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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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STRATEGIC PARTNERSHIPS AND TRADE PREFERENCES:
Towards greater density in the economic relations between Brazil and Mexico?

by Félix Peña
March 2010

English translation: Isabel Romero Carranza


 

The actual scope of the initiatives related with economic and trade negotiations between countries is often hard to fathom. Sometimes concepts that have a high media impact but that are hard to pinpoint in a concrete manner are used. One of such concepts is that of "strategic partnership". This not always involves trade preferences in the sense of article XXIV of the GATT-1994 or article V of the GATS, and that can result from agreements that do not imply a framework of strategic association. However, a strategic partnership may have even more economic impact than preferential trade agreements in any of their forms.

A recent example of the simultaneous use of both concepts - strategic partnership and preferential trade agreement - is the way in which the news of the alleged intention of the Brazilian and Mexican governments to sign a trade agreement was covered by the media. According to it, this would be a free trade agreement (FTA) in the sense established by WTO regulations. Such news fits into a global context where, perhaps due to the perception that it will be difficult to conclude the Doha Round within a reasonable timeframe, the announcements of new free trade agreements have multiplied.

It may be presumed that an eventual decision to include a FTA - as per WTO regulations - in the bilateral strategic partnership between Mexico and Brazil would have a strong political and economic impact on the future of Mercosur. Given the strategic relevance that Brazil assigns to Mercosur and to its preferential relation with Argentina, it would be reasonable to anticipate that if a bilateral strategic partnership were to be formed with Mexico, in the commercial plane it would translate into a considerable extension of the preferences that were already granted under ECA number 53 and not necessarily take the form of a FTA.


It is not always an easy task to grasp the real scope of the initiatives related with trade and economic negotiations between nations. Sometimes concepts that have a high media impact but that are hard to pinpoint in a concrete manner are used. One of such concepts is that of "strategic partnership". It is commonplace in the relations between companies and in the area of security. However, it is in the plane of international economic relations where it becomes harder to understand its practical implications, or where there is a propensity to use it as a means of granting significance before the public eye to meetings at the highest political level where what is agreed eventually never materializes (on the definition of strategic partnerships and the problems they pose, see Bobo Lo, "Axis of Convenience. Moscow, Beijing and the new geopolitics", Royal Institute of International Affairs, London 2008, Chapter 3, page 40 "defining strategic partnership").

The strategic partnership agreements not always involve trade preferences in the sense established by article XXIV of the GATT-1994 or article V of the GATS. Those can even result from agreements that do not imply a framework of strategic association.

However, a strategic partnership can become relevant when it signals the will of the involved countries - whether at the government or the business level - to create cooperation networks in diverse fields. These can be related with innovation, scientific and technological development, productive investments, and the joint approach of sensitive issues of the global agenda, such as food, energy, and climate change. What is relevant in such cases is the appraisal that can be made through time of the density of the connectedness that such association can generate between the corresponding economic and productive systems.

In practice, a strategic partnership agreement may have a purport and economic impact that can even be greater than that of a preferential trade agreement in any of its forms. This is the case when it translates into an increase of the physical and economic connectedness between the corresponding countries and, especially, in the cross-investments between its businesses, or the cooperation of its research and development centers. This is something that not necessarily results from a simple preferential trade agreement, which in practice can eventually be limited to increasing the existing trade flows, as is usually the case.

A recent example of the simultaneous use of both concepts - strategic partnership and preferential trade agreement - is the way in which the news of the alleged intention of the Brazilian and Mexican governments to sign a trade agreement was covered by the media. According to it, this would be a free trade agreement (FTA) in the sense established by WTO regulations.

Such news fits into a global context where, perhaps due to the perception that it will be difficult to conclude the WTO Doha Round within a reasonable timeframe (on this subject, see Bridges Weekly Trade News Digest, Volume 14, number 9, March 10, 2010, pages one and two, published by ICTSD, on http://ictsd.org/), the announcements of new free trade agreements have multiplied. Examples of this are the FTA signed between Peru and China, which came into force on February 2010 (see the text on http://www.mincetur.gob.pe); the conclusion of the negotiations for the agreements between the European Union and Peru and Colombia respectively; or the interest to resume halted negotiations such as the bi-regional between Mercosur and the European Union (on this issue, refer to the December 2009 and February 2010 editions of this Newsletter on www.felixpena.com.ar). All these are agreements or negotiations that have a significant direct or indirect impact on the foreign trade of Argentina and of its Mercosur partners.

