Europe seeks to boost Latin American ties

Date: 04/04/1996

By Elizabeth Wise

“THE time is right,” reads a European Commission proposal for stepping up ties with Latin America.

Its conclusion is based on the fact that the region's sitting governments are politically acceptable and it is fast becoming an economic powerhouse.

Not only that, Commission officials say privately, but as Latin America expands its commercial interests beyond its northern neighbours, the EU could benefit from filling a gap which has been left open by the United States.

“Since Spain and Portugal joined the Union, Latin America has become a priority for the EU,” said one. “Before, it was a vast, uncharted territory. We had one delegation in Caracas. Now, ten years later, we have delegations in each Latin American country and we have established accords with every one.”

Flushed with that success, the Commission says it is gaining ground on fruitless attempts by North Americans to create a Free Trade Area of the Americas (FTAA) by 2005.

Although North and South America have begun talks and created working groups, the Commission feels it is not too late to step in with its own initiatives.

“The difficulty is not for the EU to win a place in the north-south dialogue, it is for the North Americans to regain their place,” said one official.

The Union has cooperation agreements with Mercosur (Argentina, Brazil, Paraguay and Uruguay), the Andean Pact (Bolivia, Colombia, Ecuador, Peru and Venezuela), the San José group of Central American nations, Chile and Mexico.

External Relations Commissioner Manuel Marín heads to Peru, Bolivia, Argentina and Ecuador this month for a whirlwind tour that will include meetings of the continent-wide Rio Group (15-16 April in Cochabamba, Bolivia) and the Mercosur governments.

Mercosur countries now approach the EU as a bloc rather than bilaterally and its rotating presidents receive fully-fledged welcomes in Brussels, such as the one given to Uruguay President Julio Maria Sanguinetti last November and expected for Argentinian President Carlos Menem in June.

By recognising Mercosur as a unified entity long before Washington did, the EU made it clear that it wanted closer political ties. But its main motives are commercial. “If Latin America still had dictators, social instability and debt-ridden economies, it is clear we would not be there,” said a Commission official, adding: “The opportunities for business are not negligible.”

Marín's text puts the two in perspective. Attributing increased dialogue between the EU and Latin America to “recent improvements”, it puts peace and the consolidation of the rule of law and democracy in parentheses, but gives the economic references the full, non-bracketed crescendo of the sentence: “Growth is turning Latin America into a huge powerhouse of trade and investment potential.”

Last December, EU leaders signed a cooperation agreement with Mercosur heads of state. While establishing its good intentions, it also allows the Union to delay talk of free trade. If it were to agree to free trade now, markets would have to open by 2005. This way, free trade talks will only begin in 2001, if both sides agree to it.

EU officials draw a parallel between the reform of the Union currently under way in the Intergovernmental Conference and Mercosur's own need for consolidation. The Union watched progress in the North American Free Trade Agreement (NAFTA) carefully, and concluded that merely opening doors without preparing the terrain ran the risk of disasters such as Mexico's currency crisis.

Already, the four Mercosur nations account for half of all EU imports and exports to the continent. According to the Commission, Union exports to the region rose by 35&percent; between 1993 and 1994 - the highest growth figures for EU exports recorded anywhere in world.

EU firms are active in South America, especially in the automobile, pharmaceutical, food and banking sectors, and Spanish and Italian telecoms giants control most of South America's big telephone firms.

But they do not have a completely open playing-field.

In Argentina, US banks are seen as the biggest heavyweights. Argentinian trade officials say the Americans are still important players in the region and argue that there are advantages in dealing with both.

For example, large volume soya exports find duty-free entry to the EU, but are blocked from US markets, while fruit and vegetables have much better access to the US than to Europe.

Argentinians criticise EU barriers to their produce as political and not market-driven.

Since the GATT world trade accord levelled the playing-field for most industrial trade in 1994, Latin Americans can export with equal ease to Europe or North America. But the Union remains Latin America's biggest export market.

Nonetheless, Argentinians and Brazilians are concerned about EU announcements that their industries will lose the privileges they now enjoy under the EU's Generalised System of Preferences three years from now, as they are deemed too competitive.

One Argentinian official said isolationist trends in the US Congress were not driving them into the arms of Europe, but Mercosur governments were nevertheless anxious to consolidate trade with Europe.

Trade disputes with the EU - such as one last autumn over car import quotas in Brazil - do arise, but are usually resolved in bilateral discussions and have not yet required arbitration at the World Trade Organisation.

The EU, as much as it insists on labour and environment conditions when it discusses trade with Asia, does not mention them when talking about Latin America. Human rights are, however, the subject of the first clauses in EU accords with all Latin American nations, and EU officials openly say they are designed as “deterrents for future coup attempts”.

The EU has not made agreements conditional on efforts by the region's governments to combat drugs, but is instead trying to help. To encourage alternative crops to take the place of drug plantations, the Union allows all new crops into EU markets duty free.

The low volume of such new crops, which include cereals, coffee, cocoa and exotic fruits, is not yet a threat to traditional Union suppliers - but if volumes rise, that policy will be tested.