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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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PREPARING FOR THE "DAY AFTER"
Possible scenarios after the eventual entry into force of the Mercosur-EU agreement.


by Félix Peña
September 2019

English translation: Isabel Romero Carranza


 

Preparing for the "day after" the effective entry into force of the bi-regional agreement with the European Union would seem to be one of the priorities for our country and its Mercosur partners today. This calls for the design of a foreign trade strategy that takes into account the eventual conclusion of the bi-regional agreement, as well as the need for companies to develop capabilities to harness the opportunities that would result from the agreement.

Among other factors, there are three fronts of action that become relevant for the design of a strategy for the commercial insertion of Argentina and its partners in the new world scenario, which implies getting ready for the "day after" the eventual entry into force of the bi-regional agreement. These fronts refer to the different modalities and intensity of the productive chains of transnational scope; to the quality of the connectivity between the different national geographies, and to the creation of ground rules that have a bearing on global or regional economic competition.
At the same time, at least three issues stand out due to their relevance in the preparatory stage of the entry into force of the bi-regional agreement. These are issues that, from an Argentine perspective, will demand priority and special attention.

The first issue is the adaptation of policies and the organization of the public sector, in particular the forms of interaction with the business sector and the labor unions, in order to gradually place the country in a position to navigate the new competitive environment that is being created by the bi-regional agreement and its possible ramifications. The second relevant issue will be to design policies and actions, aimed at achieving a significant increase in the number of SMEs that are in a position to project to the European market their capacity to produce goods and provide services that are competitive and sustainable. Finally, the third issue will be to strengthen Mercosur's ability to operate as an institutional framework, that is functional to the competitive integration of its member countries in the economic context that will develop as a result of the bi-regional agreement.


The negotiations of the bi-regional agreement between Mercosur and the European Union have been prolonged, partly due to their successive interruptions. The international context in which they are inserted has changed significantly since the beginning of the path that led to the announcement of the signing of the political agreement on June 28 of this year.

As integration processes, neither Mercosur nor the EU have the same degree of external credibility that they had when the negotiations began. In the European case, the so-called Brexit and the perception of a growing euro-skepticism, among others, do not contribute to the image of integration and respect for the commitments agreed. In the case of Mercosur, questions on the real scope of the integration process and its sustainability have been raised lately.

What is certain is that there is a new road ahead. Traversing it could take between two and three years. Only after the necessary parliamentary ratifications take place would the Mercosur-EU bi-regional agreement be concluded and its effects penetrate the realities of both regions.

After the conclusion of the bi-regional agreement, we would be entering the "day after" the negotiations. From that moment on we will be able to assess the quality of the preparation that Mercosur countries (and especially their companies) have developed based on their decision to actually negotiate the agreement.
As we pointed out in the June 2010 edition of this newsletter (see http://www.felixpena.com.ar/), negotiating with other countries and at the same time preparing to take full advantage of the opportunities that result from the agreements are inseparable elements of an effective external commercial strategy. One conditions the other, since the results of an international trade negotiation cannot overlook the state of preparedness that a country and its productive sectors can realistically achieve. This is even more complex when a negotiation involves countries with varying degrees of development.

Preparing for the "day after" the entry into force of the bi-regional agreement would seem to be a priority for our country and its Mercosur partners today. This requires the design of an external commercial integration strategy that takes into account the conclusion of the bi-regional agreement, as well as the need for companies to develop capabilities in order to take full advantage of the opportunities that are supposed to result from the agreement.

A pessimistic outlook on the possibilities that would result from the bi-regional agreement, translated into a passive attitude, especially from the business sectors and reflected in a lack of preparation to successfully navigate the "day after", could later on mean losing business opportunities that usually require a long time to develop fully.

Without overlooking others, three fronts of action become relevant for Argentina and its partners to design an external commercial integration strategy in the new world scenario, which implies preparing for the "day after" the entry into force of the bi-regional agreement. These fronts are: that of the different modalities and intensities of productive linkages at transnational scale; that of the quality of the connectivity between the different national geographies, and that of the creation of ground rules that affect global or regional economic competition. These are relevant fronts of action, even if the agreement is not realized as it was conceived, at least with respect to the countries participating in the current Mercosur.

At the same time, at least three issues stand out due to their relevance in the preparatory stage of the actual entry into force of the bi-regional agreement. These are issues that, from an Argentine perspective, will require special and priority attention.

A first relevant issue will be the adaptation of the policies and the organization of the public sector, and in particular its forms of interaction with the business sector and the labor unions, in order to gradually place the country in a position to navigate the new competitive environment that is being created by the bi-regional agreement and its many possible ramifications.

One of these ramifications would be the interrelations that would result between the preferences that are negotiated and those that originate from other trade agreements, such as those that the EU has concluded or might conclude with other Latin American countries, for example, those of the Pacific Alliance, with which Mercosur has already or will eventually negotiate preferences (see the July edition of this newsletter on http://www.felixpena.com.ar/). Such interrelation would enable the development of strategies of different types of productive linkages of transnational scope.

In order to do so, it will be necessary to define an intelligent distribution of responsibilities among the different ministries and, at the same time, select the public policies that will require more attention based on the commitments that the development of the agreement generates and also the competitiveness challenges that operating successfully in the European markets will entail.

