EU-MERCOSUR Interregionalism: Diplomatic and Trade Relations 3031192168, 9783031192166

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United Nations University Series on Regionalism 21

Mario Torres Jarrín Lourdes Gabriela Daza Aramayo

EU-MERCOSUR Interregionalism Diplomatic and Trade Relations

United Nations University Series on Regionalism Volume 21

Series Editors Philippe De Lombaerde, NEOMA Business School, Rouen (France) and UNU-CRIS, Brugge, Belgium Luk Van Langenhove, Vrije Universiteit Brussel (VUB), Brussels, Belgium UNU-CRIS, Bruges, Belgium Glenn Rayp, Ghent University, Bruges, Belgium Editorial Board Members Louise Fawcett, Oxford University, Oxford, UK Sieglinde Gstöhl, College of Europe, Bruges, Belgium Henryk Kierzkowski, Graduate Institute of International and Development Studies, Geneva, Switzerland Fukunari Kimura, Keio University, Tokyo, Japan Edward D. Mansfield, University of Pennsylvania, Philadelphia, PA, USA T. Ademola Oyejide, University of Ibadan, Ibadan, Nigeria Jacques Pelkmans, College of Europe, Bruges, Belgium Joaquin Roy, University of Miami, Miami, FL, USA Ramón Torrent, University of Barcelona, Barcelona, Spain

The United Nations University Series on Regionalism, launched by UNU-CRIS and Springer, offers a platform for innovative work on (supra-national) regionalism from a global and inter-disciplinary perspective. It includes the World Reports on Regional Integration, published in collaboration with other UN agencies, but it is also open for theoretical, methodological and empirical contributions from academics and policy-makers worldwide. Book proposals will be reviewed by an International Editorial Board. The series editors are particularly interested in book proposals dealing with: – – – – – – –

comparative regionalism; comparative work on regional organizations; inter-regionalism; the role of regions in a multi-level governance context; the interactions between the UN and the regions; the regional dimensions of the reform processes of multilateral institutions; the dynamics of cross-border micro-regions and their interactions with supranational regions; – methodological issues in regionalism studies.

Accepted book proposals can receive editorial support from UNU-CRIS for the preparation of manuscripts. Please send book proposals to: [email protected] and [email protected].

Mario Torres Jarrín • Lourdes Gabriela Daza Aramayo

EU-MERCOSUR Interregionalism Diplomatic and Trade Relations

Mario Torres Jarrín Institute of European Studies and Human Rights Pontifical University of Salamanca Salamanca, Spain

Lourdes Gabriela Daza Aramayo Anglo-American University Prague, Czech Republic

ISSN 2214-9848 ISSN 2214-9856 (electronic) United Nations University Series on Regionalism ISBN 978-3-031-19216-6 ISBN 978-3-031-19217-3 (eBook) https://doi.org/10.1007/978-3-031-19217-3 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

EU-LAC Interregionalism History: From a Diplomatic Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 EU-LAC Interregionalism History: From Martino Report to EU-CELAC Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.1 EEC Council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.2 SELA Council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 State of the Art of the EU-LAC Interregionalism . . . . . . . . . . . . . 2.3 Conceptualisation of the EU External Actions to LAC Regional Integration Organisations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

4

Geopolitical Aspects in EU-LAC Interregionalism . . . . . . . . . . . . . . 3.1 The Brexit Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Stagnation of Transatlantic Relationship EU-USA . . . . . . . . . . . . 3.3 The COVID-19 Pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 New Geopolitical Players in the EU-LAC Interregionalism Process: Cooperation, Trade and Investment . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Historical and Legal Context of the European UnionMERCOSUR Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 A Before and After in European Union-MERCOSUR Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 A Historical Journey from 1991 to 2021 . . . . . . . . . . . . . . . . . . . 4.3 The New Stage of EU-MEROCUR Relations from 2022 . . . . . . . 4.4 China and MERCOSUR Future . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 5 7 7 13 13 23 25 29 31 31 35 40 43 47 51 51 54 61 63 66

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5

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7

Contents

Macroeconomic Analysis of the Characteristics of the Countries of MERCOSUR and Its Comparison with the European Union . . . 5.1 Macroeconomic Analysis and Estimated Trends . . . . . . . . . . . . . 5.1.1 Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.2 Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.3 Inflation Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.4 Balance of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.5 Labour Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Institutional Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Business Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New Association Strategy in the MERCOSUR-European Union Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Tariff and Non-tariff Barriers and the Liberalisation of Trade . . . . 6.2 Market Access for Industrial Goods . . . . . . . . . . . . . . . . . . . . . . 6.3 Market Access for Agricultural Goods . . . . . . . . . . . . . . . . . . . . 6.3.1 Access to Raw Materials, Export Duties and Import and Export Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 Technical and Non-technical Barriers to Trade . . . . . . . . . . . . . . 6.4.1 Trade Agreement Chapter 3: Customs and Trade Facilitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4.2 Trade Agreement Chapter 5: Sanitary and Phytosanitary Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4.3 Trade Agreement Chapter 6: Dialogue Forums . . . . . . . . . 6.4.4 Trade Agreement Chapter 7: Technical Barriers to Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 Free Movement of Personnel and Capital . . . . . . . . . . . . . . . . . . 6.6 Competition and Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Current State of EU-MERCOSUR Trade Relations . . . . . . . . . 7.1 Analysis of Commercial Exchange between the European Union and MERCOSUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1.1 Main Products Exported to the European Union from MERCOSUR Countries . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 The Challenges of the New Association: The European Union and MERCOSUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 Analysis of Trade Relations between MERCOSUR and the European Union through a Gravity Model . . . . . . . . . . . . . . . . . 7.3.1 Theory Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 Statistics Sources: Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 Estimation Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6.1 The Institutional Factors . . . . . . . . . . . . . . . . . . . . . . . . . 7.6.2 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

69 69 70 73 77 81 83 87 90 95 97 98 103 104 110 110 111 112 113 114 116 117 118 121 121 128 131 134 135 137 137 139 140 141 144

Contents

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9

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Key Factors of Foreign Direct Investment in the MERCOSUR of the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 The Relationship Between Foreign Direct Investment and Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 Macroeconomic Determinants and Microeconomic Determinants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3 FDI by Country of Origin and Sectors to Which It Is Directed . . . 8.3.1 Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3.2 Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3.3 Paraguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3.4 Uruguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 Interests and Sectors for FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Impact of the Fourth Industrial Revolution on Global Supply Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Changes in International Trade and EU-MERCOSUR Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 Technology Industries Companies: The New Geopolitics of Interregional Actors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3 The Broader Context and Unquantifiable Factors . . . . . . . . . . . . 9.4 EU-MERCOSUR and Techplomacy . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

vii

147 147 152 160 162 164 166 168 170 174 177 177 181 184 186 188

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

About the Authors

Ing. Lourdes Gabriela Daza Aramayo, Ph.D. She is one of the three founders of Anglo-American University and, Founder and Executive Director of the LAC-Center (Latin American and the Caribbean Business and Study Center) in Prague. She is a specialist in relations between Latin America and the European Union. She is a member of the Bi-regional Academic Council of the Permanent Academic Forum Latin America and the CaribbeanEuropean Union. Lourdes Daza Aramayo is from Bolivia, she graduated as an Engineer from University of Economics, Prague, in Economics and Economic Policy with a specialization in Socio-economic Data Analysis. She also has a Ph.D. in Economic Policy. Her research interests include International Relations, Diplomacy, and Trade Relations, Relations between the EU and Latin America and the Caribbean, International Trade, International Political Economy, Trade Gender, Applied Econometrics, Econometric ad Economic Analysis. She is currently working on a new book Advances and challenges of Policies that promotes Labour Participation of women in the European Union, Latin America and the Caribbean in the context of economic recovery during and post-Covid-19 pandemic thanks to the initiative of the EU-LAC Foundation and the EUROsociAL Programme.

ix

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About the Authors

Mario Torres Jarrín is a Director of the Institute of European Studies and Human Rights at the Pontifical University of Salamanca (Spain). Previously, he was a Director of the European Institute of International Studies (Sweden); Researcher Associate and Adjunct Lecturer in Regionalism in Latin America in the Chair of International Business and Society Relations with a focus on Latin America at Friedrich Alexander University Erlangen-Nuremberg (Germany); Lecturer in Regional Studies and Research Associate in the Institute of Latin American Studies, as well as an Adjunct Lecturer in the Department of Romance Studies and Classics, Faculty of Humanities at Stockholm University (Sweden). He has been a Visiting Professor at Copenhagen Business School (Denmark), University of Bergen and University of Oslo (Norway), University Institute of Lisbon (Portugal), National University of Political Studies and Public Administration (Romania), University of Salamanca (Spain), University of Economics and Anglo-American University (Czech Republic) and Diplomatic Academics in Europe and Americas. He holds a Ph.D. in History, a Master in European Union Studies and a BA in Business Studies from the University of Salamanca (Spain). His research interests include international relations and diplomacy, EU Foreign affairs and security, EU & Latin America and the Caribbean relations, European and Latin American integration history, theories of regional integration and interregionalism, international political economy and global governance. He was Executive Secretary of Consortium of Universities IBERO-EURO-AMERICA and a Council Academic Member of EU-LAC Academic Forum; Task Force Member “The future of work and education for the digital age” and Task Force Member "The Multilateralism and Global Governance Future" in the G20/T20 Summits system. He is a Member of the Scientific Committee of 5 European Research Projects co-financed by the Erasmus+ programme of the European Commission: “Relations between the European Union and Latin America: Future scenarios in a changing world” led by Universidad de Concepción (Chile); Research Group Member at Jean Monnet Module on International

About the Authors

xi

Private Law in the Research Center for International Private Law at Federal University of Santa Catarina (Brazil); Research Group Member at Jean Monnet Project “Over the Atlantic. EU and Latin American Relations: Between Diplomacy and Paradiplomacy”, led by University of Bologna (Italy) and a Member "Jean Monnet Network for the Study of Regionalism and Multilateralism" project led by FAU University (NurembergGermany). Currently, he is a Principal Investigator of the European project "#EU Defenders—Reloading European Cultural Heritage through digital storytelling and media literacy", led by the Institute of European Studies and Human Rights at the Pontifical University of Salamanca (Spain). Research period 2021–2023.

Abbreviations

ALADI AMR CAN CAP CARICOM CELAC IDB EU EU MS EFTA ECLAC ETIAS FDI GATT GMO GSP GDP IMF INTAL IPR LAFTA MERCOSUR MFN MNE SPS SICA TBT

Asociación Latinoamericana de Integración (Latin American Integration Association-LAIA) Against Antimicrobial Resistance Andean Community Nations Common Agricultural Policy Caribbean Community Community of Latin American and the Caribbean Inter-American Development Bank European Union European Union Member States European Free Trade Association Economic Commission for Latin America and the Caribbean European Travel Information and Authorisation System Foreign Direct Investment General Agreement on Tariffs and Trade Genetically Modified Organisms Generalized System of Preferences Gross Domestic Product International Monetary Fund Instituto para la Integración de América Latina y el Caribe Intellectual Property Rights Latin American Free Trade Association Southern Common Market Most favored nation Multinational Enterprises Sanitary and Phytosanitary Measures Central American Integration System Technical Barriers to Trade

xiii

xiv

TMA UNCTAD UNASUR WTO

Abbreviations

Everything except arms United Nations Conference on Trade and Development Unión de Naciones Suramericanas (Union of South American Nations) World Trade Organization

List of Figures

Fig. 5.1

Fig. 5.2 Fig. 5.3 Fig. 5.4

Fig. 5.5

Fig. 5.6 Fig. 5.7

Fig. 5.8

Fig. 5.9 Fig. 5.10 Fig. 5.11

GDP distribution in 2020 per cent of global nominal GDP (current US $). Source: Author’s calculations based on World Bank data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Population growth (annual %) in MERCOSUR countries in 2020. Source: Based on data from the World Bank . . . . . . . . . . . . Annual growth rate in 2020 of population in countries of Europe (EU27). Source: Based on data from the World Bank . . . . . . . . . . . . . Comparison of the Average Rate (%) of Population Growth between EU and MERCOSUR. Source: Based on data from the World Bank .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . . .. . .. Average growth rates of GDP in MERCOSUR and the European Union from 2005 to 2020 (in %). Source: Based on data from the World Bank .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . . .. . .. GDP average growth (annual in %) from 2000 to 2020. Source: Based on data from the World Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GDP per capita, European Union countries (constant 2015 international US $). Source: Based on data from the World Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GDP per capita, MERCOSUR countries (constant 2015 international US $). Source: Based on data from the World Bank .. . . .. . .. . .. . .. . . .. . .. . .. . .. . .. . . .. . .. . .. . .. . . .. . .. . .. . .. . .. . . .. . .. . Inflation rates, consumer prices (annual in %) for MERCOSUR countries, 2020. Source: Based on data from the World Bank . . . . Inflation rates, consumer prices (annual in %) for EU countries, 2020. Source: Based on data from the World Bank . . . . . . . . . . . . . . . Evolution of inflation rate for EU and MERCOSUR (excluding Argentina) in% (2000–2020). Source: Based on data from the World Bank .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . . .. . ..

70 71 72

73

75 78

79

80 80 81

82

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Fig. 5.12

Fig. 5.13 Fig. 5.14 Fig. 5.15

Fig. 5.16 Fig. 5.17 Fig. 5.18

Fig. 5.19

Fig. 7.1 Fig. 7.2

Fig. 7.3

Fig. 7.4

Fig. 7.5

Fig. 7.6

Fig. 7.7

List of Figures

Current account balances of the European Union and MERCOSUR countries 2000–2020 (% GDP). Source: Based on data from the World Bank . . .. .. . .. . .. . .. . .. . .. . .. .. . .. . .. . .. . .. . .. . .. EU and Mercosur, Exports 2000–2020 (millions of US $). Source: Based on data from the World Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EU and Mercosur, Imports 2000–2020 (millions of US $). Source: Based on data from the World Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparing the evolution of exports and imports between MERCOSUR countries and the EU (million US $), 2000–2020. Source: Based on data from the World Bank . . . . . . . . . . . . . . . . . . . . . . . Unemployment rate of MERCOSUR countries (% of total labour force), 2020. Source: Based on data from the World Bank . . . . . . . Unemployment rate of EU 27 countries (% of total labour force), 2020. Source: Based on data from the World Bank . . . . . . . . . . . . . . . Ranking of MERCOSUR countries for Business 2020. Source: Own graph based on data from Index of Doing Business from the World Bank and the Index of Economic Freedom from Heritage Foundation . . .. . . .. . . . .. . . .. . . .. . . .. . . . .. . . .. . . .. . . .. . . . .. . . .. . . .. . . .. . . Ranking of EU 27 countries for Business 2020. Source: Own graph based on data from Index of Doing Business from the World Bank and the Index of Economic Freedom from Heritage Foundation . . .. . . .. . . . .. . . .. . . .. . . .. . . . .. . . .. . . .. . . .. . . . .. . . .. . . .. . . .. . . Export and import shares for main trading countries, % 2020. Source: Based on data from the International Trade Center . . . . . . . Trade balance between MERCOSUR and the EU, million EUR, 2001–2020. Source: Based on data from the International Trade Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exports from MERCOSUR countries to the European Union, 2004–2020 (% of total). Source: Based on data from the International Trade Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exports from MERCOSUR to the European Union countries, 2020. Source: Based on data from the International Trade Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exports from the European Union to MERCOSUR (% of total exports to the bloc), 2020. Source: Based on data from the International Trade Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Structure of exports of MERCOSUR to the EU, 2015–2019 (% of total exports to EU). Source: Based on data from the Resource Trade Earth and UNCTAD data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Structure of merchandise exported by MERCOSUR to the European Union in 2019. Source: Based on data from the Resource Trade Earth and UNCTAD data . . . . . . . . . . . . . . . . . . . . . . . . . .

83 85 85

86 86 87

94

95 122

122

123

125

125

126

127

List of Figures

Fig. 7.8

Fig. 8.1 Fig. 8.2

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Structure of commodities imported by MERCOSUR from the European Union in 2019. Source: Based on data from the Resource Trade Earth and UNCTAD data . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Flows of direct investment abroad. Source: Own calculations with the data of EUROSTAT (online data code: bop_fdi6_geo) . . . . . . . 162 Extra-EU foreign direct investment flows, by economic activity, EU-28, 2016. Source: Eurostat (online data code: bop_fdi6_flow) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

List of Tables

Table 5.1 Table 5.2 Table 5.3 Table 5.4 Table 5.5 Table 5.6 Table 5.7 Table 5.8 Table 5.9 Table 5.10 Table 5.11 Table 5.12 Table 5.13 Table 6.1 Table 6.2 Table 6.3 Table 6.4 Table 6.5 Table 6.6

Estimates of population trend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MERCOSUR age dependency ratio for 2020 . . . . . . . . . . . . . . . . . . . . European Union (EU 27) age dependency ratio for 2020 . . . . . . . Estimates of economic indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Economic growth of MERCOSUR countries from 2005 to 2020 (in %) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Economic growth of the European Union, by country from 2005 to 2020 (in %) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimates of inflation indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Results of the regressions of the balance of payments indicators . . .. . .. . .. . .. .. . .. . .. . .. . .. . .. .. . .. . .. . .. . .. .. . .. . .. . .. . .. .. . Unemployment rate for MERCOSUR countries, 2019 and 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unemployment rate for EU countries (EU27), 2019 and 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Results of the regressions of the Labour Market indicators . . . . . Ranking of the best countries to do business in MERCOSUR in 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ranking of the best countries to do business in the European Union (EU 27) in 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Specific agreement with the MERCOSUR countries and the European Union on trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . List of the non-tariff measures imposed by the European Union . .. .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. .. . .. . .. . .. . Comparison of current tariff rates with future tariff rates on selected meat products . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . .. . . . . . . . . Comparison of current tariff rates with future tariff rates for selected poultry products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparison of exports and imports of selected products . . . . . . . . Comparison of current tariff rates with future tariff rates for Pigmeat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71 73 74 76 76 77 82 84 87 88 88 92 93 101 103 105 106 107 107 xix

xx

Table 6.7 Table 6.8 Table 6.9 Table 7.1 Table 7.2 Table 7.3 Table 7.4 Table 7.5 Table 7.6 Table 7.7 Table 7.8 Table 7.9 Table 8.1 Table 8.2 Table 8.3 Table 8.4 Table 8.5 Table 8.6 Table 8.7 Table 8.8 Table 8.9 Table 8.10 Table 8.11 Table 8.12 Table 8.13 Table 8.14

List of Tables

Comparison of current tariff rates with future tariff rates for certain sugar products .. . .. .. . .. . .. . .. . .. .. . .. . .. . .. .. . .. . .. . .. . .. .. . Comparison of current tariff rates with future ethanol tariff rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ranking of cross-border trade-times and costs for MERCOSUR countries and European Union countries . . . . . . . . . Exports and imports from the European Union (EU 27) from 2004 to 2020 to MERCOSUR in millions of euros . . . . . . . . . . . . . . Argentina’s exports to European Union (EU 27) . . .. . . .. . . .. . . .. . Brazil’s exports to European Union (EU 27) . . . . . . . . . . . . . . . . . . . . . Paraguay’s exports to European Union (EU 27) . . . . . . . . . . . . . . . . . Uruguay’s exports to European Union (EU 27) . . . . . . . . . . . . . . . . . . Top 10 products exported from the European Union to MERCOSUR and their current and future tariffs . . . . . . . . . . . . . . . . Top 10 products imported by the European Union from MERCOSUR and their current and future tariffs . . . . . . . . . . . . . . . . MERCOSUR exports to European Union between 2004 and 2020. Results of the gravity model (two models) . . . . . . . . . . . . . . . . MERCOSUR imports from the European Union between 2004 and 2020. Results of the gravity model (two models) . . . . . . . . . . . Results for the MERCOSUR-FDI Inflows (current US$), 2004–2020 . . . . .. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . Results for the MERCOSUR-FDI Outflows (current US$), 2004–2020 . . . . .. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . Summary: Hypothesis, expected results and results obtained for FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FDI inward flow in MERCOSUR countries (million USD) . . . . . Main invest sector in Argentina from all over the world (2016 in %) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in Argentina from European Union countries (from 2012 to 2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information on investment companies in Argentina (2016) . . . . . Foreign direct investment in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Main invest sector in Brazil from all over the World . . . . . . . . . . . . Information on investment companies in Brazil (2018) . . . . . . . . . Investments in Paraguay from European Union countries (from 2015 to 2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information on investment companies in Paraguay (2018) . . . . . . Investments in Uruguay from European Union countries (from 2014 to 2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information on investment companies in Uruguay (2018) . . . . . .

108 108 115 124 128 129 130 131 132 133 142 143 158 159 161 163 163 164 165 165 166 167 168 168 169 169

List of Tables

Table 8.15 Table 8.16

xxi

Detail of the investment companies of the countries of the European Union in MERCOSUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Summary of the sectors that could represent a potential for the Czech Republic . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. .. . .. . .. . 173

Chapter 1

Introduction

The book is the result of the academic collaboration between the Institute of European Studies and Human Rights at the Pontifical University of Salamanca (Spain) and the Latin American & Caribbean Business and Studies Center at the Anglo-American University (Czech Republic). From an international relations perspective, interregionalism is a multidimensional phenomenon. During the last decades, academia has tried to explain with many theories the regional integration processes rise around the world, as well as the interaction between different regions (interregionalism). Regional integration and interregionalism have introduced changes to the world economy and politics, generating a structural transformation of the current international system (Hettne & Söderbaum, 2002). According to Hettne, a region is traditionally defined as a group of countries that share a political project (Hettne et al., 2002). Söderbaum distinguishes between regionalism and regionalization (Söderbaum, 2004). The rise of regional integration organizations and their interactions with other regions has resulted in redistribution and reconfiguration of the power centres, which has also impacted decision-making processes regarding global governance. But at the same time, bilateralism (Gratius, 2011; Grevi, 2010; Renard, 2011), has been a recurring and permanent factor in international relations definition and global governance. Some scholars have tried to describe the transition of the international system from a bipolar, unipolar to a multipolar world. Huntington (1999) uses the term uni-multipolar system, which is the result of the emergence of regional unipolarities that build coalitions to balance the superpower (Wohlfort, 1999). Buzan and Waever (2003) differentiate between superpowers and great powers—those whose external actions have an impact at both the global level and the regional powers, and those whose influence may be large in their regions but is not considered much at the global level, respectively.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 M. Torres Jarrín, L. G. Daza Aramayo, EU-MERCOSUR Interregionalism, United Nations University Series on Regionalism 21, https://doi.org/10.1007/978-3-031-19217-3_1

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1 Introduction

The emergence of regional power or regional unipolarities indicates a multipolar world order and the growing potential for the evolution of a multiregional system of international relations (Hurrell, 2007). Hänggi (2000) describes 3 types of interregionalism, classifying in different ways the relationships between regions and countries: (1) Traditional or pure interregionalism (relations between regional groupings, for example EU-SICA, EU-MERCOSUR or EU-CARICOM); (2) Transregionalism (relationships where states participate in their individual capacity in international political forums or bi-regional summits as APEC or EU-LAC Summit) and, (3) Hybrid interregionalism (the relation between regional groupings and singles emerging powers, as the political dialogue between EU-Brazil, EU-Chile and EU-Mexico). That is to say that by Hänggi the EU-MERCOSUR is a traditional interregionalism. The EU-CELAC interregionalism is called “Multiplayer interregionalism” (Torres Jarrín, 2018). Regional integration organizations as well as interregionalism processes have suffered changes in their political priorities and strategic partnerships. The world order is quite different in comparison with the 1990s when negotiations with different regional integration processes in Latin America and the Caribbean began, among them the EU-MERCOSUR interregionalism. Since then, the EU regional integration processes, as that of MERCOSUR, have suffered many changes in its objectives, institutional system and priorities as political actors in the international system. Also, the WTO has mutated and changed rules and duty levels since then. New dimensions of trade and technology represent variables that redefine the geopolitics strategies of countries. In this new international context, the EU-MERCOSUR interregionalism deserves a new academic approach. For decades there has been a multilayered and multifaceted set of arrangements and organizations that coexist in the LAC region (Gardini & Malamud, 2015). Most of these regional integration processes were conceived by the desire to create markets based on geographical proximity (Torres Jarrín, 2016). The EU has concluded a trade agreement with the four founding members of MERCOSUR (Argentina, Brazil, Paraguay and Uruguay), as part of a bi-regional Association Agreement. Current trade relations between the EU and MERCOSUR are based on an interregional Framework Cooperation Agreement which entered into force in 1999. The EU-MERCOSUR negotiations started in 2000 and over the years experienced different phases. At the same time, the EU and individual MERCOSUR countries also have bilateral framework cooperation agreements, which deal with trade-related matters. In May 2016, the EU and MERCOSUR relaunched the negotiation process, exchanged new market access offers and intensified the pace of negotiations by holding negotiation rounds and meetings at regular intervals. On 28 June 2019, the European Union and MERCOSUR reached a political agreement. Now the parties enter into a process of ratification of the agreement in their respective parliaments. The agreement represents geopolitical declaration towards new extra-regional powers that try to influence the EU-MERCOSUR interregionalism process and an opportunity for the European Union to reassert its position in the international arena

1

Introduction

3

by reinforcing rules-based trade and to have a positive impact on sustainable development in the South American (Baert et al., 2014) and in the set of the Latin America region. The academy accepts interregionalism as a theory that explains the relations developed between regional integration organisations around the world. Usually, to be part of the premise that all regional integration processes and their respective organizations have the same level of objectives and institutional political system; but this assertion is incorrect. Not all organizations have the same integration level, and we can even say that except for the European integration process, the rest of the regional integration institutions do not seek a political integration as in the case of the European Union. Most regional integration organisations just look for a deeper regional cooperation level among the countries. This book tries to answer the following research question: How can the EU-MERCOSUR Interregionalism contribute to the global governance future? The EU-MERCOSUR relations will be analysed under Normative Power theory (Manners, 2006), taking into consideration that EU-MERCOSUR cooperation developed during the last decades has served, on one hand, to try to build a strategic partnership to respond to the main challenges of the international agenda (e.g. Paris Agreement under the United Nations Framework Convention on Climate Change or to enforce United Nations Sustainable Development Goals). Under the EU environmental policy strategy, the bilateral and interregional agreements signed by the EU with third parties have contained a section on environmental and sustainable development cooperation and this is not the exception in the interregional agreement between the EU and MERCOSUR (Fulquet, 2015). On the other hand, the EU attempts to incorporate the Latin American countries (MERCOSUR) in Europe’s new vision of the transatlantic area and the global governance future. Traditionally, the perception of the transatlantic dimension takes only into account the EU–USA relations or in some cases the EU-Canada and EU-Mexico relations are also considered as transatlantic relations (Alcaro & Reilly, 2018). However, the EU expands that view and reinforces its transatlantic projection approaching the MERCOSUR countries. MERCOSUR has a stronghold on two major Latin American economies: Brazil and Argentina. In this sense, a transatlantic alliance integrated by three economic powers, USA, MERCOSUR and EU, could be an important counterweight in the world geopolitical playfield, which leans currently inclined favourably towards the Asia-Pacific countries. Nevertheless, the appearance of new extra-regional powers such as China (Bizzozero Revelez, 2021) has represented new challenges in terms of mainly great changes in the priorities in foreign policy and trade policy for both regions, EU, and MERCOSUR, and therefore, in the EU-MERCOSUR interregionalism. Therefore, the book is focused on EU-MERCOSUR interregionalism from a diplomatic and trade perspective. To answer the research question, the volume is organised into eight chapters. The first chapter examines the European Union-Latin American and the Caribbean interregionalism history from a diplomatic perspective.

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Firstly, it looks at how interregionalism is developed between the European Union and Latin American and the Caribbean countries. Secondly, it conceptualises the European Union’s external action to Latin American and the Caribbean regional integration organisations. Finally, it describes the state of the art in the EU-LAC interregionalism. The second chapter describes the political aspects of the EU-LAC interregionalism, such as the Brexit process, the stagnation of the transatlantic relationship European Union-USA, COVID-19 pandemic, as well as the new geopolitical players in the EU-LAC interregionalism. The third chapter describes the legal institutional framework of the European Union-Mercosur relations from 1995 when both parties signed the “Interregional Framework Cooperation Agreement between European Community and Mercosur”, considering the series of bilateral agreements with Argentina, Brazil, Paraguay and Uruguay. This agreement covered trade and economic matters, cooperation and other fields of mutual interest (European Community, 1999). The fourth chapter focuses on the characteristics of the MERCOSUR countries and compares them with data from the European Union. An analysis is carried out at macroeconomic, institutional and business levels. Regressions were used to analyse the trend of these variables and to be able to analyse them scientifically. This chapter offers an expanded reality in a multidisciplinary approach between the European Union and the MERCOSUR countries. This analysis will help predict the factors that may have a fundamental influence on trade relations between the two regions. The fifth chapter focuses on the challenges of the New Association, the European Union and MERCOSUR, including the analysis of trade in goods and the liberalisation of trade in services, technical and non-technical barriers to trade, free movement of personnel and capital and competition and subsidies, as well as other trade-related aspects. The sixth chapter analyses the EU-MERCOSUR relations from a trade perspective, the main characteristics of exports and imports between the two regions are studied, including the sectoral composition. In this chapter, the challenges of the new strategy in MERCOSUR-European Union relations will also be analysed. To end this chapter, a generalised (modified) trade gravity model has been designed, where the economic characteristics of the countries are combined with trade policy and institutional factors to determine the main factors of trade, exports and imports, between the European Union and MERCOSUR as a whole. Some simulations are included for the future. The seventh chapter offers a comprehensive understanding of investment flows and business deployment in the MERCOSUR. Likewise, the different provisions referring to services and investment in the Agreement have been reviewed, considering their potential for economic growth in both economic blocs. This chapter presents an interpretive approach to the sectoral composition of trade and capital exchanges between MERCOSUR and the European Union. Investment flows in general and their variations in both the services sector and activities based on natural resources are analysed (revealing how the financial sector grows at the expense of the manufacturing industry). It is significant for the MERCOSUR economies to

References

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achieve a distinctive increase in FDI flows to promote development that could have automatic effects on their economies and could contribute to their modernisation. The eighth chapter analyses the digital dimension that is modifying regional relations and the context in which they develop and impact societies on both sides of the Atlantic. The Fourth Industrial Revolution has created a tech industry sector that has revolutionised international relations and international trade. The digitalisation of the economy has transformed the way of designing, producing and trading goods and services to a great degree for MERCOSUR and the European Union and thus among all member countries and in their interactions at all levels. Finally, the conclusions section includes a global perspective in basis on analysis carried out in the previous chapters to finish highlighting the importance of the role of the EU-MERCOSUR interregionalism in the international system and global governance.

