Opinion on the communication from the European Commission to the Council and the European Parliament: 'The European Community and Mercosur: An Enhanced Policy'

(96/C 18/24)

On 21 December 1994, the Economic and Social Committee, acting under the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Own-initiative Opinion on the above-mentioned communication.

The Section for External Relations, Trade and Development Policy, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 3 October 1995. The Rapporteur was Mr Santillan Cabeza.

At its 329th Plenary Session (meeting of 25 October), the Economic and Social Committee adopted the following Opinion unanimously.

0.1. The Economic and Social Committee has focused its attention on relations between the European Union (EU) and Latin America on several occasions in recent years. This attention has given rise to the preparation by the Committee of a number of informative documents and Opinions on inter-regional relations ().

0.2. The Committee has noted the Communication from the European Commission to the Council and the European Parliament, dated 19 October 1994 (), concerning a framework trade and economic cooperation agreement between the EU and the Southern Cone Common Market (Mercado Común del Sur, Mercosur).

0.3. The European Council summit of Essen, on 9-10 December 1994, approved the strategy for an inter-regional association with Mercosur, and called upon the Council and the Commission to establish the conditions for the initiation of negotiations.

0.4. On 22 December 1994, the ambassadors of the four Mercosur countries, representatives of the Presidency of the EU and the European Commission signed a Protocol of Intentions on the proposed accord. Subsequently, at the EU General Affairs Council held in Luxembourg on 10 April 1995, the EU Member States welcomed the Commission's communication, and instructed the Committee of Permanent Representatives (COREPER) to examine the communication with a view to adopting a negotiating brief as soon as possible.

0.5. It is expected that the negotiations between the EU and the Mercosur countries that began in September 1995 will help create a more stable institutional framework for the strengthening of relations between the two regions.

1. The Commission's proposals

1.1. The Commission's communication proposes the conclusion of an inter-regional framework agreement on trade and economic cooperation with Mercosur as a first stage towards the establishment of a free trade area between the two regions. According to the Commission, the agreement would, in particular, focus on two areas:

- the liberalization of trade between the EU and Mercosur;

- support for Mercosur integration.

1.2. With regard to trade, the aim is the progressive establishment of an inter-regional free trade area in the industrial and service sectors, and the gradual liberalization of agricultural commerce. The latter objective will take account of some sensitive products.

1.3. With regard to Mercosur integration, the EU would commit itself to 'substantial cooperation' with the private and public sectors in three main areas:

a) assistance for the management of Mercosur's own trade integration process, as well as its foreign trade;

b) support for Mercosur's decision-making authorities, increased technical assistance for the establishment of an internal market, and Mercosur's participation in European R& D, information systems and telecommunications projects;

c) region-wide projects concerning, for example, transport, energy, environment, telecommunications, information systems, town planning, and other industrial sectors.

1.4. The Commission also recommends that political dialogue between the EU and Mercosur should be enhanced, by discussion of more specific issues at more frequent meetings. The Commission suggests that such dialogue, conducted at ministerial level, could include topics such as industrial cooperation, energy, the nuclear industry, security, environmental issues and drugs. Of particular importance will be cooperation in the field of education and in the training of citizens. In the latter regard, a substantial contribution could be made by the EU programme Latin America-Academic Training (América Latina-Formación Académica, ALFA).

1.5. The Economic and Social Committee would consider it as positive if the final agreement between the EU and Mercosur were to contemplate the following general and specific comments.

2. General comments

2.1. The Economic and Social Committee welcomes the initiative to enhance relations between the EU and Mercosur. At a time when EU external relations have focused on Central and Eastern Europe, as well as the Mediterranean, renewed commitment to Mercosur constitutes a unique opportunity to strengthen economic and political ties with Latin America, thus contributing to a more globally-balanced external policy. This strategic shift is of fundamental importance if Europe wishes to retain economic and political influence in Latin America.

2.2. The Committee believes that an enhanced policy towards Mercosur, via the kind of agreement proposed by the Commission, should be to the mutual benefit of all economic and social sectors in the EU and Mercosur and that it should help contribute to the consolidation of democracy in the Southern Cone.

2.3. In that context, it is the Committee's conviction that the proposed agreement, in addition to providing economic benefits for both the EU and Mercosur, should contribute to a process of consensus-building between the civil societies of both regions.

