EU-LATIN AMERICA TRADE RELATIONS

  The European Union is an important trade partner for Latin America as it is the first trade partner of Chile and the Mercosur and the second trade partner of Central America, the Andean Community and Mexico. The EU-Latin America trade relation is however strongly asymmetrical as Latin America represents only 5% of EU trade of which Brazil and Mexico alone represent respectively 1.9% and 1.1%. This means a significant growth potential and this is for example why the Commission in its communication Global Europe identified trade agreements with Latin American sub-regions like the Mercosur as a priority.

  The basis for any bi-regional approach is however a well functioning multilateral system clearly defining the global rules of trade between nations. A substantial and broad outcome of the Doha Development Round therefore remains EU's key priority, and we consider last year's suspension of the round a missed opportunity for global growth and development. The Commission is working hard to resume the negotiations and aims at achieving substantial results in not only the market access-related areas (better mutual access for agricultural and industrial goods, as well as services) but also new and better rules in a number of areas and, of course, a substantial development package. We expect emerging economics as, for example, Brazil to contribute, by offering real new market access and business opportunities for industrial goods and services. The basis for a deal has to be "real cuts for real cuts".

  The EU is currently involved in or about to start negotiations with three regions in Latin America; the Mercosur, Central America and the Andean Community. The approach to negotiating on a region-to-region basis is driven by long-term considerations. We believe that through the bi-regional approach, the EU contributes to the development of regional markets in Latin America, with positive effects both for the partner region and for the EU in terms of access to a wider market. This approach may have a cost in terms of length and difficulties of the negotiation process but appears to us as a win-win scenario in the long run. When negotiating a Free Trade Agreement with any group of third countries, the EU offers access to 27 markets, all of them governed by the same rules. Therefore, a satisfactory level of integration in any potential regional partner would ensure a similar treatment to EU goods and services when exported there (ie. Same rules and procedures at import irrespective of the country of entry and free circulation within the third country grouping in question). It would also contribute to the economic integration within the grouping. Operators will benefit from an increased number of consumers and of economics of scale in supply/production/distribution. Consumers will benefit from a larger offer and likely better prices.

  This strategy is different from the US strategy which negotiates Free Trade Agreements on a one-to-one basis with Latin America. We believe that the regional integration that we are supporting with out preference for bi-regional agreements creates stability and economic benefits for all—the US have taken a different approach. Our regional approach is, per definition, non-divisive and includes not only trade, but also political dialogue and cooperation.

MERCOSUR

  In economic terms, the EU is Mercosur's number one trade and investment partner, absorbing around one third of Mercosur trade (the US accounts for one fourth). For the EU, the Mercosur is a key area of EU economic interest in Latin America, in terms both of trade and investment. Mercosur is EUs ninth trading partner. Therefore the completion of the EU-Mercosur negotiations for an Association Agreement is crucial for both regions.

  In 2004, the MEBF (Mercosur-European Union Business Forum) commissioned a numerical simulation study (done by Chaire Mercosur, Sciences Po, Paris) to assess the impact of a Free Trade Agreement between the EU and Mercosur. In this study, the estimated cost of not having an agreement amounted to US$ 3.7 billion per year for trade in goods and taking into account also services and investment, the yearly value of lost business would amount to more than US$ 5 billion.

  The preliminary results of the Sustainability Impact Assessment made for the European commission by the University of Manchester estimates the real income gain from potential full Free Trade Agreement between EU and Mercosur to be 2% of GDP for Mercosur and 0.1% of GDP for EU 25.

  Despite a slowdown in the negotiation process derived from the parallelism of the biregional process with the DDA talks as well as a slower progress and new challenges in the Mercosur's trade integration process, the conclusion of a broad and balanced bi-regional agreement with the Mercosur remains a priority for the Commission. Once concluded, the agreement would give access to a large market of more than 226 million consumers (65% of Latin America) (more than 250 millions adding Venezuela), which is currently protected by relatively high tariffs. The Mercosur countries are emerging markets and growth prospects point to potentially high trading opportunities. For the Mercosur the interest is mainly focused on market access for agricultural products.

  Following the missed deadline for a conclusion of the agreement in October 2004, theCommission and the Mercosur have met regularly at technical level. There was also ameeting at ministerial level held in Brussels in September 2005.

  The latest EU-Mercosur technical meeting in Rio de Janeiro on 6-7 November 2006 was constructive and useful as it gave us the opportunity to explore together the working methods for the negotiation process and for building a more comprehensive package. This working process will allow us to jointly assess how to best meet the expectations on both sides with a view to achieving an ambitious and mutually satisfactory outcome. In the beginning of 2007, there will be a new meeting at technical level to further explore the possibilities for how to move forward in the construction of a comprehensive package.

CENTRAL AMERICA AND THE ANDEAN COMMUNITY

  Given the relatively small size of each individual economy in Central America (CA) and the Andean Community (CAN) as well as the necessity to promote further regional economic integration, the Commission strongly believes in a bi-regional approach for the negotiation of Association Agreements with the CAN and CA. Bilateral trade negotiations with individual members of CA or CAN are not an option.

  It is clear for us that an improved level of regional economic and trade integration within the Andean and Central American regions is crucial to allow for a sustainable, balanced and ambitious trade partnership with the EU. In this respect, both regions have worked intensively over the last few years to achieve deeper economic integration and some progress has been indeed registered.

  It goes without saying that deeper economic integration should bring—in particular in these two regions—enhanced political stability and a predictable economic environment by locking in reforms of the regulatory framework and by creating common and more balanced interests in a larger entity.

  While there are no preliminary studies on estimated cost of not having an Agreement, or on income gains of having an Agreement with any of the two regions, it is certain that the Andean Community and Central America are potentially interesting markets, amounting to a total of around 140 millions consumers.

  While not reaching the levels of economic development of Mercosur (average GDP per capita is 1/3 lower) most of the countries have had growth rates above most other Latin American during this decade, while margins for further substantial expansion do exist.

  Also, both Andean and Central American countries could represent interesting destinations for further EU investments, EU services providers and for companies participating in public procurements: improvement of legal framework and market access conditions will be pursued in the future region to region negotiations.

  In this context, it is also worth underlying finally the interest that a very important player in world trade, the US, has taken in these two regions by concluding in recent years the CAFTA (already implemented in El Salvador, Guatemala, Nicaragua and Honduras) and individual ETAs with Colombia, Peru (yet to be implemented).

  At the moment, the negotiating directives adopted by the Commission on 6 December are being discussed together with the Member States in the competent Council groups. As soon as the Council adopts them, Joint Committees with both regions will be organised with the view to discuss details of the future negotiations, as well as assessing the latest expected achievements on regional economic integration.

16 January 2007