Actually, the joint declaration resulting from the work meeting of Presidents Lula da Silva and Calderón on February 23 referred to the establishment of a strategic agreement of economic integration between Mexico and Brazil. The term "free trade agreement" was never employed. However, it was an expression that was used by the news media and in a previous presidential meeting. Specifically the declarations stated that the Presidents "announced the beginning of a formal process of joint work to evaluate and determine the areas for opportunities and the scope, benefits and sensitivities of a Strategic Economic Integration Agreement between Brazil and Mexico, with the aim of strengthening the bilateral exchange of goods and services and promoting investments, as well as guaranteeing market access by dealing in an effective and responsive manner with specific issues such as regulations, agricultural subsidies and non-tariff barriers. They agreed that the participation of the private sectors of both countries would be essential during the formal process of joint work between governments. They acknowledged that a long-term vision would contribute to deepen the bilateral relations and would encourage the integration of Latin America and the Caribbean so as to promote competitiveness and the regional presence in international markets." (For the full original Portuguese version of the Declaration, see the press release Number 66 of 23 February 2010, on http://www.mre.gov.br/).

In order to interpret the scope of this announcement it is important to view it within the perspective of the current regulatory framework of both countries and of the Latin American Integration Association (LAIA) and Mercosur. On this regard, it should be noted that preferential trade agreements have already been signed between Brazil and Mexico and that, together with the remaining three partners of Mercosur, there is an agreement that explicitly contemplates the establishment of a free trade area. We are referring to the economic complementarity agreement (ECA number 54), signed within the scope of the LAIA on July 5, 2002 and which came into force on January 5, 2006 (see http://www.aladi.org/).

The ECA number 54 establishes a framework for the creation of a free trade area between the countries of Mercosur and Mexico. The aim of this legal framework is to offer transparency and certainty to the economic agents of each part, as well as to promote and encourage reciprocal investments. Specifically, Article 1 establishes that one of its objectives is to "create a Free Trade Area through the elimination of tariffs, restrictions and other obstacles that may affect reciprocal trade in order to achieve the expansion and diversification of commercial exchanges".

The framework agreement format is expressed in Article 2. In the first place, this article establishes that those agreements already formalized or to be formalized by Mexico with each one of Mercosur's members within the scope of the Treaty of Montevideo of 1980 also form part of ECA number 54. These are agreements that establish reciprocal tariff preferences, except for the one signed between Mexico and Uruguay, which establishes a free trade area between both countries as per WTO regulations.

To the present day, such agreements are: ECA number 6, signed between Argentina and Mexico on August 24, 2006 and which comprises 15 additional protocols, the last of which includes an orderly text of the ECA (for the full text go to http://www.aladi.org/); ECA number 53, signed between Brazil and Mexico on July 3, 2002 and which includes three additional protocols (view the text on http://www.aladi.org/); ECA number 2, signed between Uruguay and Mexico, containing sixty-eight additional protocols (view the texts on http://www.aladi.org/), and ECA number 60, signed on November 15, 2003 -it came into force on June 15, 2004 - which establishes a free trade area between the two countries (for the text go to http://www.aladi.org/). It should be noted that ECA number 60 was signed after ECA number 54 but before the latter had come into force.

Secondly, the abovementioned Article 2 includes in ECA number 54 the Agreement for the automotive sector between the countries of Mercosur and Mexico. It is the case of ECA number 55 signed on September 22, 2002 and which lays the foundations for the implementation of free trade in the automotive sector and for the promotion of the integration and productive complementation of the sector. Some time later, it was updated by several additional instruments (for the full text go to http://www.aladi.org/).

Thirdly, it comprises those agreements that are signed between Mercosur and Mexico within the frameworks of the Treaty of Montevideo and of ECA number 54 itself. This would be precisely the free trade agreement mentioned in Article 1 and which has not been negotiated yet.

Next, the abovementioned Article 2 anticipates that periodical negotiations will take place in order to gradually expand on and strengthen any of the agreements mentioned before. Finally, it determines that these agreements will be ruled in conformity with the provisions established by them, which will be in effect until the implementation of the free trade agreement takes place. (For the complete information on the free trade agreements and other modalities of preferential trade agreements signed by Mexico, view the 2008 Mexico WTO Trade Policy Review, Report by the WTO Secretariat, on: http://docsonline.wto.org/).

