FTA EU-MERCOSUR: Why do only the negotiators want to sign it?

15 January 2014 by Aram Aharonian

A Free Trade Agreement (FTA), under the conditions posed by the European Union (EU) for other countries (such as Colombia and Peru), is totally in contradiction with the goal of independent economic development that governments of Mercosur (the Common Market of the South) have repeatedly put forward, having rejected the proposal of a similar agreement, the ALCA, with the United States in 2005.

Even without designating it as a “Free Trade” agreement, but rather as one of “economic cooperation”, as the European Union has done in other cases, what is proposed is similar, and perhaps even more negative, than many Free Trade Agreements that have encountered strong resistance in Argentina and Venezuela, and important opposition in Brazil.

Among the predicted impacts of a Free Trade Agreement are a significant increase in unemployment, due to the liberalization of trade in industrial and agricultural products, the fall in salaries associated with unemployment; and in addition, a fall in tax revenue, along with serious impacts in the reduction of expenses in health, education and social programmes.

But the most serious problem is in the secrecy with which such public affairs are being conducted. Given the possible consequences for the peoples concerned, these negotiations cannot be left in the hands of a group of “specialists” and the pressures of interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. groups or sectarian or biased media. There must be consultation with the people, opening all the conditions to debate, eliminating the levels of confidentiality demanded by European negotiators. There is a need for real transparency.

It has been agreed among the parties involved that the offers would be exchanged in the third trimester of 2013, but up to the present moment this has not been done. Indeed, the pressure on the part of the Brazilian negotiator Simoes (“The EU is not a menu a la carte”) was seriously questioned in the last meeting of foreign ministers in Caracas.

The agreement made by the negotiators with the European Union was prior to the entrance of Venezuela in Mercosur, so that country had not taken part in the terms of the negotiation.

To present the offers does not imply that the negotiation is close to conclusion, particularly if the European Union fails to abandon its dishonest practice of agricultural subsidies. It should be recalled that in January of 2014 the preferential treatment of SGP terminates, which is of concern for the Uruguayan producers of mandarin oranges and blueberries.

The European Union reformulated their System of Generalized Preferences (SPG) to the exclusion of 87 countries, including Argentina, Brazil and Uruguay. This decision eliminates trade advantages for a number of economies. A document of the Foreign Ministry points out that “the proportion of imports from Argentina to the European Union under this system of preferences is below twenty per cent of the total”, and due to this the impact of this European decision will be minimal.

Two years ago, the United States eliminated Argentina from the list of beneficiaries of their preferences program, which meant that export enterprises, principally of commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. , ceased to receive a benefit that in 2011 was barely eighteen million dollars.

Paraguay, recently re-incorporated in Mercosur, is the only country in the bloc to continue to receive these benefits, to the satisfaction of transnational corporations that export soya.

Brazil does not want to raise any doubts as to their loyalty to the South American alliance of Mercosur. In spite of fifteen years of fruitless negotiations between the European Union and the Common Market of the South, Brazil now appears to have declined negotiating a bilateral free trade agreement with the European Union, preferring to focus on negotiations between blocs, without forgetting that the Europeans will exert pressure for country-to-country negotiations if inter-bloc negotiations fail or are delayed (as they have already done with the Andean Community).

According to data from the European office of statistics, Eurostat, in 2012 the European Union exported products valued at 50.3 billion euros to Mercosur. Those sent from the South American bloc to the European Union amounted to a total of 49.2 billion euros.

The principal obstacle holding up these negotiations are European agricultural subsidies, which make the entrance of Latin American products to the European Union extremely difficult. Already in 2005 Brazil presented a complaint for disloyal practice to the World Trade Organization (WTO WTO
World Trade Organisation
The WTO, founded on 1st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.


European analysts insist that Mercosur no longer enjoys the same priority as it did five years ago. A strategy of distraction? According to the German Ministry of Economics, the principal concern at the present time is the Free Trade Agreement between the European Union and the United States.

It is clear that the tandem EU-USA, in the last document of the Atlantic Council (“The Trilateral Bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. : Mapping a New Era for Latin America, the United States and Europe“) has gone on the offensive in search of bringing Latin America, which is increasingly acquiring greater economic and political power,”into the Atlantic fold", as the Spaniard Alfredo Serrano notes.