References Alcaro, A., & Reilly, P. (2018). The North Atlantic: A case of bicontinental regionalism. In F. Mattheis & Litsegard (Eds.), Interregionalism across the Atlantic Space. United Nations University Series on Regionalism (p. 137). Springer. Baert, F., Scaramagli, T., & Söderbaum, F. (Eds.). (2014). Intersecting Interregionalism. Regions, Global Governance and the EU. United Nations University Series on Regionalism 7. Springer. Bizzozero Revelez, L. (2021). The People’s republic of China’s south-south relations with the Mercosur countries: Regionalism at issue facing the win-win principle. In T. Kellner & S. Wintgens (Eds.), China-Latin America and the Caribbean: Assessment and outlook. Routledge. Buzan, B., & Waever, O. (2003). Regions and powers. The structure of international security. Cambridge University Press. European Community (1999). Interregional Framework Cooperation Agreement between European Community and Mercosur, Council Decision 1999/279/EC. EUR-Lex Access to European Union Law. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=LEGISSUM%3Ar14013, Accessed 26 January 2022. Fulquet, G. (2015). From north-south to south-south power relations: The changing dynamics of interregional cooperation and its effects on South America’s sustainable development. In A. Lenger & F. Schumacher (Eds.), Understanding the dynamics of global inequality. Social exclusion, power shift, and structural changes (p. 181). Springer. Gardini, G. L., & Malamud, A. (2015). Debunking Interregionalism: Concept, types and critique— With a pan-Atlantic focus. In F. L. Mattheis (Ed.), Interregionalism across the Atlantic space (Vol. 15, pp. 15–31). United Nations University Series on Regionalism. Gratius, S. (2011). The EU and the ´special ten´: Deepening or widening strategic partnerships? (FRIDE Policy Brief 76). http://www.fride.org/download/PB_76_Strategic_Partnerships_Eng. pdf, Accessed 26 January 2022. Grevi, G (2010) Making EU strategic partnership effective (FRIDE Working paper 105). https:// www.files.ethz.ch/isn/130706/WP105_Making_EU_Strategic_ENG_dic10.pdf, Accessed 26 January 2022. Hettne, B., & Söderbaum, F. (2002). Theorising the rise of regionnes. In S. Breslin, C. Hughes, N. Phillips, & B. Rosamond (Eds.), New regionalisms in the global political economy (pp. 37–38). Routledge.

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Hettne, B., Inotai, A., & Sunkel, O. (2002). Globalism and the new regionalism (p. 1). Palgrave Macmillan. Hänggi, H. (2000). Interregionalism: Empirical and Theoretical Perspectives. Paper prepared for the Workshop “Dollars, Democracy and Trade. External Influence on Economic integration in the Americas”. Los Angeles, CA, May 18. Hurrell, A. (2007). One world? Many worlds? The place of regions in the study of international society. International Affairs, 83(1), 127–146. Huntington, S. (1999). “The Lonely Superpower”. Foreign Affairs, March/April. https://www. foreignaffairs.com/articles/united-states/1999-03-01/lonely-superpower, Accessed 26 January 2022. Manners, I. (2006). Normative power Europe reconsidered: Beyond the crossroads. Journal of European Public Policy, 13(2), 182–199. Renard, T. (2011). The treachery of strategic: A call for true EU strategic partnerships (Egmont Paper 45). Academia Press. Söderbaum, F. (2004). The political economy of regionalism. The case of Southern Africa. Palgrave Macmillan. Torres Jarrín, M. (2018). EU-CELAC a multiplayer Interregionalism: Redefining the Atlantic area. In G. L. Gardini, S. Koschut, & A. Falke (Eds.), Interregionalism and the Americas (pp. 37–54). Lexington Books. Torres Jarrín, M. (2016). “The new model of regional integration for emerging countries in Latin America: The Pacific Alliance” in Torres Jarrín, M. & Violante Pica, J. : European Institute of International Studies, pp. 19–44. Wohlfort, W. C. (1999). The stability of a unipolar world. In B. Russett (Ed.), International security and conflict (Vol. 24, pp. 5–41). Routledge.

Chapter 2

EU-LAC Interregionalism History: From a Diplomatic Perspective

2.1

EU-LAC Interregionalism History: From Martino Report to EU-CELAC Summit

From a historical perspective, EU-LAC interregionalism originated in parallel on both sides of the Atlantic. On 18 April 1951, the treaty constituting the European Coal and Steel Community was signed in Paris and on 14 October the Charter which originated the Organisation of Central American States, was signed in El Salvador. In 1957, the Treaty of Rome creating the European Economic Community was signed. A year later in 1958 the Memorandum of Understanding on the Regime on Integration of Central American Industries and the Multilateral Treaty on Free Trade and Central American Free Trade were signed in Tegucigalpa. These were the direct antecedents of the General Treaty on Central American Economic Integration signed in Managua on 13 December 1960, the same year in which the Central American Bank of Economic Integration was created. In empirical terms we could say that EU-LAC interregionalism was born in the sixties decade because it was when some European and Latin American countries began a political rapprochment. They sought to coordinate their positions before the first meeting of the UN Conference on Trade and Development (UNCTAD 1964). In 1957, six European countries created the European Economic Community through the Treaty of Rome (EEC): Belgium, France, Italy, Luxembourg, the Netherlands and West Germany. In the case of Latin America, seven countries established the Latin American Free Trade Association (LAFTA) through the Treaty of Montevideo. Both cases contemplated the creation of common markets and customs unions. In the decade of the 1960s, the EEC represented a market of 356 million people (World Bank, 2020a) and LATFA counted on a population of 219 million (World Bank, 2020b). Thus, both were attractive for developing commercial relations. Accordingly, the EEC asked the European Parliament (EP) to elaborate a report on © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 M. Torres Jarrín, L. G. Daza Aramayo, EU-MERCOSUR Interregionalism, United Nations University Series on Regionalism 21, https://doi.org/10.1007/978-3-031-19217-3_2

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the advantages and disadvantages of establishing relations with Latin American countries. It is worth pointing out that until this moment the concept of Latin America and the Caribbean as a region did not exist, with talk only of the countries of Latin America. It can even be seen that, although European countries talked about Latin American countries, in reality they were interested only in the countries of South America or the so-called Southern Cone. Thus, their later bet on the process of integration among the countries of the Andes, like the integration process of the Andean Community, and then the case of the countries of the Southern Cone through the integration process of the Southern Common Market (Mercosur). Even if it is true that relations were also developed with Central American countries and that in recent years Caribbean countries have been incorporated into European–Latin American relations, it must be pointed out that in the case of Central America this occurred primarily because of the peace process in the region in the 1980s. Although, as we have seen, the processes of integration in Europe and Central America began almost in parallel. The incorporation of the Caribbean countries happened because the European Union decided to unify its international cooperation programmes in the Western hemisphere, grouping the Central American and Caribbean countries together, as we will later. In 1963, the European Parliament Trade Committee decided to send a delegation to explore the possibilities of establishing agreements with some countries in South America before the first meeting of UNCTAD. The countries visited were Argentina, Brazil, Colombia, Chile, Peru and Uruguay. As can be appreciated, this is the first tangible proof od that the EEC was interested in the countries of the Andes and the Southern Cone. In fact, as history shows, these will be the countries that develop the deepest political, economic, trade and international cooperation relations with European countries. During the last half of the twentieth century, Latin American countries began to implement two models of international economics: the so-called development model and the liberal model. Initially, during the fifties and the beginning of the 1970s, the development model predominated generating annual growth levels of 5.5%. However, the development model began to decline and caused a situation of economic crisis in the region which led to the implementation of the neoliberal model. It was first applied in Chile followed by other countries in South America to finally, during the 1990s, be extended to practically the whole region (Pérez García, 2004). The development model was guided by the economic theory of the United Nations Economic Commission for Latin America and the Caribbean, known as ECLAC. It was therefore known as “cepalian” theory. This theory was formulated by Raul Prebisch who based on his analysis of Latin America’s entry into the global economy on the concept of “centre-periphery”. According to this concept, Latin American countries were assigned to the periphery of the global economic system, producing raw materials and foodstuffs for the industrial countries, or so-called developed countries, who formed the centre.

2.1

EU-LAC Interregionalism History: From Martino Report to EU-CELAC Summit

9

For Prebich, the deterioration in the terms of trade for primary goods in the longterm reinforced an asymmetrical structure which was prejudicial to Latin American countries in their levels of development, action which he thought amounted to a frontal attack on the international division of labour and produced a concentration of income in the industrialised countries of the centre. Prebisch therefore called on the state to implement pro-active interventionist policies through a process of accelerated industrial modernisation (Prebisch, 2012). In the years 1958–1963 statistics show that ECC imports from Latin America amounted to 38% compared to 25% for African countries and 17% from the Middle East, figures which determine the commercial interest in Latin American countries (Lerman, 1991). The history of EU_LAC interregionalism has four periods (Torres Jarrín, 2018): • First period (1964–1991): From Martino’s report to the EEC-Rio Group meetings. • Second period (1991–2009): The EEC-Rio Group institutionalises the Ministerial Meetings system. • Third Period (2009–2013): EU-LAC Summit of Heads of State and Government System. • Fourth Period (2013–present): EU-CELAC Summits. The first period (1964–1991) began with the Martino Report, so named because it bore the name of the MEP who was entrusted with drafting the report for the European Parliament Trade Committee in 1963. Among the conclusions of the report the following points stand out: • The EEC identifies as partners of the European Coal and Steel Community (ECSC) to Latin American Institute of Iron and Steel (ILAFA), of the ECC to Special Coordination Commission for Latin America (CECLA) and of the UN Economic Commission for Europe to UN Economic Commission for Latin America (UNECLA). The latter would change its name in 1984 to the UN Economic Commission for Latin America and the Caribbean (ECLAC). Since its beginning, ECLAC had always supported Latin American integration (Briceño et al., 2013). However, it is little known that ECLAC not only has members from the region, that is Latin America and the Caribbean, but also non-regional members like: Germany, Spain, the USA, France, Italy, Japan, the Netherlands, Portugal, the UK, Ireland, the Republic of Korea, Norway and Turkey. This would be irrelevant but that all these countries have investments in the region. Therefore, being part of ECLAC shows us the interest of these countries in the consolidation of the countries in the region into a market and above all that these countries benefit socially and economically. Juridical and social stability are the preconditions for being able to do good business in these countries. For all these reasons, the report recommended developing a formal dialogue with the above institutions (IRELA, 1996) and recommended opening a liaison office in Santiago de Chile, where ILAFA and UNECLAC have their headquarters:

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• It was convenient to reach common positions with Latin American countries prior to the first meeting of UNCTAD to secure greater political weight in the negotiations. The report indicated that the Latin American countries had already coordinated their positions in a meeting in Alta Gracia organised by CECLA (IRELA, 1996). ILAFA was created in 1959 by iron and steel producers and although it enjoyed government support, its nature was different than that of the ECSC. The principal justification of the ECSC was to control coal and steel production and commercialisation to control the production of arms by signatories to the treaty, above all Germany, and thus prevent future wars. UNECLA was the equivalent to UNECE: both formed part of the UN system and were two of the five regional economic commissions created by the Economic and Social Council of the UN (ECOSOC) in 1947 to support and collaborate with the governments of the respective regions in the investigation and analysis of regional economic issues. The UN always supported the creation and implementation of regional integration. For ECOSOC the world was divided into 5 regions: Europe, Africa, AsiaPacific, the Middle East and Latin America. Among main objetives of the UNECE it was to promote pan-Europrean regional integration, which is why the members of the EEC regarded UNECE as a natural ally. CECLA was created in 1964 within the framework of the third meeting of the International Economic and Social Council of the Organisation of American States (OAS). This meeting brought together 19 economics ministers from Latin America who decided to create a permanent commission to follow-up on decisions reached in the OAS or UNCTAD. The idea of CECLA was born in the meeting of the CIES, an institution of the OAS, in the city of Punta del Este between 5 and 17 August 1961. In this meeting, the so-called “Charter of Punta del Este” was signed with two main objectives. The first was to create the Alliance for Progress, an initiative of US President JF Kennedy to support economic and social developments in Latin America. The initiative was initially intended to last from 1961 to 1970 with a budget of 20 billion dollars—the same as the Marshall Plan. The second objective was to serve as the basis for establishing the outlines of coordinated and joint efforts to secure preferential agreements and other measures which limited the global consumption of Latin American primary products, as well as access to international markets. In particular, with countries that were in a process of economic integration, like Western Europe and countries with centrally planned economies. At this point we can highlight the contributions of EU-LAC interregionalism, the first being that of the European Parliament which sought an initial rapprochement with the region which will be the political basis to develop an institutionalised dialogue that will conclude with the development of a strategic alliance decades later. The second contribution is when the OAS is able to use its institutional system

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at the inter-American level to incentivise Latin American governments to adopt joint positions and articulate policies in defence of their common interests as a region. The Europeans hoped that CECLA would be the counterpart of the EEC, but sadly CECLA did not manage to become an organism for regional integration for Latin American countries. As a consequence, it never managed to be the organisation representing the region as a whole, despite this being part of its objectives. A vigorous expression of its unity, which allows it to project itself in other areas of the world as a single voice and to promote a frank and responsible dialogue capable of establishing formal and efficient mechanisms to achieve a more just and equitable international cooperation. Reaffirm that CECLA is the forum to coordinate and unify the interests of the countries which form it in relation to the European Communities, without prejudice to bilateral, subregional or regional negotiations which it is though convenient to carry out (Declaración de Buenos Aires, 1969). The Declaration of Buenos Aires also considers it necessary to “institutionalise at the highest political level the dialogue between Latin America and the ECC to achieve the following objectives”: • Analyse and decide about issues in their relations and thus allow the achievement of mutually agreed objectives of the system which it proposed to create. • Establish a framework of reference which facilitates the dynamic development of bilateral, subregional and regional relations between Latin America and the European Communities. • Find solutions, including the conclusion of sectoral or global agreements in trade, finance, transport, scientific cooperation and technology. On 18 June 1971, the EEC and CECLA created a dialogue mechanism with the aim of regulating issues of bilateral interest. Among the main issues were the promotion of trade and investment between developing countries and producers of primary materials, in other words the members of CECLA, and developed or industrial countries a clear reference to the members of the EEC. Among the measures contemplated for the promotion of trades were the creation of a system for price stabilisation and the elimination of tariffs. The aim was that this new mechanism would develop a bi-regional agenda which would then be defended jointly at the multilateral level, above all in the negotiations within UNCTAD and the GATT (General Agreement on Tariffs and Trade). It is worth pointing out that UNCTAD created the “Generalised System of Preferences” and that the GATT established the principle of “Most Favoured Nation”, measures that have allowed the increased in the external trade of Latin American countries not just with Europe but also with other regions. In 1972, at the third UNCTAD conference celebrated in Santiago de Chile, the countries of both regions failed to secure their objectives. Even though the Latin American countries had arrived with a series of agreed positions, which had been adopted in the joint declaration of the second ministerial meeting of the Group of 77 celebrated in Lima from 25 October to 7 November 1971, including that the countries would adopt a common position. The declaration was taken with enthusiasm by most Latin American countries who saw that all the mechanisms for political

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coordination were working in a practical way on issues related to the international agenda. For this reason, they thought this meeting represented a major milestone in the history of relations between countries in the region and referred to the declaration as the “Lima Consensus”. The European Parliament considered that the results of the conference could only be evaluated in a definitive manner if implemented by the organs of UNCTAD and the GATT. The European Parliament deplored the rejection by the Council of Ministers of various proposals presented by the Commission (Resolution about the state of relations between the European Community and Latin America and the result of study and information visits to various Latin American countries in 1971), which would have facilitated in the economic sphere the increase of external trade on both sides and in the political sphere would have reinforced relations between the two regions. During the decade of the 1970s, the EEC managed to sign the first trade agreements with Latin American countries, in particular, with three of the four countries that would be members of MERCOSUR: • Trade Agreement between the EEC and Argentina (8 November 1971) which reciprocally conceded “Most Favored Nation” treatment and established a Mixed Commission to consolidate and enlarge economic and commercial relations. • Trade Agreement between the EEC and Uruguay (6 November 1973). • Trade Agreement between the EEC and Brazil (19 November 1973). • Trade Agreement between the EEC and Mexico (15 July 1975). Both sides granted “Most Favoured Nation” status. In 1975, CECLA became the Latin American Economic System (SELA from its initials in Spanish) and among its new objectives was to promote economic cooperation and integration between the 25 countries in Latin America and coordinate and agree on common positions before other groups of states, fora and international organisations. In response the European Parliament adopted a resolution in 1976 in which: It welcomes the signature of the agreement setting up SELA and considers that this could serve as a framework of reference for cooperation between the Community and Latin America . . . suggests the creation of a financial centre between the two regions and the gradual extension of the interventions of the European Investment Bank to cover operations which encourage regional integration and intensify the exchange between the Community and Latin America. This same resolution emphasises that the advances attained have been because of regular contacts between both regions since 1971. Through the transformation of CECLA into SELA, a new element was introduced into the process of integration, that of a “joint action at the political level”. For this, the Latin American Council of SELA was created, substituting formally for the Commission of CECLA. An interesting and relevant aspect of our case study is that the Council of SELA creates similar objectives, competences and structures as those of the Council of the EEC, which shows a de facto process of interregionalism:

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2.1.1

13

EEC Council

• Objectives: The Council will assure the coordination of the general economic policies of the member states (Treaty establishing the European Economic Community, 1957, Article 145). • Structure: Composed by the representatives of the member states (Article 146). • Autonomy of competences: It will establish an internal regulation (Article 151).

2.1.2

SELA Council

• Objectives: The Council will establish the general policies of SELA (Article 15.1). Among these will be to approve common positions and strategies of member states on economic issues (Article 15.11). • Structure: It will consist of a representative of each member state (Article 9). • Autonomy of competence: Approve its regulation (Article 15.3). There are other institutional parallels at the executive level of both processes of integration. The Commission of the EEC and the Permanent Secretariat of SELA will have similar mandates: • The EEC Commission will exercise the competences granted it by the Council for the execution of the norms (Article 155). • The SELA Permanent Secretariat will exercise the functions given it by the Council of SELA and when it executes its decisions (Article 31.1). In terms of external action, both sides also contemplated similar organisational structures, like the creation of committees. On the European side, Article 151 of the Treaty of Rome is the legal basis for the creation of the Committee of Permanent Representatives (COREPER). On the Latin American side, Article 20 of the Panama MoU contemplates the possibility of creating Action Committees with the aim of preparing and adopting joint negotiating positions, in other words, a structure similar to COREPER. Each of these normative and institutional similarities shows that the Latin American countries took the process of European integration as a model and reference. Another important highlight in the history of EU-LAC interregionalism occurred between 15 and 17 July 1974 when the first Interparliamentary Conference between the European Parliament and the Latin American Parliament was held in Bogota. As we have seen before, it was the European Parliament that encouraged and promoted relations with Latin America and remains the principal defender of EU-LAC interregionalism. The decade of the 1980s were dynamic years for the processes of regional integration, both in Europe and in Latin America. In 1980, the Latin American countries signed the Treaty of Montevideo which created the Latin American Integration Association (Known as ALADI from its Spanish initials), whose

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predecessor had been LAFTA. Even if LAFTA had been created to promote Latin American economic integration, the Andes group was created as a subregional counterweight as it was thought better to realise integration between countries of similar economic levels, rather than mixing different economies large, medium and small, to avoid asymmetries. Even though LAFTA promoted ascertain increase in regional trade, its creation coincided with the crisis in the import substitution model of industrialisation through protectionism and the diversion of trade from Latin American countries towards Europe and the USA. Parallel to the crises described above, there were other crises such as external debt, both public and commercial, and the oil crisis of the seventies. Each of these crises caused a fall in incomes which generated economic stagnation. In the USA and Europe, interest rates were raised which made debt financing even harder, produced a reduction in imports and increased unemployment throughout Latin America. The EEC took a further step in favour of relations with Latin American countries, incorporating in its agenda of community and foreign policy issues related to technical and financial assistance to third countries. On 17 February 1981, the Council of the EEC approved the first regulation on financial and technical assistance to non-associated developing countries, which included countries in Asia and Latin America. The regulation stresses that there should be a community presence in the major developing regions of the world (Regulation EEC 442/81). Within this legal framework were reached the first cooperation agreements: • Cooperation Agreement EEC-Andes Group (17 December 1983). • Cooperation Agreement EEC-Central America (12 November 1985). With the signing of these agreements, the EEC initiated the phase of the so-called second-generation agreements. These differed from first-generation agreements by including political issues as well as commercial issues, as well as seeking to develop agreements between regional groups. EEC Regulation N 2955/85 in its first section “Regional Cluster and Attribution of Origin” indicates that by “regional group” it understands the following integration organisations: • The Association of East Asia (ASA), later called ASEAN, created in 1967. • The Common Market of Central America. • The Andes Group. As we can observe it is the process of European integration which, through its norms and regulations, is creating an EU-LAC interregionalism, generating the definition of geographical spaces, both in geopolitical and in conceptual terms. The EEC introduced definitions of concepts within the discipline of international relations like “regional group” in the 1980s and during the 1990s will define “Latin America and the Caribbean” as a region and will create the category of “global actor”, considering that both the EU and LAC are global actors. The armed conflicts in Central America in the 1980s brought the Europeans and Latin Americans even closer, establishing the common objective of the pacification of Central America. 28–29 September 1984 saw the first Ministerial Conference,

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also called the San José Process. The result of this meeting was to formalise frequent and periodic meetings at the foreign minister level between the countries of the EEC, Central America and the so-called Contadora group. The Contadora group was a mechanism for joint action to promote peace in Central America. The work of the group was combined with that of the Contadora Support group, which together formed the Group of Lima, also known as the Group of Eight, which later became the Group of Rio, so called because it was created in Rio de Janeiro on 18 December 1986. The important part of this lengthy process is that it will be the base on which will be created the Community of Latin American and Caribbean States (CELAC). Finally, we cannot leave the decade of the 1990s without mentioning an international event which, without doubt, marked a before and after in EU-LAC relations. We refer to the incorporation of Spain and Portugal into the EEC in 1985. With the entry of Spain into the EEC, there was an intensification in the relations between both continents, as seen in the document “Common Declaration of Intentions on the Development and Intensification of Relations” with the countries of Latin America, which affirms the will of European countries to reinforce their economic, commercial and cooperation relations: The EEC confirms the importance it attaches to the traditional links it maintains with Latin American countries and the close cooperation which it has developed with these countries, records in this context the recent ministerial meeting in San José in Costa Rica, reaffirms, on the occasion of the adhesion of Spain and Portugal its will extend and reinforce its economic, commercial and cooperation relations with these countries. In 1985, the Framework Agreement on Cooperation between the European Community and the Central American Countries plus Panama was also signed which included various areas: economic, financial, investment, technical and social cooperation. On the other hand, during this period the agreements signed between EEC-Andean Community and EEC with third countries, represented significant advances for strengthening of the EU-LAC interregionalism. Institutional aspects: Agreements have been reached with two subregions in the process of integration or who expect to be so, the Andes and Central America Pacts and with Brazil, Mexico and Uruguay. For its part, the European Parliament recommended a further step in relations between the regions, seeking institutionalisation through permanent consultation at the political level and insisting that the Commission urgently study the creation of a wider political and economic agreement as well as asking the Commission to increase its delegations in Latin America. The second period (1991–2009) occurred when the Rio Group decided to promote an institutionalised system of permanent meetings at the ministerial level, creating a system of dialogue at the political level. This type of dialogue was extrapolated to their relations with European Communion. On 20 December 1990, the member states of the Rio Group and the European Community met in Rome issuing a declaration in which they agreed on a common mission and vision as well as joint objectives and actions in dealing with third

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countries or groups of countries. On the vision and mission, they agreed on the elaboration of a Bi-regional Agenda on the issues of mutual interests as well as how to collaborate in dealing with international fora and to create Bi-regional institutions. The Declaration concluded that the European Community and Latin America are called to play an active role together in the reconstruction of the international society of the future. Between 1991 and 2009, there were 14 meetings at the ministerial level between the EEC and the Rio Group: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Luxembourg 1991. Santiago de Chile 1992. Copenhagen 1993. Sao Paolo 1994. Paris 1995. Cochabamba 1996. Noordwyk 1997. Panama 1998. Vilamoura 2000. Santiago de Chile 2001. Athens 2003. Luxembourg 2005. Sant Domingo 2008. Prague 2009.

The ministerial meetings before metioned contributed to the EU-LAC interregionalist acquis both theoretically and practically. The joint declaration of the first meeting in Luxembourg was marked by the participation for the first time of representatives of Central American and Caribbean countries in the Rio Group. In theoretical terms, the concepts subregional, regional and bilateral began to be used: The ministers of the EEC declared themselves willing to provide assistance to the countries of the Rio Group with theoretical and practical aspects of integration at regional, subregional and bilateral levels (Clause 3). It must be considered that until this moment Latin America and the Caribbean were two separate regions for the ECC. Another interesting aspect of the Declaration is the thanks it gave to two organisations, ECLAC and the OAS. This is because it recognised the work ECLAC had done in favour of integration at the regional level, but the EEC keeps in mind the work of the OAS in favour of integration at the continental level. We must remember that the OAS is the first organisation of a continental nature to seek the unity of the entire American continent, which was the inspiration for some of the fathers of Europe like Count Richard Coudenove-Kalergi who in his book Pan Europa in 1923 complained that while the Americans were already celebrating their fifth Pan-American Conference the Europeans remained submerged in disagreement and without direction. With this statement, Coudenhove-Kalergi showed himself an admirer of the Pan-American movement which he would use as a reference in creating his Pan-European movement which would lead to the Council of Europe

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and the process of European integration that would begin with the European Coal and Steel Community and would conclude with what we know as the European Union. Finally, the Luxembourg meeting left clear the explicit support that the Community offered to Latin American countries in their process of integration: “The ministers of the Community decided to support the efforts for integration in Latin America” (Clause 5). The second meeting established as common objectives the principles and universal values that both regions share and on which the Bi-regional Association will be built. The countries adhered to the principles of representative democracy, the state of law, social justice and respect for human rights. It indicated that there was a nexus between democracy, human rights and sustainable development as the path to development for countries as well as offering support for the constructive role of the UN in the solution of regional and international conflicts (Clause 5). In the second meeting, Spain began to become an actor between both regions and secured a reference in the Declaration of Santiago to the first Iberoamerican Summit of Heads of State and Government in Guadalajara in 1991. Since then, the conclusions of the Iberoamerican summits will be included in the European-Latin American declarations. Spain and Portugal achieved their objectives of becoming the bridges between both sides of the Atlantic, and with this action increased their political weight within European institutions and positioned themselves as the interlocutors of the Latin Americans. The Iberoamerican process could not be fully accomplished, or at least not as it had been thought, given that an Iberoamerican Community of Nations had still not been created. The disagreement of some Latin American countries about Spain and Portugal’s political asymmetry with their countries was always a current issue and was what ended diminishing their relations. This position was also criticised by leftwing governments in the region of Latin America as colonialist behaviour by the two old metropolitan powers trying to represent and defend Latin American interests in European institutions, arguing that Latin American countries could do this directly themselves and had no need for intermediaries. Although in historical terms, the use of the word “colony” is incorrect, or at least in reference to Spain, as Spain had no colonies but was an empire and the lands in the American continent were part of the same empire. However, the Iberoamerican process helped the Latin American countries diversify their international relations and begin to establish other types of dialogue like those at the continental level, in the framework of the OAS, the regional level (SELA or ALADI) and subregional (SICA, CAN, MERCOSUR, CARICOM) through the different integration organs created and now participated in two processes bi-regional, one through meetings with the European Community and the other with the Iberoamerican community. Without doubt, this was weakening its relations with the OAS, which facilitated the creation of CELAC.