From the abovementioned texts it can be assumed that, in principle, there would be no legal obstacle to prevent Mexico and Brazil from creating their own free trade area as per WTO regulations within the scope of the framework agreement present in ECA number 54 and as long as a free trade area between Mercosur and Mexico is not previously created. For such purpose, they could even invoke the free trade agreement between Uruguay and Mexico as a precedent.

However, several questions arise if the matter is viewed from a perspective that transcends the legal plane. These would originate in the precedent that it would be setting regarding the commitment of Mercosur partners to jointly negotiate agreements that include trade preferences with third parties and which was invoked by Brazil when Uruguay attempted to move forward in a FTA with the US. (Decision CMC 32/00. See the text on http://www.mercosur.org.uy/show?contentid=576). Yet, the questions arise mainly from the economic dimension of both countries, which together represent 70% of the GDP of Latin America and 50% of its population. Thus, its impact on investment and trade would be much greater than in the case of the agreement between Uruguay and Mexico.

We may presume that an eventual decision to include a FTA in a bilateral strategic partnership between Brazil and Mexico - in the sense established by WTO regulations - would have a significant political and economic impact on the future of Mercosur.

Given the strategic importance that Brazil assigns to Mercosur and to its preferential relation with Argentina, it would seem reasonable to imagine that, if a bilateral strategic partnership were to be formed with Mexico, on the trade plane it would be the result of a significant extension of the preferences already granted by ECA number 53 and not necessarily take the form of a FTA.

Considering the fact that Brazil already has a strategic partnership agreement with the EU - which presently is not of a preferential nature in the sense established by the WTO - it is to be expected that Mercosur partners follow the evolution of the future negotiations with Mexico with close attention.


Recommended Reading:

  • Auboin, Marc, "International Regulation and the Treatment of Trade Finance: What are the issues?", World Trade Organization (WTO), Economic Research and Statistics Division, Staff Working Paper ERSD-2010-09, Geneva, February 2010 en http://www.wto.org/ o click here.
  • Caro Figueroa, Armando, "A la Búsqueda de un Nuevo Modelo de Producción y Bienestar. Una visión cosmopolita desde Salta", Mundo Editorial, Salta 2009.
  • CEPAL, "Espacios de convergencia y de cooperación regional", documento preparado por la CEPAL para la Cumbre de Alto Nivel de América Latina y el Caribe, en Cancún, México (21 a 23 de febrero de 2010), en http://www.eclac.org/ o click here.
  • Cienfuegos, Manuel; Sanahuja, José Antonio (eds.), "Una región en construcción: UNASUR y la integración en América del sur", Fundació CIDOB, Barcelona 2010.
  • Jarque, Carlos M.; Ortiz, María Salvadora; Quenan, Carlos (eds.), "América Latina y la Diplomacia de Cumbres", Secretaría General Iberoamericana (SEGIB- México 2010), Madrid 2009, en http://www.segib.org/ o click here..
  • Martinez-Diaz, Leonardo; Woods, Ngaire (eds.), "Networks of Influence? Developing Countries in a Networked Global Order", Oxford University Press, Oxford - New York 2009.
  • Odell, John S., "Negotiating the World Economy", Cornell University Press, Ithaca - London 2000.
  • SELA, "Evaluación y apoyo a la articulación de posiciones de América Latina y el Caribe en las negociaciones multilaterales de la Rueda Doha", Documento preparado por la Secretaría Permanente del Sistema Económico Latinoamericano (SELA), Caracas, Noviembre 2009 (SP/Di Nº 11-09) en http://www.sela.org/. o click here.
  • SELA, "Las relaciones económicas recientes de América Latina y el Caribe con la Unión Europea en vísperas de la Cumbre de Madrid", Documento preparado por los consultores Christian Ghymers y Carlos Quenan y presentado por la Secretaría Permanente del Sistema Económico Latinoamericano (SELA) en la reunión regional sobre "Las Relaciones Económicas América Latina y el Caribe-Unión Europea y la VI Cumbre Birregional de Madrid", realizada en Caracas, Venezuela, los días 25 y 26 de febrero de 2010, (SP/RR-REALCUE-VICBM/DT N° 2-10), en http://www.sela.org/ o click here.
  • WTO-OECD-UNCTAD, "Report on G20 Trade and Investment Measures (September 2009 to February 2010)", Geneva, March 2, 2010 en http://www.wto.org/ o click here.
  • Vicien, Carmen; Pena de Lagada, Susana; Petri, Gerardo (eds.), "Modelización Económica en el Sector Agropecuario", Orientación Gráfica Editora, Buenos Aires 2009.

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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