Brussels, 29/06/2004 (Agence Europe) - The European Commission is prudently optimistic about concluding negotiations on an Association and Free Trade Agreement between the European Union and MERCOSUR countries (Argentina, Brazil, Uruguay and Paraguay). There is no reason to suppose the negotiations will not be concluded in October (as planned by both sides) commented European trade negotiator Karl Falkenberg on Monday at a conference organised with representatives of civil society.
Karl Falkenberg said progress had been achieved at the technical level since the deadlock reached at the last negotiating session (in Buenos Aires on 7-12 June, see EUROPE of 12 June, p. 11 and 15 June, p. 12). He hoped that the next meeting (in Brussels on 19 July) would be positive and refused to consider any alternative to the negotiations being concluded in October (and the dossier therefore being transmitted to the new European Commission). He said that the new Commission would have new farming and trade Commissioners and it was highly unlikely that anyone would want to solve problems left over by the previous team in a handful of days.
Many obstacles are connected with the lack of integration in MERCOSUR, which means the EU is not assured access to a single market, although MERCOSUR is able to negotiate with a market of 25 countries, explained Karl Falkenberg.
He said that MERCOSUR had still not come forward with its offer regarding the opening of public tender to competition. The EU has made suggestions for getting round the problems and opening access, leaving MERCOSUR countries in control of their industrial policy, explained Karl Falkenberg. The EU has suggested, for example, setting thresholds for MERCOSUR companies alone and stipulating clauses whereby some sectors would be excluded for industrial policy motives, but MERCOSUR has not yet been forthcoming.
In terms of investment, MERCOSUR countries have made many statements of intention about their desire to welcome investors, but in practice there were page upon page of restrictions due to fiscal and environment policy and national laws which do not confer any advantages to European investors in terms of predictability and commitments for the future.
On services, little progress has been made in key areas for the EU. For telecoms, the EU has only been offered that EU operators can provide cross-border services. With regard to financial services, banks have no clear guarantee about the option of opening subsidiaries, and re-insurance is a monopoly industry in Brazil. Maritime cabotage is closed to European operators since MERCOSUR has only offered full opening for the transatlantic freight market. But Karl Falkenberg commented that in order to really develop trade, it would be necessary to allow operators to move their goods from one port to another.
MERCOSUR's offer on industrial production also fails to satisfy the European negotiators. Falkenberg said that a certain degree of asymmetry was necessary of course, to take account of different levels of development, but MERCOSUR has closed off industries where it is wholly competitive, like footwear, textiles and steel. He said that it was a moot point whether differential treatment could be invoked for competitive sectors.
Overall, the offers are uneven, said Karl Falkenberg, because MERCOSUR was offering to liberalise 89% of trade, but for 66% of products levies would only be cut after ten years, while the EU foresees full removal of duties as soon as the agreement comes into force. He said the Commission had taken a major political risk in unveiling its farming offer, which is already at the 'final phases' of negotiations and has already been criticised by EU Member States.
The EU offer implies that what is offered in the bilateral agreement will depend on what is agreed in the multilateral WTO negotiations (the Doha round). We have a single pocket to reach into for concessions, hammer home the Europeans. MERCOSUR countries have to decide whether they prefer to pressurise the EU at the WTO to obtain concessions they will have to share multilaterally, or whether they would rather have improved access at the bilateral level, warned the negotiator.
The EU and MERCOSUR have different views of the scale of their respective offers, admitted Karl Falkenberg. MERCOSUR believes the EU's farm offer does not go far enough, particularly for beef. At Monday's conference, representatives of EU farming organisations confirmed that the Commission has little room for manoeuvre.
Karl Falkenberg had to defend the offer of a quota of 1 million tonnes of ethanol, from Brazilian sugar and destined for use in engines. He pointed out on the one hand that the EU "has made no openings on sugar for human consumption", and on the other that the bio-fuels market, estimated at 8 million tonnes in the EU by 2010, "could be shared with the third countries". He also had to defend himself against poultry producers, who criticise the Commission for imposing ever stricter "animal welfare" production standards on them, whilst opening up the market to battery eggs for third countries. The Europeans have an offensive interest in exporting egg-based products to Mercosur, said the European negotiator.
However, negotiations are almost closed on the political and co-operation plank of the agreement, said Gustavo Martin Prada, the head of the "Mercosur" unit of the Commission's Directorate General on External Relations, at the seminar. He said that he was very pleased with the results, which he feels will allow the parties to go beyond statements to commit to concrete political co-operation, on immigration or non-proliferation, for example. Gustavo Martin Prada said that the agreement includes readmission clauses on illegal immigrants, on the fight against money laundering corruption. This latter clause "should serve as a standard model for future agreements", he said.
Rupert Schlegelmilch, head of the "sustainable development" unit of the Commission's Directorate General on Trade, explained that talks were also continuing with Mercosur on sustainable development issues, from a social and environmental point of view. For the time being, the results appear to be less than tangible. The parties discussed the idea of creating a sort of observatory to assess the impact of liberalisation, without going into details.