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The second meeting expressed the desire to carry out joint actions at a bi-regional level, deciding that both regions would meet before any international conference, for example the 47th meeting of the UN General Assembly (Clause 41.1). Finally, Clauses 35 and 37 of the declaration introduced the creation of programmes of regional business training as well as information and sensitisation about the process of integration. The idea was born of creating a regional centre for training and technical assistance in the areas described. In the third meeting in Copenhagen, we encounter for the first time in a political declaration the use of the concept of Latin America and the Caribbean as a region: The ministers affirmed that in Latin America and the Caribbean countries peace and democracy predomine, economic freedom, open markets as well as subregional and regional integration processes are beign consolidate (Clause 5.1). With the aim of supporting all existing processes of integration in the Latin American and Caribbean region, the ministers of the now European Union decided to intensify cooperation with the Andes Group, Mercosur, Aladi, the Central American Common Market, Caricom and the Group of Three and classified three types of cooperation: regional, subregional and bilateral (Clause 27). Taking this declaration as their reference, the countries of Mercosur designed cooperation programmes in customs, technical norms and agriculture. In contrast, the Central American and Andes countries elaborated cooperation programmes in regional integration, commercial financing, agriculture and industrialisation. With Chile, it was agreed to create a business foundation called “European Community-Chile” to develop trade between both sides. The fourth meeting held in Sao Paolo on 22–23 April 1994 indicated that the cooperation between both regions would be based on the principle of solidarity, in support of social and regional development, whose objectives should include the fight against poverty and the protection of the least favoured. The shared principles and values were reaffirmed and to “joint measures” were introduced. The first was of a political nature linked to the following issues: the UN, social development, Iberoamerican cooperation, the fight against racism and xenophobia, terrorism, drugs, disarmament and non-proliferation. The second focused on economic and cooperation issues. It detailed the list of actions to be taken in the framework of the UN: • The initiative for a programme for development and a programme for peace. • Reform of the UN Charter and improvement in the working methods of the organisation. • Application of the agreements reached at the UN Conference on the Environment and Development. • The third International Conference on Population and Development. • The Beijing World Women’s Conference. • Support for the UN Declaration on the Rights of Children. • Reinforce the role of the UN in the defence and promotion of human rights, as well as support for the High Commissioner for Human Rights. • Protection of the rights of indigenous communities and their cultural patrimony.

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The fifth meeting of the EU-Rio Group took place in Paris on 17 March 1997 contributing on three issues: 1. Social development. 2. Regional integration. 3. The future of EU-Rio Group relations. The first point dealt with the commitment to put in practice the Declaration and the Programme of Action adopted at the World Summit on Social Development, a commitment which had been assumed in Copenhagen in 1995. At the same time it was approved the existence of a monitoring mechanism for the objetives and agreed commitments. In relation to regional integration, both sides affirmed their conviction that regional integration was the best way to guarantee political understanding between states, at the same time allowing improved compactivity and greater integration in the global economy. Regarding to the third point, both regions expressed their satisfaction with the creation of the World Trade Organisation as they expected that its establishment as an international organisation with a legal personality would facilitate coordination between its members. The joint Declaration also recognised the advances achieved in regional integration in Latin America and the Caribbean on the basis of open regionalism. The concept of “open regionalism” had been recognised by ECLAC and defined as a process which sought to conciliate on one side the interdependence born of preferential trade agreements and on the other the interdependence driven mainly by market signals resulting from commercial liberalisation. The Declaration of Paris also included a positive evaluation of the launch of the Training Centre for Regional Integration, whose headquarters had been established in Montevideo. This issue is crucial for the whole regional integration process. We could even say that one of the reasons for the lack of progress in regional integration in the Latin America and Caribbean region has been the lack officials, even within the different integration bodies at subregional or regional level, who have been trained in the issues related to integration or a vision of what regional integration is. In 1995, Albert Hasson, Head of Unit of Directorate General IX (personnel and administration) of the European Commission identified as primordial that the “training of national officials in European affairs constitutes a precondition for success” (Hasson, 1995). In this sense, the EU presented an initiative for Rio Group officials to be trained in the centre. The sixth meeting held in Cochabamba on 15–16 April 1996 proposed an increase in the participation in political dialogue at the inter-parliamentary level to consolidate democracy within the respective negotiations as well as continuing to work on the preparation of joint positions for the next UNGA. The seventh meeting held in Nordwijk on 7–8 April 1997 introduced the concept of “Bi-regional trade” highlighting the advances in economic integration and political cooperation in both Latin American and Caribbean and the EU, mentioning that at that point the EU was one of the most important markets for the LAC countries.

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The eighth meeting in Panama on 11–12 February 1998 stressed the importance of political dialogue in strengthening bi-regional relations and therefore considered it opportune that this dialogue also incorporate inter-parliamentary dialogue between both regions. The fight against drugs was an important topic for the international community and so the EU sought to strengthen the anti-drug programmes in the Andes Community, as these are the principal cocaine producers, and to accept the principle of shared responsibility as Europe is one of the main markets for demand. The principle of shared responsibility between producer and consumer countries will be a recurrent theme in the negotiation of programmes financed by international cooperation, above all between the Andes and European countries. This will be one of the arguments for the Andes Community acceding to the System of Generalised Preferences. In the area of cooperation, the principle of “privileged partners” was incorporated. This will be the legal basis to then establish the “strategic partners”. To this concept is added another, “strategic value”, to define the cooperation between EU and Rio Group countries. Until that date these relations had generated seven specific programmes of bi-regional cooperation: 1. 2. 3. 4. 5. 6. 7.

Force Rio. AL-Invest. European Community Investment Partners. AL-URE. Urban Programme. CEFIR. Academic training.

Cooperation in the academic area will be one of the areas of greatest cooperation between the two regions. This began when it was proposed to include that area of bi-regional cooperation within the fifth European Framework Programme of Research and Development 1998–2022. 1999 saw another important highlight in the history of EU_LAC interregionalism. The Heads of State and Government Summit between the EU and LAC held in Rio de Janeiro on 28–29 June decided to change the system of ministerial meetings for a system of heads of state and government summits. This represented a significant advance in relations because it revealed the importance that the region enjoys in EU foreign policy. In this summit the idea was developed of creating a “Strategic Association”, and association that would cover areas like economics, trade, politics, social issues, environment, education, human rights, technology and science. At this point in history, there was a mutual understanding between both regions from the political point of view and on the main issues on the global governance agenda. We could say that it is the moment of best bi-regional relations. In this stage we can add to the Rio Group Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. The bi-regional agenda was expanded to include the “Prevention of National Disasters”. Among the actions related global governance, it was agreed to support the application of the Kyoto Protocol, defend

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the liberalisation of trade, above all within the framework of the WTO and defend in different international fora a new international financial architecture. The ninth meeting was held in Vilamoura on 24 February 2000. Ministers highlighted the importance of the first Summit of Heads of State and Government from EU and LAC countries and declared that the Summit had opened a new stage in the relations between the two regions which are called to form a strategic association in political, economic, social, environmental, educational, cultural, human, technological and scientific areas. Under the system of Summits of Heads of State and Government of EU-LAC countries there have eight summits: 1. 2. 3. 4. 5. 6. 7. 8.

Rio de Janeiro 1999. Madrid 2002. Guadalajara 2004. Vienna 2006. Lima 2008. Madrid 2010. Santiago de Chile 2013. Brussels 2015.

The last was held in 2015. The last two were held in the format of EU-CELAC summits as the Latin American countries had formed CELAC in 2010. Since then, there have been no further summits at the level of heads of state and government, although other levels of meetings have been held, primarily at the academic and scientific level. The two kinds of summits left two action plans: the Action Plan 2010–2012 and the Action Plan 2013–2015 defining the following areas of work: • Science, technology and innovation. • Sustainable development, environment, climate change, biodiversity and energy. • Regional integration and interconnectivity and the promotion of social cohesion and inclusion. • Migration. • Education and employment. • Global problem of drugs. • Gender. • Investment and entrepreneurship for sustainable development. The tenth meeting presented two thematic axes: “The New Economy: technological breach and employment” proposed by the Latin American countries; and “The sustainability of democracy, good government and the relief of poverty” proposed by the Europeans. The convergence between the two proposals led to their inclusion in the common agenda they decided to defend in international fora. The bi-regional agenda also included the security of the citizen, the fight against the illicit trade in small arms and support for the work of the Preparatory Committee for the UN Conference on the Illicit Trade in Light and Small Calibre Weapons. The incorporation of the strengthening of civil society was also discussed which led to

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the idea of creating a bi-regional foundation. This idea would later be embodied in the creation of the Foundation EU-LAC. In the eleventh meeting organised in Athens on 28 March 200 and, following the practice of each region proposing an area of work, the Latin American side presented the document “Social cohesion and democratic governance in the new economic environment”. It again emphasised the principle of solidarity and among the issues linked to joint actions included: democratisation and human rights, as well as reaffirming the commitment to complete the negotiations on the Development Agenda in Doha. For the first time international events were discussed, such as the crisis in Iraq and the Israel-Palestine conflict. On the latter, the countries supported the work of the “Quartet”, consisting of the EU, Russia, the UN and the USA. From this point on began pronouncements on international events reflecting the joint positions on foreign policy. The key themes of the twelfth meeting held in Luxembourg in 2005 included: the future of EU-Rio Group relations, international cooperation on Haiti, the creation of employment in the fight against poverty and strengthening democratic governance. Joint actions approved included support for the UN in establishing 0.7% of GDP as the official aid for development, supporting the Millennium Development Objectives and the reform of the UN and its respective bodies, in particular, the General Assembly, the Security Council and the Economic and Social Council. Finally, the meeting supported the UN on the Non-Proliferation of Weapons of Mass Destruction as well as the control of armaments and disarmament. The Luxembourg declaration left one issue hanging. Clause 7 indicates that “they noted the Community of South American Nations and its objectives” Note it does not say greet, welcome or congratulate, terms which were used when other organisations of regional or subregional integration were created. The Community of South American Nations had been created in 2004 to become a mechanism for political coordination and economic, cultural and social integration which would promote South American interests in international fora, and although its ambit was South American countries it was open to any Latin American country which wished to join. It appears that this initiative was seen by the Europeans as an unnecessary duplication of effort and resources given that the Rio Group already existed. What is certain is that, in official and formal terms, the EU did not develop any relationship with the Community of South American Nations, which then called itself the Union of South American Nations (UNASUR). Defense and security have never been topics included in the work agenda of regional integration organizations in Latin America and Caribbean. What is certain is that UNASUR was abandoned by its own state members who were giving up their membership because most thought the organisation simply existed to serve the interests of Brazil: on the one hand its arms industries and on the other its infrastructure industries. Brazil is the country with the largest arms industry in comparison with its neighbours. The plan for infrastructure development financed by Brazil was a proposal viewed with mistrust by its neighbours who thought that the trade flows would benefit Brazil’s assets rather than their own. Later, the corruption

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State of the Art of the EU-LAC Interregionalism

23

scandal of the Odebrecht company involved various Latin American governments and caused the suspension of various projects within the UNASUR framework like the physical infrastructure project IIRSA (initiative for the integration of South American regional infrastructure). The thirteenth meeting in Santo Domingo on 20 April 2007 evaluated the other meetings and limited itself to a review of actions developed up to that point. It added the following issues to the bi-regional agenda: energy, climate change, environment, middle income countries, fight against poverty and strengthening multilateralism. The fourteenth meeting, held in Prague on 13 May 2009, focused on the international financial crisis which had begun in 2008. The ministers supported a response from the international community agreed with emerging and developing economies.

2.2

State of the Art of the EU-LAC Interregionalism

In 2013, the first EU-CELAC Summit was held in Santiago de Chile on 26–27 January. The Summit was called to renew and deepen the Strategic Alliance around the slogan “Alliance for Sustainable Development: Promotion of Social and Environmental Investment”. The slogan was much like that of the Alliance for Progress later launched by the USA. It was the first time that the Latin American and Caribbean countries had met for a high-level bi-regional dialogue using CELAC, opting for this mechanism to represent the interests of the region, when dealing with third parties, in this case the EU. This summit incorporated two new issues in the bi-regional agenda: gender and investment and entrepreneurship for sustainable development. On gender it sought to guarantee gender equality and protection, and the exercise and promotion of women’s rights, among others: the participation of women in politics, the elimination of all forms of violence against women and girls, including sexual violence, the economic empowerment of women and their participation in the labour market and in all decision-making processes. There was also consideration of actions leading to promote bi-regional investment in the areas of social inclusion and environmental protection. It was hoped that these investments would contribute to increasing trade flows, generating technology transfer, the development of industry and generating an increase in the competitivity of SMEs. In short, there would be an increase in fiscal incomes and an increase in employment levels. During the Santiago Summit, the heads of state and government instructed their officials to broaden the new lines of cooperation in areas like higher education, public security and foodstuffs and nutrition security. It was decided to establish the EU-CELAC Foundation in Hamburg as tool for strengthening the bi-regional association. Among its objectives would be to promote debate over strategy and common actions as well seeking ways to raise the profile of the bi-regional EU-CELAC strategic association. On 17 May 2019, the Foundation would become an international body. The agreement to create the Foundation was the first international

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agreement negotiated by all 61 members of the Strategic Association between the EU and LAC—another bi-regional milestone. The second EU-CELAC Summit took place in Brussels on 10–11 June 2015 under the slogan “Modelling our Common Future: working for prosperous, cohesive and sustainable societies for our citizens”. Two declarations were adopted, a political declaration titled “An association for the next generation” and one on the different aspects of the relationship called the “Declaration of Brussels”. The plan of Action EU-CELAC 2015 was also adopted. The summit sought a more regular high-level political dialogue at foreign minister level and to strengthen cooperation on issues related to peace and security. The European, Latin American and Caribbean leaders encouraged the foreign ministers to organise meetings in the years between summits with the aim of deepening the bi-regional dialogue and being able to realise a better follow-up to the decisions adopted in the respective summits. Under this mandate, the first meeting of foreign ministers EU-CELAC was held in Santo Domingo on 25–26 October 2016. The second meeting was held in Brussels on 16–17 July 2018. The countries agreed to coordinate positions on areas like climate change, the development agenda after 2015 and the fight against drugs in the next conferences and international fora. On trade, they agreed to modernise the existing agreements between the EU and Mexico and Chile and to continue the efforts to reach a balanced global and ambitious association agreement between the EU and Mercosur. The Brussels Summit established ten areas of joint work: 1. Science, research, innovation and technology. 2. Sustainable development, environment, climate change, biodiversity and energy. 3. Regional integration and interconnectivity to promote social inclusion and cohesion. 4. Migration. 5. Education and employment to promote social inclusion and cohesion. 6. The world drug problem. 7. Gender. 8. Investments and entrepreneurship for sustainable development. 9. Higher education. 10. Citizen security. The second EU-CELAC summit it was the last time that both regions meet at the highest level. These meetings were suspended because of internal fragmentation within CELAC. Among the reasons, the ideological differences among the CELAC countries caused a double stagnation, an internal stagnation within CELAC, which also felt pressurised by the crisis in Venezuela. Two groups of countries emerged: those who thought that democracy did not exist in Venezuela and those who thought it did. The second stagnation was at extra-regional level, which prevented the bi-regional summit from being held. The EU also demonstrated its doubts about

2.3

Conceptualisation of the EU External Actions to LAC Regional. . .

25

whether Venezuela is a real democracy. All this has made it impossible to agree on holding another summit until now. An extra-ordinary “Informal EU27-Latin America and Caribbean” meeting was held in Berlin on 14 December 2020. But this meeting was not organised by EEAS, which is the body that directs the external action of the EU, but rather was an initiative of the German Foreign Minister Heiko Maas. Germany held at that point the rotating presidency of the EU Council. The meeting counted on the presence of representatives of EEAS but was not organised by it. The meeting was chaired by the EU High Representative for External and Security Affairs Josep Borrell as the majority of those present were Latin American and Caribbean foreign ministers. In this meeting, the ministers expressed their interest in recovering relations at the bi-regional level and holding another bi-regional summit.

2.3

Conceptualisation of the EU External Actions to LAC Regional Integration Organisations

The conceptualisation of EU external action towards the countries and the regional integration in Latin America and the Caribbean is set in the framework of “Normative Power” (Manner et al., 2014). For Manner et al. (2014), the EU through its external action and international cooperation, whether in the areas of political, economic or commercial cooperation or development aid, promotes its model of regional integration to the rest of the world. It is a strategy that validates itself. So that if others develop regional integration with the characteristics of European integration and it works in other regions the model is shown to be successful. At the same time, the EU becomes a de facto in these processes and in the construction of a new world order, or as Hettne says a world of regions created by regional integration bodies which with their external action reconfigure the traditional international system, which was based exclusively on nation-states. There are many forms of relations and, in the case of regional integration, has identified three types of interregionalism: 1. Traditional or pure interregionalism: The relations which develop between regional groups, for example EU-SICA, EU-MERCOSUR or EU-CARICOM. 2. Transregionalism: The relations in which states participate in international political fora or bi-regional summits, for example the summits of APEC or EU_LAC. 3. Hybrid interregionalism: This type of relation develops between regional groups and emerging powers, for example the EU-Brazil, EU-Chile or EU-Mexico dialogues. To these three categories can be added a fourth which arose from the question raised by Ayuso and Gardini (2015)—“How do we define EU-CELAC relations?”

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4. Multiplayer interregionalism: is when different actors participate in a bi-regional dialogue, not only at government level but also in NGOs, the business sector, academia, foundations etc., creating their own bi-regional agenda (Torres Jarrín, 2018). EEAS is headed by the EU High Representative for External and Security Affairs and has a headquarters in Brussels and a network of embassies around the world. EEAS has general directorates which cover all the geographical areas of the world as well as thematic and multilateral areas. EEAS was born with seven general directorates, five geographic and two thematic: 1. 2. 3. 4. 5. 6. 7.

General Directorate Asia and Pacific. General Directorate Africa. General Directorate Europe and Central Asia. General Directorate North Africa, Middle East, Arab Peninsula, Iran and Iraq. General Directorate Americas. General Directorate Global and Multilateral Affairs. General Directorate Crisis Management and Operational Coordination.

The geographical directorates are divided into subregions or groups of countries. The thematic general directorates in turn are divided into two main areas: human rights and democracy; multilateral relations and global affairs. EEAS staff respond to a negotiation process between the Council, the Commission and the European Parliament. The result of those negotiations is that EEAS combines personnel from the Council, the Commission and the member states while maintaining a geographical and gender balance. The EU-Latin America and the Caribbean relations are developed within the General Directorate for the Americas. This Directorate is divided into five divisions: 1. 2. 3. 4. 5.

The US and Canada. Mexico and Central America. Southern America (in turn divided into Andes countries, Mercosur and Chile). The Caribbean. Regional Affairs.

These are the divisions that elaborate and implement the so-called “regional programmes”, which are finance programmes for projects at the regional (Latin America and the Caribbean) and subregional levels (Integration System for Central America, Andes Community, Mercosur and the Caribbean), as well as programmes at a bilateral level, for example with Chile and Mexico. EEAS designed two pluriannual programmes for 2007–2013 and 2014–2020. They have not developed a new pluriannual programme specifically for the region, even though the EU pluriannual budget for the period 2021–2027 has already been approved. This is not surprising given that EU-CELAC relations are frozen. The last pluriannual programme for Latin America and the Caribbean enjoyed a budget of 925 million euros, significantly greater than the 556 million euros for the 2007–2013 programme: an increase of 45%.

2.3

Conceptualisation of the EU External Actions to LAC Regional. . .

27

The 2014–2020 programme had two components: 1. Activities at continental level. 2. Subregional programme for Central America. Of the 925 million euros dedicated to the first component for which the eligible countries were Argentina, Bolivia, Chile, Colombia, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela. One hundred 20 million euros were dedicated to the second component which benefited 24 Latin American countries of the 33 member states of CELAC. There are various points of interest in this latest budgetary programme. The EU had invested significant quantities through international cooperation in all the subregional integration processes in Latin America and the Caribbean: SICA, CAN, MERCOSUR and CARICOM. The idea was that in the future all these processes would converge in one single integration process at the regional level and that the EU would thus have a partner and not multiple partners as it does now. And then the second component only contemplates cooperation with the countries of Central America, not with the Andes countries or Mercosur. In the end, the agreement at the level of blocs was only with the Central Americans. An agreement between the EU and the Andes Community as a group was not possible. The EU had to sign bilaterally a global trade agreement with Colombia and Peru which came into effect in 2013, and to which Ecuador adhered in 2017. Bolivia still has no agreement with the EU. Bolivia benefits from the EU’s System of Generalised Preferences through the special regime for stimulating sustainable development and governance known as SPG + G. In the pluriannual budget for 2021–2027, the EU modified the financial cooperation instruments of EEAS. The EU is the largest development aid donor in the world, as well as for the countries of Latin America and the Caribbean as a whole. The EU has created the Global Europe: Neighbourhood, Development and International Cooperation Instrument (NDICI) to increase the efficiency and transparency of EU foreign policy, strengthen the coordination with domestic policy and seek greater flexibility to be able to respond more rapidly to new crises and global challenges like the 2030 Agenda for Sustainable Development, the SDGs, The Addis Ababa Action on Financing for Development and the Paris Accords on Climate Change. The instrument has a budget of 79, 462 million euros, of which 3395 million are destined for Latin America and the Caribbean: • • • • • •

Caribbean 800 million euros. Erasmus +1800 million euros. Local authorities 500 million euros. Assigned to guarantee external action 1000 million euros. Guarantee for external action 53,449 million euros. European Bank of Investment 26,725 million euros.

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The principle of adjustment, whereby middle-high income countries could access financing programmes, has disappeared. A positive aspect is that some Latin American countries which in the past decade had raised their classification from low-middle to high-middle income cannot access international cooperation funds. Although in some cases the classification reflects an overall improvement in their economics, in many cases the improvement in macroeconomic indicators does not correspond with the indices of poverty and social exclusion, which remain high in many countries in the region. The authority within the EU responsible for implementing cooperation programmes with Latin America and the Caribbean is International Partnerships which is part of the General Directorate for International Cooperation and Development (DG DEVCO), responsible for the EU’s international association and development policy. Its objectives are to reduce poverty, guarantee sustainable development and promote democracy, human rights and the rule of law in the world. The EU promotes its values and principles. LAC becomes a direct beneficiary of European international cooperation, and can access the EU’s thematic agenda, but no longer has a common work agenda with the EU as in the past. This shows that LAC is no longer within the priorities of the EU. DEVCO has designed a Strategic Plan 2020–2024 with which it seeks to contribute to the objective of Commission President Ursula von der Leyen: “a stronger Europe in the world” through securing the four major objectives: a European Green Deal, a Europe fit for the digital age, an economy that works for people and promoting our European way of life. To achieve these objectives DEVCO has identified the following main actors: • • • • •

International and regional organisations and international financial institutions. Partner countries. Private sector. Local and international civil society organisations. EU member states and other European institutions.

DEVCO’s strategic plan 2020–2024 envisages working with LAC in the following four areas: 1. Climate change, environment and energy: Green Alliances: the EU highlights that LAC possesses 50% of global biodiversity, 57% of tropical forests and one of the largest marine ecosystems in the world. 2. Digital and Data technologies: cyberattacks. 3. Governance, peace and security, democracy, human rights and civil society: criminal activity is one of the greatest threats to the LAC region undermining political stability in various countries. The areas of cooperation identified include drugs and trafficking policy, organised crime at a transnational level, management of borders, money laundering, environmental crime, anti-corruption and cybercrime. 4. Human development: European programmes, especially Euro Social, focus on an ad hoc dialogue on COVID-related social issues among the EU-LAC countries.

References

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It is interesting that the Latin American and Caribbean regions have a role within NDCI. This can be interpreted as the region being, for Europe, as part of its neighbourhood. Even if there is no geographical proximity, there is a closeness in terms of values and principles. In short, both are part of the west.

References Ayuso, A., and Gardini, G.L. (2015). EU-Latin America and Caribbean Inter-Regional Relations: Complexity and Change. Retrieved June 2, 2017 from: http://www.atlanticfuture.eu/files/1530LA-EU.pdf Briceño, J., Quintero, M., y Ruiz, D. (2013). El pensamiento estructuralista de la CEPAL sobre el desarrollo y la integración latinoamericana. Reflexiones sobre la vigencia actual. Revista Aportes para la Integración Latinoamericana. Año XIX N 28/junio 2013, pp.1–34. Declaración de Buenos Aires. (1969). Documentos CECLA: América latina ante la Comunidad Económica Europea. Comercio Exterior, XIX(N6), 617–618. Hasson, A. (1995). La formación de cuadros en el marco de la integración regional, en Documento de Trabajo 12/1995. Centro de Formación para la Integración Regional, Montevideo, pp. 15–22. Irela. (1996). Informe sobre las relaciones entre la Comunidad Europea y América Latina. En Europa-América Latina: 20 años de documentos oficiales (1976–1996). Irela (Instituto de Relaciones Europeo-Latinoamericanas, Madrid. Lerman, A. (1991). Evolución histórica de las relaciones comerciales entre América Latina y la CEE, Comercio Exterior, Vol. 41, N2, Mexico. Manner, I., Lynggaard, K., & Löfgren, K. (2014). The European Union in global politicals: Normative power and longitudinal interpretation. Palgrave Macmillan. Pérez García, J. A. (2004). La economía de América Latina y el Caribe en las últimas cuatro décadas. Algunas reflexiones críticas. In Hernández Pedraza, G. C. (Editor), Los últimos años de la economía mundial, Centro de Investigaciones de la Economía Mundial, Documento de Trabajo 09/04, Vol. II, 102–114. Retrieved June 2004 from CLACSO Library: http:// biblioteca.clacso.edu.ar/Cuba/ciem/20170628033424/pdf_642.pdf Prebisch, R. (2012). El desarrollo económico de América Latina y algunos de sus principales problemas. Publicación conocida también como el “Manifiesto Latinoamericano” o “Manifiesto de la CEPAL”. CEPAL: Santiago de Chile. Retrieved January 2012 from: Torres Jarrín, M. (2018). EU-CELAC: A multiplayer interregionalism. Redefining the Atlantic area. In G. L. Gardini, S. Koschut, & A. Falke (Eds.), Interregionalism and the Americas. Lanham, Maryland. Treaty establishing the European Economic Community, Rome 25 March 1957. UNCTAD. (1964). Proceedings if the United Nations Conference on Trade and Development, Geneva, 23 March–16 June 1964. Final act and report. New York: United Nations. Retrieved 20 December 2022 from: https://unctad.org/system/files/official-document/econf46d141vol1_en. pdf World Bank (2020a). Population, total-European Union 1960–2020. Retrieved October 2021 from: https://datos.bancomundial.org/indicator/SP.POP.TOTL?locations=EU World Bank (2020b). Population, total-Latin America & Caribbean 1960–2020. Retrieved October 2021 from: https://data.worldbank.org/indicator/SP.POP.TOTL?locations=ZJ

Chapter 3

Geopolitical Aspects in EU-LAC Interregionalism

3.1

The Brexit Process

Brexit combines two words in English: Britain and exit. It refers to the UK’s departure from the process of European integration and as a consequence from the institutions that form the European Union. On 29 March 2019, the UK notified the European Council of its departure from the European Union by invoking Article 50 of the EU Treaty which regulates the withdrawal process of any member state. The article envisages the possibility that any country can decide to leave, according to its constitutional norms, and states that, once the decision to leave has been communicated, both sides should negotiate an agreement that will regulate their future relations. From March 2019 to 31 December, both the UK and the EU entered a transition period in which the Communautaire acquis continued to be applied on British territory, although the UK stopped participating in the Communautaire institutions and the governance structures of the Union. The referendum held by the British government on 23 June 2016, which asked Britain’s citizens if they wanted to leave or remain in the EU, resulted in 51.9% voting to leave and 48.1% to stay. During the period from March 2019 to its official departure from the EU on 1 February 2020, relations between the UK and the EU have not been easy. From 1 January 2021 relations between both sides have been regulated by the Trade and Cooperation Agreement. It can be concluded that Brexit has been the largest crisis in European integration so far. The departure of the UK from the EU has generated various questions and challenges for the process of European integration. The first point was whether other countries which have been critical of the EU would follow the UK’s example.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 M. Torres Jarrín, L. G. Daza Aramayo, EU-MERCOSUR Interregionalism, United Nations University Series on Regionalism 21, https://doi.org/10.1007/978-3-031-19217-3_3

