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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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MERCOSUR TRADE NEGOTIATIONS:
Recent events which could influence the future evolution of the negotiating agenda.

by Félix Peña
July 2015

English translation: Isabel Romero Carranza


 

Whether by act or omission, international trade negotiations remain an important issue on the agenda of Mercosur. It is probably one of the most pressing issues together with institutional quality, and the conditions to encourage productive linkages geared towards the regional and global markets.

At least three recent events, with varying degrees of relevance, lead to suppose that there will be some changes in the agenda of Mercosur trade negotiations, including its protracted negotiations with the EU. These could be regarded as belonging to the category of "future-bearing events". It is possible to anticipate that their effects will become more noticeable later this year. These events are interrelated and could potentially impact on bi-regional negotiations between Mercosur and the EU, even injecting a much needed dose of optimism.

The first of these is what was agreed at the bi-regional meeting in Brussels during the CELAC-EU Summit, in June. It helps us imagine that finally, during the last quarter of this year, the respective negotiating offers will be exchanged.

A second important fact is reflected in the final communiqué of the recent meeting between the presidents of Paraguay and Uruguay. These two founding countries of Mercosur raised the need to agree, during the second half of the year, in which the rotating presidency belongs to Paraguay, an action plan for achieving the objectives of Mercosur and improving the Free Trade Area, including specific roadmaps to ensure effective access to the corresponding markets.

The third event is the approval by Congress of the authorization for the President of the United States to negotiate international agreements (the so called "Fast Track"). It is feasible now that the TPP can be concluded even before the end of this year. If, finally, this agreement is concluded and there is a general impression that the transatlantic agreement between the EU and the US -the TTIP- is also feasible, it is possible that the pressure mounts, especially in business sectors of Brazil, Uruguay and Paraguay, to conclude an agreement with the EU that includes multiple speeds for the different Mercosur partners. The other option would be to directly seek some form of bilateral agreement, even without tariff preferences but with strong commitments, for example, in terms of regulatory frameworks, investment and even intellectual property. In this case, the pressure would extend towards the outset of alternative preferential trade negotiations, especially with the US and China.


Whether by act or omission, international trade negotiations remain an important issue on the agenda of Mercosur. It is probably one of the most pressing issues, along with institutional quality -especially of the ground rules and of the rule-creating processes -and the conditions to encourage production linkages geared towards the regional and global markets. (On these issues refer to, among others, our articles in Boletín Informativo Techint No 345, from November 2014, on http://iosapp.boletintechint.com/ and the June 2015 issue of this Newsletter, on http://www.felixpena.com.ar/.

It is an important issue for several reasons. The first of these is that, since its inception, Mercosur was conceived -among other of its main objectives and with a greater economic and political extent- as a platform to facilitate the international projection of the capacity of its member countries to offer competitive goods and services with a strong intellectual added value. If possible, these should be the result of the transnational collaboration of companies that are inserted in value chains of global or regional scope. The idea of sectoral agreements, which is one of the most valuable contributions from the period of bilateral integration between Argentina and Brazil, although stated in the Treaty of Asuncion and in one of the first decisions of the Mercosur Council -CMC No 3 / 91-, never quite materialized as a key instrument in the strategy for the productive integration of the member countries. Just by reading Decision CMC No. 3/91, one can appreciate its potential and also raise questions about the fact that it did not produce the results that were sought. We are under the impression that this is still untapped potential. (On the subject, see the report by Miguel Izam, "Review of the Sectoral Agreements signed by member countries of Mercosur", ECLAC LC / R880, February 8, 1999, on http://repositorio.cepal.org/).

The other reason is related to the poor results in the development of a strategy of international trade negotiations and, in particular, in the idea of encouraging productive linkages between companies from the various partner countries. The agreements concluded within the framework of the LAIA with several Latin American countries, including those who are members of the Pacific Alliance, have more potential for creating conditions for the development of these linkages. But today the development of preferential trade negotiations with any of the major economic areas of the world (except for the EU) is absent from Mercosur's agenda. With the US, the idea originally related to the development of the agreement "4 + 1" (the "Rose Garden Agreement"), signed in 1991, was stalled when the FTAA negotiations collapsed. In the case of China, the proposal made in 2012 by then Prime Minister Wen Jiabao to explore the possibility of a feasibility study for a preferential trade agreement never received an answer from Mercosur countries.

And the third reason, and no less important, is that Mercosur's lack of an external trade negotiating dynamic has generated significant differences between member countries, with the ensuing economic and political effects. In some of the member countries, especially among business sectors, it is considered that Mercosur not only does not negotiate but prevents any kind of negotiation by member countries. This comes at a time when the stalemate of the Doha Round, among other factors, is encouraging the proliferation of negotiations leading to mega-preferential trade agreements of interregional scope. (On this topic, see the March 2015 issue of this Newsletter, on http://www.felixpena.com.ar/).

