US-backed Latin America set to turn tables in negotiations with Europe

Date: 22/01/04

IN ALMOST 40 years of free trade talks with Latin America, the EU and US have had little to show for it.

The North American Free Trade Accord (NAFTA) was created ten years ago and the EU signed a deal with Mexico last year. But now the game is changing.

German Socialist MEP Rolf Linkohr, chairman of the delegation for relations with South America and Mercosur (the group of Argentina, Brazil, Paraguay and Uruguay), expects an EU-Mercosur association agreement sometime this year.

"Latin Americans need a balance with the US," he says, adding that the EU-Mercosur trade agreement also provides for a political dialogue - in contrast to the US, which only wants free trade.

Trade Commissioner Pascal Lamy is also upbeat. Speaking at last month's Mercosur summit in Montevideo, Uruguay, he hailed the EU-Mercosur agreement as a "real political partnership", adding that EU enlargement "will be greatly beneficial to Mercosur countries".

However, Arvind Panagariya, professor of political economy at the University of Maryland in the US, thinks there is no real political aspect to last year's EU agreement with Mexico.

Latin Americans seem to agree. Celia Szusterman, an Argentine and senior lecturer in Latin American studies at Westminster University in London, thinks Mercosur has always been just "political rhetoric". She believes EU enlargement will hurt Argentina because the new EU member states will compete with its soya and beef exports.

Brazilians are also showing little faith. Mario Marconini, executive director for the Cebri think-tank in Rio de Janeiro, and a former international trade secretary, thinks the Europeans only want to protect their 19th century industries.

For both Argentina and Brazil, the US is the important partner. Washington pressurized the International Monetary Fund into treating Argentina generously last September following a financial crisis which took the country to the brink of economic collapse. According to Szusterman, this was because Washington did not want to give Argentina an excuse for anti-US rhetoric. In addition, it wanted to avoid a crisis in neighbouring, and more important, Brazil, which is also more interested in developing its American, rather than European, markets.

The EU, meanwhile, is facing an ideological backlash in Argentina. European companies were the principal investors in public utility privatizations in the 1990s. Rumours of EU firms bribing Argentine officials were rife at the time, recalls Diego Petrecolla, director of the Centro de Estudios Económicos de la Regulación in Buenos Aires. Since the peso was devalued in January 2002, more than 70 investors have filed some $20 billion (15.5bn euro) in claims for compensation at the World Bank's arbitration tribunal.

Contract renegotiations between Argentina and investors have begun, but were preceded by a series of public insults by President Néstor Kirchner towards Europeans. This is an effort by Kirchner to demonize the 1990s privatizations and is not justified, says Celia Szusterman. She thinks Kirchner is ignorant of foreign affairs, but also knows it will not pay for him to be openly hostile to the US.

Petrecolla observes that French companies tried to fight insults with insults and got nowhere. "The government is saying, "if you want to go, then go"," although so far only Gaz de France has quit Argentina. If the Europeans leave, US companies will take their place. "Someone else will come," says Petrecolla.

So the omens are poor for a planned EU-Latin American summit this May in Mexico. The old assumption that Europe may provide Latin Americans with muscle to negotiate with the US may not work anymore.

This time the US may provide the muscle for the Latins to negotiate with Europe.

• Maria Kielmas is a London-based freelance journalist.

Major feature. The omens for a planned EU-Latin America summit in Mexico later in 2004 are not looking too good.

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