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The departure of the UK from the EU was not the departure of just any country. It is one of the major world powers, economically, politically and militarily. So, the EU lost not just one partner of 28, but one of the largest and most powerful partners. For the UK Brexit poses a challenge to its territorial integrity. Scotland and Northern Ireland voted in favour of remaining within the EU. It should be recalled that a few years ago Scotland had a referendum on independence and voted to remain in the UK because of the fear that leaving the UK would also mean leaving the EU. The Brexit process impacted on the Irish border and Irish unification. What is certain is that Brexit completely changed the panorama for the EU’s external action. It took up much of the EU’s political agenda not allowing the Union time to dedicate itself fully to the consolidation of its role as a geopolitical actor (European External Action Service, 2016). Brexit is an expression of a wider phenomenon (Astroza Suárez, 2019). Brexit is not just British discontent with EU policies. It is not just that the British think that their contribution to the EU is greater than the benefits they receive. The British government did think that Brussels did not act in accordance with the interests of British citizens. At the same time, it is the realisation that the EU has not been capable of communicating the objectives of its own process of integration to the British or to European citizens as a whole. Even if it is true that 51.9% voted against remaining in the EU, this does not mean that all were Eurosceptics or against the EU. It is true that the voting system, which in most cases is by unanimity, has for years undermined the Union’s process of integration. This has not only weakened all the actions undertaken by the Commission, as an actor with the power of initiative at the Communautaire level, but also those of the European Parliament and the European Court of Justice when they have sought to establish norms to deepen the process. This has also affected the member states, as in the case of the UK, whose main criticism of the EU is that it has become a giant bureaucracy with aspirations of statehood without being one. The uncertainty about the future of the EU as an actor on the international stage is currently a valid question. It supposes that the countries that joined the integration process did so because they thought they would be stronger inside the EU than outside, above all as it was thought that the influence of the EU in the international system would be greater and would allow it to become a decision maker on major international issues. It is true that the EU has had some success, but its complex structure and its mix of an international body with a federal state makes the EU a difficult political entity to identify, to function and to sustain over time if the type of regional integration it wants to carry forward is not well defined. In the case of EU-LAC relations, the threat of Brexit is geopolitical rather than commercial. According to ECLAC (2018): Recent years have produced economic, social and geopolitical changes which amount to a point of inflection or crisis in globalisation that directly affects the international insertion of Latin America and the Caribbean and their multilateral relations, including those they maintain with the EU. From the commercial point of view, the trade flows are small compared to the

3.1

The Brexit Process

33

overall totality of trade so neither the UK nor the countries of Latin America and the Caribbean will see their trade balances affected. The two largest markets in Latin America and the Caribbean are Mexico and Brazil, accounting for half of the trade with the UK. This trade represents 1.5% of Brazil’s overall trade and 0.5% for Mexico (Sevilla Dominguez). According to the UK’s Department for International Trade, the country has signed “Trade Continuity Agreements”—so called because all the new agreements signed with various LAC countries take as their point of reference the existing agreements these countries have with the EU, adapted as necessary for signature with the UK rather than the EU—with: • Andean countries (Colombia, Peru and Ecuador): Trade Agreement between the United Kingdom and Colombia, Ecuador and Peru, Quito, 15 May 2019 (Department for International Trade of the United Kingdom, 2019a). • Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama): Agreement Establishing an Association between the United Kingdom of Great Britain and Northern Ireland and Central America, Managua 18 July 2019 (Department for International Trade of the United Kingdom, 2019b). • CARIFORUM (Antigua and Barbuda, Barbados, Belize, The Commonwealth of the Bahamas, The Commonwealth of Dominica, The Dominican Republic, Grenada, The Republic of Guyana, Jamaica, Saint Christopher and Nevis, Saint Lucia, Saint Vincent and the Grenadines. The Republic of Suriname and the Republic of Trinidad and Tobago): Economic Partnership Agreement between the CARIFORUM States and the United Kingdom of Great Britain and Northern Ireland, Saint Lucia, 22 March 2019 (Department for International Trade of the United Kingdom, 2019c). • Chile: Agreement establishing an Association between the United Kingdom of Great Britain and Northern Ireland and the Republic of Chile, 30 January 2020 (Department for International Trade of the United Kingdom, 2020a). • México: Trade Continuity Agreement between the United Kingdom of Great Britain and Northern Ireland and the United Mexican States, 15 December 2020 (Department for International Trade of the United Kingdom, 2020b). In the case of the Andean countries, the UK reproduced the Trade Agreement between the EU and its member states and Colombia and Peru (Official Journal of the European Union, 2012a) signed in June 2012. Ecuador signed the agreement in July 2014 through the protocol of accession for Ecuador (European Commission, 2016). The total trade in goods and services between the UK and Colombia, Peru and Ecuador were 2.6 billion pounds in 2017. Colombia is the UK’s 70th trading partner and represents 0.1% of its total trade. Peru is its 83rd trading partner and represents 0.1% of its trade. Ecuador is the UK’s 108th trading partner and also represents 0.1% of total trade (Department for International Trade, 2019a). The UK’s agreement with Central America took as its legal basis the Association Agreement EU-Central America signed on 29 June 2912 (Official Journal of the European Union, 2012b). The trade flow between the UK and Central America was 1 billion pounds in 2018 representing 0.1% of the UK’s total trade. Costa Rica is the

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UK’s 99th trading partner, Panama the 105th, Honduras the 129th, Guatemala the 135th, Nicaragua the 161st and El Salvador the 165th. Each of these Central American countries represents less than 0.1% of the UK’s total trade (Foreign Commonwealth Office, 2019). The agreement with the members of CARIFORUM took the Economic Association Agreement EU-CARIFORUM, signed in October 2008 (Official Journal of the European Union, 2008), as its model. Trade in goods and services between the UK and CARIFORUM in 2017 (excluding the Republic of Haiti) amounted to 2.5 billion pounds, which represents 0.2% of UK trade. The UK treats CARIFORUM as a single economic unit which makes it the UK’s 55th trading partner (Department for International Trade, 2019b). The model for UK-Chile relations was the EU-Chile Association Agreement which includes a free trade agreement. Chile is the UK’s 65th trading partner, representing 0.1% of UK trade. The trade in goods and services between both countries in 2017 amounted to 1.8 billion pounds (Department for International Trade 2019c). The trade agreement between Mexico and the UK took as its model the 2020 Free Trade Agreement between the EU and Mexico. It is worth pointing out that it was the first global agreement signed between the EU and a Latin American country. In 2020 the EU and Mexico agreed a new global agreement following modernizations in 2016 and 2018 (European Commission, 2020). Mexico is the UK’s 42nd trading partner and represents 0.4% of its global trade. The total trade in goods and services between the UK and Mexico was 5.3 billion pounds in 2019 (Foreign and Commonwealth Office, 2021). As can be seen from the above figures, Latin American countries are not the UK’s main trading partners and the volume of trade in goods and services does not even reach 0.3% of total UK trade. Brexit therefore represents no economic or commercial risk to EU-LAC relations. That said, it remains to be seen how Brexit will affects the EU economy, and consequently affect trade between the EU and LAC countries. The major challenge is in terms of geopolitics. At first sight, it may be thought that the Latin American and Caribbean economies could suffer the effects of the instability in financial markets caused by the tens relations between the UK and EU, which could affect foreign direct investment in LAC. There could also be an increase in interest rates in commercial banks. It remains to be seen what happens in sterling’s value against the euro and the dollar and the role of London as a financial centre. It also remains to be seen what the priority regions and countries for British foreign policy and what role the UK will be will play in the global governance agenda. While it is true that the EU member states maintained their unity during the whole negotiating period with the UK and that this can be seen as evidence of the strength and unity of the EU. It is also certain that it showed the complexity of the process of European integration. The Europe of variable velocities and decision-making by qualified majority are part of the criticisms the Union makes about itself. The process of globalisation has brought many benefits but has also led to the return of the old nationalisms and protectionist policies. Bilateralism is seen by many as the most effective and efficient way of negotiating agreements with third parties without

3.2

Stagnation of Transatlantic Relationship EU-USA

35

having to depend on the members of the integration process, even more so if the integration body has exclusive or shared competences like the EU. The argument that together we are stronger remains a good phrase, but it must be narrowed down: if all agree. The problem arises when interests are diverse and not in accordance with the objectives of the work agenda proposed. If in a process of integration there are differences over the objectives of the process, then it is in danger. The differences between the UK and its European partners lay in the British concern that the EU had too many competences at the Community level in, without going further, the trade area that should be returned to national governments. As we know, no member state of the EU can negotiate bilateral trade deals with a third country or group of countries. It is an exclusive competence of the EU. At the same time, the UK can be seen as a major market itself, an economic and military power. Now, it has the freedom to negotiate and sign agreements without need for the blessing of its European partners, which will give it a greater freedom of manoeuvre. If the UK achieves good results in its domestic economy and foreign trade and investment, Latin American and Caribbean governments could opt to adopt the British model and abandon negotiations about integration at the regional or subregional level because they see no advantages in being members of a regional group. In short, Brexit has opened the debate about the advantages and disadvantages of being part of a process of regional integration. The regional integration model of the EU is a political model of reference in all Latin America and the Caribbean. It is true that the Latin Americans and Caribbeans have not advanced as far in integration as the Europeans, but it could be the case that, instead of seeking to deepen integration, the very objectives of the existing processes of regional integration are questioned.

3.2

Stagnation of Transatlantic Relationship EU-USA

The foreign policy of the administration of US President Donald Trump could be seen as a bid for the defence of a radical nationalism, unilateralism and protectionist policies. In short, the abandonment of multilateralism, which has caused uncertainty within the international system. “America First” was the doctrine constantly repeated by President Trump. It was not an original idea of the president given that this doctrine had been used before the First World War by members of both the Republican and Democrat Parties. It is worth recalling that in the interwar period there was an America Fist Committee, which was an isolationist pressure group which opposed US entry into the Second World War (Cole, 1951). With the justification of “America First” President Trump modified all of US international relations, both with allies and rivals. Among the allies were the Europeans. The US President, in his eagerness to implement protectionist policies, froze the negotiations for the Transatlantic Trade and Invest Partnership (TTIP),

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which sought to be an agreement between the USA and EU. This agreement represented the union of the two largest trade areas in the world, as well as joining two major actors in terms of geopolitics, which would have meant the maintenance and consolidation of the Western world as the centre of global decision-making. It should be taken into account that both the USA and the EU are the main trading partners of most of the countries in the world. TTIP sought a geopolitical impulse in transatlantic relations. The joint US and EU economies represent 40% of global GDP and more than 40% in the global trade in goods and services. Despite the COVID-19 pandemic, trade and investment relations remain solid. In 2020, EU companies exported goods to the US market worth 353,000 billion euros, 2 billion euros more than in 2018. It is estimated that more than 164,000 European companies export to the USA, of which 93,000 are SMEs. The total investment of the USA in the EU is three times greater than in all of Asia. The total investment of the EU in the USA is eight times greater than the investment in India and China combined (European Commission, 2021). Currently, there is no agreement between the two sides. In 2013, negotiations began on TTIP but concluded without conclusion in 2016 and were formally ended as obsolete in 2019 (Council of the European Union, 2019). The trade relations between the EU and the USA are governed by WTO rules and have average tariffs of 3%. When Biden won the presidency, the Europeans were alert to the change of Administration in the White House and expected that the change of government, and of party, would favour the recovery of closer transatlantic relations, as well as the return of the USA to multilateralism. According to Edward Alden, member of the Council for Foreign Affairs, the policies of President Trump were prejudicial to Europe and the WTO, something that will be difficult to repair (France, 2020, p24). On 24 November 2020, President Joe Biden, in his first public intervention as President elect, affirmed: “The US is back and ready to lead the world and not retire from it, once more sat at the head of the table, ready to confront our adversaries, not alienate our allies, ready to defend our values. The US is stronger when it works with its allies” (The White House, 2020). This was not just a message. It was a declaration of foreign policy. The Europeans were particularly affected by the phrase “not reject our allies”. It clearly referred to the Europeans, above all when he signalled that the “US is ready to lead the world and confront our adversaries”. “Ready to defend our values” refers to seeking to be a counterweight to China, which on the other hand has been considered by the USA as a major threat. On 7 July 2020, the Director of the FBI, Christopher Wray, used a conference at the Hudson Institute to assert: “The efforts of counter-intelligence and economic espionage which emerge from the Government of China and the Chinese Communist Party are a grave threat to the economic welfare and the democratic values of the US” (Federal Bureau of Investigation, 2020). In the G7 meeting in Cornwall on 11–13 June 2021, whose slogan was “Building Back Better”, President Biden proposed a plan for post-pandemic economic recovery which included an infrastructure plan to counter China’s Belt Road Initiative (BRI). The plan would be focused mainly on three regions: Latin America and the

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Caribbean, Africa and Indo-Pacific. This announcement double faceted: on one hand, the US mention of Latin America and the Caribbean indicated the region’s return to the US foreign policy agenda; on the other hand, it sent a message to China which has a significant presence in the LAC region. It should not be forgotten that the current president of the Inter-American Development Bank is a US citizen. The budget for the implementation of this plan includes 40 billion dollars in infrastructure and assumes the commitment to mobilise private capital to promote projects in four areas: climate, health security, digital technology and gender equality. The G7 is made up of the USA, the UK, Germany, France, Italy, Canada, Japan and the EU (EFE, 2021a). The UK, which presided over this summit, also invited the leaders of Australia, India, South Korea and South Africa to attend the meeting (European Council, 2021). The meeting published a document entitled “2021 Open Societies Statement” signed by all the members of the G7 and the other countries invited to attend. The interesting part of the document is the following: The leaders [. . .] reaffirm our shared belief in open societies, democratic values and multilateralism as foundations for dignity, opportunity and prosperity for all and for the responsible stewardship of our planet. As leaders of over half of the world’s population living in democracies, we believe it is imperative that we reaffirm and encourage others to embrace the values that bind us together, including our respect for international rules and norms relating to: Human rights, democracy, social inclusion, solidarity and equal opportunities for all, including digital inclusion and full enjoyment of civil and political rights in both physical and digital spheres; gender equality and the political, social and economic empowerment of women and girls; freedom of expression, both online and offline, as freedom that safeguards democracy and helps people live free from fear and oppression; rule of law, independent and impartial judicial system free; an effective multilateral system and importance of civic space and partnership with diverse, independent and pluralistic civil societies (G7–2021 Open Societies Statement)

Each of the themes mentioned are messages directed to the government of China. And a way of explaining what is the new foreign policy which the new Biden administration is going to implement. If it is true that the EU probably supported the G7–2021 “Open Societies Statement” to again count on its main partner the USA, and to not alienate its former partner and member state the UK, it is also true that it will have to evaluate to what point it is convenient to ally itself with the USA in this belligerent anti-China rhetoric. It should not be forgotten that the rise of China as a new international actor in the last decade is unquestionable. But an important aspect is that China is the EU’s second trading partner; those European countries are the most important destination for investment by Chinese companies, and that the BRI project includes various European ports. Therefore, Europe has serious interests in China too. China’s importance lies in its growing presence in all regions of the world. Its economic, political and military power makes it a geopolitical actor which the EU cannot ignore and which the EU cannot risk losing as a partner. Direct confrontation with China could risk damaging relations with economic consequences for Europe as a whole. But if the EU does not support to United States, its traditional partner, the

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EU-US relations can be frozen as it happened under presidency of Donald Trump. The dilemma for the EU is significant. The EU indeed applies a double discourse in foreign policy: on the one hand it is the defender of the values and principles which are in its treaties; on the other hand, it pursues practical and pragmatic relations with China (European Commission, 2017). In other words, it raises a series of concerns about the defence of human rights and liberty in China while at the same time doing business with the country. The EU and China plan to increase their interconnectivity through physical and digital networks, creating a platform of Eurasian connectivity and synergies between the projects and policies of the EU and the BRI, above all in infrastructure (European External Action Service, 2017). On 16 September 2021, the European Parliament adopted a “New EU-China Strategy”. The parliament recommends developing a more solid and coherent EU-China strategy that shapes relations with China in the interest of the Union as a whole, placing the defence of EU values at the centre of the strategy and promoting a rule-based world order. The EU-China relationship is complex and multifaceted in nature, because its relationship is as trade partners, economic competitors and systemic rivals in a growing number of areas (European Parliament, 2021). The new strategy is based on six pillars: 1. 2. 3. 4. 5. 6.

Open dialogue and cooperation on global challenges. Enhanced engagement on universal values, international norms and human rights. Analysis and identification of risks, vulnerabilities and challenges. Building partnership with like-minded actors. Promoting open strategy autonomy, including in trade and investment relations. Defence and promotion of core European values and interests by making the EU a more effective geopolitical actor.

The bid by President Biden to reinforce US influence in the Indo-Pacific region through strengthening the Quad is a declaration to China that says that the USA will continue exercising its influence in the region. On 26 September 2021, a Quad Summit was held in Washington organised by the US President and attended by its three other representatives, Scott Morrison for Australia, Yoshihide Suga for Japan and Narendra Modi for India. In the press conference, the representatives of the Quad argued that they had dealt with issues relating to COVID-19, vaccines, climate, technology and infrastructure and had not discussed security and defence. For China, the Quad has all the characteristics of a quadrilateral military alliance with the US playing the leading role. Its foreign policy is focused on consolidating its space in the Indo-Pacific region as a way of counterbalancing the influence of China in the region and weakening its influence at international level. It also has China practically surrounded in any possible conflict, both at bilateral level or between China and some of its allies in the Indo-Pacific and even in the whole Asia-Pacific region. The constant mentions of liberal democracies suggest that it is a diplomatic counteroffensive against China’s external action at the same time as a way of undermining China’s prestige by questioning its right to be a major power

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because it is not a democracy and is, therefore, lacks the legitimacy to be a world leader. On 15 September, AUKUS (acronym for Australia, the UK and the USA) was announced, a strategic security alliance that sought to share advanced military technology while defending the shared interests of the three partners in the IndoPacific region. The announcement that Australia is replacing its ageing submarines with nuclearpowered submarines with the help of Washington and London has irritated China, which does not want a country with this capacity so close, and the European partners who see it as an act of betrayal of the EU by its US ally. France has expressed its disagreement with the agreement, given that it had a pre-agreement to sell Australia submarines which will now be bought from AUKUS partners. After the announcement of AUKUS, the EU High Representative for Foreign Affairs and Security Policy, Josep Borrell, declared that, after the cancellation of the order for submarines from France, it should be a wake-up call for EU-US relations and suggested that the relations with the USA are vital and irreplaceable but that they need to be built on stronger foundations (EFE, 2021b). This gives a glimpse of a relationship that not only has not been re-established and strengthened, but which lacks trust. No different from the relationship during the Trump Presidency. Perhaps the only difference is that President Trump does want to work with the Europeans. Another controversial issue that affects transatlantic relations is the Non-Nuclear Proliferation Treaty signed in 2015 by Iran, the USA, Russia, China, France, the UK and Germany. The USA announced its withdrawal from the pact in 2018 when President Trump argued that Iran had not complied with the agreement. The nuclear pact limited Iran’s nuclear programme in exchange for economic incentives with the aim of preventing Iran becoming a nuclear power. The USA is now showing interest in returning to the pact, but first Iran must demonstrate compliance with the treaty. On 6 April 2021, representatives of the EEAS and Iran met in Vienna where they agreed to create two groups of experts. The first would focus on the lifting of the sanctions imposed by the US government. The second would focus on Iran renewing its commitments, especially relating to limits on the enriching of uranium. It remains to be seen what policies the USA will adopt in its external action towards Latin America and the Caribbean. For now, everything appears to indicate that the US government will remain interested in strengthening ties with countries in the Asia-Pacific region instead of seeking rapprochement with its neighbours in the American continent. Not something new. Since the administration of Barack Obama until now, the USA has shown little interest in the region. Perhaps the only sign of US interest in the region was when President Trump imposed his own candidate as President of the Inter-American Development Bank (IADB). Mauricio Claver-Carone was elected on 12 September 2021. The IADB has played an important role in the region, offering loans in all types of areas, from physical infrastructure and interconnectivity to health and education. IADB will now play an important role in the region’s recovery from the pandemic.

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Claver-Carone received the support of 30 countries, which represents 66.8% of the votes. The imposture of a US citizen generated tensions among the Latin American and Caribbean countries, and with the EU. Josep Borrell criticised the imposture of a US citizen and sent a letter to the European members of the IADB warning that the US candidate would undermine regional harmony. It also broke the unwritten rule that no country which hosts the headquarters of an international organisation should also have its presidency. All the examples above show that the re-establishment of transatlantic relations will not be easy, even if it is true that there is an appetite for working with the EU, unlike the previous administration. What is certain is that both partners (the USA and EU) have competing geopolitical interests in key regions like the Middle East, AsiaPacific, Indo-Pacific and Latin America and the Caribbean.

3.3

The COVID-19 Pandemic

The pandemic provoked by the COVID-19 has confirmed the failings of the existing multilateral system, but at the same time has confirmed that only through it can we solve all the problems. Cooperation is the only way which allows countries to reach levels of development and, in this case, to escape forward, first coordinating the production of the vaccines then coordinating their supply and finally helping to carry out vaccination campaigns in each country. COVID-19 found all countries unprepared. It confirmed that no health system, whether in developing or developed countries, is prepared to take on this kind of medical contingency. It is interesting to note that, since the beginning of the pandemic until now, the media has retransmitted the same message from governments, that COVID-19 is a health crisis that nobody had expected. In effect, it has been a crisis of the countries’ health systems more than the virus itself. Experts have always said that it is not a mortal virus if controlled in time. The problem is that countries´ hospitals did not have the necessary material or sufficient beds to meet the needs of patients because of such an extraordinary event as a pandemic. The curious thing is that the pandemic is being controlled, but no government has said we are going to invest in strengthening the capacities of our public hospitals. We are going to invest in joint regional or international centres which work on virus prevention. It is not the world’s first pandemic. On the contrary, in February 2018 the WHO published in its bulletin an article “Pandemic Risk: How large are the expected losses?” In this article, the WHO called on governments to invest more in their health systems to prevent a future pandemic. No country took this advice to heart. By October 2021 it was estimated that at a global level 4.9 million people had died. The largest pandemics in the twentieth century include the so-called “Spanish flu” in 1918 which killed more than 40 million people, the “Asian flu” and “Hong Kong flu” in 1957 and 1958, respectively, which killed between 1 and 4 million people. In the twentieth-first century in 2009, the flu H1N1, also known as “swine flu”, caused at

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The COVID-19 Pandemic

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least 600,000 deaths (Torres Jarrín, 2020). The question is why governments have not invested resources in preventing this type of virus, in creating vaccines and above all in providing the resources to strengthen public health systems. The pandemic could serve to restart debate about what kind of public health system our countries should have. The strengthening of public health system can be a new cooperation area among European, Latin American and Caribbean governments. Although the debate over the strength of public health systems will probably cause controversy in countries that favour private health. But perhaps the main debate will be over the welfare system. This has never been debated in the bi-regional agenda. Perhaps rather than studying or implementing European economic models, Latin American and Caribbean countries should study how the European welfare system, which includes a powerful system of public health, where the people do not die because of a lack of materials or resources. This same bi-regional debate could contribute to Europe not doubting in strengthening its welfare system which is so distinctive in comparison with other regions. Thus, perhaps the European governments instead of dismantling their welfare system decide to strengthen it and export it as a model, as they do with their labour and education systems. Scientists say that due to climate change, we are likely to suffer many more pandemics and perhaps what we ought to learn from this pandemic is that we have to work together. The EU-LAC interregionalism has all the potential to develop in these areas. Because not only does it deal with the immediate issue of vaccines, as we have seen, but it could deal with the issues of model systems of welfare, health systems and education. Digitalization has been a failed process for the majority of countries, because their national and local governments have shown that they are not prepared to face the challenges of the digital age, both in terms of human and financial resources. In addition to a change in mentality and in decision-making when creating policies and implementing development strategies. On 6 May 2021, the meeting of the Euro-Latin American Parliamentary assembly was held. The highlight was the Commission’s commitment to give 2,2 billion euros to the COVAX initiative (COVID-19 Vaccines Global Access) coordinated by GAVI (Global Alliance for Vaccines and Immunisation), CEPIS (Coalition for Epidemic Preparedness Innovations) and the WHO. This is an alliance promoted by public and private sector actors to guarantee equitable access to the vaccines developed against COVID-19. COVAX anticipates supplying 31 countries in Latin America and the Caribbean which expect to receive over the next few months 27 million doses (EuroLat, 2021). The LAC region has been one of the most damaged by the COVID-19 pandemic. According to ECLAC data, the region represents 8.45% of the global population and has registered 20.1% of the contagion and 32% of the deaths (CEPAL, 2021a). The representatives of EuroLat have already called on countries to establish coordination mechanisms and cooperation programmes for the reconstruction of societies and economies post-pandemic. But what is needed is a joint strategy both at bi-regional level and a close multilateral coordination and cooperation at the global level (EuroLat, 2020). These ideas were expressed in the framework of their

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participation in the informal meeting of EU27-LAC foreign ministers in Berlin on 14 December 2020. The pandemic is a human tragedy, but also an opportunity to create a new multilateralism and strengthen the bi-regional agenda, broadening the areas of cooperation like health, digitalisation, scientific cooperation and the prevention of future pandemics, as mentioned above. The forecasts of ECLAC for the LAC region increase the indices of poverty, a sad scenario that return the region to indices of the 1980s or 1990s. European development aid will consequently return, and the EU will probably return to work in the areas of cooperation which has gradually been reduced as the majority of countries in the region were classified as medium or medium-high income. This has now changed, and the countries of medium income are returning to medium-low or even low income. In March 2021, ECLAC report estimates that 209 million people were living in poverty at the end of 2020, 22 million more than in 2019 (ECLAC 2021). The IMF warns of another lost decade for the LAC region (EFE, 2020), estimating that the economies will shrink by 8.1%. We can therefore already measure the impact of the pandemic in economic and social terms, concluding that the social divide has increased. However, what has still not been able to be calculated is how much that social divide will increase with the digital divide which has been seen not only in LAC countries but throughout the world. Digitalisation is a task pending on both sides of the Atlantic which consequently should be a priority in the bi-regional agenda. Since the declaration of the Brussels ministerial meeting in 2018 both regions have committed themselves to deal jointly with the current international situation and the new global challenges, and to continue strengthening multilateralism. In the Berlin meeting, the ministers of foreign affairs from both regions expressed their intention of prioritising joint efforts on the modernisation of the UN, the strengthening of the WTO and the support for initiatives to combat COVID-19. As the EU High Representative, Josep Borrel, said: “this crisis has reminded us that our resilience also depends on international cooperation” (European Exteral Action Service, 2020). In 2020, ECLAC elaborated a report on how to improve health systems to prevent new pandemics at the request of the government of Mexico in its role as President of CELAC. The document was titled “Lines and Proposals for a Plan of Sanitary SelfSufficiency for Latin America and the Caribbean” (CEPAL, 2021a, b, c). The document proposes six lines of action with initiatives in short, medium and long term to strengthen joint mechanisms for the international purchase of vaccines and medicines.

3.4

3.4

New Geopolitical Players in the EU-LAC Interregionalism Process:. . .

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New Geopolitical Players in the EU-LAC Interregionalism Process: Cooperation, Trade and Investment

When the EU began to develop interregionalism with Latin America and the Caribbean, there were basically two geopolitical actors in the region: the USA and Japan. Both operated through their respective international cooperation agencies: US Agency for International Development (USAID) and Japan’s International Cooperation Agency (JICA). USAID has 13 field offices, 4 regional programmes and a Washington-based programme focused on Cuba, Ecuador and Venezuela. The programmes for the whole region deal with many areas of cooperation such as the creation of employment, SMEs, agriculture, safe urban spaces, community policies at regional level in each country, systems of justice, political leadership and natural resources (USAID, 2021). JICA has 23 offices in the region: Belize, Costa Rica, Cuba, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panamá, Santa Lucia, Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay and Venezuela. In recent years, JICA has focused on “Japan’s initiative to enhance connectivity” (connectivity in economy, values and knowledge). Among the priority areas are the development of infrastructure, reduction in the risk of disasters, climate action and the reduction of inequality (JICA, 2020). As we saw before, relations between European institutions and the countries of the region began in the 1960s. But they did not really develop until the middle of the 1990s and above all in the decade 2010–2020 due to the two pluriannual programmes targeted at LAC countries. In the decade 2010–2020, we also see how new geopolitical actors enter the region. The case of China is well known, but what is less well known are the activities of India, Russia, Iran, Turkey and, more recently, Saudi Arabia. In the case of relations with China, 19 countries in the LAC region are currently participating in the Belt Road Initiative (BRI) to promote digital, aviation and maritime connectivity as well as health and cultural aspects. It is imperative that the LAC region improves its digital infrastructure. This is an area where China, Latin America and the Caribbean can work together to secure universal access to the digital society, including advancing with 5G and artificial intelligence (Bárcena, 2021). China has developed its digital technology sector, investing enormous quantities of capital. The Chinese technological giants now occupy the leading positions in the ranking of the 20 largest internet companies in the world: Alibaba (4th), Tencent (5th), ByteDance (11th), JD.com (13th), Meituan-Dianping (15th), Pinduoduo (17th), Baidu (18th) and NetEase (20th). As can be seen, 8 of the 20 top Internet companies are Chinese (CEPAL, 2021b). With a population of 1.4 billion people, China is the largest e-commerce market in the world and accounts for 40% of the value of internet transactions (Zhang &

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Chen, 2019). The Made in China 2025 plan aims to ensure China’s position as a global power in the technology sector. China aims to be an innovative country by 2035 and a country with global influence by 2049, the centenary of the foundation of the People’s Republic of China (Bloomberg News 2022; China-Britain Business Council, 2015). According to data from the International Cyber Policy Centre of the Australian Strategic Policy Institute (ASPI), 12 of the major Chinese tech companies, including Huawei, China Telecom and ZTE, have begun new activities in 15 countries in Latin America and the Caribbean since 2015. In the telecommunications sector, Huawei and Xiaomi are the companies working in the region. Xiaomi anticipates 18 new projects in seven countries in the region: Brazil, Chile, Colombia, Costa Rica, Mexico, Panama and Peru (CEPAL, 2021c). Although India’s relations with Latin America and the Caribbean are less prominent than China’s they have been growing in the last two decades, especially in sectors related to technology. There is little related academic literature, but it can be shown in empirical terms that India has included LAC within its foreign policy since 2019, the proof of which is the opening of diplomatic offices in 15 countries. As far back as 2011, IADB described India as the “next big new thing” in Latin America (Mehta, 2020). One has to take into account of India’s potential. In 2030, it will be the most populated country in the world, overtaking China due to its higher birth rate. Brazil was the first country to realise India’s potential as the presidency of Lula promoted the importance of the BRICS (Brazil, Russia, India, China and South Africa). In the same way, the India-Brazil-South Africa Forum for Dialogue was created. It is true that, unlike China, India has not become a major trading partner, but it is also true that the Chinese government has a clear strategy for the LAC region, above all in the purchase of raw materials and loans for physical and digital infrastructure. India has no defined strategy for the region but does maintain a presence in the services sector, above all in the areas of computers and information. Indian companies operate mainly in the outsourcing of business and knowledge (CEPAL, 2012). According to ECLAC, India, Latin America and the Caribbean can advance through long-term agreements on technological trade and production (Cimoli, 2018). Accordingly, MERCOSUR signed a Preferential Trade Agreement with India on 25 January 2004, through which the parties commit themselves to create a free trade area between MERCOSUR and the Republic of India (Preferential Trade Agreement between MERCOSUR and the Republic of India, 2004, Article 2. In the case of Russia, the Russian government wants to replace imports from Europe with those from Latin America. Following the annexation of Crimea, relations between Russia and the European Union have not been easy, as indeed with other western countries. Hence, the role of Latin America and the Caribbean in Russia, becoming providers of products that Russia cannot get from European countries because of sanctions. The region has historical links with Russia, from when it was the Soviet Union and many Latin American countries that shared the ideology and politics of the Kremlin. When Putin came to power part of his foreign policy strategy was to return

3.4

New Geopolitical Players in the EU-LAC Interregionalism Process:. . .