2.4. The Committee stresses that the bases for such an enhanced policy, in both a social and economic sense, already exist. The southern Cone is the Latin American sub-region in which the European presence has traditionally been strongest. More than any other part of the continent, the peoples of Mercosur have a singular awareness of their European heritage. This is the result of solid historical and cultural links, and their transformation into closer economic ties.

2.5. Special institutional relations also exist. An inter-institutional agreement of 29 May 1992 defined four areas of cooperation: technical assistance, information exchange, training and institutional support. The Joint Consultative Committee, which brings together representatives of the Common Market Group and the European Commission twice yearly, set out three priority areas for cooperation in its first meeting on 3 July 1992: agriculture, technical norms and customs.

2.6. Existing economic links are also strong. The EU is Mercosur's principal trade partner. The Union supplies a quarter of the sub-region's imports, and takes over a quarter of its exports. The EU is also Mercosur's main source of direct investment, accounting for 36 % of the stock. About 40 % of foreign banks operating in the sub-region are European.

2.7. The Economic and Social Committee therefore endorses the Commission's proposal to pursue an inter-regional framework agreement on trade and economic cooperation with Mercosur. The Committee does so in view of the existing bases for effective partnership between the two regions, and in light of the significant potential of an integrated market in the Southern Cone.

2.8. In that regard, the Committee stresses that the sub-regional market is potentially enormous. With over 200 million inhabitants, Mercosur has almost half of Latin America's population. The sub-region is now responsible for over half of Latin America's GDP; it produces 40 % of the region's manufactured exports; it attracts about 40 % of all foreign direct investment in Latin America; and it is home to 38 of the region's 50 biggest companies.

2.9. The reduction of internal barriers has led to a continuous expansion of intra-regional trade. This rose 30 % in 1993 alone, and now totals over $9 000 million per year. Intra-regional commerce accounted for barely 14 % of total Mercosur trade in 1990; it now represents 20 %. Paraguay and Uruguay conduct almost half their trade within Mercosur. For the more globally-orientated Argentina (25 %) and Brazil (10 %), the proportion is less. Nevertheless, Brazil has become Argentina's largest export market (ahead of the EU), and Argentina is now Brazil's second largest supplier.

2.10. In view of existing inter-regional and intra-regional trends, the Economic and Social Committee shares the Commission's view that liberalization of trade between the EU and Mercosur will ensure faster growth in European exports to the sub-region than would be possible in the absence of an agreement.

2.11. EU sales to Mercosur have increased significantly, rising from $ 8 890 million in 1992 to $ 11 180 million in 1993 and reaching $ 14 362 million in 1994. This trend should be reinforced by a reciprocal freeing of trade between the two regions, helping further to stimulate a growing market.

2.12. A trade agreement should also be advantageous in terms of longer-term EU trade strategy. Recent initiatives, such as NAFTA and the Miami Summit of 9-11 December 1994, suggest a strengthened US presence in Latin America. The possibility of hemisphere-wide free trade (as envisaged at the Miami Summit) and of continued Mercosur expansion in South America, make an agreement with Mercosur crucial to consolidate the EU's continued presence in Latin America, and sustain its privileged access to one of the world's biggest markets.

2.13. An EU-Mercosur accord could also boost EU investment.

2.14. The presence of European firms in Mercosur has increased significantly in recent years; in Argentina alone they represent 50 % of the largest multinationals. This process is a direct consequence of the privatization of public concerns undertaken by Mercosur members, the main beneficiaries of which have been European companies. At the same time, the Committee notes recent research that suggests that there are still technical obstacles to the liberalization of capital flows between the EU and Mercosur, and is concerned that the inter-regional agreement should address that issue.

3. Specific comments

3.1. While aware of all of the above, however, the Economic and Social Committee is concerned that the Communication from the Commission provides no analytical evidence to support the two economic scenarios (future inter-regional trade trends with and without an agreement) that are central to the proposal. The Committee feels that the evidence underlying these assumptions should be made public, so that the relative costs and benefits for specific sectors can be discussed fully in both regions.

3.2. In particular, the Committee notes that the Commission's Communication, and the subsequent Council summit of Essen, predate the financial crisis in Mexico and the subsequent economic repercussions in Latin America - especially in Mercosur's largest economies. The Committee is concerned to know what additional analysis has been undertaken in the light of these events, and if that analysis has altered the scenarios presented in the Communication.

