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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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THE FOREIGN TRADE AGENDA OF MERCOSUR:
Some requirements posed by future international negotiations

by Félix Peña
July 2013

English translation: Isabel Romero Carranza

 

 

With whom, how, to what extent and within what timeframe to aspire to when entering foreign trade negotiations are some of the central elements in the external trade agenda of a group of countries that share a process of integration, as it is the case of Mercosur. This implies sending signals to other countries regarding its preferences and priorities, especially to those with which it desires to negotiate. And it means, above all, to provide a guide for local and foreign investors on the future that it envisions for the trade of its goods and services and for productive investments that create jobs and prosperity. It is a factor of predictability.

All this becomes much more important when we see that many of the current and potential partners or competitors of Mercosur and its member countries tend to rethink their own agendas of external trade negotiations, especially as a result of the changes that are taking place internationally at three closely interrelates levels. These are the international trading system institutionalized by the WTO, the negotiations of mega-preferential trade agreements, including those of inter-regional scope, and the multiple forms of transnational production chains of global, regional or inter-regional scope.

In three recent reports drafted by business institutions of Brazil, we find the idea of the need for flexibility in the agreements that are negotiated, for example, between the EU and Mercosur. The idea would be to achieve flexibility within the context of an 'umbrella' agreement, which contemplates a network of multi speed tariff reductions of each Mercosur member country and also variable geometries in non-tariff commitments such as trade and investment regulatory frameworks.

However, an option present in one of these reports provides more interesting alternatives that would be convenient to explore in the debate that has been installed by the Brazilian business institutions. The three options are: the gradual implementation of the negotiated measures; general, special and sector temporary safeguards; and training and professional relocation mechanisms. Including such measures in bi-regional agreements would enable to contemplate any specific situations arising from the disparities that result from existing economic development asymmetries, both within Mercosur and with respect to EU countries.



As with individuals, companies or institutions, a group of countries that are linked together in an integration process, especially if it includes a common external tariff as a central element of its collective disciplines, must have an agenda of external trade relations. Or at least this would be convenient. This agenda usually defines priorities, fronts of action, steps to be taken and, when possible, a timetable. In modern times it should be possible for such agenda to be consulted by citizens online through the corresponding websites. This is not always the case. If it is an association of countries, as in the case of Mercosur, the external agenda defines the roadmap for its possible, necessary or desired trade insertion in the world and its region.

With whom, how, to what extent and within what timeframe to aspire to when entering external trade negotiations are some of the central elements of the foreign trade agenda of a group of countries that share a process of integration, as is precisely the case of Mercosur, among others. This implies sending signals to other countries regarding its preferences and priorities, especially to those with which it desires to negotiate. And it means, above all, to provide a guide for local and foreign investors on the future that it envisions for the trade of its goods and services and for productive investments that create jobs and prosperity. It is a factor of predictability.

Therefore, it is more than desirable that such external trade agenda is the result, in each member country, of intensive consultations with the sectors of production, labor and consumption. Even of initiatives that come from each of the different sectors. And it is usually best if the agenda to be set has been discussed in the respective parliaments. Transcending the bureaucratic level makes for its social legitimacy.

This is even more important in a world that has become more complex, diverse and dynamic (on this regard see the April 2013 issue of this newsletter on http://www.felixpena.com.ar/). And this is so as well when one observes that many current and potential partners or competitors of Mercosur and its member countries tend to rethink their own agendas of external trade negotiations, especially as a result of international changes taking place at three closely interrelated levels.

The first of these three levels is the multilateral trading system institutionalized by the WTO. On this regard, the standstill of the Doha Round is a clear evidence of the difficulties in relation to one of its main roles, which is precisely to facilitate trade negotiations comprising all member countries. These difficulties are feeding the trends in some of its key member countries -due to their level of economic development and their impact on trade and investment flows at a global level- to flee to other arenas of negotiations that allow them to deepen the commitments made so far in the context of the WTO. In some cases it would serve as an excuse to justify such flights. If these trends were to materialize in firm agreements they could lead to the fragmentation and eventual breakdown of the multilateral trading system, or at least to the erosion of the efficacy of some of its other functions, such as the settlement of commercial disputes.

The second level is that of the negotiations of mega preferential trade agreements including those of inter-regional scope (see the February 2013 edition of this newsletter on http://www.felixpena.com.ar/). The three main ongoing negotiations are the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TATIP), and the Regional Comprehensive Economic Partnership (RECEP). Due to their size and commercial importance we should also include those being developed by the European Union (EU) with India and with Mercosur, assuming that in both cases the current uncertainties are eventually overcome. These are trade negotiations which altogether would cover with preferential rules -not necessarily extending to other countries- a substantial part of the population, the gross product and world trade.