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Russia to the geopolitical chessboard as a major player. After the fall of the Soviet Union, Latin American countries overturned these relations to seek rapprochement with their neighbours, the USA, and their Western allies, the Europeans. But US disinterest in the region in recent years, the growing interest of Latin American and Caribbean countries in Asia-Pacific and weakened relations with the EU have created fertile soil for Russia to seek a space, no longer based on ideology but rather in a more pragmatic sense, using economic instruments and strengthening bilateral trade relations. Russia began to see the LAC region as an area of growing economic importance in 2003 when it began the sale of arms and military equipment. It is Russia’s paradigm: begin by selling arms, then introduce other products and finally seek to exercise influence through the media and through diplomatic contacts (Pichel, 2020). According to data from the Stockholm Institute for Peace (SIPRI), there has been an increase in arms purchases in LAC (SIPRI, 2020), above all by the group of countries Argentina, Brazil, Venezuela, Colombia, Peru, Uruguay and Ecuador which buy weapons from Russia. Brazil has bought helicopters from Russia for border defence and Argentina to expand its fleet as part of its programme for exploring the Antarctic (Sauquillo, 2021). On 18 October 2021, Iranian President Ibrahim Raisi declared that converting Latin American countries into one of the priorities of trade relations, especially Venezuela, is one of the priorities of Iran’s trade diplomacy (DW, 2021). During the period 2005–2013, President Mahmoud Ahmadinejad on average travelled to Latin America once a year to push for an increase in the number of embassies. Venezuela, Argentina, Brazil and Uruguay are some of Iran’s trading partners. Brazil had a trade surplus with Iran in 2020 of 2 billion dollars (Lissardy, 2020). These figures show the role of Iran in the region and its ever-greater presence, although it is not normally included in the list of extra-regional powers in LAC. Iran is the Middle Eastern country with the largest number of diplomatic personnel in Latin America with nine embassies, then Lebanon with 13 embassies (SELA, 2011). If the countries who maintain relations with Iran are analysed, bearing in mind how these relations have strengthened in recent years, they are not just those ideologically on the left. In various of the countries mentioned above the government fluctuates between left and right. Thus, the existence of relations with Iran cannot be attributed to ideology. What can be concluded is that Latin America and the Caribbean represent 33 votes in the UNGA and that their votes in the other main international fora and bodies are important. Iran knows that it needs allies, and, within the West, the USA and EU impose too many preconditions for their support. The LAC region, therefore, offers Iran a diplomatic alternative in its search for new allies in the international arena. The Republic of Turkey, since its foundation in 1923, has always sought rapprochement with Western countries and to contain the expansionist geopolitical ambitions of its neighbour Russia, a Eurasian power game which has expanded to the western hemisphere.

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Turkey created an “Action Plan for Latin America and the Caribbean” in 1998. It declared 2006 the “Year of Latin America and the Caribbean” and the sub-secretariat of Foreign Trade designed a strategy of trade expansion for the region through trade missions, official visits and academic cooperation. In this sense, you can appreciate Turkey’s diplomatic efforts to incorporate the region as a space where it could strengthen its role as a global actor (Gónzales Levaggi, 2020). Finally, following its presidency of the G20, Saudi Arabia was interested in developing a diplomatic strategy for Latin America and the Caribbean. So far it has not emerged. But there seems to be a debate within the Kingdom’s foreign ministry. Although there are no official documents, we can speculate that there are at least two reasons why Saudi Arabia wants to disembark in the region. As President of the G20 in 2020, Saudi Arabia formed part of the Troika with Japan and Argentina (who had presided in 2019 and 2018, respectively). Argentina is a firm defender of the importance and empowerment of the global south, to which Saudi Arabia also belongs. An alliance between the two countries would be logical, and a strategic step, in the search for leadership. This would allow Argentina to become Saudi Arabia’s interlocutor in the region. On the other hand, the growing economic development of Saudi Arabia means that it must look for new markets, partners and allies as it positions itself as a new global actor. In short, in all the cases above we see the realisation that Latin America and the Caribbean is a space in which countries can aspire to be global actors. Opening diplomatic relations is the first step. The second is to open up areas of cooperation, whether economic, trade, investment or development aid. Finally, we see that many countries want to deepen their diplomatic relations by implementing cooperation programmes in the areas of education, science and technology, all key areas for the development of the LAC region. Each of these areas, taking into account the digitalisation of the economy and society, is a potential area of work in which all can find points in common. Various dialogues are being developed within the CELAC framework. These show the geopolitical interest in the region. The best-known dialogue is that with the EU, but there is also the CELAC-China Forum, The Mechanism for Dialogue with the Russian Federation and dialogues with the Republic of Korea, the UAE, Turkey and Japan (Comunidad de Estados Latinoamericanos y Caribeños, 2021). Latin America and the Caribbean will have to evaluate what types of strategy they want to implement in foreign policy, given that they do not have the instruments or mechanisms to implement a common foreign policy. Each country, therefore, exercises its own foreign policy. In this case, the regional integration bodies can serve as a platform for achieving the first diplomatic agreements to then be able to implement foreign policy actions. It remains to be seen what will happen with CELAC, if it will be given a legal personality and supranational or intergovernmental institutional system, or if it will be allowed to disappear.

References

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uploads/attachment_data/file/777020/continuing-the-uks-trade-relationship-with-the-republicof-chile.pdf Department for International Trade of the United Kingdom (2019a). Trade Agreement between the United Kingdom and Colombia, Ecuador and Peru, Quito, 15 May 2019. Retrieved 20 October 2021 from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attach ment_data/file/808914/MS_22.2019_Andean_Trade.pdf Department for International Trade of the United Kingdom (2019b). Agreement Establishing an Association between the United Kingdom of Great Britain and Northern Ireland and Central America, Managua 18 July 2019. Retrieved 20 October 2021 from: https://assets.publishing. service.gov.uk/government/uploads/system/uploads/attachment_data/file/823557/MS_32.201 9_Agreement_establishing_an_association_between_the_UK_and_Central_America.pdf Department for International Trade of the United Kingdom (2019c). Economic Partnership Agreement between the CARIFORUM States and the United Kingdom of Great Britain and Northern Ireland, Saint Lucia, 22 March 2019. Retrieved 20 October 2021 from: https://assets.publishing. service.gov.uk/government/uploads/system/uploads/attachment_data/file/803413/1._ CARIFORUM_Command_Paper_Part_One.pdf Department for International Trade of the United Kingdom (2020a). Agreement establishing an Association between the United Kingdom of Great Britain and Northern Ireland and the Republic of Chile, 30 January 2020. Retrieved 20 October 2021 from: https://assets. publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/776912/ CS_Chile_2.2019_Association.pdf Department for International Trade of the United Kingdom (2020b). Trade Continuity Agreement between the United Kingdom of Great Britain and Northern Ireland and the United Mexican States, 15 December 2020. Retrieved 20 October 2021 from: https://assets.publishing.service. gov.uk/government/uploads/system/uploads/attachment_data/file/965130/CS_Mex ico_1.2021_UK_Mexico_Trade_Continuity_Agreement.pdf DW (2021). Irán dice que América Latina es una de sus “prioridades”, 18 de octubre de 2021. Retrieved 20 October 2021 from: https://www.dw.com/es/ir%C3%A1n-dice-que-am%C3% A9rica-latina-es-una-de-sus-prioridades/a-59542687 ECLAC (2018). La Unión Europea y América Latina y el Caribe: Estrategias convergentes y sostenibles ante la coyuntura global. ECLAC, Santiago de Chile, 2018. Retrieved 20 October 2021 from: https://www.cepal.org/es/publicaciones/43740-la-union-europea-america-latinacaribe-estrategias-convergentes-sostenibles-la ECLAC. (2021). Social Panorama of Latin America. United Nations. Retrieved 4 December 2022 from: https://repositorio.cepal.org/bitstream/handle/11362/46688/8/S2100149_en.pdf EFE (2020). FMI: COVID-19 puede provocar “otra década perdida” en Latinoamerica, EFE, Washington, 16 abril de 2020. Retrieved 20 October 2021 from: https://www.efe.com/efe/ america/economia/fmi-covid-19-puede-provocar-otra-decada-perdida-enlatinoamerica/20000011-4223426 EFE (2021a). Biden convence al G7 para lanzar un gran plan de infraestructuras frente a China. EFE, en El Confidencial, 12 junio de 2021. Retrieved 20 October 2021 from: https://www. elconfidencial.com/mundo/2021-06-12/joe-biden-estados-unidos-g7-infraestucturas-china_312 8996/ EFE (2021b). Borrel: “Aukus” es una “llamada de atención” sobre la relación UE-EE.UU, Efe, Estrasburgo, 5 octubre de 2021. Retrieved 21 October 2021 from: https://www.efe.com/efe/ espana/mundo/borrell-aukus-es-una-llamada-de-atencion-sobre-la-relacion-ue-ee-uu/10001-4 645131 EuroLat (2020). Comunicado de la Copresidencia de la Asamblea Parlamentaria EuroLatinoamerica 8EuroLat) sobre su participación en la reunion informal de los ministros de asuntos exteriores de la UE27-América Latina y el Caribe (LAC), 14 de diciembre de 2020. Retrieved 21 October 2021 from: https://www.europarl.europa.eu/intcoop/eurolat/key_docu ments/declarations/eu-lac_faministers_dec2020/declaration_es.pdf

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France 24 (2020). El multilateralismo económico, debilitado tras la era Trump. París, AFP, 19 octubre de 2020. Retrieved 21 October 2021 from: https://www.france24.com/es/minuto-aminuto/20201019-el-multilateralismo-econ%C3%B3mico-debilitado-tras-la-era-trump Gónzales Levaggi, A. (2020). Turquía y América Latina y el Caribe: entre el europeísmo y el euraasianismo, en Grabendorff, W. y Serbin, A. (Editores) Los actores globales y el (Re) descubriento de América Latina, Icaria Editorial-Edicioens CRIES, 2020. pp. 273–284. JICA (2020). Latin America and the Caribbean. Deepening Partnership, JICA Annual Report 2020. Retrieved 20 October 2021 from: https://www.jica.go.jp/english/publications/reports/ annual/2020/c8h0vm0000fc7q2b-att/2020_08.pdf Lissardy, G. (2020). La gran paradoja de las relaciones de Irán con América Latina, BBC, 13 enero de 2020. Retrieved 21 October 2021 from: https://www.bbc.com/mundo/noticias-americalatina-51086716 Mehta, K. (2020). The Diplomat (2020). Can India become a player in Latin America? The Diplomat,1 February 2020. Retrieved 22 October 2021 from: https://thediplomat. com/2020/01/can-india-become-a-player-in-latin-america/ Official Journal of the European Union (2008). Council Decision, 15 July 2008, Economic Partnership Agreement between CARIFORUM and European Union and its Member States, L 289/1, 30 October 2008. Retrieved 20 October 2021 from: http://publications.europa.eu/ resource/cellar/f5c1c99f-9d19-452b-b0b0-ed690a53dd5f.0006.05/DOC_1 Official Journal of the European Union (2012a). Council Decision of 31 May 2012 on the signing, on behalf of the Union, and provisional application of the Trade Agreement between the European Union and its Member States, of the one part, and Colombia and Peru, of the other part, L 354, Vol. 55, 21 December 2012. Retrieved 20 October 2021 from: https://eur-lex. europa.eu/legal-content/EN/TXT/?uri=OJ:L:2012:354:TOC Official Journal of the European Union (2012b). Agreement establishing an Association between the European Union and its Member States and Central America, L 346, 15 December 2012. Retrieved 20 October 2021 from: https://eur-lex.europa.eu/legal-content/EN/ALL/?uri= CELEX:22012A1215(01) Pichel, M. (2020). La era de Putín en América Latina: cuáles son los objetivos estratégicos de Rusia en la región, BBC, 2 de julio de 2020. Retrieved 20 October 2021 from: https://www.bbc.com/ mundo/noticias-america-latina-53219910 Sauquillo, M. R. (2021). Rusia mira hacia América Latina para exporter sus helicóteros civiles y militares, El País, 18 de cotubre de 2021. SELA (2011). Las relaciones de América Latina y el Caribe con el Medio Oriente: situación actual y áreas de oportunidad. Retrieved 20 October 2021 from: http://www.agci.cl/attachments/article/ 695/T023600004688-0-Relaciones_de_ALC_con_el_Medio_Oriente.pdf SICA. (2022). Acuerdo Preferencial de Comercio entre MERCOSUR y la República de la India, firmado en Nueva Delhi, 25 de enero de 2004. Retrieved 22 October 2019 from: https://relex. mercosur.int/public/red_acuerdos/describir/15 SIPRI (2020). SIPRI Yearbook: Armaments, disarmament and international securtity. Retrieved 20 October 2021 from: https://www.sipriyearbook.org/ The White House (2020). Speeches and Remarks. Retrieved 20 October 2021 from: https://www. whitehouse.gov/briefing-room/speeches-remarks/page/4/ Torres Jarrín, M. (2020). Covid-19 and the European Union: A crisis of values. In G. L. Gardini (Ed.), The world before and after Covid-19. Intellectual reflections on politics, diplomacy and international relations. European Institute of International Studies Press. USAID (2021). Latin America and the Caribbean. Retrieved 20 October 2021 from: https://www. usaid.gov/where-we-work/latin-american-and-caribbean Zhang, L. y Chen, S. (2019). “China’s digital economy: opportunities and risks”, International Monetary Fund Working Paper 8WP/19/16).

Chapter 4

The Historical and Legal Context of the European Union-MERCOSUR Relations

4.1

A Before and After in European Union-MERCOSUR Relations

When on 28 June 2019, it was announced that the EU and MERCOSUR had signed an agreement after years of negotiations it seemed as if EU-LAC interregionalism would be revived. The European Commission issues a communique in which it summarised the reasons for signing the agreement. The then President of the Commission, Jean-Claude Juncker, indicated: “I am measuring my words carefully when I affirm that this is a historic moment. In the middle of international trade tensions, today we transmit, together with our MERCOSUR partners, a clear signal that we will defend trade based on rules. The Trade Commissioner, Cecilia Malmström claimed that the agreement would save European companies 4 billion euros in customs duties, four times more than the agreement with Japan (European Commission, 2019), which would improve the competitiveness of European companies compared to companies from third countries. In effect, as indicated by President Juncker, it was a signal in favour of free trade and multilateralism. A clear allusion to the protectionist policies being promoted by President Trump. In the same way, he was fighting against multilateralism abandoning various negotiations about international agreements like climate change (Paris Accords) or trade, where he abandoned his Latin American partners (Chile, Mexico, Peru, his Asian partners of the Trans-Pacific Partnership (TPP) and his European partners of the Transatlantic Trade and Investment Partnership (TTIP) or formally announced that the USA would leave the WHO. Although it is little spoken of, it is certain that the negotiations for an agreement between MERCOSUR and EFTA were a determining factor in pressuring the member states of the EU to sign an agreement with MERCOSUR before EFTA,

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 M. Torres Jarrín, L. G. Daza Aramayo, EU-MERCOSUR Interregionalism, United Nations University Series on Regionalism 21, https://doi.org/10.1007/978-3-031-19217-3_4

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which otherwise would have been seen as a total failure for the EU in diplomatic terms after so many years of negotiations. The EFTA-MERCOSUR agreement was reached on 23 August 2019, barely two months after the EU agreement. All members of EFTA are known internationally for their high levels of innovation. Switzerland is the global leader in the production of pharmaceutical products, biotechnology and machine tools, as well as financial services and insurance. Liechtenstein is heavily focused on the technology sector. Iceland focuses on natural resources, fishing and services. Norway leads in natural resources, oil, gas, fishing, maritime transport and services for the energy industry (Torres Jarrín et al., 2018). Many of these sectors are strategic for the countries of MERCOSUR, and with EFTA more agile and dynamic in decision-making, it was an aspect that could facilitate relations EFTA-MERCOSUR while prejudicing the relations EU-MERCOSUR. The EU-MERCOSUR agreement is signed but the member states of the respective regional bodies still must ratify it in their respective parliaments. In this lies, the problem because on both the Latin American and European sides there are countries who have already announced that they will not ratify it. So, what Juncker said was correct, it sent a signal. But the signal is being diluted over time. Now some members of MERCOSUR are evaluating whether there is any flexibility in the trade negotiations, in other words, if there is any possibility of the member states of MERCOSUR negotiating bilateral agreements without having to do so within the framework of MERCOSUR. This would mean the end of MERCOSUR. On the other hand, it would allow countries like Paraguay and Uruguay to explore new agreements without MERCOSUR, given that their interests always lose out in MERCOSUR to those of the larger members like Brazil and Argentina. The application of political ideologies in the integration of MERCOSUR is what has limited its progress. Every time the governments of the MERCOSUR’s member states changed political colour, fluctuating between left and right, they changed MERCOSUR’s strategic vision, action plans, priorities, allies and discourse, undermining the organisation’s international credibility. Regional integration was never a matter of state for the countries of MERCOSUR, as it never was for Latin American and Caribbean countries as a whole. It has always existed as a political discourse of presidents, above all every time a regional summit is held. But this same discourse is not defended abroad or in meetings with other countries or groups of countries. Pragmatic unilateralism has been a constant policy of Latin American and Caribbean countries. In Latin American foreign ministries there is a legal acquis going back centuries which include a long list of initiatives, projects, treaties and integration agreements in which the foreign ministers played an important role in their conception, negotiation and the drafting of the final agreements. But the truth is that regional integration was never a priority in the overall foreign policy of the countries, even less a part of the political agendas of the political parties in the MERCOSUR region. Without these premises, the integration process undertaken by Argentina, Brazil, Paraguay and Uruguay is destined to failure, or at least a permanent stagnation. The

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A Before and After in European Union-MERCOSUR Relations

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asymmetry between the partners is great. To reverse this situation would be to create economic and social cohesion funds, develop policies which meet the interests of all the partners and prevent the agenda of the large overwhelming the agenda of the small. If not, it could provoke the exit of one of the members, probably Paraguay or Uruguay. It seems this may be the case with Uruguay. On 7 September 2021, the President of Uruguay, Luis Lacalle Pou, announced that the country had received a positive formal response from the Government of China accepting the negotiation of a bilateral free trade agreement. He emphasised that “we always said that MERCOSUR has greater negotiating power together, but we are not willing to remain quiet if the rest do not advance” (Lacalle Pou, 2021). Argentina reacted negatively to the announcement, insisting on the rules agreed in the Treaty of Asunción. In contrast, Brazil, which is in favour of making the rules more flexible without breaking MERCOSUR, has not reacted. Likewise, Paraguay has not yet responded (Rivas Molina & Betim, 2021). MERCOSUR faces a double crisis: internal and external. This announcement does not necessarily mean the exit of Uruguay from MERCOSUR, but it does undermine the only policy in which MERCOSUR had a common competence: that trade negotiations should be carried out together. By opening the path to bilateralism, it opens the path for Paraguay, Brazil and Argentina, which could be a path of no return for MERCOSUR. Similar case occurred with Colombia and Peru in the Andean Community, countries which began to negotiate and sign bilateral agreements with the USA and the EU and which now pursue a basically bilateral foreign policy. The Andean Community is mortally wounded with no signs of further integration. Moreover, with the launch of the Pacific Alliance, which lacks the institutions of the CAN, it is difficult for Andean countries to gain interest themselves in a European-style integration with supranational institutions, community competences and community law, as was the case with the CAN, even though their discourse is always larded with references to integration. MERCOSUR has lost various opportunities to be in the process of integration of reference in the LAC region, of introducing its interests in the G20 of which Brazil and Argentina are members and of having been a single market consolidated both in regional and interregional terms. It would have been the integration hub not just of southern America but of Latin America and the Caribbean. The other country which has simply been called to exercise leadership is Mexico, but for one reason or another its relations with its neighbours in Central America and the Caribbean have never developed, nor with its neighbours in southern America. What this shows is that when one talks about Latin America and the Caribbean as an integrated region it is not true, either on paper or in reality. What is true is that there are various Americas, not even various Latin Americas. In the Central America case, is a sub-region integrated in theory and in practice, but whose economies are so small over all that it has not been able to become a geopolitical actor in its continent or outside. The Caribbean, which has similar characteristics as Central America, and South America are divided into several parts where several countries aspire to leadership, but none of which have been

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able to secure the recognition of their neighbours. The disputes over leadership in southern America are in constant flux. The proof of this is that it is always the same countries that present initiatives to create a union of states, but they always want to lead the negotiations: Argentina, Brazil, Colombia, Peru, Chile and Ecuador. If we consider the whole region of Latin America and the Caribbean, we will have to add to that list Mexico and Guatemala. They are the Latin American countries that have made the most integration proposals in recent centuries.

4.2

A Historical Journey from 1991 to 2021

The European Union-Southern Common Market (EU-MERCOSUR) negotiations began in 1999 and were guided by the Cooperation Framework Agreement of 1995 which proposed an agreement at interregional level. The agreement was signed on 15 December 1995 in Madrid, which was ratified on 14 April 1997, however, it only entered into force on 01 July 1999, that is three-and-a-half years later. Taking into account the context, in 1995 we spoke of the “current” European Union, an EU-15 that since 1993 established a single market with the free movement of goods, services, people and capital. The year in which the Cooperation Agreement with MERCOSUR was signed, the European Union already had 15 members, precisely that year Austria, Finland and Sweden joined as its new members. The 1995 Cooperation Agreement is an example of open regionalism by attempting to connect two Customs Unions, an agreement of a transitory nature with prospects for evolution as it is the first step in an interregional association of an economic and political nature (Article 2.1 Acuerdo marco interregional de cooperación entre la Comunidad Europea y el Mercosur 1999). An agreement that aspires to increase economic relations between the two regions in a then-recent international context differentiated by a liberalised economy. It initiates a mechanism for regular political dialogue at the presidential, ministerial and technical levels between EU-MERCOSUR, opening new mechanisms for dialogue between both parties. The objectives of this Agreement in summary are the establishment of an interregional association with the will to intensify political dialogue and closer regional integration in bi-regional and multilateral issues to achieve sustainable development. The European Union and the States Parties to MERCOSUR, in accordance with the Joint Declaration on Political Dialogue between the European Union and MERCOSUR (Acuerdo marco interregional de cooperación entre la Comunidad Europea y el Mercosur 1999): • Aware of the historical, political and economic ties that unite them, of their common cultural heritage, and of the profound relations of friendship that exist between their peoples.

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A Historical Journey from 1991 to 2021

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• Considering that political and economic freedoms constitute the basis of the societies of the member countries of the European Union and MERCOSUR. • Reiterating, in accordance with the Charter of the United Nations, the value of human dignity and the promotion of Human Rights as foundations of democratic societies. • Reaffirming the essential role of democratic principles and institutions based on the rule of law, respect for which governs the internal and external policies of the Parties. • Wishing to strengthen international peace and security in accordance with the principles established in the Charter of the United Nations. • Jointly expressing their interest in regional integration as an instrument to promote the sustainable and harmonious development of their peoples, based on principles of social progress and solidarity among their members. • Based on the privileged relations enshrined in the cooperation framework agreements signed between the European Community and each of the MERCOSUR Member States. • Recalling the principles established in the joint solemn declaration signed by the Parties on 22 December 1994. • They have decided to give their relationships a long-term perspective. This agreement represented the launch of the MERCOSUR countries onto the international stage. The agreement offered an international projection that none would have achieved through their own efforts without the agreement. The EU sought to consolidate its model of regional integration and sell it to the whole world as a success. One way of doing this was supporting the different processes of integration being developed around the world, above all during the 1990s, where in both the Americas and Asia various integration initiatives began to proliferate. The bid the EU member states made to support integration in Central America and the Andean countries, in the case of the Andean Community, was a frustrated project. Their member states did not want to concede supranational competences to regional bodies, and this was a great disappointment for the EU which has invested significant sums through international cooperation in the development of policies to promote regional integration. Its new bet on MERCOSUR seemed potentially hopeful because, although Uruguay and Paraguay were small countries, they had two large economies—the Brazilian and the Argentinian—which could be the hub of southern American integration and the countries which led the process. Thus, began EU-MERCOSUR interregionalism. An essential element of the Agreement is the foundation of cooperation, respect for democratic principles and fundamental Human Rights (Article 1. Acuerdo marco interregional de cooperación entre la Comunidad Europea y el Mercosur 1999). The areas of cooperation of the 1995 Cooperation Framework Agreement include trade cooperation, cooperation on agri-food and industrial standards and recognition of conformity, cooperation on customs matters, cooperation on statistics, cooperation on intellectual property, strengthening integration (Title IV, Article 18 of the

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Agreement), institutional cooperation (Title V, Article 19 of the Agreement) and other areas such as cooperation in training and education, communication, information and culture, and the fight against drug trafficking among others (Title V of the Agreement). Within the Commercial Area of the 1995 Cooperation Framework Agreement, the areas of commercial cooperation are contemplated without excluding any sector. It covers market access, trade liberalisation (tariff barriers and non-tariff barriers), special customs regimes, compatibility of trade liberalisation with GATT/WTO standards, identification of sensitive products and priority products, and cooperation and exchange of information in matters of services, within the framework of their respective competencies, among others. The Agreement established business cooperation, investment promotion, cooperation in energy, transportation, science and technology, telecommunications and information technology, and cooperation in environmental protection (Title III, Articles 10–17 of the Agreement). On the other hand, the Parties may extend this Agreement by mutual consent to increase the levels of cooperation and complete them, in accordance with their respective legislation, through the conclusion of agreements related to specific sectors or activities (Title VI, Article 23). The provisions of this Agreement did not affect bilateral cooperation arising from existing cooperation agreements. The Agreement, despite its limitations and having gone through an endless process to enter into force, allowed the institutionalisation of dialogue between the two regions. The most notable and successful aspect is technical cooperation, thanks to which MERCOSUR diversified and consolidated its relations with other countries and institutions such as the OAS, the IDB and the FAO, which strengthened the institutional bodies of MERCOSUR. This Agreement was the basis for the interregional association between the EU and MERCOSUR and which established a general legal framework at the bi-regional level with the character of a Customs Union based on a balanced collaboration at the political, economic and commercial levels. Another aspect to highlight is the term Interregional Association, which is what begins an ambitious relationship that goes beyond an economic relationship and encompasses the political and cooperation part, a term that was later used in other bilateral and subregional relationships between the USA and LAC. In addition, this agreement contains the characteristics of third-generation bilateral agreements with the difference that it is a subregional relationship. Since 1999, sixteen rounds of negotiations have been held. This entire process was halted in 2004 due to differences in sectors such as agricultural trade, services, and access to public sector purchases. In summary, the European Union offered the gradual liberalisation of tariffs on imports of practically all industrial goods (65% immediately, 9% at the end of the process and the rest with a degradation of 10 years) together with the offer of investments amounting to 350,000 million euros, application of non-discriminatory rules. At first glance, the percentage of liberalisation of the European Union seemed quite high, however, it is necessary to take into account that this offer only covered non-agricultural industrial products, where a substantial