The European Union continues to look for an agreement, in spite of the fact that there are sectors — above all those that benefit from the common agricultural policy — that are opposed, and many doubt that there exists today the economic capacity to reach an agreement.

On the side of Mercosur, there are people in favour and others opposed. On the one side there are producers and exporters of primary goods as well as some Brazilian industrialists, and opposed are protectionists from Argentina, Brazil and Venezuela. Thus it is not true that the EU wants to sign an agreement and it is not true that Mercosur wants an agreement. Those in favour are the negotiators of both blocs. And even in the hypothetical case that an agreement is signed, there will be opposition to ratification, according to European analysts.

Uruguayan analysis

The analysis of the impact of the elimination of the benefits of the EU System of Generalized Preferences (SGP) with respect to Uruguayan exports – undertaken by the Ministry of Finance in May 2013 – indicates that the exports concerned are barely 4% of the value of the country’s exports to the world [1].

Uruguayan exports to the European Union potentially covered by the SGP (200 million dollars annually), while they allow for a wide spectrum, are in fact concentrated in a narrow range of products (hake flesh and fillets, mandarin oranges, hides, plywood, horse flesh and blueberries).

While this is being used as a pressure point to accelerate signing of the Mercosur-European Union agreement, in fact the elimination of preferences as of January 1 has little real economic significance (less than six million dollars annually), and could easily be compensated by measures such as support for producers or cost optimization.

Paraguay, transnational soya

The much-spouted Paraguayan pressures for the signing of the agreement are hardly supported by their actions. Paraguay has not taken part in any of the meetings involving the bloc in the past six months, in spite of their having been invited to take part by the pro tempore presidency of Mercosur.

A document of the European Union Delegation in Paraguay [2] indicates a deceleration in 2012, owing to adverse climate and an outbreak of foot and mouth disease; indeed, between 2009 and 2012 sales of Paraguay have fallen due to the European economic crisis, in spite of their exporters enjoying a special regime of European preferences (SGP plus).

In spite of all the silliness expressed in recent months, Mercosur is Paraguay’s principal trading Market activities
Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit.
partner, both in terms of exports and of imports. Commerce with the bloc represents 45% of the total in 2010-2012. The European Union is the second destination of Paraguayan exports (13.9% of total value in 2012). China is the most important source of imports (40% of total value in 2012).

Trade with the Pacific Alliance countries is small compared with Mercosur. The trade balance Trade balance The trade balance of a country is the difference between merchandize sold (exports) and merchandize bought (imports). The resulting trade balance either shows a deficit or is in credit. is negative for Paraguay (a deficit of 976 million dollars in 2012).

Paraguayan exports to the region involve principally three products: energy, vegetable oils and unprocessed cereals. Energy, which is made up of hydroelectric power from Itaipú and Yacyretá, with Brazil and Argentina respectively, is by far the most important export (61% of total value in 2012).

Their imports are principally petroleum products, fertilizers and manufactured products (machines, vehicles). Brazil is by far the principal regional trading partner of Paraguay, both in imports and exports, followed by Argentina. Trade with Uruguay and Venezuela is still weak.

The attempt of the European Union to negotiate a trade agreement with Mercosur looks much like a return to the caravels and coloured mirrors of the conquest, this time with two objectives: to look for a way out of the European crisis, and to see if they can do to Mercosur what they have already achieved with the Andean Community: break up a homogeneous and integrated bloc. (Translation for Alai by Jordan Bishop)

Aram Aharonian is a journalist, Master in Integration, director of the Observatorio en Comunicación y Democracia (ULAC), president of the Fundación para la Integración Latinoamericana.

This article is a contribution of the Foro de Comunicación para la Integración de NuestrAmérica.


[1Análisis del impacto de la eliminación de los beneficios del SGP de la Unión Europea, Ministerio de Finanzas, Unidad de Análisis - Asesoría de Política Comercia, May 2013 http://www.mef.gub.uy/apc/publicaciones/serie_estudios_apc/beneficios_sgp_ue.pdf

[2Relaciones comerciales UE-Paraguay. Delegación de la UE en Paraguay. http://eeas.europa.eu/delegations/paraguay/eu_paraguay/trade_relation/index_es.htm




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