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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2020 | 2019 | 2018 | 2017 | 2016 | 2015
2014 | 2013 | 2012 | 2011 | 2010 | 2009

MERCOSUR-EU AGREEMENT ISSUES REQUIRING SPECIAL ATTENTION:
Their relevance for the creation of "The day after" agenda


by Félix Peña
September 2020

English translation: Isabel Romero Carranza


 

Everything would indicate that the negotiations between Mercosur and the EU have been concluded. What does it mean for those who are wondering -especially the SMEs from Argentina and Mercosur- how to prepare themselves to operate and compete in the future broad bi-regional economic environment?

It is possible that the agreement is signed and enters into force, but there is also a possibility that this does not happen at all. These are two scenarios that may be very different in scope from the one that has predominated over the last three decades, at least for companies in the Mercosur countries.

In fact, the ability to compete in either scenario will require for many companies strong adjustments in their strategies and in their operating modalities. The time available to adapt to either scenario (or to any of the imaginable possibilities) may still be ample, i.e. at least two or three years.

However, it is also necessary to take into account the time that may be required to adapt a company to competitive conditions that could be very different from the current ones, depending on the scenario considered, and the country and sector to which the company belongs, among other factors.

In the case of the Mercosur countries, an additional factor of uncertainty refers to the eventual bilateral entry into force of the association agreement. No explicit reference to such possibility emerges from the already published negotiated texts.

Three additional issues require attention due to their relevance for SMEs operating from a Mercosur country in the bi-regional sphere. These issues are those referred to the productive transformation that facilitates an effective participation and internationalization of Mercosur SMEs; the development of policies to support and promote SMEs by local governments (provincial and municipal), and the rules of origin that facilitate the use of the network of preferential trade agreements that Mercosur and the EU have concluded or may conclude with other countries and regions, especially those of the Pacific Alliance.


The future of the bi-regional association agreement between Mercosur and the European Union remains uncertain. Formally, the negotiations have concluded. It is possible that the agreement is signed and enters into force, but there is also a possibility that this does not happen at all.

What does this mean for those who are wondering -especially SMEs in Argentina and Mercosur- about how to prepare themselves to operate in the future with their goods and services in the broad bi-regional economic sphere?

The first thing that can be pointed out is that it would be a mistake to take for granted any scenario (depending on whether the agreement is signed or not), as well as their different and multiple consequences. In any event, the two scenarios may be very different in scope from the one has predominated in the last three decades, at least for companies in the Mercosur countries.

On the contrary, it is advisable at this moment, to ask ourselves what would it mean for a company to prepare itself to compete, both in the market of the Mercosur countries and in the bi-regional one, either in the case that the association agreement comes into force, or in the case that it does not. The fact is that the ability to compete in either scenario will require for many companies strong adjustments in their strategies and operational modalities. This is what we like to refer to as the "day-after-agenda".

The time available to adapt to one or the other scenario (or to the multiple possibilities imaginable) can still be ample, that is, at least two or three years. Moreover, even in the event that the agreement enters into force, such period may be extended for more years if those expected for the completion of, for example the tariff reduction processes, are taken into account.

However, it is also necessary to take into account the periods of time that may be required to adapt a company to competitive conditions that could be very different from the current ones, depending on the scenario contemplated, and the country and the sector to which the company belongs, among other factors.
Therefore, it seems advisable for a company to start exploring the impact that either scenario may have on its capacity to compete in its own country, in Mercosur or in the bi-regional space. It may be natural for a company to consider it unnecessary to prepare itself for such uncertain scenarios, but some of its current or potential competitors may have already started doing so.

Without detriment to others, two recently published and very insightful reports provide elements for a diagnosis of the scenario upon the entry into force of the agreement, that can prove very useful for businesspeople and those collaborating and advising them. Both reports are highly recommended for those who wish to gain knowledge and understand the possible scope of the different measures incorporated into the agreement.

The first one of these is the 56-page report, made by three prestigious specialists from Argentina. It was published by CIPPEC, and prepared by Ricardo Carciofi, Rosario Campos and Romina Gayá in July 2020 (see text on www.cippec.org/).

The second one is the 80-page report written by three also prestigious Brazilian experts. It was published by IDB-INTAL, and prepared by Lucia Maduro, Pedro Da Motta Veiga and Sandra Polónia Rios, in August 2020 (see the text on www.iadb.org/es/intal/home).

An additional factor of uncertainty may result from the eventual bilateral entry into force of the association agreement. From the texts of the Agreement that have already been published, no explicit reference to such a possibility arises. It was always understood that Mercosur was negotiating as a whole, since it is formally a customs union. More than "imperfect", which implies a sort of value judgment made from an economic perspective, the customs union resulting from the application of the Treaty of Asunción, can be defined as "incomplete", in the sense that all its explicitly established elements have not been developed, for example, the one referring to the common external tariff.

Even a superficial reading of the Treaty of Asunción, especially its Article 2 on "reciprocity of rights and obligations", leads us to conclude that the signatory countries have undertaken the commitment to build a complete customs union. To argue the contrary could mean proposing the need for an eventual renegotiation of the Treaty, in order to limit Mercosur to the more flexible figure of a free trade zone.

The idea of the simultaneous entry into force of the international rules that make Mercosur work is also supported by another founding text, which is the Ouro Preto Protocol. In its article 40, it explicitly provides that the norms produced by the agencies of Mercosur (article 2° of the same Protocol), which need to be incorporated into the internal legal system of a member country, enter into force simultaneously in each of the countries. Could it be different in the case of the incorporation of norms resulting from an international agreement?