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reduction was proposed but not the elimination of tariffs. The European Union did not consider the free trade of agricultural products and the maintenance of quotas. The most important problem is not the economic costs but the political consequences that this could produce within the European Union, a complete liberalisation like the one demanded by MERCOSUR would lead to the reduction of the protectionism of the Common Agricultural Policy and create a great internal conflict between the countries that are against such as Germany, Sweden and Denmark with the countries that support its conservation: France, Spain and Italy. These political risks resulting from a complete liberalisation of the agricultural market to MERCOSUR could only be compensated if the European Union would obtain access to the free market of industrial products, services and public purchases from MERCOSUR. A study summarises the main areas of conflict between the EU and MERCOSUR in this area (Kutas, 2006): 1. The volume of tariff quotas, since MERCOSUR demands a substantial increase. 2. The administration of tariff quotas, because MERCOSUR opposes the establishment of management methods (license on demand, first come, first serve etc.) of the quotas required by the EU. 3. The tariffs of the quotas, because MERCOSUR demands their elimination. 4. Tariffs outside the quota, since MERCOSUR presses for their reduction. 5. Transition periods for the application of tariff reductions, because MERCOSUR does not accept the 10 years offered by the EU, demanding its immediate application. 6. Compensatory measures, since the EU is opposed to establishing a compensation scheme for internal and export subsidies. 7. Geographical indications, since MERCOSUR is not favourable to their protection. In this context, faced with changes in the international scenario and with so many difficulties and disagreements, the negotiations between the European Union and MERCOSUR were reactivated within the VI EU-LAC bi-regional Summit on 17–18 May 2010. The new international scenario was strongly marked by the international economic crisis of 2008, the failure of the Doha talks, the rise of China as a global power, a broader European Union that did not have 15 members but 27 member states, and the bilateral negotiations between the European Union and Brazil in 2007. The international economic crisis hit Europe hard, especially Spain and Portugal, and it was precisely in Spain that the VI EU-LAC Summit was held in May 2010, when it held the presidency of the European Union. The interest of access to large markets such as Argentina and Brazil was of great interest and attraction for the European industrial sector, but it was not perceived in the same way by all the members of the European Union, who even presented a document before the Council of the EU, criticising the return to negotiations with MERCOSUR and its impact, especially in the agricultural sector. Subsequently, among the great advances in relations between LAC and the European Union, the signing of the first bi-regional treaty, the Association Treaty

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with Central America, together with CARICOM and bilaterally the Association Agreements with Colombia and Peru, can be highlighted, especially 2012 and 2013. As of 2010, a new stage of negotiations begins, working groups were established for the markets of goods, rules of origin, intellectual property rights, dispute resolution, trade defence, competition policy, customs, trade facilitation, services and government investments and purchases (Makuc et al., 2015a, b). During 2014 the World Bank modifies the upper-middle income countries, including Argentina, Brazil and Uruguay, which thanks to this stop benefiting from the GSP (Generalised System of Preferences) and its preferential tariff treatment that created a strong pressure to sign agreements at the bilateral level. It seems that the biggest problem in the negotiations is the impact of the agreement on agriculture in the European Union. On 28 June 2019, the EU and MERCOSUR reached a political agreement on a trade deal. This then became the legal basis on which the relations between both sides could be developed. But as we have also mentioned the agreement has still not been ratified by parliaments. The negotiations between the two blocs began in 1999 and were guided by the Cooperation Framework Agreement of 1995 which proposed an agreement at interregional level. This agreement represented the launch of the MERCOSUR countries onto the international stage. The agreement offered an international projection that none would have achieved through their own efforts without the agreement. The EU sought to consolidate its model of regional integration and sell it to the whole world as a success. One way of doing this was supporting the different processes of integration being developed around the world, above all during the 1990s, wherein both the Americas and Asia various integration initiatives began to proliferate. The EU offered to support the regional integration in Central America and the Andean countries, in the case of the Andean Community, was a frustrated project. Their member states did not want to concede supranational competences to regional bodies, and this was a great disappointment for the EU which has invested significant sums through international cooperation in the development of policies to promote regional integration. Its new bet on MERCOSUR seemed potentially hopeful because, although Uruguay and Paraguay were small countries, they had two large economies—the Brazilian and the Argentinian—which could be the hub of southern American integration and the countries which led the process. Thus, began EU-MERCOSUR interregionalism. Sadly, the process ground to a halt in 2004 because of differences in sectors like the trade in agriculture, services and access to public sector purchases. There was an attempt to revive the negotiations at the EU-LAC Summit in 2010, but there were no significant advances, and it was not until 2016 that the negotiations which ultimately produced agreement were started. At that moment, the main theoretical arguments for developing the negotiations were open regionalism and globalisation, with the OMC-Plus as the model trade agreement (Sanahuja & Rodríguez, 2019).

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The objective was to create a free trade area that would include the liberalisation of trade in goods and services, improve access to government purchases, create a non-discriminatory environment for investment and a mechanism for resolving disputes (European Commission, 2000). It was expected that EU-MERCOSUR interregionalism would create normative structures (Sóderbaum & Van Langenhove, 2005). Business sectors on both sides pressured their respective leaders in defence of their interests within the agreement. In the case of MERCOSUR, the manufacturing industry sector was in favour of a heterodox development mode (Gorenstein & Ortiz, 2017) and in the case of the EU its agricultural sector supported the communauitaire protectionist policy (CAP), something that was also seen as a success of integration (Milward 2000). The presence of China in the region in the decade 2010–2020 was an aspect to consider at bi-regional level, and undoubtedly drove the desire to renew negotiations (Makuc et al., 2015a, b). Between 2016 and 2019, the Bi-regional Negotiating Committee met three times before reaching the last meeting which brought the leaders of both sides together to announce the agreement between the EU and MERCOSUR at the G20 Summit in Osaka. The summit should be recalled that the Summit itself highlighted the risks of the escalating rhetoric as China and the USA pursued their trade conflict, which spooked markets and damaged partners, complicating any forecast about the future of global governance. Therefore, the EU presented itself as a leader, the defender of multilateralism and an international rules-based commercial order (European Parliament 2022). A perfect scenario for announcing the agreement with MERCOSUR. Without a doubt the growing weight of the economy in countries of the AsiaPacific region and the change in geopolitical hub which that growth represented announced a reconfiguration of the trading system and the world order. In political terms, both the countries of southern America and those of the EU needed to reach agreements before this space became a hegemonic region. Moreover, a part of the countries of southern America, mainly Chile, Peru and Colombia together with Mexico has made a clear decision in favour of Asia, for which they created the Pacific Alliance (Torres Jarrín & Violante Pica, 2016). The EU is the first integration body with which MERCOSUR reached a trade deal. In relation to MERCOSUR’s trade relations with the world, we can mention 11 agreements, of which 7 are agreements with Latin America: Bolivia (1996), Colombia (2017), Cuba (2006), Ecuador (2004), Mexico (2002) and Peru (2005). Of these agreements, those with Bolivia, Colombia, Ecuador and Peru were made as part of the economic complementation agreements in the framework of relations between the Andean Community and MERCOSUR but ended up as a mix of bilateral agreements with subregional aspects. But in the end bilateral. Its network of international agreements concludes with a Free Trade Agreement with Egypt (2010), a Preferential Trade Agreement with India (2004), a Free Trade Agreement with Israel (2007) and a Preferential Trade Agreement with the South African Customs Union (2008).

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As can be seen in previous chapters, the beginning of relations between European countries and those of MERCOSUR dates from the first visit by a delegation from the European Parliament to Latin America at the beginning of the sixties, where it focused mainly on the countries of southern America, visiting three countries that are now part of MERCOSUR: Argentina, Brazil and Uruguay. However, it was in the 1990s when the European Commission recommended to the Council of the European Economic Community the opening of negotiations with MERCOSUR. We can speculate that the services of the European Commission pressured the governments of MERCOSUR to modify the Treat of Asunción to give MERCOSUR a legal personality and thus propose an interregional agreement “organisation to organisation” (Peña and Torrent, 2005). Whether it is certain or not that the Commission pressured the countries of MERCOSUR to reach a bi-regional agreement, what is true is that, from the beginning of MERCOSUR’s process of regional integration, the most enthusiastic supporters of integration of the countries of the southern cone were the Europeans, first the European Economic Community and then the European Union. The evidence for this assertion can be found in the pluriannual budgets which European institutions directed towards MERCOSUR. In the budgets, we see the financing of the Secretariat of MERCOSUR itself, in other words not even the members of MERCOSUR bet on having and developing their own institutions within the process of integration. This initiative was not exclusively for MERCOSUR. European financing paid for secretary generals of all the integration processes: the Central American System, the Andean Community and CARICOM. An explicit EU desire to see Latin America and the Caribbean integrated as a region but not shared by the Latin American and Caribbean countries who instead of thinking about the development of regional integration, that is creating supernational institutions which would be granted not only a legal personality so that they could function at international level, but also exclusive competences that would allow a common foreign policy and a greater representation abroad, thought only in terms of intergovernmental cooperation when creating their integration bodies. The difference in conception has been one of the principal problems in EU-LAC, and even LAC, interregionalism. One aspect of disagreement between the Europeans and those from MERCOSUR was the double talk about the protectionist policies implemented by European countries in relation to the aids in certain productive sectors, especially agriculture through the Common Agriculture Policy (CAP) and aid to industrial sectors. The MERCOSUR countries do not possess the resources to compete with such aid. The EU is criticised for talking about free trade and the fight against protectionism when a large part of the community budget is dedicated to these aids. Thus, the members of the EU coalition for agriculture and livestock farming (France, Austria, Belgium and Ireland) oppose the entry into force of the agreement and some sectors in Germany also have doubts (Sanahuja & Rodríguez 2021) even though Germany, together with Spain, was one of the main supporters of the agreement.

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As Andrés Malamud suggests, the agreement exists because of the determination of Macri (Malamud & Steinberg, 2019). He also suggests that the dispute between the USA and China marginalises both Europe and Latin America giving them even more motivation to coordinate their defence (Malamud, 2019). The world changed. The actors and the scenarios changed. Digitalisation and the pandemic have left a world with more poverty, a weakened middle class that cannot maintain its level of expenditure, which impacts the consumption of goods and services. This will translate into new poor countries, economic crisis in the developed countries which enter recession and commercial stagnation. This new scenario also brings conflict over the leadership of the international economy. As Nolte indicates it is “necessary to overcome national parochialism both in South America and Europe to be able to look at the agreement from a geoeconomics and geopolitical perspective”. South America and Europe should position themselves in a world marked by ever stronger confrontation between the USA and China.

4.3

The New Stage of EU-MEROCUR Relations from 2022

The new stage in EU-MERCOSUR relations has been marked by the reconfiguration of the international system which can be defined as uncertain. The trade between the USA and China could impact both Europe and South America. It remains to be seen what the economies will be like after the pandemic, whether European, Chinese, American or MERCOSUR. It could produce a change in the foreign policy of all, and change the priorities when defining strategic partners, trading partners and political partners. The plan of China’s BRI project, so minutely developed, could seriously alter, and so affect China. If the world enters a recession, it will stop buying from China and its power could be undermined. If the BRI is not fully implemented, positive results will not be obtained. It remains to be seen what impact the two new proposals will have that the USA hopes will maintain its global leadership. The “Alliance of Democracies”, although launched in general terms, is oriented towards maintaining geopolitical control in the Asia-Pacific region. Its AUKUS proposal and the strengthening of the Quad are actions designed for a world whose hub has pivoted to Asia. In this sense, the strengthening of the Atlantic region so sought after will not happen. Under the Presidency of Juncker, the High Representative Federica Mogherini called for a revival of the Atlantic area conceived not only as Europe and the USA, but also Latin America and the Caribbean (European External Action Service, 2016). But the presidency of Donald Trump and Brexit render impossible these 2016 plans of EEAS. In that sense, it remains to be seen what the role of the USA and China will be, or regions like the EU or MERCOSUR which remain in the second or third level of interest for the superpowers. In any case, they are a battlefield for exercising their

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power of influence on a global perspective. It is unlikely that they will seek to develop a relationship between equals. The EU has not taken concrete positions on the previously mentioned initiative. It has limited itself to being another spectator and so it remains to be seen if it does something or not. For the EU, it is essential to develop a common foreign and security policy to confront the USA and China. The problem it has is that, even if it has advanced in external action, there remain 27 foreign policies. Without considering the disputes between the Council, the Commission and the External Action Service itself. Following the departure of the UK, the European countries have the chance to demonstrate whether it is true or not that they could deepen the Union because of the opposition of the UK. Now, the UK is no longer a member of the Union if there is no progress it cannot be blamed on the British. Perhaps now we will discover which countries want a Union and which do not. The challenge remains for the EU of seeing which member state will cover the departure of the UK. The news from the UK shows that withdrawal from the EU has economic, commercial and political consequences, given the tensions with Scotland and over the border between Northern Ireland and the Republic. But it also remains to evaluate the impact of the UK’s withdrawal on the Union itself. It is still too soon to evaluate. The Union has lost a major ally who is now no longer at the common table to design joint strategies for confronting great power like the USA and China, not to mention relations with Russia, Turkey and Iran. The UK’s foreign policy and above all its trade policy have again become entirely British. The UK does not need to seek permission from its EU partners or even inform them or coordinate with them. The level of innovation, defence and security in the UK is much higher than the EU average. All this leads to re-thinking the EU’s foreign policy and thus its priorities in external action. This is likely to affect relations with third countries, among them with MERCOSUR. In the same way, MERCOSUR needs to study what actions it needs to adopt to deal with the post-pandemic international situation, more so after Uruguay announced its negotiations with China. This could render MERCOSUR obsolete and of little interest to the EU or other regional groups. Which actors will be those who prevail after the economic crisis generated by the pandemic? There is no doubt that the response is more cooperation and defence of multilateralism. In that sense, the relations between the EU and MERCOSUR have a strategic sense, but it will have to be decided how to articulate them and make them compatible with the two countries who seem ever more distant from each other, the USA and China.

4.4

4.4

China and MERCOSUR Future

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China and MERCOSUR Future

According to ECLAC projections presented in April 2022, the economies of Latin American and Caribbean countries face a complex juncture due to the Russian and Ukraine war. The economies of South America will grow by 1.5%, Central America and Mexico by 2.3% and the Caribbean countries will grow by 4.7%. The region’s main trade partners, the USA, China and the European Union will see low growth rates than those expected before the war began. The war is negatively affecting global growth and causing a decrease in foreign demand in Latin America and the Caribbean. At the same time, the war has also caused an increase in commodity prices, mainly in fossil fuels, metals, food and fertilisers (ECLAC, 2022). The MERCOSUR countries possess much of these resources. Therefore, MERCOSUR can satisfy the demand of the international market, contribute to reducing the impact of shortages of certain products and see their profits increase due to the increase in prices. According to the General Administration of Customs of China, the trade between China-Latin America and the Caribbean region reached US$ 451,591 million in 2021, registering an increase of 41.1% compared to 2020. During 2021, the Latin American and the Caribbean exports to China reached some US$ 222,582 million and Chinese exports to LAC reached US$229,009 million (SELA, 2022). Currently, China is the first trading partner of Brazil, Chile, Peru, Uruguay and Argentina and China has free trade agreements with Chile, Costa Rica and Peru. Since February 2022, China and Ecuador began negotiations to reach an agreement (Zapata, 2021). In financial terms, the China Development Bank and the China Export-Import Bank are among the leading international financial institutions in the region. Between 2005 and 2020 period, the accumulated loans amounted to more than US$ 137,000 million with Venezuela, Brazil, Ecuador and Argentina being the main recipients. Regarding Chinese investments in the region, during the 2005–2021 period, these amounted to US$ 140,000 million (Inter-American Dialogue, 2021). As we can see from the data described above, Brazil, Argentina and Uruguay have China as their main trading partner. The Chinese presence in the region hinders a greater deepening of relations between EU and MERCOSUR and will represent a challenge regarding the geopolitical positioning that the MERCOSUR countries must adopt against China and the USA. At the last MERCOSUR Summit held in Asuncion on 21 July 2022, which was the 60th summit, an important consensus was reached on the reduction of the Common External Tariff. At the meeting of the Council of the Common Market, held on 20 July 2022, it was defined that products with a tariff of 2% go to 0%, and those with one between 4% and 14% reduce it by 10%. Where there was no consensus, it was in accepting the request made by the President of Ukraine, Volodímir Zelenski, who asked to intervene virtually at the summit. The Paraguayan government as pro tempore presidency of MERCOSUR indicated that all decision in the regional organisation is made by consensus and unanimity and none of these occurred in the Ukrainian president. MERCOSUR no mention was made of which

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country or countries did not agree with President Zelensky’s participation. But it was clear that there is an ambiguity regarding MERCOSUR’s position in the face of this war. While it is true that all countries have condemned the use of force in Ukraine, there is no clear condemnation against Russia’s invasion of Ukraine’s territories in the declaration at the last MERCOSUR summit. In fact, in the Asuncion Declaration of the 41 points, only one point refers to the crisis in Ukraine. The 8-point number talks about Ukraine, but neither the word war nor invasion is mentioned. The MERCOSUR Member States limit themselves to “expressing their concern about the adverse impact produced by Ukraine conflict in the supply chains of food products, due to the increase in the costs of inputs and the reduction in supply, in particular, the fertilisers. In this sense, they (countries) expressed willingness to study joint solutions to alleviate the negative effects” (MERCOSUR, 2022). It seems that China’s ambiguity its position against Russia, in the face of the war that Russian has provoked in Ukraine, is a position like adopted by MERCOSUR countries in the Asuncion Declaration. The ambiguous positions has already brought problems to Latin American and Caribbean countries, it is enough to remember the ambiguity in the case of the Venezuela political crisis divided to countries in the region. We hope that the crisis in Ukraine does not polarise the MERCOSUR Member States, nor does it happen in the entire region. But the truth is that given the economic, trade and financial interdependence that several countries have with China, it will be difficult for them to stay out of the geopolitical power carried out by China, the USA and European Union with respect to Russia and Ukraine war. The ratification of the EU-MERCOSUR Agreement already has many obstacles to overcome in each of the national parliaments on both sides of the Atlantic. But everything seems to indicate that the war could further polarise the countries and therefore the agreement may not be ratified. The European Union will seek to ensure that the sanctions imposed on Russia are complied with by its Member States and by its partners as China and MERCOSUR countries. Uruguay’s announcement to begin negotiations for the signing of a Free Trade Agreement with China has been a contentious issue that was addressed by the presidents at the MERCOSUR Summit in Asuncion (Lacalle Pou, 2021). The MERCOSUR norms indicate that negotiations with third countries must be carried out jointly. Therefore, Argentina, Brazil and Paraguay consider that the measure announced by Uruguay violates one of the founding principles of MERCOSUR which would cause at least the rupture of MERCOSUR and at most the end of the integration process. It is important to make two considerations. Firstly, in June 2012, the Chinese Premier of the State of the People’s Republic of China, Wen Jiabao, told the President of Argentina, Cristina Fernández de Kirchner, the President of Uruguay José Mujica and the President of Brazil Dilma Rousseff that China wants to sing a free trade agreement with MERCOSUR. But the MERCOSUR countries no responded to this proposal. Since then, the pros and cons of signing such an agreement have been studied. The initiative was not from Uruguayan president, it

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was a proposal from Wen Jiabao’s initiative because considered necessary that MERCOSUR opens to the world. Secondly, when referring to MERCOSUR norms, it is usually mentioned to the Decision N32 adopted by the Common Market Council of MERCOSUR on 29 June 2000, which indicates that “MERCOSUR member countries reaffirm their commitment to negotiate in a joint agreement of a commercial nature with third countries or group of countries” (MERCOSUR, 2000). However, since there is no community law at the MERCOSUR level as there is in the European Union, the decision adopted by the Common Market Council must be ratified by the national parliaments. Here a legal problem arises because apparently said the decision has not been submitted to the national parliaments, therefore, they would not be in force, although at the same time it is understood that when adopted by the Council, it must be complied with, but since there is no primacy of community law over national and there are not supranational institutions, the MERCOSUR countries would find themselves in a legal vacuum. MERCOSUR is at a political crossroads, staring within its integration process with a relaxation of the rules or carrying out a modernisation of its process. Time will tell us if the agreement between Uruguay and China is signed or not and if MERCOSUR survives said bilateral agreement. But not that what is evident is the leadership exercised by the Uruguayan president in seeking to adapt MERCOSUR to the new times. When MERCOSUR was created, the world was configured differently than it is now. There were only two or three great powers, but now there are new great powers and emerging powers. In the 1990s, China hardly participated in international organisations and its weight in the global economy was very small. However, today it is a great power, an important geopolitical actor and a main trade and financing partner. Now, it is Uruguay’s turn to exercise the pro tempore presidency of MERCOSUR, it is likely that it will use the power of influence that all countries have when they exercise a pro tempore presidency. Therefore, Uruguay has the agenda capacity, that is the ability to influence the priorities in the MERCOSUR agenda. Undoubtedly, a free trade agreement with China will represent a major change in the productive matrix in MERCOSUR. It is clear that for China the most attractive markets in MERCOSUR are Brazil and Argentina, but Uruguay is a politically stable country, and can be a perfect gateway to the region (France 24, 2022). It is enough to remember the Andean Community case, when Colombia and Peru signed free trade agreements with the USA and European Union, considering the refusal of Ecuador and Bolivia to sign said agreements. Colombia and Peru decided to sign bilateral agreements which brought about the end of the Andean Community as a regional integration organisation and represented the stagnation of the integration process of the Andean countries. While it is true that the Andean Community continues existing as a regional integration organization, its founding principles and competences such joint negotiations in the foreign policy and trade policy. Now theses competences were suspended or marninalised to a second level. Therefore, Andean Community is a regional integration organization without regional

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competences. Mercosur should see the experiences of the Andean countries and avoid the same fate of political irrelevance that Andean Community has today in regional integration and interregionalism terms.

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Makuc, A., Duhalde, G., y Rozenberg, R. (2015a). La negociación Mercosur-Unión Europea a veinte años del Acuerdo de Copperación: Quo Vadis?, Intal-BID, Buenos Aures, 2015. Makuc, A., Duhalde, G. y Rozemberg, R. (2015b). Lanegociación MercosurUEaveinteañosdelAcuerdoMarco de Cooperación: ¿QuoVadis?,nota técnican° IDB-TN-841, Instituto para la IntegracióndeAméricaLatina y el Caribe (INTAL), Banco Interamericano de Desarrollo (BID). MERCOSUR (2022). Comunicado Conjunto de los presidentes de los Estados Parte del MERCOSUR y Estados Asociados. Secretaría General del MERCOSUR, Asunción, 21 de julio de 2022. Retrieved 24 July 2022 from: https://www.mercosur.int/documento/ comunicado-conjunto-de-los-presidentes-de-los-estados-partes-del-mercosur-y-estadosasociados-4/. MERCOSUR (2000). Decisiones del Consejo del Mercado Común. MERCOSUR/CMC/DEC N32/00 – Relanzamiento del Mercosur - Relanzamiento Externo. Sistema de Información sobre Comercio Exterior, Organización de Estados Americanos. Retrieved 23 December2021from: http://www.sice.oas.org/trade/mrcsrs/decisions/dec3200s.asp Milward, A. (2000). The European rescue of the Nation State. Routledge. Peña, F. y Torrent, (2005). Hacia una nueva etapa en las relaciones Unión Europea-Amñerica Latina: un diagnóstico inicial., Univesitat de Barcelona, 2005. p.25. Rivas Molina, F., y Betim, F. (2021). La rebeldía de Uruguay tensa al máximo Mercosur, El País, 8 de julio 2021. Retrieved 23 October 2021 from: Luis Lacalle Pou: La rebeldía de Uruguay tensa al máximo Mercosur | Economía | EL PAÍS (elpais.com) Sanahuja, J. A. y Rodríguez, J. D. (2019). El Acuerdo Mercosur-Unión Europea: Escenarios y opciones para la autonomía estratégica, la transformación productiva y la transición social y ecológica. Análisis Carolina, 29 de junio de 2021. Sanahuja, J. A., & Rodríguez, D. (2021). El Acuerdo Mercosur-Unión Europea: escenarios y opciones para la autonomía estratégica, la transformación productiva y la transición social y ecológica. Fundación Carolina. Retrieved 4 December 2022 from: https://www. fundacioncarolina.es/wp-content/uploads/2021/06/AC-20.2021.pdf SELA (2022). Comercio entre China y Latinoamérica registra nuevo máximo en 2021, pese a pandemia. Caracas: Sistema Económico Latinoamericano y del Caribe. 27 enero de 2022. Retrieved 24 July 2022 from: https://www.sela.org/es/prensa/servicio-informativo/20220127/ si/77572/comerciochinalc#:~:text=27%20de%20enero%20de%202022,-Fuente%3A%20http %3A%2F%2F&text=China%20sigue%20siendo%20el%20segundo,anterior%2C%20seg%C3 %BAn%20el%20organismo%20chino. Sóderbaum, F. y Van Langenhove, L. (2005). The EU as a Global Actor and the role of interregionalism, Journal of European Integration, 27 (3), pp. 249–262. Torres Jarrín, M. & Violante Pica, J. (Editors) (2016). Emerging Markets. The Pacific Alliance. Perspectives & Opportunities for Latin America, Salamanca-Stockholm, European Institute of International Studies. Torres Jarrín, M., Gardini, G. L., & Lebrón de Wenger, L. (2018). Negotiations Free Trade Agreement MERCOSUR-EFTA. Pro Tempore Presidency MERCOSUR-EFTA-PARAGUAY 2018. Policy Report, Embassy of the Republic of Paraguay to Swiss Confederation with concurrency Principality of Liechtenstein, Berna, July 2018. Zapata, S. (2021). Auge chino (y caída rusa) en América Latina. Política Exterior. 19 abril 2022. Retrieved 20 April 2022 from: https://www.politicaexterior.com/auge-chino-y-caida-rusa-enamerica-latina/

Chapter 5

Macroeconomic Analysis of the Characteristics of the Countries of MERCOSUR and Its Comparison with the European Union

5.1

Macroeconomic Analysis and Estimated Trends

The calculation of trends formula in the present work is as follows: = tEU þ tLA, τ is the Total Trend, which includes the tendency of the European Union and Mercosur. This is a general model, where the dependent variable is explained by the independent variables. We used the exponential function for practical and interpretative reasons. On the trend, we check if the variable βτ is significant and what is the effect of the trend, Ȳ is the constant, the average effects of the above values. The general model is as follows: Yit = eðþȲÞ : The estimation models used are fixed effects. All trends (i.e. population trend, the trend of economic growth, inflation, balance of payments, external and labour market debts) were computed using STATA software through the estimation models fixed effects. The logarithmic transformation has been made, i = is the country, t = the time and uit is the standard error. ln ðYit Þ = Y þ  þ uit þ i

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 M. Torres Jarrín, L. G. Daza Aramayo, EU-MERCOSUR Interregionalism, United Nations University Series on Regionalism 21, https://doi.org/10.1007/978-3-031-19217-3_5

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Macroeconomic Analysis of the Characteristics of the Countries of. . .

Population

The world population for the year 2021 according to the world population review (2021) was estimated at 7577 billion people. The population of MERCOSUR (4 countries) according to the latest statistical data is 270 million, representing 3.43% of the world population. The population of the European Union (EU 27) amounted to 448 million, representing 5.67% of the total population. This is an interesting fact, considering that MERCOSUR with four countries has a total area of 14,869,775 km2, while Europe with 27 countries has an area of only 4,233,262 km2 (World Bank, 2021). The European Union is the more important economic bloc, driving more than a quarter of world GDP, while MERCOSUR—despite having a great economic power from countries such as Brazil and a surface area greater than the European Union—only contributes 2.2% according to World Bank Data from 2020. According to World Bank data, the EU generated a nominal gross domestic product (GDP) of US $ 15.28 trillion in 2020, which constitutes approximately 18% of global nominal GDP (17.94%). MERCOSUR generated a nominal gross domestic product (GDP) of only US $ 1.92 trillion in 2020. By 2021, the EU is expected to generate US $ 17.1 trillion, which would constitute 18.24% of global nominal GDP. In Fig. 5.1, we can see the distribution of world GDP in 2020. Table 5.1 shows the results of the regressions calculated for the years 2000–2020. All the data used comes from the World Bank database. On average, the population

Fig. 5.1 GDP distribution in 2020 per cent of global nominal GDP (current US $). Source: Author’s calculations based on World Bank data

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Table 5.1 Estimates of population trend Variable

EU trend MERCOSUR trend Constant R-Squared Number of observations

Coefficient Population (LN) 0.002*** (0.000) 0.009*** (0.000) 9.522 (2.56) 67.2% 651

Age 0–15 (LN)

Age 15–65 (LN)

Age 65+ (LN)

-0.006*** (0.000) -0.013*** (0.00) 16.759*** (1.93) 73.39% 651

0.002*** (0.000) 0.004*** (0.000) 7.478 (0.62) 68.43% 651

0.015*** (0.000) 0.017*** (0.00) -28.323*** (2.28) 74.49% 651

Note: Robust standard errors in parentheses; *p < 0.10, **p < 0.05, ***p < 0.01 Source: Own Calculations based on the World Bank database

Fig. 5.2 Population growth (annual %) in MERCOSUR countries in 2020. Source: Based on data from the World Bank

of the four MERCOSUR countries, regardless of their specifications, increased each year by 0.9% while the countries of the European Union only grew by 0.2% each year. The variability explains approximately 67.2% of the model. When observing the results of the population structure by age, we see that the growth trend in the MERCOSUR countries between 0 and 15 is negative at 1.3% while the European Union is negative at 0.6%. The population has decreased in both regions. For the population aged 15–65 years, the growth trend in the MERCOSUR countries is 0.2% higher than in the European Union. One thing that could be interesting economically is the growing trend of the population over 65 years of age, which according to R-squared explains 74.49% of the data analysed; the growth trend in the MERCOSUR countries is higher by 0.2% (Table 5.1). Figures 5.2 and 5.3 illustrate the annual population growth rate in both regions and by country.