In what is the only relevant ongoing negotiation process, Mercosur and the EU have been almost 15 years trying to realize a bi-regional preferential agreement. It aims to cover a broad and balanced spectrum of trade preferences for goods and services. It will include commitments on investment, public procurement, regulatory frameworks, intellectual property and other relevant issues in the bi-regional relations. It is also expected to include measures that take into account the asymmetries in economic development, both between and within the two regions.

When the agreement is concluded and enters into force -the achievement of both objectives can still require some years, even if there is a strong political commitment- more time will be needed, probably between ten and fifteen years, depending on how it is negotiated, for all the duties and restrictions to be eliminated and for the other agreed measures to be fully enacted. And as is common in these preferential agreements, not all goods and services will be included. Moreover, it is possible to foresee, also depending on how this is finally negotiated, the inclusion of different types of safety valves and funding commitments for the reconversion of the most sensitive sectors. This is not a minor aspect when addressing the major sensitivities in Mercosur countries.

Therefore, it is not a simple idea to achieve. Several factors have affected the recurrent delays in the progress of the negotiations. These delays are not just a thing of the past. Both regions have strong sensitivities in sectors that are relevant, while different, from their respective economies. Agriculture in the EU and some industrial sectors in the Mercosur have been widely mentioned but are not the only examples. The fact is that it is difficult to be credible if the responsibility for the repeated delays in the progress of the negotiations is attributed only to a few countries, on one side or the other of the Atlantic, or to some of their productive sectors.

Additionally, both regional processes show some significant differences in the scope of their objectives, the methods for their economic integration and, in particular, in their institutional frameworks.

In Mercosur, for example, there is almost no equivalent to the EU institutions. The idea, inspired by Jean Monnet, of the function of coordinating the different national interests, which is key to understanding European integration since its inception, never materialized in these latitudes. The attempts to create facilitating bodies, for the necessary harmonizing of the different and often diverging interests between partners with notable asymmetries in relative power, were hampered by an esoteric discussion on the "supranational" scope that these would eventually have. The idea of an individual or collegiate entity that could give orders to governments was what prevailed, in a similar way to what happened during one of the first crisis of the European Economic Community, when the President of France, General Charles De Gaulle, called the European Commission a "technocratic, stateless and irresponsible Areopagus".

In turn, on the side of the EU we can find some difficulties to inject these bi-regional negotiations with the necessary dose of political will and technical creativity. It is often observed, not without a hint of irony, that negotiating with Brussels evokes what a world led by robots would be like. Flexibility and imagination have not always prevailed there, at least in the negotiations with Mercosur. And this is something that can also be heard among European citizens about their integration process, especially since, in recent years, the word "crisis" has penetrated deep into the collective imagination. This fact has been evinced most recently with the evolution of the Greek crisis and its eventual departure from the Euro zone, with all the economic, financial and even geopolitical consequences that the so-called Grexit could bring.

In addition, this bi-regional negotiation lost political oxygen in Brussels and the EU member countries, as the perception of an eventual agreement on trade preferences between Mercosur and the US, within the FTAA, gradually faded. In fact, during this period the EU has only concluded preferential agreements with the same Latin American countries as the US.

Three recent events, with varying degrees of relevance, help us foresee some changes in the negotiating agenda of Mercosur. They belong to the category of "future- bearing events". The three are interrelated. It is possible to anticipate that their effects will become more noticeable later this year. They could have an impact on the bi-regional negotiations with the EU, even contributing with a needed dose of optimism or, at the very least, some realism.

The first of these events is related to what was agreed at the bi-regional meeting on during the CELAC-EU Summit in Brussels, last June. This helps us anticipate that the respective negotiating offers will be exchanged during the last quarter of this year. However, what some officials and media sought to achieve was not attained in Brussels. That is, the acceptance of the idea of a multi-speed negotiation, following the example of what happened with the Andean Community of Nations, which certainly was not unrelated to the loss of relevance of the group some time later. Most likely, the political sense prevailed among the relevant actors. According to the statement issued at the end of the ministerial meeting in Brussels "the Ministers exchanged general information on their respective market access offers… (they) agreed that, provided conditions for a successful exchange are met, the goal shall be to exchange market access offers within the last quarter of 2015". (See the full text of the joint communiqué from June 11, 2015, on http://trade.ec.europa.eu/; for the history of this bi-regional negotiation, see the comprehensive information available in the SICE-SEDI-OEA, http://www.sice.oas.org/). If this goal is achieved, including sufficient transparency in the exchange of offers -it would be hard to imagine it could be otherwise- the road to the most complex stage would be open, which is to achieve a reasonable (and thus sustainable) balance between the different regional interests. However, even in such a case it is possible to estimate that the date for the conclusion of the negotiations would still be far ahead.

