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MERCOSUR – EUROPEAN UNION RELATIONS
In accordance with Bela Balassa´s well known book “The Theory on Economic Integration”, there are five phases of economic integration: (1) Free Trade Areas; (2) Customs Union; (3) Single Market; (4) Economic and Monetary Union; and (5) Full Economic Integration, and one dominant central political power, whose purpose is to draw up and apply the policies of the integrated area. Although the European Union has not concluded phase (3), since the single market is not as yet consolidated, it has moved forward to phase (4) with the creation of the euro, and is now attempting to start on phase (5) with the European Constitutional Treaty.
Mercosur is patterned to the European Union model, and is attempting to create a single market, instead of being only a free trade area like NAFTA. Of course, the difficulties faced by Argentina have slowed down the building up of the Mercosur single market, and even placed certain aspects of the Free Trade Area (phase 1) and Customs Union (phase2) into question.
We Europeans must realize that economic integration in the Mercosur area will be a harder chore than it was in Europe. Europe had one country that proved to be locomotive of its economy, whose currency, the Deutsche Mark (DM), became the “pivot” of monetary integration. The euro – the single European currency – was instituted buttressed on the German mark, with the countries that adopted the euro having agreed to abide by the so-called nominal convergence criteria, which in the long run were the conditions that enabled the different countries adhering to the new currency to arrive closer to the level of price stability and public finance sustainability found in Germany, the country whose currency was the mark.
Although there already is in Latin America a strong economic power – Brazil –, there is still no country with the macroeconomic conditions that will allow its currency to become the “pivot” and stability reference for currency unification.
On the other hand, it is in Europe´s interest to have Mercosur become the major economic bloc in Latin America and assume a relevant role in the global economy, with balanced and diversified economic relations with the other economic blocs such as NAFTA and the European Union, as well as with Japan, India and China. Were Mercosur to fail to become consolidated, we would be witness to the consummation of the US strategy of achieving the economic verticalization of the American continent, and a mere incorporation of Mercosur into NAFTA, and consequent US hegemony over Latin America.
In this context, it is in the greater interest of both blocs, Mercosur and the European Union, to establish a free trade area.
Through this inter-regional agreement we will establish the largest free trade area in the world, with roughly 700 million inhabitants. Recent calculations have estimated that the cost to this economy if the Mercosur – European Union Free Trade Agreement should fail would be some five million US dollars.
The Mercosur-European Union Business Forum – MEBF”), an association made up of European and Latin American businessmen, has played a major role in pursuing the creation of this large free trade area, both by encouraging political powers on both sides of the Atlantic to work on the agreement, and also by contributing technical efforts and providing political and economic recommendations through its work groups, steering committees and plenary conferences. We must forge an effective agreement while taking into account that we are starting from unequal positions: the European Union is economically stronger and has reached a more advanced stage of economic integration.
Therefore, from the European side, we want to see an advance in free circulation of people, goods, services and capital. It is only then that a European company will be able to set up business in one of the Mercosur member countries and fully benefit from the advantages of a single market made up of the various countries. The European Union would also like to see some progress made in Mercosur on the matter of intellectual property rights, nondiscrimination of Europeans in providing services and investments in the Mercosur bloc, lifting of barriers on the entry of European countries in Latin American public investment markets and government companies and in sectors such as food and beverages, textile and garments, car and aeronautical industries, which are currently still under discussion.
On the other hand, since Mercosur, and Brazil in particular, already has much clout in the world in the field of agribusiness products, it is quite understandable that the Mercosur countries cannot accept a European protectionism derived from the Common Agriculture Policy, in this regard. Therefore, Europe must clearly improve its offer on this question.
It is not only economic issues, but also politico-strategic reasons, derived from a past and culture common to European and Latin American countries that places us in the world as sharing identical views on culture, freedom and human rights and environmental protection, which lead us to conclude that it is essential to Mercosur and the European Union that negotiations be concluded and an agreement that favors both blocs reached quickly.
The Mercosur-European Union Business Forum will continue to strive towards achieving this strategic goal of bringing the two blocs closer together.
Lisbon, June 17, 2005
Luís Mira Amaral
MEBF Co-Chairman
Curriculum Vitae - Luis Mira Amaral