When defining these competences, it will be advisable to keep in mind that the bi-regional agreement is to be regarded as part of a wider network of preferential trade agreements that encompasses countries from very different regions in the world. The uncertain perspectives of the WTO and its current ground rules make it essential to undertake international negotiations aimed at developing such a network of preferential trade agreements.

A second relevant and complementary issue will be to develop policies and actions aimed at achieving a significant increase in the number of SMEs that are able to project their current and potential capacity to produce goods and provide services to the European market in a competitive and sustainable manner. The final aim would be, of course, to achieve a sustained presence in the EU markets, at least three years of continued presence in the aisles or of participation in productive chains.

This will imply, both for the national government and for the provincial governments -especially those interested in taking advantage of the bi-regional space in relation to the local capacity to produce goods and provide services- strengthening the institutions involved in the promotion of trade and investment, as well as the coordination between them.

It will also involve promoting public policies aimed at stimulating the operational link between academic and research and development institutions -both public and private- and the operators of the productive sectors, in order to develop a broad network of competitive intelligence and links between the technological and productive capacity available in Argentina. Among other functions, this network would contribute to have updated knowledge on the preferences of the different European consumers, and on the factors that influence any changes in their priorities.

Finally, the third issue will be to strengthen Mercosur's ability to operate as an institutional framework that is functional to the competitive insertion of its member countries in the economic context that will develop as a result of the bi-regional agreement.

Beyond the debate, sometimes a little theoretical, about whether Mercosur is or should be a free trade zone or a customs union, it would be necessary to emphasize an intense effort to transform it into a mechanism of joint work between its member countries, that it is effective, that works based on rules that are complied with, and that contributes to achieve clear competitive gains for its member countries.

The quality of its Secretariat, including that of its website, conceived as a key instrument of a joint effort of competitive intelligence on international markets, would then be an effective contribution to the international insertion of its member countries, including the necessary capacity to face international trade negotiations that are effectively concluded and produce results.

The three relevant issues mentioned in the preceding paragraphs, involve developing the capacity of the Mercosur countries to act as a group with a reasonable degree of organization. Something like being perceived as a "team." which is a concept more often related to sports.

An effect of this vision is to conceive trade agreements, in which a country or a set of countries participate in, as generators of links between the different national systems -both economic and political- that are difficult to untie due to the positive effects they bring and the high regard of the respective societies.

Perhaps, this was the idea that drove Jean Monnet, one of the founders of the process which led to the creation of the current European Union, in his approach to generating de facto solidarities based on common visions, rules and institutions. Seventy years later it still demonstrates its efficacy, especially in what has been experienced in the case of the Brexit, which has proven how difficult it is for a country to disassociate from the economic and social networks that are generated by a deep integration process such as that of the EU.


Recommended Reading:


  • Cloppet, Ignacio Martín, "Perón Íntimo. Historias desconocidas", Areté Grupo Editor, Buenos Aires 2019.
  • Gatrell, Peter, "The Unsettling of Europe. How migration reshaped a continent", Basic Books, New York 2019.
  • Luzzi, Mariana; Wilkis, Ariel, "El Dólar. Historia de una moneda argentina (2010-2019), Crítica, Buenos Aires 2019.
  • Markovits, Daniel, "The Meritocracy Trap. How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite", Penguien Press, New York 2019.
  • Morland, Paul, "The Human Tide. How Population Shaped the Modern World", Public Affairs, New York 2019.
  • Panda, Jagganath, "India's "multipolar Asia" and China", East Asia Forum, 27 August 2019, en
  • Pastrana Buelvas, Eduardo; Blomeier, Hans (editores), "La Alianza del Pacífico: ¿arapada en el péndulo del regionalismo y del interregionalismo?", Konrad Adenauer Stiftung, Bogotá 2018.
  • Petroni, Shila, "Un Sombrero con una Cinta de Gasa Azul", Literaria Ediciones, Buenos Aires 2015.
  • Rajan, Raghuram, "The Third Pillar. How Markets and the State Leave the Community Behind", Penguin Press, New York 2019.
  • Rodrik, Dani, "Economics Rules. Why economics works, when it fails, and how to tell the difference", Oxford University Press, Oxford 2015.
  • Rufin, Jean-Christophe, "La vuelta al mundo del rey Cibelino", El Cuenco de Plata-Extraterritorial, Buenos Aires 2019.
  • Sanahuja, José Antonio; Rodríguez, Jorge Damián, "Veinte años de negociaciones Unión Europea-Mercosur: del interregionalismo a la crisis de la globalización", Fundación Carolina. Agenda 2030, Documento de Trabajo, 13-2019.
  • Santibañes, Francisco de, "La Rebelión de las Naciones. Crisis del liberalismo y auge del conservadurismo popular", Vértice de Ideas, Buenos Aires 2019.
  • Serbin, Andrés (editor), "América Latina y el Caribe frente a un Nuevo Orden Mundial. Poder, globalización y respuestas regionales", CRIES, Icaria editorial, Buenos Aires 2019.
  • Smith, Stephen, "The Scramble for Europe. Young Africa on its Way to the Old Continent", Polity Press, Cambridge-Medford, 2019.
  • Taleb, Nassim Nicholas, "Jugarse la Piel. Asimetrías ocultas en la vida cotidiana", Paidós, Buenos Aires 2019.

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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