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5.00

4.12 4.00

3.00

2.00

1.96 1.22

1.00

0.00

0.72 0.73

0.58

0.56

0.55

0.46

0.42

0.31

0.29

0.25

0.21

0.19

0.18

0.16

0.09 0.02 -0.04

-0.06 -1.00

-0.22 -0.29

-0.44 -0.45 -0.64

-0.70

Fig. 5.3 Annual growth rate in 2020 of population in countries of Europe (EU27). Source: Based on data from the World Bank

The current characteristics of the MERCOSUR population have determined, among other things, three basic phenomena: rapid population growth until recently (with the exception of Uruguay), strong spatial concentration and urbanisation associated with rural–urban migration in recent years. We can see that the highest population growth in these countries is found in Paraguay, followed by Argentina. The country with the lowest population growth rate in this region is Uruguay, with a growth of 0.35%, according to 2020 data, which is below the average rate for the European Union. The average rate of population growth in MERCOSUR countries is 0.82 while the EU averages 0.38. The highest rate of the 27 countries of the European Union is Malta with 4.12%, followed by Luxembourg (1.96%) and Ireland (1.22%). The lowest population growth rates, which are even negative, correspond with the following countries: Poland, Greece, Hungary, Italy, Romania, Croatia and Bulgaria. The data of the annual population growth (%) in 2020 of the countries of the European Union can be seen in Fig. 5.3. A comparison of population growth averages can be seen in Fig. 5.4. In Tables 5.2 and 5.3, we can see the dependency rate by age, which is the proportion between dependents (people under 15 years of age or over 64 years) and the working age population (between 15 and 64 years). The data is shown as the proportion of dependents per 100 inhabitants of working age, and this approach to the dependency ratio allows us to quantify the economic burden that the potential labour force would bear. It can be seen that in 2020, the dependency rate shows that 52.41 out of every 100 Latin Americans in the MERCOSUR countries are of dependent age, while in the European Union (EU 27) this dependency is 54.98 out of 100. The MERCOSUR country with the highest dependency ratio is Argentina with 55.77 while in Europe it is Finland with 62.39. The next highest dependency rates in the European Union are found in France (62.36) and Sweden (61.17) and the lowest

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Fig. 5.4 Comparison of the Average Rate (%) of Population Growth between EU and MERCOSUR. Source: Based on data from the World Bank Table 5.2 MERCOSUR age dependency ratio for 2020

Argentina Paraguay Uruguay Brazil Total average

55.77 55.53 54.85 43.48 52.41

Source: Based on data from the World Bank

in Luxembourg (42.75) and Cyprus (44.9). The lowest dependency rates in the MERCOSUR countries are found in Brazil and, surprisingly, Uruguay (43.48 and 54.85). High dependency rates correspond to countries with low fertility rates. In most countries, this fact will generate serious problems for public finances, especially a lack of fiscal discipline in pension systems.

5.1.2

Economic Growth

Figure 5.5 shows the average annual economic growth of the analysed regions. Since 2005, GDP growth in the European Union (EU 27) has been exceeded by GDP growth in the MERCOSUR countries. The effects of the global economic crisis of 2008 and 2009, which particularly affected economic growth in Europe, are very visible. The MERCOSUR countries suffered a mild recession, but as we can see, the economic growth rate has returned to the growth of previous years, while the recovery in Europe has been much slower. The regressions of the following economic variables have been estimated: GDP (constant 2015 US dollars), GDP (current US dollars), PPP GDP (constant 2015

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Table 5.3 European Union (EU 27) age dependency ratio for 2020

Finland France Sweden Latvia Estonia Denmark Italy Belgium Bulgaria Lithuania Greece Czech Republic Slovenia Portugal Croatia Netherlands Malta Germany Ireland Romania Hungary Spain Poland Austria Slovak Republic Cyprus Luxembourg Total average

62.39 62.36 61.17 59.03 58.41 57.35 56.96 56.96 56.61 56.48 56.10 56.00 55.94 55.83 55.75 55.61 55.52 55.38 54.82 53.26 52.84 52.39 51.42 50.64 47.61 44.90 42.75 54.98

international dollars), GDP per capita (current US dollars), GDP per capita (constant US dollars 2015), GDP per capita, PPP (constant 2017 international dollars), GDP deflator, GDP growth in % and GDP growth per capita in %. The results on the trends of these indicators are shown in Table 5.4. The GDP trend (constant 2015 US $) in the MERCOSUR countries was an annual increase of 3.1% while the trend of this indicator for the EU was 1.19% annually, explaining 66.2% of the data for this indicator. The rest of the data specifications (33.8%) are not explained by this trend; however, they are statistically significant as in the rest of the other economic indicators. The trend in both regions of the GDP (current US $) has an annual growth of 7.9% and 4.6% for the MERCOSUR countries and the European Union, respectively, which explains 63.6% of the data. The trend of PPP GDP (constant international dollars of 2017) is higher in the MERCOSUR countries by 1.2%. The trend of GDP per capita (current US $) is lower in the European Union with a growth of 4.4% while in MERCOSUR it

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Fig. 5.5 Average growth rates of GDP in MERCOSUR and the European Union from 2005 to 2020 (in %). Source: Based on data from the World Bank

reached 7%. Finally, the trends in GDP per capita (constant 2015 US $) and GDP per capita, PPP (constant 2017 international US $) are very similar, especially in the European Union, although with a lower growth rate than in the MERCOSUR countries where it has a greater growth trend of almost 0.5% to 1.2% per year. In Tables 5.5 and 5.6, we can see the economic growth by country in each region for the last 15 years. The country with the highest economic growth in MERCOSUR is Paraguay. In Europe, Ireland, Malta, Estonia and Poland are in the lead. In general, the economic growth of all countries was affected in 2020 as a result of the health crisis with the COVID-19 Pandemic and confinements and restrictions of neverbefore-seen magnitude. The purchasing power of European countries according to the GDP per capita indicator, measured in purchasing power parity (PPP), has always been much higher than that of the MERCOSUR countries. Figure 5.6 shows the evolution of this indicator from 2000 to 2020. In 2018, the MERCOSUR countries analysed reached an average of US $ 18,264 while the European Union (counting the 27 countries) reached US $ 45,309, a difference of around 59.7%. In 2019, the average GDP per capita, PPP of the 27 European countries was US $ 47,300 while the MERCOSUR average reached US $ 18,320. The economic growth trend was calculated using regressions and annual growth for the European Union averaged 2.23%, while MERCOSUR averaged 2.20%. It can be seen that the growth of both regions was constant and linear in Fig. 5.6. Despite the growth of per capita GDP in MERCOSUR, the difference is still quite big between these two regions. In Figs. 5.7 and 5.8, we can see the GDP per capita in purchasing power for 2012 by country.

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Table 5.4 Estimates of economic indicators

EU trend MERCOSUR trend

Coefficient GDP constant prices (2015 USD) (ln) 0.019*** (0.00) 0.031***

GDP current prices (USD) (ln) 0.046*** (0.00) 0.079***

GDP deflator (ln) 0.023*** (0.00) 0.107***

GDP growth % (asinh) -0.064*** (0.01) -0.040

(0.00) (0.01) (0.03) (0.04) -16.004*** -75.917*** -63.947*** 123.914*** (4.38) (6.81) (9.24) (15.35) Observations 651 651 651 651 0.662 0.636 0.718 0.060 Adjusted R2 Note: Robust standard errors in parentheses; *p < 0.10, **p < 0.05, ***p < 0.01 Coefficient GDP per capita GDP per capita GDP PPP GDP per capita constant prices current prices growth % (constant prices (2015 USD) (USD) (asinh) 2017 int. USD) (ln) (ln) (ln) EU trend 0.017*** 0.044*** -0.064*** 0.019*** (0.00) (0.00) (0.01) (0.00) MERCOSUR 0.022*** 0.070*** -0.037 0.031*** trend (0.00) (0.01) (0.04) (0.00) Constant -25.448*** -85.366*** 122.828*** -15.558*** (5.19) (7.95) (14.54) (4.38) Observations 651 651 651 651 0.521 0.584 0.058 0.662 Adjusted R2 Note: Robust standard errors in parentheses; *p < 0.10, **p < 0.05, ***p < 0.01 Source: Based on data from the World Bank Constant

Table 5.5 Economic growth of MERCOSUR countries from 2005 to 2020 (in %) Country Argentina Brazil Paraguay Uruguay

2005 8.85 3.20 2.13 7.46

2010 10.13 7.53 11.10 7.80

2015 2.73 -3.55 2.96 0.37

2016 -2.08 -3.28 4.27 1.69

2017 2.82 1.32 4.81 1.63

2018 -2.57 1.78 3.20 0.48

2019 -2.09 1.41 -0.40 0.35

2020 -9.91 -4.06 -1.00 -5.86

Source: Based on data from the World Bank

European Union GDP per capita averages US $ 31,767; Luxembourg has the highest rate with US $ 101,207 and Bulgaria has the lowest with US $ 8050, which is a little less than the average rate in MERCOSUR countries of US $ 10,065. In

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Macroeconomic Analysis and Estimated Trends

77

Table 5.6 Economic growth of the European Union, by country from 2005 to 2020 (in %) Country Austria Belgium Bulgaria Croatia Denmark Cyprus Czech Republic Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Portugal Poland Romania Slovak Republic Spain Sweden Slovenia

2005 2.24 2.32 7.15 4.31 2.34 4.85 6.60 9.52 2.78 1.66 0.73 0.60 4.24 5.74 0.82 10.73 7.73 3.17 3.38 2.05 0.78 3.51 4.67 6.62 3.65 2.86 3.80

2010 1.84 2.86 0.56 -1.32 1.87 2.01 2.43 2.44 3.19 1.95 4.18 -5.48 1.12 1.76 1.71 -4.41 1.65 4.86 5.54 1.34 1.74 3.74 -3.90 5.87 0.16 5.95 1.34

2015 1.01 2.04 3.99 2.43 2.34 3.22 5.39 1.85 0.54 1.11 1.49 -0.41 3.82 25.18 0.78 4.01 2.02 4.31 9.61 1.96 1.79 4.24 2.95 4.81 3.84 4.49 2.21

2016 1.99 1.27 3.82 3.50 3.25 6.44 2.54 3.16 2.81 1.10 2.23 -0.49 2.14 2.04 1.29 2.37 2.52 4.57 4.09 2.19 2.02 3.14 4.70 2.13 3.03 2.07 3.19

2017 2.40 1.62 3.50 3.44 2.82 5.15 5.17 5.79 3.19 2.29 2.68 1.28 4.32 8.94 1.67 3.25 4.28 1.80 8.12 2.91 3.51 4.83 7.32 2.99 2.97 2.57 4.82

2018 2.58 1.79 3.09 2.81 1.99 5.24 3.20 4.13 1.14 1.87 1.09 1.56 5.40 9.03 0.94 4.02 3.94 3.11 5.18 2.36 2.85 5.35 4.47 3.65 2.29 1.95 4.42

2019 1.42 1.78 3.69 2.86 2.11 3.08 3.03 4.10 1.34 1.84 1.06 1.86 4.64 4.92 0.29 2.03 4.34 2.30 5.54 1.96 2.49 4.54 4.13 2.51 2.09 1.99 3.25

2020 -6.26 -6.28 -4.15 -8.37 -2.06 -5.10 -5.79 -2.95 -2.87 -7.86 -4.57 -8.25 -4.96 5.87 -8.87 -3.62 -0.87 -1.31 -7.00 -3.80 -7.57 -2.70 -3.86 -4.75 -10.82 -2.80 -4.23

Source: Based on data from the World Bank

MERCOSUR the highest rate is found in Uruguay with US $ 15,045 and the lowest rate is Paraguay, with US $ 5646.

5.1.3

Inflation Rates

Inflation rates in the MERCOSUR countries are much higher than those of the European Union. In Figs. 5.9 and 5.10, we can see the detailed inflation by country for both regions in 2020 with the exception of Argentina due to the lack of data availability. On average, the European region had an inflation rate of less than 1%, with the exception of the Czech Republic, which in 2020 reached 3.2%. The data comes from the World Bank database. The highest inflation in the MERCOSUR

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Fig. 5.6 GDP average growth (annual in %) from 2000 to 2020. Source: Based on data from the World Bank

countries is found in Argentina, which according to the Statista Research Department in Argentina reached 53.2% and Uruguay with 9.8%. This trend reflects both the slowdown in economic growth in the region and the reduction in inflationary pressures due to the stability or fall in the prices of raw materials, including food. In the case of Argentina, which is really very specific, the causes are more related to poor monetary policies and a general discrediting of its currency. To analyse inflation, we used the following indicators: the consumer price index (CPI), the implicit GDP deflator and the official exchange rate. The results of the regressions are shown in Table 5.7. The trends are dependent on the individual characteristics of each country with a big variability of the data (these are the specific variables; the trend is inexplicable), but its significance is very important. The inflation rate trend in Europe (Inflation, GDP deflator by annual %) is less than 4.5% annually. The trend in MERCOSUR countries is 6% annually without Argentina but only explains 9% of the indicators. Regarding inflation, the trend of the consumer prices (annual %) is quite similar to the trend in Europe -7.2% and for MERCOSUR -3.1%. The real exchange rate trend (official exchange rate (LCU per US $, period average)) in MERCOSUR is 5.7% per year, i.e. there is a yearly depreciation of the currency of 4.9%. In Europe, the trend of this variable was not significant. In Fig. 5.11, we can see the average inflation rate from 2000 to 2020 for both regions. Figure 5.11 shows the evolution of the inflation rate from 2000 to 2020. The total average of the last 21 years for the EU is 2.48%. MERCOSUR countries have always been characterised by relatively high inflation, and compared to previous years, it has not diminished yet with an average rate for MERCOSUR countries

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79

Fig. 5.7 GDP per capita, European Union countries (constant 2015 international US $). Source: Based on data from the World Bank

(without Argentina) for the last 21 years of 6.86%. Unfortunately, the data for Argentina are not available, but on the other hand, they are extremely high and would distort the average. The inflation rates between 2002 and 2003 are due to the big economic crisis in Uruguay that actually began in 1999 and continued until 2002. It was a process of financial insolvency that affected more than half of the commercial banks and produced the disappearance of some of the most emblematic financial companies and the virtual collapse of Uruguay’s economic system, including extremely high inflation.

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Fig. 5.8 GDP per capita, MERCOSUR countries (constant 2015 international US $). Source: Based on data from the World Bank

Fig. 5.9 Inflation rates, consumer prices (annual in %) for MERCOSUR countries, 2020. Source: Based on data from the World Bank

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Fig. 5.10 Inflation rates, consumer prices (annual in %) for EU countries, 2020. Source: Based on data from the World Bank

In Fig. 5.11, we can see the evolution of the inflation rate for both regions without Argentina.

5.1.4

Balance of Payments

The data used for the analysis in this subchapter also came from the World Bank from 2000 to 2020. It can be seen that as of 2008, the MERCOSUR countries registered a growing deficit, while Europe also showed negative balances, but only until 2012 when it reversed and reached a positive balance of 0.29% of GDP in 2012.

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Table 5.7 Estimates of inflation indicators Variable

EU trend MERCOSUR trend Constant Observations Adjusted R2

Coefficient Inflation_GDP, deflator (asinh) -0.045*** (0.01) 0.006* (0.05) 78.090*** (21.27) 651 0.090

Inflation, CPI (asinh) -0.072*** (0.01) -0.031* (0.02) 137.095*** (16.34) 629 0.252

OffEXR (ln) -0.004 (0.00) 0.057* (0.03) -20.564 (17.54) 325 0.298

Note: Robust standard errors in parentheses; *p < 0.10, **p < 0.05, ***p < 0.01 Source: Based on data from the World Bank

Fig. 5.11 Evolution of inflation rate for EU and MERCOSUR (excluding Argentina) in% (2000–2020). Source: Based on data from the World Bank

The negative balance can be seen in Europe, mainly due to the 2007–2008 crisis (Fig. 5.12). Regressions have been calculated to analyse the balance of payments using the following indicators: Current account balance (% of GDP), Current account balance (balance of payments, BoP, current US $), Exports of goods and services (balance of payments, US $ current), Exports of goods, services and primary income (balance of payments, current US $), Imports of goods and services (balance of payments, current US $), Imports of goods, services and primary income (balance of payments, Current US $). The most interesting indicators, which explain the trend of almost 60% of the data, are Exports of goods and services (balance of payments, current US $) and Exports of goods, services and primary income (balance of payments, current US $) where the growth trend in MERCOSUR countries is 7.3% and 7.2%, respectively,

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Macroeconomic Analysis and Estimated Trends

83

6.00

4.70 4.00

1.63

2.00

0.88 0.00

2000

-2.00

-2.30 -4.00

-3.06

2001

-1.76 -2.10

2002

2003

2004

0.96

2005

0.80

2006

1.74

1.39 0.52 2007

2008

-1.30

-1.44

2009

-1.05

-2.04 -2.69

1.86

1.77

0.29 2010

-0.95 -1.40

2011

2012

1.54

2.10

1.62

2013

2014

2015

-0.65

2016

2017

2018

-0.76

-1.52 -2.16

1.40

0.07

-1.88

-1.67 -2.31

2019

1.09 0.16 2020

-0.89 -2.15

-3.13 -4.22 -5.11

-6.00

-4.95 EU

MERCOSUR

Fig. 5.12 Current account balances of the European Union and MERCOSUR countries 2000–2020 (% GDP). Source: Based on data from the World Bank

while Europe is 6.7%, respectively, while Europe is 6.7% and an annual growth of 6.9%. Other interesting indicators, which explain the trend of more than 60% of the data, are Imports of goods and services (balance of payments, current US $) and Imports of goods, services and primary income (balance of payments, current US $) where the growth trend in MERCOSUR countries is 8.2% and 7.6% and 7.6%, respectively, while Europe is 6% and an annual growth of 6.2%. The results of the trend of these indicators are shown in Table 5.8. Figure 5.13 illustrates the evolution of exports of MERCOSUR and EU countries from 2000 to 2020. The fall in exports in the EU (EU27) from the global economic crisis in 2009 can be observed here. Figure 5.14 shows the imports of the European Union (EU 27) and MERCOSUR countries. Exports and imports in the European Union are much higher than in Mercosur. Figure 5.15 illustrates the big quantitative variations between exports and imports between the two regions.

5.1.5

Labour Market

The comparison of the unemployment rates in both regions is illustrated by Figs. 5.16 and 5.17, where we can see the differences in this indicator. In MERCOSUR, the highest unemployment rate in 2020 is in Brazil (with 13.67%) and the lowest rate is in Paraguay (with 7.61%). In most of the MERCOSUR countries, the unemployment rate is quite high above 11%, with the exception of Paraguay. The situation in the European Union is a bit different. In general, the unemployment rate is below 10%, with the exception of Greece and Spain. Therefore, it is in those two countries that the highest unemployment rates are

(0.06) -142.471* (71.88) 637 0.098

Current account balance, % GDP (asinh) 0.112*** (0.03) -0.041

(0.04) -184.957*** (44.96) 637 0.204

(0.01) -110.459*** (9.32) 651 0.714

Exports of goods and services, current US (ln) 0.067*** (0.01) 0.073*** (0.01) -114.667*** (9.89) 637 0.679

Exports of goods, services and primary income, current US (ln) 0.069*** (0.01) 0.072***

Note: Robust standard errors in parentheses; *p < 0.10, **p < 0.05, ***p < 0.01 Source: Based on data from the World Bank (using IHS—Inverse hyperbolic sine transformation)

Observations Adjusted R2

Constant

MERCOSUR trend

Balance of payments EU trend

(0.00) -101.926*** (7.90) 637 0.663

Imports of goods and services, current US (ln) 0.060*** (0.00) 0.082***

(0.01) -103.549*** (9.35) 637 0.625

Imports of goods, services and primary income, current US (ln) 0.062*** (0.01) 0.076***

5

Current account balance, current US (asinh) 0.099** (0.04) -0.116*

Coefficient

Table 5.8 Results of the regressions of the balance of payments indicators

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5.1

Macroeconomic Analysis and Estimated Trends

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Fig. 5.13 EU and Mercosur, Exports 2000–2020 (millions of US $). Source: Based on data from the World Bank

Fig. 5.14 EU and Mercosur, Imports 2000–2020 (millions of US $). Source: Based on data from the World Bank

found. The unemployment rate in Spain in 2020 reached 15.67% and 16.85% in Greece. Through Table 5.9, we can see the unemployment rates of each of the countries and the increase / decrease of this variable, comparing the rate of the year 2019 before the COVID crisis. In most of these countries, there is an increase in previous rates, which were not observed before the COVID. Given the international recession resulting from the pandemic, it could be said that the increase in unemployment rates is not as high as expected, with the exception of Uruguay. The unemployment rates of the European Union, by country, can be seen in Table 5.10. The countries with the highest unemployment rates in 2020 were Greece, Spain and Italy with 16.85%, 15.67% and 9.31%, respectively. In contrast, the countries with the lowest unemployment rates are the Czech Republic, Poland, the Netherlands and Malta, with rates of 2.94%, 3.55% and 4.09%, respectively. It

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Fig. 5.15 Comparing the evolution of exports and imports between MERCOSUR countries and the EU (million US $), 2000–2020. Source: Based on data from the World Bank

Fig. 5.16 Unemployment rate of MERCOSUR countries (% of total labour force), 2020. Source: Based on data from the World Bank

should be noted that in almost all the countries of the European Union the unemployment rate has increased compared to 2019 as a result of the first results of the COVID-19 Pandemic crisis and the series of confinements never seen before. With the exception of Greece and Italy where it has been reduced by around 0.5. In addition, an analysis of the trends of the following indicators has been carried out: active population (total), unemployment (total), female workforce with tertiary education (% of female workforce), male workforce with tertiary education (% of male workforce). The trends are in Table 5.11. The trend regarding school enrollment, tertiary, male (% gross) in the MERCOSUR countries is only 1%, explaining only 41% of the data, while school enrollment, tertiary, female (% gross) have no trend of growth in 15% of its data. In

5.2

Institutional Analysis

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Fig. 5.17 Unemployment rate of EU 27 countries (% of total labour force), 2020. Source: Based on data from the World Bank Table 5.9 Unemployment rate for MERCOSUR countries, 2019 and 2020

Argentina Brazil Paraguay Uruguay

2019 9.84 11.93 6.6 9.35

2020 11.67 13.67 7.61 12.67

Variation 1.83 1.74 1.01 3.32

Source: Based on data from the World Bank

the European Union as a result of the increase in unemployment rates, the trend in this variable was negative with an annual reduction of around 4% and with an explanation between 15% and 41% of the data.

5.2

Institutional Analysis

At the institutional level, the institutions of the European Union and the institutions of MERCOSUR are not the same and the main differences are the following: • The institutional framework of the European Union (EU 27), according to the official website of the European Union, is made up of seven institutions to which the Member States attribute powers for the community exercise of part of their powers: European Parliament, European Council, Council of the European Union, European Commission, Court of Justice of the European Union, European Central Bank and European Court of Auditors. • Defined by Article 13 of the Treaty on the European Union (2016), this institutional framework “aims to promote its values, pursue its objectives, defend its interests, those of its citizens and those of the Member States, as well as guaranteed coherence, effectiveness and continuity of its policies and actions”.

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Table 5.10 Unemployment rate for EU countries (EU27), 2019 and 2020

Country Austria Belgium Bulgaria Croatia Czech Republic Cyprus Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Portugal Poland Romania Slovak Republic Spain Sweden Slovenia

2019 4.49 5.36 4.23 6.62 2.01 7.07 5.02 4.45 6.7 8.44 3.14 17.31 3.42 4.95 9.95 6.31 6.26 5.6 3.4 3.38 6.46 3.28 3.91 5.75 14.1 6.83 4.45

2020 5.77 6.01 5.71 7.2 2.94 7.21 5.66 6.46 7.83 8.62 4.31 16.85 4.35 5.92 9.31 8.19 8.43 6.96 4.09 4.09 7.2 3.55 4.84 6.79 15.67 8.45 5.17

Variation 1.28 0.65 1.48 0.58 0.93 0.14 0.64 2.01 1.13 0.18 1.17 -0.46 0.93 0.97 -0.64 1.88 2.17 1.36 0.69 0.71 0.74 0.27 0.93 1.04 1.57 1.62 0.72

Source: Based on data from the World Bank Table 5.11 Results of the regressions of the Labour Market indicators

Labour market EU trend MERCOSUR trend Constant Observations Adjusted R2

Coefficient Labour force, total (ln) 0.005*** (0.00) 0.013***

Unemployment, total (ln) -0.005 (0.01) -0.018*

Labour force with intermediate education, Females (ln) -0.004*** (0.00) 0.000

Labour force with intermediate education, Males (ln) -0.004*** (0.00) 0.001

(0.00) 3.104 (3.06) 651 0.349

(0.01) 15.429 (12.91) 651 0.018

(0.00) 10.367*** (2.27) 606 0.154

(0.00) 11.637*** (1.17) 606 0.414

Note: Robust standard errors in parentheses; *p < 0.10, **p < 0.05, ***p < 0.01

5.2

•

•

•

•

• •

•

• •

Institutional Analysis

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It constitutes the concrete expression of the principle of the institutional uniqueness of this international organisation. The rules and procedures that the institutions must follow are established in the treaties, negotiated by the European Council and in intergovernmental conferences and ratified by the national parliaments of each State. Like any state, the EU has an independent parliament, executive and judiciary, which are supported and supplemented by other institutions. In the functioning and organic structure of the Union, a distinction is made between those that, according to the name given to them by the Treaties, are, in this order, the institutions, bodies and agencies of the Union. The institutional framework of MERCOSUR according to the official page of MERCOSUR is also made up of seven institutions: the Common Market Council (CMC); the Common Market Group (GMC); the MERCOSUR Trade Commission (CCM); the MERCOSUR Parliament or Parlasur (PM); the Economic-Social Consultative Forum (FCES); the MERCOSUR Secretariat (SM) and the MERCOSUR Permanent Review Tribunal (TPR). The Common Market Council (CMC) is the highest body of MERCOSUR and the one that adopts the most important norms called “decisions”. It is made up of the Ministers of Foreign Affairs and the Ministers of Economy of the member countries. MERCOSUR officials are representatives of the ministries and of the different central banks that represent national interests and not those of the integration group as such. Officials of the European Commission are officially independent from the governments of the member states and work for the community with national and community interests prevailing. Dependence on the authorities of the respective MERCOSUR governments makes it difficult to achieve common interests in relation to the individual interests of the states. A clear example is the Trade Commission. The European Union, unlike MERCOSUR, has a Supranational Parliament. MERCOSUR had a Parliament until 2007 when it was replaced by the MERCOSUR Joint Parliamentary Commission (CPC). This Commission had autonomy, but not its own decision-making powers, so it cannot have control over the activities of the Common Market Group and the Council. The institutional cohesion of the European Union is much stronger than the institutional cohesion of Mercosur, the decisions that are made by the governments that make up this group are accountable to their respective parliaments, while, in the European Union, the Commission does not need to do so. with the respective parliaments, external control is carried out through the European Parliament. The European Union, unlike Mercosur, has the European Court of Justice, MERCOSUR has the Permanent Review Court of Mercosur, but unfortunately it is not a centralised judicial system similar to that of the European Union. In some MERCOSUR countries, there are contradictions between the laws of the respective countries and the laws of Mercosur, in the case of Uruguay and Brazil.

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• In the event of arbitration, their different claims are presented directly to the courts of the World Trade Organization or through the dispute settlement mechanism made up of the so-called Ad Hoc Arbitration Tribunals (TAH, which is not centralised and do not allow interpretation). • MERCOSUR institutions have an intergovernmental character, but they are more centralised and independent since they did not opt for a community system in which supranational institutions, such as the European Union, govern. The institutions of the European Union are characterized by their intergovernmental and supranational character. • Decision-making in the European Union is through a simple majority, qualified majority or consensus. In the case of Mercosur, decision-making is carried out through a consensual agreement between the member countries. • The European Union has a Regional Cohesion Program that does not exist in Mercosur. In the framework of support for Mercosur, the only country that helps the smallest countries is Brazil, one of the countries in the group with the greatest regional and social inequality. • There are huge differences between the level of institutionalisation of the European Union and MERCOSUR, as well as the level of integration. MERCOSUR’s structure is not complete and more deficient, especially at the institutional level. • Despite the fact that MERCOSUR only has four members, the possibility of having a single currency has been very problematic due to the harmonization of policies and especially the inflation problems in Argentina, in addition to low intra-regional trade. • Unlike their monetary integration efforts, MERCOSUR has worked a lot on linguistic integration where it has made great progress. It is necessary to remember that, although the integration of each group could be very similar, they are two completely different blocks and they are not identical organisations due to their economic and social conditions, their different functioning, the nature of their geography, and their history, marked in a very different way its regional integration process.