3.3. The Mercosur countries will require large-scale investment, particularly in infrastructure. In both respects, the EU can provide support in terms of know-how. Additionally, and with regard to investment, resources could eventually be provided directly from European Commission budget lines, or through the European Investment Bank. To date, the Bank has signed framework agreements with three of the four Mercosur countries, and has undertaken projects in Argentina and Brazil.

3.4. The Committee notes that it is standard practice for the EU to incorporate provisions aimed at the liberalization of maritime regulations whenever a new agreement is signed with a third country. Recent developments in the Council indicate that the EU is moving in this direction vis-à-vis Mercosur.

3.5. The Economic and Social Committee emphasizes that the enhanced policy towards Mercosur being suggested by the Commission should not be based solely on economic considerations. In particular, the Committee considers it desirable to avoid a situation in which the only point of inter-regional contact is between officials of the European Commission and representatives of Mercosur's member governments.

3.6. In this respect, the Committee considers that, in the course of negotiations and in the final text of an EU-Mercosur agreement, special attention should be paid to the institutional dimension of EU-Mercosur relations. This element is not adequately addressed in the Communication from the Commission.

3.7. As part of its institutional structure, Mercosur envisages a consultative body known as the Economic and Social Forum. The Forum, whose establishment depends on ratification by the national parliaments, allows sectors of civil society to express their views to the decision-making bodies of Mercosur. The members of the Forum are representatives of trade union organizations and business associations from the four Mercosur countries. The creation of the Forum, in which the inclusion of other social sectors would be a positive development, could be the start of a process leading to the establishment of a Mercosur Economic and Social Council. The Economic and Social Committee of the European Communities should be in a position to assist the consolidation of such a body in Mercosur.

3.8. The Economic and Social Committee considers it desirable that, as an important element of inter-regional relations, regular institutionalized meetings should be held between the Committee and the Forum. Like other agreements between the EU and other regions (the Treaty of Oporto, which led to the creation of the European Economic Area; the accord with the countries of the Maghreb; the agreements with countries of Central and Eastern Europe) the accord with Mercosur should envisage the establishment of a specific consultative body, made up of the social and economic interlocutors (the Economic and Social Committee of the EU and Mercosur's Economic and Social Forum).

3.9. This suggestion responds to the need to create 'networks' for strengthening links between societies. Such an initiative would serve to enhance the degree of mutual understanding in overall EU-Mercosur relations. It would also be part of an effort to transfer integration know-how to Mercosur, on the basis of Europe's long experience in this field.

3.10. The strengthening of relations between the societies of the two regions, via new forms of inter-institutional relations, will help sustain the political will necessary to optimize inter-regional links. This would include precisely those fields mentioned in the Commission's Communication: industrial cooperation, energy, the nuclear industry, security, the environment and drugs.

3.11. The Economic and Social Committee additionally feels that the eventual agreement between the EU and Mercosur should entail an exchange of experience regarding social models in both continents and the prospects for improving them, such that inter-regional trade might bring about a more equitable distribution of wealth and an improvement of the social situation.

3.12. A trade agreement with Mercosur will be of limited use if simultaneous efforts are not made to help improve the social situation in Mercosur countries. In 1994, annual per capita income for Mercosur as a whole amounted to $ 2 709 (in constant 1988 $ US). This is relatively high compared to other regions in Latin America: in the Andean Pact countries, per capita income averages $1 900, and in the Central American Common Market, it averages $1 000. However, such indicators provide only a partial picture of the Mercosur countries, and mask significant differences between them.

3.13. While integration has given greater dynamism to Mercosur economies, with attendant macroeconomic benefits, the social situation of the member countries should be noted. Argentina and Uruguay are classified by the United Nations Development Programme (UNDP) as countries of 'high-level human development'. Brazil and Paraguay belong to the category 'medium-level human development'.

- Some parts of Mercosur are close to the average of industrialized countries in indicators such as life expectancy at birth, literacy, and average school years per inhabitant.

- Per capita income in the four countries in 1993 was as follows: Argentina, $ 4 556; Brazil, $ 2 213; Paraguay, $ 1 543; and Uruguay, $ 3 080. As regards their human development indices (HDI, where 1 is the highest possible) they are, respectively, 0,853, 0,756, 0,679 and 0,859 ().

- The problem of poverty is evident in Mercosur, although the levels and the characteristics of poverty vary considerably between countries and areas ().