A second important event was reflected in the final communiqué of the meeting between the Presidents of Paraguay and Uruguay, on June 25. As noted there "the two Heads of State reaffirmed their commitment to make a decision at the meeting of the Common Market Council, next July, in Brasilia, to develop a plan of action for achieving the objectives of Mercosur and for perfecting the Free Trade Area. This Plan, to be developed during the presidency of Paraguay in Mercosur, will establish a schedule with final deadlines for the elimination of non-tariff restrictions and all measures of equivalent effect which impact intra-zone trade, and will be submitted for approval of the other States Parties" (translation is ours) (See the joint communiqué of the Presidents on http://medios.presidencia.gub.uy/). The approach of these two founding partners of Mercosur is clear and aims to open the door for a necessary negotiation. This is related with what, in the opinion of Europeans, has been one of the reasons for the dwindling interest in Mercosur: it is a process of integration with serious methodological flaws that affect its credibility, diminishing the interest to move towards an effective bi-regional agreement. One criterion for evaluating the effectiveness of a process of regional economic integration is, precisely, the quality of the rules that guarantee access to the respective markets, whatever their relative size. This is so because it is assumed that there lies one of the main incentives for productive investment based on the expanded market. It is related with the idea of generating employment and thus social development of the countries involved. It is a central factor for the political and social legitimacy of an integration agreement and, therefore, for its long-term sustainability.

The third event is the approval by Congress of the authorization granted to the President of the United States to negotiate international agreements. This is no guarantee that it will happen, but it means a step forward towards the possible conclusion of one of the mega-preferential agreements that Washington has been pushing, which is the Trans-Pacific Partnership, known by its acronym TPP. If finally this agreement is closed and there is, as a consequence, a general impression that the transatlantic agreement between the EU and the US -the TTIP- is also feasible, then it is possible that the pressure to conclude an agreement with the EU, including multiple speeds for the different members of Mercosur, increases, especially among business sectors of Brazil, Uruguay and Paraguay. Or it could build pressure to negotiate some form of bilateral agreement, even without tariff preferences but with strong commitments, for example, in terms of regulatory frameworks, investment and even intellectual property. In this case, the pressure would extend towards the goal of other possible preferential trade negotiations, especially with the US and China. Beyond its political implications, it is a scenario that our country should consider and anticipate due to its possible economic effects and its impact on the projection of the export of goods and services to the region and to the world.


Recommended Reading:


  • Almeida, Perpétua; Acioly, Luciana; Bojikian Calixtre, André, "Os Desafios da Política Externa Brasileira em um Mundo em Transição", IPEA, Rio de Janeiro 2014, http://www.ipea.gov.br/.
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  • Boone Barrera, Enrique, "Brazil's International Investment Woes", Centre for International Governance Innovation, CIGI, Waterloo, Ca, July 2015, https://www.cigionline.org/.
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  • Macdonogh, Giles, "Después del Reich. Crimen y castigo en la postguerra alemana", Galaxia-Gutenberg, Círculo de Lectores, Barcelona 2011.
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  • Myers, Margaret; Jie, Guo, "China's Agricultural Investment in Latin America: A Critical Assessment", The Dialogue, China and Latin America Report, June 2015, http://thedialogue.org/.
  • OECD/WTO (2015), "Aid for Trade at a Glance 2015: Reducing Trade Costs for Inclusive, Sustainable Growth", OECD Publishing, Paris 2015, https://www.wto.org/.
  • Puente, Armando Rubén, "Yo, Argentino. Las raíces argentinas del Papa Francisco", DISTAL, Buenos Aires 2015.
  • Ricci, Mateo S.J., "Costumbre y Religiones de China", Ediciones Universidad del Salvador, Buenos Aires 2014.
  • Sisci, Francesco, "A Brave New China. The Big Change", goWare, Firenze, Italy 2014.
  • UNCTAD, "Tracing the Value Added in Global Value Chains: Product-level Case Studies in China", UNCTAD, Geneva 2015, http://unctad.org/en/PublicationsLibrary/ditctncd2015d1_en.pdf.
  • World Bank - WTO, "The Role of Trade in Ending Poverty", A Joint Publication by the World Bank Group and the World Trade Organization, Geneva 2015, https://www.wto.org/.

Félix Peña es Director del Instituto de Comercio Internacional de la Fundación ICBC; Director de la Maestría en Relaciones Comerciales Internacionales de la Universidad Nacional de Tres de Febrero (UNTREF); Miembro del Comité Ejecutivo del Consejo Argentino para las Relaciones Internacionales (CARI). Miembro del Brains Trust del Evian Group. Ampliar trayectoria.

http://www.felixpena.com.ar | info@felixpena.com.ar


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