges, and the search for greater productivity and competitiveness on the international markets. The evolution of this organisation has not always been rapid and advancing towards a true common market is proving difficult (a critical point being the fixing of a single, external tariff). Towards the end of the 1990s, and also at the beginning of this decade, the push towards liberalisation of commerce on a global (above all within the WTO) and a regional level has greatly increased and no sector of economic activity has been spared.

For Latin American countries this indiscriminate and immediate opening up to global competition has been, and always was going to be, a disaster, above all for economies that historically are not very competitive in high value added sectors (technology but also manufacturing) and theoretically strong in those sectors such as agriculture, textiles and the iron and steel industry (Brazil for example) where the barriers and internal subsidies from Western countries are unequalled; this second group tends to lose exchange value historically towards the first group, as the Argentinean economist Raúl Presbisch explained in the 1950s. The programmes of stabilisation, privatisation and liberalisation imposed in the 1990s by the IMF have also deprived Latin American countries of the necessary instruments needed to develop strategic economic sectors (telecommunications, natural resources, public services) leaving them exposed to 'conquest' by foreign multi-nationals, while governments, flattened by the bulk of a still extremely large external public debt, have very narrow margins of intervention in public expenditure.

A Transatlantic CAP

This is, in brief, a current project, the ALCA, that is aiming to construct an area of free exchange for the Americas,. Negotiations are underway, having begun in 1998, and, with the USA as its driving force, it is aiming to construct a common market by 2005; it is superfluous to underline the historical importance of this project, while it is by no means taken for granted that bringing it to a conclusion could cause serious damage to Latin American economies, to the advantage of the opposing side, the USA. The USA, indeed, has currently (the most recent was last February) still not put forward a serious proposal to dismantle its system of internal agricultural subsidies that prevents the entry of Latin American products onto its markets, and that permits the export of American goods at so-called 'dumping' prices; the abolition of tariffs is not entirely sufficient. Moreover, a re-distributive system based on, for example, the model used by the European structural foundations to compensate for the enormous internal differences in the Americas, does not seem to be foreseen.

The ALCA project would seem to be irreversible, above all because, currently, the political cost of its failure would be too great for any American government. The discussion, therefore, is about 'how' to plan the ALCA, and it is here that Mercosur, thanks to the strength (despite everything) of Brazil and Argentina, is assuming the role of a principle player as a block capable of acting as heavyweight opposition to the USA, its bargaining strength depending largely on its 'unifying' power with regard to other central and south American countries. And it is here, almost paradoxically, that the EU comes into play.

In 1999 the EU began negotiations with Mercosur on an agreement of association between the two organisations. The stakes are clear: the EU is the first commercial partner of Mercosur and America may use ALCA as representative of a new privileged opposition. The negotiations up to now have not achieved great results but they are still making progress, and they can discuss important 'taboos'.

Mercosur needs to trade and, indeed, it was created principally for this. There are margins for further trading abroad. Despite the increased level of openness towards foreign markets, Mercosur still cannot make use of its potential to enter the international market given that (it is worth underlining) the large sector still under protection, in Europe and in the world, is agriculture.

The difficulty of EU-Mercosur negotiation is, thus, agriculture; the European Commissioner, Pascal Lamy, has neither the desire nor the legitimacy to promise the reduction or the abandonment of the protectionalism of the CAP. At the moment, European requests for the liberalisation of several sectors of Mercosur economies have not been balanced by the concessions that these countries expect in order to yield the basis of an agreement: access to European agricultural markets, and an end to European subsidised exports.

The Unity of Europe

Given that Robert Zoellick, Lamy's counter-part in the US, is no longer generous in this regard, the solution to the dilemma will probably be debated within the confines of the WTO, that is to say through multi-lateral negotiations.

But Lamy knows that sooner or later the EU will have to concede to the inevitable: the US has greater contractual force and a greater legitimacy thanks to the by far superior 'fast track' mechanism (that prevents Congress from amending the package of agreements and only rejecting them en bloc). Messing about can be dangerous and, therefore, the hour of European sacrifice could be near, offering today openings that would be compensated by the consolidation of the partnership between the Mercosur countries and Latin America.

The force of Brazil and the charisma of Lula could be the motor for internal reform of the CAP that could in turn lead to a satisfactory EU-Mercosur agreement and the growth of this block as a driving force in Latin America towards a future agreement that would be just as satisfying for the probable constitution of the ALCA in two to three years. The USA would then be under enormous pressure within the WTO as well where the agriculture theme is on the agenda of the latest round begun in Doha. The obstacle is, as always, the resistance of the European agricultural lobby, and the effective pressure they put on moderate (and not) European governments. Discussions of friendship, solidarity and hope for the future of nations terribly close to Europe are crushed against this wall of protectionalist rubber.

The increase of exports from Latin American countries would also be a mouthful of vital oxygen for those economies squashed by the weight of international loans. The European bond for Latin America has never been tighter; after centuries of exploitation (including the most recent one) the time has perhaps come for Europe to show its usefulness.