3.14. In view of these circumstances, the Economic and Social Committee points out the impact on the living standards of the population, and in particular on employment levels, of the following factors:

a) on the one hand, the adjustment processes (based primarily on reducing inflation and the public sector deficit) that the economies of the Mercosur countries are undergoing, which is provoking in some countries a significant increase in unemployment;

b) on the other hand, the lifting of tariff barriers and the increase in intra-regional trade (undoubtedly positive in the medium term) could in the shorter term create difficulties for many industrial sectors that are not yet sufficiently competitive in the global market. Measures to enhance social and economic cohesion, such as the strengthening of income distribution mechanisms by means of an improvement in the tax systems, could facilitate resolution of social problems in some parts of Mercosur that are already suffering from crisis;

c) of particular note is the situation of migrant workers and their families, since economic growth is causing an exodus of many people from poorer to more developed areas, as well as the problems associated with a large informal sector.

3.15. Apart from its economic repercussions, the process of Mercosur integration will also have profound implications in terms of industrial relations. The new technologies and new forms of organizing work that are demanded by a larger market will affect the norms governing the rights and obligations of workers and employers. It is also probable that there will be a change in the content of collective bargaining, in view of the demands for greater adaptation of labour to the changing circumstances of production. Other consequences could include new, more participative systems of labour relations, and greater emphasis on research, training and education of the work force.

3.16. Businesses have a key role in the integration process. The opening of national economies prompted by tariff reductions is accompanied not only by an increase in trade flows but also a reorientation of business strategy. In order to take advantage of the promising, emerging regional market, many local and foreign businesses are increasing cross-border investment (in many cases via joint ventures), thereby giving the integration process its own momentum. This is of particular note in the case of industries such as the automotive sector, telecommunications and electronics, which have made (or have announced) investment in the area. This establishes a link between regional integration and foreign investment that could take several forms: purchase of stock, expansion of plant, modernization of existing capacity or installation of new units of production.

3.17. The business community and the trade unions have addressed integration since long before the start of the process. The dynamism of the private sector and the business community's willingness to adapt and modernize productive structures have been key elements in establishing Mercosur. Representatives of the private sector in each of the four countries have recently created the Mercosur Industrial Federation.

3.18. The establishment of Mercosur's Trade Union Commission and the signing of the Treaty of Asunción have given an impetus to trade union activity in the four countries. While supporting the overall process of Mercosur development, the trade unions of the four countries also consider it indispensable that the social dimension of integration be developed. Among other reasons, they have expressed the need to avoid the dangers of 'social dumping' as a consequence of the diversity of labour conditions in the region.

3.19. In this context, it should be noted that attention must be paid to the possibility of social dumping in EU-Mercosur relations, since some imports to the EU market will be cheap as a result of low wages and deficiencies of social security systems in exporting countries.

3.20. To offset the dangers of this within Mercosur, in December 1993 the Mercosur trade union movement produced a proposal for a 'Mercosur Charter of Basic Rights' that contemplates:

a) the scope of integration and its social dimension;

b) the right of free circulation of workers;

c) the individual worker's basic human rights;

d) collective rights;

e) minimum conditions for social security.

Moreover, the trade unions of Mercosur have on several occasions written to the presidents of the four countries proposing the creation of a 'social space' (). The presidents, in turn, have expressed their interest in ensuring that such basic rights are guaranteed in Mercosur.

3.21. The Economic and Social Committee underlines the importance of this proposal by the trade unions, and hopes that it may be put into effect by whatever means are considered appropriate.

3.22. The Committee welcomes the creation in August 1995 of various sub-groups dealing with the environment, agriculture, industry and social aspects of integration, among others.

4. Concluding remarks

4.1. In general terms, the Economic and Social Committee endorses the strategy to conclude an agreement with Mercosur, recognizing that the arguments underlying the proposals of the Commission are sound in terms of the strategic significance of the sub-region, the possible benefits of intensifying relations, and the potential opportunity costs of non-action.

Questions arise with regard to concrete aspects of the negotiating process and the practical implementation of the policies proposed.

Specifically, such questions relate to:

a) The conclusion of a free trade agreement that conforms to rules of the World Trade Organization (WTO) and to the norms of the EU's Common Agricultural Policy (CAP).

b) The possible implications of enhanced EU-Mercosur dialogue for the overall framework of dialogue between the EU and Latin America.

4.2. With regard to a free trade agreement's compatibility with WTO rules, the Communication states that the Commission will ensure that an agreement with Mercosur will be compatible with the CAP and with the EU's international obligations relating to the WTO. The Communication further states that the aim of the negotiations is the establishment of a free trade area in the industrial and service sectors, and a reciprocal and gradual liberalization of agricultural exchanges, taking into account the sensitivity of some products.