It is still difficult to predict if such negotiations will culminate in agreements signed and ratified by the participating countries. The precedent of the failed negotiations between the countries of the Inter American system -those of the FTAA- proves that beyond the expectations that may be generated, even resorting to a good dose of 'media diplomacy' with all kinds of 'special effects', they will not always conclude in the signing of an agreement. And the precedent of the Havana Charter in 1948, which originated the International Trade Organization (ITO), is also a reminder that even when negotiations conclude successfully they may later fail to pass the test of parliamentary approval and thus of ratification and entry into force.

But if the respective agreements were finally concluded and took effect, they could produce two types of results that could even be sequential. One result would be the emptying of the multilateral system, with the possible consequences that this could have in terms of the erosion of a relevant institution for global governance such as the WTO. In this case the impact would transcend the more limited level of world trade. The other possible result would be that these agreements generate commitment standards in terms of the regulation of the global trade of goods and services as well as, among others, investments, intellectual property and government procurement, which could later be extended to the multilateral level. In practice, it would imply excluding those countries not participating in such agreements from the process of defining rules and institutions which in the future would govern world trade. And it is hard to imagine that the excluded countries, especially if they have or aspire to have a relevant participation in world trade, will passively accept such marginalization

And the third level is that of the multiple forms of transnational production chains of global, regional or inter-regional scope. In the glossary of current commercial diplomacy they are encompassed under the concept of global value chains. Sometimes they are the result of the fragmentation in different countries of the production of large transnational corporations, with the ensuing impact on investment flows and distribution services, transportation and logistics. But they are also the result of the cross-border linkages of groups of enterprises -many times small and medium sized- with specialization niches and strong complementation potential. In this case, they can be the result of productive integration strategies developed by a group of countries, such as has been attempted in Mercosur and, before that, in the Andean group.
Recent developments in these three levels have had repercussions in Latin America and especially in the South American regional space. On the one hand, due to the difficulty in determining the real practical extent of the progress -i.e.: transcending the short term effects of the 'media game'- that would be taking place in the development of the Pacific Alliance. On the other hand, in the debate that is being installed in Mercosur countries on how to address the new realities of trade and international trade negotiations.

In this regard and due to their relevance we should mention the recent reports of three Brazilian business entities that address, from the perspective of their country, the challenges being faced. Because of their content and scope these reports should draw the attention of Argentine businessmen and corresponding entities. Two of the reports are from the Instituto de Estudos para o Desenvolvimento Industrial (IEDI) which gathers together a significant group of leading Brazilian businesses. One of them deals with the impact that the new mega preferential agreements under negotiation would have on the business strategies of Brazil http://retaguarda.iedi.org.br/). The other IEDI report refers to Brazilian participation in global value chains (http://www.iedi.org.br/). The third report is by the Federaçâo das Indústrias do Estado de S.Paulo (FIESP) and it introduces an external integration agenda (http://www.fiesp.com.br/).

From these three reports we can sense the risk of isolation of the Brazilian economy in the new global context. Mercosur is not questioned. This was made clear by Benjamin Steinbruch, the First Vice-President of FIESP in an article in the press (see his note in Folha de S. Paulo, on June 18 on http://www.fiesp.com.br/). In addition, they remind us that 84% of the goods sent by Brazil to South America are manufactures. In 2012 Brazilian exports to this region doubled those to the European, American and Chinese markets combined. But the need to adapt to current realities is also mentioned. The President of Uruguay, José Mujica, in previous statements at the recent Mercosur Summit held in Montevideo (see http://www.eltribuno.info/) has also reaffirmed his support of the strategic concept that nourishes Mercosur. But he has done so while noting the need to negotiate jointly with third parties and to envision it as a great transnational production chain.

The fact that Mercosur as a joint strategic project of a group of South American countries is not being questioned becomes much more relevant when we note the frequency with which different analysts and protagonists suggest that countries like Brazil should rethink their relation in view of other approaches considered more appropriate. In particular, the model that is in contrast with that of Mercosur is that of the Pacific Alliance. In doing so, it is assumed that the partnership has already produced the results announced by its four member countries (in this respect refer to, among others, Arturo Porzecanski in his article "A oportunidade bate a porta", published in Valor Econômico on July 11, 2013).