5.3

Business Analysis

In this subchapter, the countries of the European Union (EU 27) and MERCOSUR (4) will be classified according to their business environment. The score has been calculated on the average basis of the World Bank’s Doing Business Index and the Score of the Index of Economic Freedom. Both indices are based on a scale from 0 to 100, where 0 represents the lowest score. The idea is to complete an analysis at a microeconomic level with a macroeconomic level. The World Bank score is

5.3

Business Analysis

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primarily influenced by the effectiveness of regulations and the time it takes to complete corporate transactions. However, in this study we consider macroeconomic factors and economic freedom to be relevant. The World Bank’s ‘Indicator of Doing Business’ measures the gap between the country’s economic policies and regulations and best practices in each indicator for all economies (e.g. starting a business, paying taxes, cross-border trade, property registration). The ‘Indicator of Doing Business’ is a de jure analysis of regulations in 178 countries. Some of the areas that they measure are: (1) starting a business; (2) dealing with licenses; (3) employing workers; (4) registering property; (5) getting credit; (6) protecting investors; (7) paying taxes; (8) cross-border trade; (9) enforcing contracts and (10) closing a business. Countries are ranked in each of these sectors, and then those results are averaged to obtain the overall ranking on the ease of doing business. The Doing Business indicators provide a set of empirical data that can improve understanding of these issues. This information collected is based on company surveys in the cities most relevant to business and may not be representative of regulatory practices. In an economy, exogenous variables directly affect endogenous ones, with which economic agents are affected. In order to examine the components that affect the development of international trade and include the efficiency of the countries’ macroeconomic policies, the index of economic freedom is included in this analysis. The Index of Economic Freedom (2020) evaluates 12 aspects of economic freedom, grouped into 4 categories: 1. Rule of law: Property rights, judicial effectiveness, integrity of the government. 2. Size of government: Tax burden, government spending, fiscal health. 3. Regulatory efficiency: Entrepreneurial freedom, labour freedom, monetary freedom. 4. Market opening: Commercial freedom, investment freedom, financial freedom. The Index measures 12 specific components of economic freedom, each of which is rated on a scale from 0 to 100. The Heritage Foundation (2020) notes that greater economic freedom is correlated with greater prosperity. Thus, the index reflects a positive relationship with different economic and social goals, such as healthier societies, cleaner environments, greater wealth, less poverty, among others. The score used for ranking is the average of the World Bank’s Doing Business Index and the Score of the Index of Economic Freedom (50% weighting each). A high score indicates that the country is favourable for doing business, while low scores refer to countries that are less favourable for business. The results are listed in Table 5.12.

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Table 5.12 Ranking of the best countries to do business in MERCOSUR in 2020 Economy Uruguay Brazil Paraguay Argentina Regional average

New score best MERCOSUR countries for business 65.3 56.4 61.1 56.1 59.7

Rank 1 2 3 4

Source: Based on data from the World Bank

In the four MERCOSUR countries, Uruguay tops the ranking with a score of 65.3, followed by Brazil and Paraguay. The score is well below the European Union average of 73.57. Uruguay’s 2020 economic freedom score is 69.1, making its economy the 47th freest in the 2020 Index. Uruguay ranks third among the 30 countries in the Latin America and Caribbean region, and you could say that their overall score is above the regional averages. According to Doing Business 2020, the World Bank’s annual report that studies regulations that enhance or restrict business activity, Uruguay achieved a global score of 61.5 in 2020, ranking 101st worldwide. In 2020, Uruguay implemented a key reform in cross-border trade, introducing electronic certificates of origin, which allowed reducing the time required to comply with the necessary documentation to import. Uruguay also stands out for the flexibility in the minimum capital that companies must deposit, which reduced the costs of starting a business as well as the reduction in the number of processes and time necessary to pay taxes thanks to the introduction of payment services online etc. Despite its relatively good position, Uruguay should work to strengthen the judicial system, reduce government expenditures, reduce labour market regulations and reduce interference in the financial sector. Argentina’s economic freedom score in the 2020 Index of Economic Freedom (53.1.8 out of 100) placed it 149th out of 180 countries measured. Argentina also ranks 24th out of 30 countries in the Americas region from the South and Central/ Caribbean, after Venezuela, Cuba, Bolivia, Suriname, Ecuador and Haiti. Unfortunately, this country has a very low score on the country’s economic freedom indicators, from the control of public spending, price regulation, labour freedom, commercial freedom and a large state intervention. Unfortunately, in Argentina the level of corruption is quite high as well as the economic repression that prevails in this country. Along with state interference, the formal economy has become increasingly stagnant as informal economic activity expands. The lack of monetary stability is another big problem. According to the latest data from the Central Bank of Argentina, inflation shot up to 53% percent in 2020.

5.3

Business Analysis

Table 5.13 Ranking of the best countries to do business in the European Union (EU 27) in 2020

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Economy Denmark Ireland Estonia Lithuania Sweden Finland Germany Netherlands Latvia Austria Czech Republic Poland Luxembourg Spain Slovenia Belgium Cyprus Portugal Romania France Slovak Republic Bulgaria Hungary Italy Croatia Malta Greece Regional average

New score Best EU countries for business 81.8 80.3 79.2 79.2 78.5 78.0 76.6 76.6 76.1 76.0 75.6 72.8 72.7 72.4 72.2 72.0 71.8 71.8 71.5 71.4 71.2 71.1 69.9 68.4 67.9 67.8 64.2 73.57

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Source: Based on data from the World Bank

Finally, mention should be made of the regulatory invasion of private companies, which together with government interference discourages entrepreneurship and only increases uncertainty. The results for the countries of the European Union are listed in Table 5.13. In the European Union countries, Denmark tops the ranking with a score of 81.8, followed by Ireland, Estonia, Lithuania, Sweden, Finland and Germany. The Nordic countries are as always dominating the top of the ranking topping the list of the best countries in the European Union to do business. It is precisely these countries that offer much more legal certainty, smarter regulation, more competitive markets, a less corrupt institutional environment and greater ease of investing and trading.

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Consequently, it can be seen, for example that, in the Heritage Foundation index (2020), Spain is in 58th place, while the Nordic countries that are members of the European Union occupy the following positions: Denmark is in eighth, Sweden in 22nd, Finland in 20th. Therefore, the myth according to which the Nordic countries are an example of successful economic interventionism is falling. In fact, its success is tied to the ideas of laissez-faire and the market. If we analyse the Doing Business report (2020), published by the World Bank and dedicated to measuring the ease of doing business. In the general classification, all the Nordic countries are ahead of Spain with the 30th position at the world level with 77.9 points out of 100, compared to the 85.3 points of Denmark (position 4 at the world level), the 82 of Sweden (position 10 to world level) or Finland’s 80.2 (20th place worldwide). Graphically it can be illustrated through Figs. 5.18 and 5.19.

Fig. 5.18 Ranking of MERCOSUR countries for Business 2020. Source: Own graph based on data from Index of Doing Business from the World Bank and the Index of Economic Freedom from Heritage Foundation

References

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Fig. 5.19 Ranking of EU 27 countries for Business 2020. Source: Own graph based on data from Index of Doing Business from the World Bank and the Index of Economic Freedom from Heritage Foundation

References Acuerdo General sobre Aranceles Aduaneros y Comercio (Gatt de 1947). Retrieved 21 July 2022 from: https://www.wto.org/spanish/docs_s/legal_s/gatt47_01_s.htm Acuerdo marco de cooperación comercial y económica entre la Comunidad Económica Europea y la República Argentina. (1990). Retrieved 21 July 2022 from: EUR-Lex. https://eur-lex.europa. eu/legal-content/ES/ALL/?uri=CELEX:21990A1026(01) Acuerdo marco de cooperación entre la Comunidad Económica Europea y la República Federativa del Brasil - Canje de notas entre la Comunidad Económica Europea y la República Federativa del Brasil en materia de transportes marítimos. EUR-Lex. Retrieved 21 July 2022 from: https:// eur-lex.europa.eu/legal-content/ES/TXT/?uri=CELEX:21995A1101(01) European Union. (2016). Consolidated version of the Treaty on European Union, OJ C 202. https:// eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A12016M014 The Heritage Foundation. (2020). The Heritage Foundation Annual Report 2020. Available at: https://www.heritage.org/index/pdf/2020/book/chapter2.pdf

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Database Aranceles del Acuerdo entre Unión Europea y Mercosur: Los aranceles que tienes que conocer si quieres exportar o importar desde la Unión Europea [Application of the Inter-American Development Bank, Tariffs of the Agreement between the European Union and Mercosur]. Available at http://aranceles.iadb.org/ Access2Markets to Market Access Database users: Your EU gateway to trade information for exporters and importers. Available at https://trade.ec.europa.eu/access-to-markets/en/content/ welcome-access2markets-market-access-database-users Doing Business: Measuring Business Regulations. Available at https://www.doingbusiness.org/en/ data/exploretopics/tradingacross-borders Heritage Foundation (Washington, D.C.), & Wall Street Journal (Firm). (2020). The index of economic freedom. Available at https://www.heritage.org/index/about Inter-American Development Bank: Numbers for Development. Available at https://data.iadb.org/ Integrated Trade Intelligence Portal (I-TIP). Available at https://www.wto.org/english/res_e/statis_ e/itip_e.htm Ministerio de Agricultura, Ganadería y Pesca de Argentina. Available at https://www.argentina. gob.ar/agricultura/datos-abiertos-0 Trademap: Trade statistics for international business development. Available at https://www. trademap.org/Index.aspx UNCTAD TRAINS: The Global Database on Non-Tariff Measures. Available at https://unctad.org/ system/files/officialdocument/ditctab2017d3_en.pdf World Bank-DataBank. Available at https://databank.worldbank.org/ World Bank. (2021). World Development Indicators, Population, total. https://databank. worldbank.org/

Chapter 6

New Association Strategy in the MERCOSUR-European Union Relations

Finally, after 20 years of negotiations, the European Union and MERCOSUR apparently agreed on an association that could mark a new era in the relations of both regions. However, we must remember that although the agreement was signed on 28 June 2019, two years have passed, and the agreement is not yet ratified. It is a historic agreement for which much work has been done, including more than 20 years of negotiations, and it would unite two large blocs. On the one hand, we have a bloc of 27 countries with a territorial extension of 4,233,255 km2 and with a population of 447 million (World Trade Report, 2020), which the agreement would unite into a bloc of four Latin American countries with territorial extension reaching 11,879,134 km2—almost 3 times larger territorially—and a population of 268 million (World Trade Report, 2020). This agreement represents great opportunities for both blocs. It will not only allow the integration of two regions that together represent a third of global trade, but it also implies commitments on trade issues and issues of political dialogue and cooperation with which a market would be created of more than 715 million inhabitants, uniting two very geopolitically important regions worldwide. The most interesting thing about this agreement is that it is not only about the elimination of trade restrictions in the majority of the productive sectors, but it goes further. This agreement will contribute to strengthening the institutional factors of the MERCOSUR countries, which, as we will see later in the next chapter, play a determining role in the trade of both regions. Additionally, by improving the level of institutional factors, the business environment will improve, and this region could become a destination of great importance for the investments of the European Union. Regarding its ratification, there are a few possible reasons the process might be held back, specifically the possible impact of the agreement on the environment, climate change, food security, and the future of farmers in the European Union.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 M. Torres Jarrín, L. G. Daza Aramayo, EU-MERCOSUR Interregionalism, United Nations University Series on Regionalism 21, https://doi.org/10.1007/978-3-031-19217-3_6

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Tariff and Non-tariff Barriers and the Liberalisation of Trade

Beginning in 1990, agreements began to be signed with each of the MERCOSUR countries (Argentina, Brazil, Paraguay, Uruguay) and the European Union on a bilateral basis. On 02 April 1990,1 the Framework Agreement for Commercial and Economic Cooperation between the European Economic Community and the Argentine Republic was signed. This agreement covers commercial and economic cooperation in the agricultural and industrial sectors, and it establishes a joint cooperation commission. Regarding trade, this agreement grants both parties the most favoured nation treatment in their commercial relations in accordance with the provisions of the General Agreement on Tariffs and Trade (GATT, 1947). On 01 November 1995, the Framework Cooperation Agreement between the European Economic Community and the Federative Republic of Brazil (Brazil & Comunidad Económica Europea, 1995) entered into force. This agreement is much broader and more extensive than that of Argentina, and unlike Argentina’s 13, Brazil’s agreement has 35 articles. In further contrast, this agreement includes scientific and technological cooperation, technological development and intellectual property, as well as cooperation in the energy and transportation sectors, tourism, environment, cooperation in other agricultural, forestry and rural sectors, and public health, social development, fight against drugs etc. In terms of commercial matters and tariff rates, through this agreement, the most favoured nation treatment is mutually granted in their commercial relations, in accordance with the provisions of the General Agreement on Customs Tariffs and Trade (GATT, 1947). A similar Framework Cooperation Agreement between the European Economic Community and the Republic of Paraguay entered into force on 01 November 1992, and the Framework Cooperation Agreement between the European Economic Community and the Eastern Republic of Uruguay was signed on 16 March 1992. The agreements cover similar areas of cooperation; however, it is clear that they were adapted to each country’s needs. In general, the areas of cooperation are the following: commercial, economic, agricultural sector, regional integration, environmental cooperation, science and technology, development, as well as social and rural affairs etc. As we have seen, the first bilateral agreement was signed by Argentina and the last by Brazil—which has the broadest agreement, since as we mentioned before, it includes cooperation in a higher number of areas: information technologies, telecommunications and space techniques; transportation; technical development and intellectual property; energy; mining, forestry and rural sectors; fishing and many more.

1

The Agreement entered into force on 01 August 1991 and has an indefinite duration.

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Tariff and Non-tariff Barriers and the Liberalisation of Trade

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In the four bilateral agreements, the parties mutually grant each other, the most favoured nation treatment, so trade relations between these two blocs are based on most favoured nation (MFN)2 rates. The MFN is found in the first article of the General Agreement on Tariffs and Trade (GATT, 1947), which regulates trade in goods (World Trade Organization, 1947). In addition to the bilateral agreements, relations between the EU and MERCOSUR are further strengthened through the Interregional Framework Agreement for cooperation between the European Community and MERCOSUR (Interregional Framework Cooperation Agreement between the European Community and Mercosur, 1996) signed in 1995 and entered into force on 01 July 1999 with an indefinite duration. The main objective of this agreement is to strengthen existing relations between the parties and lay the foundations for an interregional association between the EU and the Common Market of the South (MERCOSUR). Regarding trade, exchanges are governed by the rules of the World Trade Organization (WTO), which only mentions that through periodic economic and commercial dialogue the progressive and reciprocal liberalisation of commercial exchanges will be prepared. Apart from the MFN concept, there is the Generalised System of Preferences (The European Union’s GSP, 2021), or GSP, which is a preferential tariff system that provides tariff reduction on various products. The GSP concept is very different from the most favoured nation (MFN) concept. MFN status provides equal treatment in the event that a nation imposes a tariff, but in the case of the GSP, a nation could impose a differential tariff on several countries, depending on factors such as whether it is a developed country or a developing country. Both rules, SGP and MFN, are the competence of the WTO.3 The GSP provides a tariff reduction for least developed countries, but the MFN treatment only serves not to discriminate between WTO members. This system is not reciprocal and is subject to the GATT agreement and the “Enabling Clause” which allows an exception to the MFN clause; the European Economic Community has applied it since 1971, and there are three regimes available: General GSP, GSP + (with incentives) and the TMA.4 Argentina ceased to belong to the GSP of the European Union in 2011 when it was considered by the World Bank as a medium/high-income country. According to Graciella Molle and Ana Laura Zamorano’s analysis of the period between 2005 and 2008, only between 53% and 63% of the tariff imports entered the European market other than the GSP (Molle & Zamorano, 2009). Brazil no longer benefits from the new European General System of Preferences (GSP) since 2014 when it joined the group of upper-middle-income countries according to the data from the World Bank. Paraguay has benefited from the GSP 2

An MFN clause requires a country to provide the other countries in each trade agreement with all the concessions, privileges or immunities that are granted to a country in a trade agreement. Generally, this clause applies to members of the World Trade Organization, who must grant any preferential treatment to all other member countries of the World Trade Organization in relation to matters covered by those agreements. 3 World Trade Organization. 4 Everything except arms.

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and the GSP + since 2009, that is, when Paraguay had a low average per capita income (World Trade Report, 2020). Paraguay was the only country, a member of MERCOSUR, that benefited from these preferential tariffs until the end of 2018 when Paraguay became an upper-middle income country since 2019 and could no longer benefit from the GSP. Paraguay is one of the smallest economies in South America, and it is without access to the sea, which in some way has always conditioned the supply of exports to the European Union. Uruguay, like Brazil, ceased to be on the list of beneficiary countries of the EU GSP as of 2014. The sectors that benefited most from these rates were the basic agricultural products as well as some products like juices—in the same case as Paraguay—and preserves. Currently, the tariff rates paid by MERCOSUR countries are the common Most Favoured Nation (MFN) tariffs for all products exported to the European Union, which for most products is much higher since the GSP + granted them a zero tariff. Unfortunately, neither the 1995 Interregional Framework Agreement for Cooperation nor the bilateral agreements concluded by the European Union with each of the MERCOSUR countries (Argentina, Brazil, Paraguay and Uruguay) include either preferential access to the European Union market or a treaty free trade. Once the preferential access to the European Union market through the GSP ends, commercial relations between MERCOSUR and the European Union are governed by MFN (Most Favoured Nation) rates and specific agreements with examples listed in Table 6.1. Non-tariff rates are measures other than tariff that can affect trade in imported goods. These measures are currently not as regulated by GATT provisions and legal texts, as is the case with schedules of concessions and specific commitments (Condon, 2007). According to the European Commission’s market access database and information from the European Parliament, in Argentina there are six non-tariff barriers registered in 2019: • • • • • •

Export rights. National content requirements for auto and automobile parts. Preference for national products in public procurement. The lack of adequate protection of geographical indications (GIs). Non-automatic import licenses. Delays in granting patents and lack of protection of intellectual property.

In the case of Brazil, the database records 18 non-tariff barriers, which can be divided into: • Restrictions in service sectors (telecommunications, shipping, engineering and insurance services). • Administrative delays (backlog of market access applications), technical barriers and sanitary and phytosanitary issues (labeling of wines and spirits, technical regulation on food additives and authorised technology for wine, quality requirements for wines, labeling of ingredients allergens in products; food, plants and plant products subject to pest risk analysis).

6.1

Tariff and Non-tariff Barriers and the Liberalisation of Trade

101

Table 6.1 Specific agreement with the MERCOSUR countries and the European Union on trade Reporting country European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union

Year 2021

Non-MFN partner only Argentina

Tariff regimes granted by the reporting country (excluding the MFN regime, which in principle is granted to all WTO Members) EU—Country Specific Tariff Preferences for Argentina

2021

Argentina

EU—Tariff reduction for “certain handicraft products”

2021

Argentina

2019

Argentina

EU—Tariff reduction for “silk or cotton handloom products” Duty-free access for 46,800 tons under the Hilton Quota

2014

Argentina

Quota “High Quality Beef” access for 45,000 tons

2019

Argentina

Sheep and Goat quota access for 23,000 tons

2019

Argentina

2021

Brazil

Garlic quota an ad valorem tariff of 9.6%, as opposed to the MFN tariff Access for 19,147 tons divided into 4 periods EU— Country Specific Tariff Preferences for Brazil

2021

Brazil

EU—Tariff reduction for “certain handicraft products”

2021

Brazil

2021

Paraguay

EU—Tariff reduction for “silk or cotton handloom products” EU—Country Specific Tariff Preferences for Paraguay

2021

Paraguay

EU- Tariff reduction for “certain handicraft products”

2021

Uruguay

EU - Country Specific Tariff Preferences for Uruguay

2021

Uruguay

EU- Tariff reduction for “certain handicraft products”

2020

Argentina

EU - Country Specific Tariff Preferences for Argentina

2020

Argentina

EU—Tariff reduction for “certain handicraft products”

2020

Argentina

2020

Brazil

EU—Tariff reduction for “silk or cotton handloom products” EU—Country Specific Tariff Preferences for Brazil

2020

Brazil

EU—Tariff reduction for “certain handicraft products”

2020

Brazil

2020

Paraguay

EU—Tariff reduction for “silk or cotton handloom products” EU—Country Specific Tariff Preferences for Paraguay (continued)

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Table 6.1 (continued) Reporting country European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union European Union

Year 2020

Non-MFN partner only Paraguay

Tariff regimes granted by the reporting country (excluding the MFN regime, which in principle is granted to all WTO Members) EU—Tariff reduction for “certain handicraft products”

2020

Uruguay

EU—Country Specific Tariff Preferences for Uruguay

2020

Uruguay

EU—Tariff reduction for “certain handicraft products”

2019

Argentina

EU—Country Specific Tariff Preferences for Argentina

2019

Argentina

EU—Tariff reduction for “certain handicraft products”

2019

Argentina

2019

Brazil

EU—Tariff reduction for “silk or cotton handloom products” EU—Country Specific Tariff Preferences for Brazil

2019

Brazil

EU—Tariff reduction for “certain handicraft products”

2019

Brazil

2019

Paraguay

EU—Tariff reduction for “silk or cotton handloom products” EU—Country Specific Tariff Preferences for Paraguay

2019

Paraguay

EU—Tariff reduction for “certain handicraft products”

2019

Paraguay

Generalised System of Preferences (GSP+) plus scheme

2019

Uruguay

EU—Country-Specific Tariff Preferences for Uruguay

2019

Uruguay

EU—Tariff reduction for “certain handicraft products”

Source: Based on notifications to the Integrated Database (IDB) (Note: Countries/territories to which the reporting country only applies MFN rates are not included in this list)

• Tax measures (tax exemption for domestic cars, discriminatory taxation of some spirits, problems related to corporate tax. • Other discriminatory taxes, indirect taxation issues. • Other issues, such as public procurement and intellectual property rights (IPR). The four non-tariff barriers for Paraguay refer to: • Intellectual Property Rights. • Public Procurement. While the six non-tariff barriers for Uruguay are related to:

6.2

Market Access for Industrial Goods

103

Table 6.2 List of the non-tariff measures imposed by the European Union Country imposing European Union European Union European Union European Union European Union European Union

Partner affected All members All members All members All members All members All members

Requirements Export-related measures Other measures Pre-shipment inspection Quantity control measures Sanitary and phytosanitary Technical barriers to trade

Phase In force In force In force In force In force In force

Measures 2 2 5 35 97 272

Source: UNCTAD, TRAINS NTMs database through Integrated Trade Intelligence Portal (I-TIP)

• Sanitary and phytosanitary issues. • Intellectual Property Rights. • Geographical indications and import restrictions. According to the Global Database on Non-Tariff Measures (Guidelines for the collection of data on official non-tariff measures, 2021), the current number of them is listed in Table 6.2. It is clear that there are currently high non-tariff barriers, called technical barriers to trade, which we will examine in the next sub-chapter. Their reduction or elimination through cooperative mechanisms will be essential to achieve the objectives of the New Association Agreement. According to the 2019 agreement document, MERCOSUR will fully liberalise 91% of its imports from the EU over a transition period of up to 10 years for most products. Longer linear liberalisation of up to 15 years is reserved for some of MERCOSUR’s most sensitive products. The EU will liberalise 92% of its imports from MERCOSUR over a transition period of up to 10 years. In terms of tariff lines, MERCOSUR will fully liberalize 91% and the EU 95% of lines in their respective schedules.

6.2

Market Access for Industrial Goods

According to the document (2019), liberalisation differentiates between industrial and agricultural products, and what is defined is exactly as follows. The EU will eliminate duties on 100% of industrial goods over a transitional period of up to 10 years. MERCOSUR will fully remove duties in key offensive sectors such as cars, car parts, machinery, chemicals and pharma. For each of these sectors, liberalisation takes place for over 90% of EU exports. All cuts by MERCOSUR are linear, except for passenger vehicles: they will be fully liberalised by MERCOSUR over 15 years, with a 7-year grace period that will be accompanied by a transitional quota of 50,000 units. This transitional quota will have an in-quota rate of half the MFN duty. After the grace period, duties will come down at an accelerated pace to reach zero at the end of the dismantling period. Tariff lines on car parts will be liberalised mostly within 10 years (82% of lines covering 60% of EU

104

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New Association Strategy in the MERCOSUR-European Union Relations

exports to MERCOSUR with a further 30% of additional exports liberalised over 15 years). For EU machinery, 93% of exports will be fully liberalised, mostly within 10 years (67% of exports to MERCOSUR). As we will see more, the liberalisation of 100% of industrial goods will not have much immediate impact on bilateral trade between MERCOSUR and the European Union since the main export products of the Latin American region are primary products. Among the top ten products, we find that the only industrialised product would be juices. If we review Table 7.6 in the next chapter—where there is a simulation of the main ten products imported by the European Union from MERCOSUR and their current and future tariffs—we will have a clear idea of the reduced immediate impact. On the other hand, the elimination of tariffs in the automotive sector could have a great impact on the MERCOSUR countries by restructuring their production model and promoting the development of industries like automobiles, transport equipment and machinery. The economies that could benefit the most from this are Brazil and Argentina. Liberalisation in the automotive sector is one of the greatest achievements for European companies since they currently face tariffs of 35%, however, it could become a great threat for companies in Argentina and Brazil of MERCOSUR, a sector that so far has had a solid production network.

6.3

Market Access for Agricultural Goods

Regarding the liberalisation of agricultural products, the EU-Mercosur Trade Agreement (2019) establishes: Duties will be gradually eliminated on 93% of tariff lines concerning EU agrifood exports. These lines correspond to 95% of the export value of EU agricultural products. The EU will liberalise 82% of agricultural imports, with the remaining imports subject to partial liberalisation commitments including tariff-rate quotas for more sensitive products with a very small number of products excluded altogether: • Beef: 99000 tonnes carcass weight equivalent (CWE), subdivided into 55% fresh and 45% frozen with an in-quota rate of 7.5% and elimination at entry into force of the in-quota rate in the MERCOSUR-specific WTO “Hilton’ quotas. The volume will be phased in six equal annual stages. If we use the application of the Inter-American Development Bank, we can have an exact picture of how much the rates will be reduced, we take a selection of products as an example. The most important change will be that of the Hilton quota. Argentina currently exports 29,500 tons per year of high-quality boneless beef, Brazil has assigned 10,000, Uruguay has 6736 and Paraguay comes in 1000 tons under this quota. In accordance with this quota, meat enters the European Union market with an import duty of 20% except for Canada. With the agreement, 47,236 tons will enter without tariff. In addition to the Hilton quota, there is the 481 quota

6.3

Market Access for Agricultural Goods

105

Table 6.3 Comparison of current tariff rates with future tariff rates on selected meat products Product code 02012020

Product label Compensated quarters of bovine animals with bone in, fresh

EU base tariffs (%) 12.8 + 176.8 €/100 kg/net

02012030

Unseparated or separated forequarters of bovine animals, with

12.8 + 141.4 €/100 kg/net

02012050

Unseparated or separated hindquarters of bovine animals, with

12.8 + 212.2 €/100 kg/net

02012090

Fresh or chilled bovine cuts, with bone in (excl. Carcasses and half-carcases, “compensated quarters”, forequarters and hindquarters)

12.8 + 265.2 €/100 kg/net

02013000

Fresh or chilled bovine meat, boneless

12.8 + 303.4 €/100 kg/net

150,210

Tallow of bovine animals, sheep or goats, for industrial uses Tallow of bovine animals, sheep or goats (excl. For

0

New agreed tariff in% 7.5% Volume in tons at the end implementation period (5 years): 44450 7.5% Volume in tons at the end implementation period (5 years): 44450 7.5% Volume in tons at the end implementation period (5 years): 44450 7.5% Volume in tons at the end implementation period (5 years): 44450 7.5% Volume in tons at the end implementation period (5 years): 54450 0% immediately

3.2%

0% immediately

15,021,090

Source: Own calculations based on UN COMTRADE statistics and aranceles.iadb.org

that amounts to 45,000 tons of grain-fed meat, shared by Australia, New Zealand, Uruguay, Argentina, Canada and the USA fall under the first-come first-served criterion and has a zero tariff (Table 6.3). According to the 2019 agreement, • Poultry: 180000 tonnes CWE duty free, subdivided into 50% bone in and 50% boneless. The volume will be phased in in six equal annual stages. For poultry in practice, we can see the following possible changes in Table 6.4.

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Table 6.4 Comparison of current tariff rates with future tariff rates for selected poultry products Product code 02071110

Product label Fresh or chilled, plucked and gutted fowls of species Gallus

EU base tariffs (%) 26.2 €/ 100 kg/ net

02071130

Fresh or chilled, plucked and gutted fowls of species Gallus

29.9 €/ 100 kg/ net

02071190

Fresh or chilled, plucked and gutted fowls of species Gallus

32.5 €/ 100 kg/ net

02071210

Frozen fowls of species Gallus domesticus, plucked and drawn

29.9 €/ 100 kg/ net

02071290

Frozen fowls of species Gallus domesticus, plucked and drawn

32.5 €/ 100 kg/ net

01051111

Grandparent and parent female chicks of fowls of the species more than 185 g Live domestic turkeys, weighing