4.2.1. In this connection, it should be noted that the final accord of the General Agreement on Tariffs and Trade (GATT), signed on 14 April 1994 in Marrakesh, stipulates in Article XXIV that free trade agreements must henceforth include substantially all economic sectors, and must lead to complete liberalization within a reasonable period. This suggests that under WTO rules, an EU-Mercosur free trade agreement would only be allowed if the accord was intended eventually to lead to fully reciprocal free trade.

4.2.2. Additionally, the GATT agreement requires both parties to submit regular reports to the WTO. The latter would effectively approve, or not, the trade-liberalization schedule. It would also check to ensure that there was a genuine intention of full, free trade.

4.2.3. The elimination of all tariff barriers in the industrial and agricultural sectors could prove problematic. Brazil, for example, is an important exporter of basic industrial goods such as steel, textiles and car spares, as well as computing equipment.

4.2.4. Difficulties might also arise in the agricultural sector. All Mercosur countries, in particular Argentina and Uruguay, are exporters of high quality agricultural goods, such as wheat, beef and wine which would compete with the produce of EU Member States. The complete elimination of EU trade barriers to agricultural imports from Mercosur would affect the CAP, and might provoke complaints from third countries exporting the same products to the European Market.

4.2.5. In general, the Committee wishes to express its concern that an EU-Mercosur free trade agreement should be compatible with the Union's international obligations as regards the WTO, while conforming to the norms of the CAP.

4.2.6. Moreover, the agreement should also consider the exchange of experience on labour matters and issues of social protection.

4.3. With regard to the framework of dialogue between the EU and Latin America, the Communication states that intensified relations with Mercosur should not bring into question the EU's dialogue with the Rio Group, but should be considered as a deepening and continuation of the latter.

4.3.1. However, the question does arise as to how, in practical terms, an enhanced dialogue with Mercosur can be made compatible with the existing dialogue established via the annual Ministerial Meetings between the foreign ministers of the EU and those of the countries of the Rio Group.

4.3.2. Establishment of a separate, high-level political dialogue with Mercosur will necessarily entail discrimination between Latin American countries. This is inescapable, in as much as a free trade agreement with Mercosur inevitably gives the sub-region a special status in the EU's relations with Latin America.

4.3.3. One may therefore question whether the Mercosur countries will remain party to the EU-Rio Group discussions, or whether the separate dialogue would substitute their involvement in the Rio Group for the purposes of dialogue with the EU. In the latter case, the possibility cannot be discounted that the departure of the Mercosur countries from the EU-Rio Group dialogue might lead to the weakening of that dialogue, or even to its collapse. In that respect, and while welcoming political dialogue between the EU and the Mercosur, the Committee is particularly concerned that the institutional framework of enhanced inter-regional relations should not be detrimental to the functioning of the Rio Group, which has played an important role in coordinating Latin American positions at a region-wide level.

4.4. Finally, the Committee reiterates its interest in the institutional framework of EU-Mercosur relations, and its conviction that links between the two regions will be further strengthened if social and economic actors were to establish periodic, institutionalized contacts. The Committee believes that an effective way of pursuing this objective would be via the establishment of regular dialogue between the Economic and Social Committee of the European Communities, on the one hand, and the Economic and Social Forum of the Mercosur, on the other.

Done at Brussels, 25 October 1995.

The President

of the Economic and Social Committee

Carlos FERRER

() OJ No C 75, 26. 3. 1990; OJ No C 127, 7. 5. 1994; CES 962/92, 24. 1. 1993.

() COM(94) 428 final.

() Source: United Nations' Development Programme, Informe sobre desarrollo humano 1994; Inter-American Development Bank, Economic and Social Progress in Latin America, 1993.

() Measurements of poverty are often controversial. According to some estimates, the percentage of the population living in absolute poverty has been estimated at 13 % in Uruguay; 16 % in Argentina; 35 % in Paraguay; and 47 % in Brazil. Such figures add up to a total of about 80 million of the Mercosur population living in what is termed 'absolute poverty'. Sources: United Nations' Development Programme, Informe sobre desarrollo humano 1994; Inter-American Development Bank, Basic Socio-economic Data, 1993; IRELA, Poverty in Latin America; Causes and Costs, September 1993.

() Letters to Mercosur presidents, 28. 12. 1992, 16. 1. 1994, 16. 12. 1994.