We can also find the approach of the requirement of flexibility in the agreements to be negotiated. Specifically, it is proposed with regard to the ongoing negotiations between Mercosur and the EU (see the statements by the Minister of Foreign Trade of Brazil, Lazerda Tatiana Prazeres, from 18 June, on http://www.fiesp.com.br/). It is an approach that would be based on the assumption that not all Mercosur member countries would be willing to move forward at the same pace in terms of tariff reductions, at least in all sectors. Beyond how sustainable this assumption may be, it would be convenient to ponder on the different forms that the proposals for flexibility of the commitments could have.

The idea would be to achieve flexibility in the context of an "umbrella" agreement that contemplates multiple speeds on the tariff reduction commitments of each Mercosur country, but also variable geometries in the commitments made in other non-tariff issues and in particular in the regulatory frameworks of trade and investments. It is an alternative that could erode the preferential treatments agreed within Mercosur and that, in practice and due to the economic dimension of the EU, could lead to the same results that the signing of free trade bilateral agreements between the EU and each one of the Mercosur countries. In other words, it could be tantamount to the end of Mercosur as a relevant economic integration process for its members.

However, a section of the IEDI report on the impact of the negotiations of mega- preferential trade agreements (page 43) provides more interesting options that would be convenient to explore in the debate that has actually been installed by the Brazilian business institutions. Such options are three: the gradual implementation of the negotiated measures; the use of temporary general, special and sector safeguards; and the implementation of training and professional relocation mechanisms (in line with common measures applied in developed countries, such as the US and the EU, within the framework for example of the Trade Adjustment Assistance Program). Including such measures in the architecture of the respective bi-regional agreement would enable to contemplate any eventual situations of disparity resulting from the existing asymmetries in economic development, both within Mercosur and with regards to EU countries.

Other proposals included in the IEDI report (pages 42 and 43) deserve special attention. They refer to preferential rules of origin, mechanisms of mutual recognition or harmonization of non-tariff measures, protection of investments originating in Brazil or in other Mercosur countries and a gradual liberalization of services to aid regional economic integration, structuring value chains and enabling market access for domestic companies.

All these are measures that should be analyzed and discussed, at least in the business arenas of the Mercosur countries.


Recommended Reading:


  • Brook, Timothy, "The Confusions of Pleasure. Commerce and Culture in Ming China", University of California Press, Berkeley - Los Angeles - London 1999.
  • Brook, Timothy, "Vermeer's Hat. The Seventeenth Century and the Dawn of the Global World", Bloomsbury Press, New York - London - New Delhi - Sydney 2008.
  • Elms, Deborah K; Low, Patrick (editors), "Global Value Chains in a Changing World", WTO - Fung Global Institute - Temasek Foundation, Geneva -Hong Kong 2013, en: http://wto.org/.
  • Huang. Yasheng, "Capitalism with Chinese Characteristics. Entrepreneurship and the State", Cambridge University Press, New York 2008.
  • OECD, "Perspectives on Global Development 2013. Industrial Policies in a Changing World", OECD Development Center - EDFI, Pocket Edition, Paris 2013, en: http://www.oecd.org/.
  • Park, Albert; Nayyar, Gaurav; Low, Patrick, "Supply Chains: Perspectives and Issues. A Literature Review", WTO - Fung Global Institute, Geneva - Hong Kong, 2013, en: http://wto.org/.
  • Roy, Joaquín (compilador), "Después de Santiago: Integración Regional y Relaciones Unión Europea-América Latina", The Jean Monnet Chair, University of Miami; Miami-Florida European Union Center, Miami, Fl. 2013.
  • Sánchez Adalid, Jesús, "El Camino Mozárabe", Ediciones Martínez Roca, Madrid 2013.
  • Sánchez Román, José Antonio, "Los Argentinos y los Impuestos. Lazos frágiles entre sociedad y fisco en el siglo XX", Ediciones Siglo XXI, Buenos Aires 2013.
  • UNCTAD, "World Investment Report - 2013. Global Value Chains: Investment and Trade for Development", New York - Geneva 2013, en: http://unctad.org/.
  • WTO-OECD, "Aid for Trade and Value Chains in Transport and Logistic", Geneva - Paris 2013, en: http://wto.org/.
  • WTO-OECD, "Aid for Trade and Value Chains in Agri-food", Geneva-Paris 2013, en: http://wto.org/.
  • WTO-OECD, Aid for Trade at a Glance 2013 - Connecting to Value Chains", Geneva - Paris 2013, en: http://wto.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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