In fact, the idea of bilateralism in the sense that the agreement enters into force for the country that has ratified it, even if others have not, is mentioned in official documents and pronouncements of Mercosur member countries. This is even noted in the report published by the IDB-INTAL, but without specifying the official document that would allow for the legal endorsement of such fact.

Because of its possible legal and political implications, this is a matter that deserves attention. If there were a political consensus among the four Mercosur member countries, it would be legally possible to agree on some formula that would allow for the solution of the problem, eventually without having to modify the founding Treaty.
Finally, at the end of our newsletter of last August, we briefly mentioned three issues that will demand special attention, at least in the case of SMEs, in order to prepare for "the day after" the entry into force of the agreement. We will analyze such issues on this occasion.

A first issue relates to the development, in practice, of the provisions foreseen in the bi-regional agreement between Mercosur and the EU, for the support of the effective participation of SMEs.

We refer in particular to the technical cooperation programs and to the financing of productive transformation that may be developed with the EU, with the aim of facilitating the adaptation of SMEs to the new conditions of competitiveness that will arise when the agreement effectively enters into force.

In addition to the experience that the EU has developed over the years in its policies to support productive transformation, more recently it has gained more experience as a result of the incorporation of the countries of Eastern Europe, many of them inspired by the effects of the Marshall Plan for post-war Europe itself. These are all experiences that can serve as a guide for cooperation policies with SMEs in the Mercosur countries that are preparing to compete in the bi-regional space.

A second issue refers to the active participation of the different local governments so that the respective productive sectors can take full advantage of the opportunities that will be generated by the bi-regional agreement. Some already have programs related to trade and investment with the EU.

In this sense, the agreement opens up opportunities to promote the development of technical and financial cooperation programs aimed at facilitating the participation of regions, provinces and cities of Mercosur countries in the bi-regional economic space, and also to stimulate cooperation and joint actions, especially with the participation of SMEs from both sides of the Atlantic.

And the third issue is to analyze the multiple unfoldings that the bi-regional agreement can give rise to, as soon as it is inserted with its corresponding rules of origin, in the networks of preferential trade agreements, which Mercosur and the EU have concluded or may conclude with other countries and regions, especially with those of the Pacific Alliance.

The link between the "rules of origin", "regional preferential agreements" and "value chains", could nurture bi-regional cooperation policies that facilitate and promote joint action among SMEs on both sides of the Atlantic, with those in other regions with which different modalities of preferential agreements already exist, for example in Latin America itself, Africa and Asia-Pacific.


Recommended Reading:


  • Applebaum, Anne, “Twilight of Democracy. The Seductive Lure of Authoritarianism ”, Doubleday, New York 2020.
  • Bradley, James,“The China Mirage. The Hidden History of American Disaster in Asia ”, Little, Brown and Company, New York-Boston-London 2015.
  • Carmody, Patricio, “Una Estrategia de Horizontes Diversos”, newspaper La Nación, July 29, 2020, Opinion Section, p. 27.
  • Cooley, Alexander; Nexon, Daniel, “Exit From Hegemony. The Unraveling of the American World Order ”, Oxford University Press, New York 202
  • Elizondo, Marcelo, “Por qué es más relevante la empresa exportadora que el producto exportado”, Foreign Trade Supplement of newspaper La Nación, July 16, 2020, p. 3.
  • Gerwarth, Robert, "November 1998. The German Revolution", Oxford University Press. Oxford 2020.
  • Gessen, Masha, "Surviving Autocracy", Riverhead Books, New York 2020.
    Gueniffey, Patrice, "Napoleon & De Gaulle. Heroes and History ”, The Belknap Press of Harvard University Press, Cambridge - London 2020.
  • Hurtado Briceño, Alberto José; Vieira Posada, Edgar, “Pertinencia y convergencia de la integración latinoamericana en un contexto de cambios mundiales”, Colección Gridale, Centro de Pensamiento Global (CEPEG), Universidad Cooperativa de Colombia, Bogotá 2020.
  • Jankowski, Paul, “Al Against All. The Long Winter of 1933 and the Origins of the Second World War ”, Harper Collins Publisher, New York 2020.
  • Kagan, Robert, “ The Jungle Growths Back. America and our Imperiled World ”, Alfred A. Knopf, New York 2018.
  • Kroenig, Matthew, “ The Return of Great Power Rivalry. Democracy Versus Autocracy from the Ancient World to the US and China ”, Oxford University Press, New York 2020.
  • Naím, Moisés,”Illicit. Hoe Smugglers, Traffickers, and Copycats are Hijacking the Global Economy ”, Anchor Books, New York 2005.
  • Nun, José, “Tucídides y el Coronavirus”, newspaper La Nación, Juñy 27, 2020, Opinion Section, p. 25.
  • Peña, Félix, “Tres metas para posicionar a la Argentina en el comercio internacional luego de la pandemia”, Foreign Trade supplement of newspaper “La Nación”, July 30, 2020, p. 3.
  • Rufin, Jean-Christophe, “The Fortune of the Great Jacques Coeur”, Ediciones BSA, Barcelona 2013.
  • Singer, PW; Brooking, Emerson T., “Like War. The Weaponization of Social Media ”, An Eamon Dolan Book - Mariner Books - Houghton Mifflin Harcourt. Boston-New York 2019.
  • Singer, PW; Cole, August, “Burn-In. A Novel of the Real Robotic Revolution ”, Houghton Mifflin Harcourt, Boston-New York 2020.
  • Shelley, Louise I., “ Dark Commerce. How a New Illicit Economy is Threatening our Future ”, Princeton University Press, Princeton and Oxford, 2018.
  • Tamames, Ramón, “Hernán Cortés, gigante de la historia”, Prologue by Josep Borrell, Erasmus Pensamiento del Presente, Barcelona 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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