Regional deals still in vogue despite Lamy preference for striking global agreements

Date: 23/11/00

By Simon Taylor

DESPITE European Commissioner Pascal Lamy's focus on launching a new multilateral trade round, EU negotiators continue to spend many of their daylight hours - and night-time ones too - thrashing out deals with single countries or regions.

This month, they started the latest round of talks on a free-trade deal with the four South American countries in the Mercosur bloc and Chile. Last year, the EU concluded a deal designed to reverse its declining share of commerce with Mexico, which had fallen to only 6% of total trade since the country entered the North American Free Trade Area with the US and Canada in 1994.

In 1999, Union governments also clinched a trade agreement with South Africa after 18 months of negotiations. The accord, which came into effect this year despite lingering disagreements over South Africa's commitment to phase out the use of names like "grappa" and "ouzo" for alcoholic drinks, will eliminate tariffs and barriers on 90% of trade between the two sides over the next ten years.

Lamy firmly believes that the multilateral approach through the World Trade Organisation is the way to secure the best deal for the EU. This is in marked contrast to the approach taken by members of the previous Commission, such as Spaniard Manuel Marin and Portuguese João Deus de Pinheiro, who saw regional trade agreements as a means of boosting the Union's political weight in parts of the world. In talks on bilateral accords, the Union comes under pressure from the world's less industrialised countries to make bigger concessions on agriculture. This is because many of the EU's trade partners, especially in Latin America, are competitive exporters of the farm goods which the Union strives hardest to defend.

Lamy believes that in a broad-based forum such as the WTO, the interests of the world's most and least developed countries can be balanced over the widest possible range of areas. He fears that the apparent success of agreements such as NAFTA could tempt the US to pursue the bilateral and regional approach at the expense of multilateral organisations.

The economic weight of the US would enable it to force concessions from any individual country in trade talks, argues Lamy, allowing it to avoid giving anything away to its only financial rival. However, under the EU's complex arrangements for external trade policy, negotiations on regional and bilateral agreements are the responsibility of External Relations Commissioner Chris Patten.

If there is any reluctance on the Trade Commissioner's part to pursue regional agreements, it is certainly not shared by Patten's team dealing with Mercosur and Chile, led by his director-general Guy Legras. Patten himself spelt out the importance of getting a free-trade agreement with the Mercosur bloc in a recent speech at the launch of the latest round of talks.

Unlike the accord with Mexico, where the Union was running to catch up with US economic dominance, the EU is already the largest foreign stakeholder in Latin America with around 34 billion euro in direct investment.

The Union is eager to take advantage of the revived fortunes of the region, which is expected to achieve growth of around 5% for the next two years. But concern about the effects of full trade liberalisation on EU farmers have tied negotiators' hands, with limits on the scope of talks linked to a specific timeframe. This year, the Union can focus only on eliminating non-tariff barriers such as technical standards. The real haggling will not begin until July 2001.

Crucially, the results of the negotiations will be determined by progress in the next round of multilateral WTO talks, expected to be launched next year. Governments have stipulated that discussions on sensitive areas such as tariffs, services and agriculture can be concluded only after the outcome of the next WTO round.

Article forms part of a survey on trade.