Opinion of the Economic and Social Committee on the "European Union negotiations with MERCOSUR and Chile: economic and social aspects"
Date: 2001-07-12
Institutions: European Economic and Social Committee
Subjects: Chile, Mercosur, economic policy, negotiation of an agreement (EU), social policy

17.9.2001

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Official Journal of the European Communities

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Opinion of the Economic and Social Committee on the ‘European Union negotiations with
MERCOSUR and Chile: economic and social aspects’

(2001/C 260/13)

On 1 March 2001 the Economic and Social Committee, acting under the third paragraph of Rule 23 of
the Rules of Procedure, decided to draw up an opinion on the above-mentionned proposal.

The Section for External Relations, which was responsible for preparing the Committee’s work on the
subject, adopted its opinion on 28 June 2001. The rapporteur was Mr Zufiaur.

At its 383rd plenary session of 11 and 12 July 2001 (meeting of 12 July), the Economic and Social
Committee adopted the following opinion by 69 votes to four with nine abstentions.

1.

Introduction

Since the beginning of

1.1.
the 1990s the Economic
and Social Committee (ESC) has participated actively in
strengthening relations between the European Union and
Latin America, expressing its views on the main aspects of
interregional relations and welcoming the initiatives under-
taken to expand and intensify links with the countries and
sub-regions of Latin America. In particular, the ESC has made
a decisive contribution to bringing together civil society in
both regions through collaboration with the organisations
representing Latin America’s economic and social players. The
ESC’s most recent initiatives in this field include the Opinion
on Relations between the European Union, Latin America
and the Caribbean: socio-economic interregional dialogue (1),
adopted with a view to the first Summit of Heads of State and
Government of the EU, Latin America and the Caribbean held
in the Rio de Janeiro on 28 and 29 June 1999 and the first
meeting of the representatives of European/Latin American-
Caribbean civil society held in Rio on 23 to 25 June 1999.

1.2.
The ESC has closely followed the development of
relations between the EU, MERCOSUR and Chile. It has shown
its interest, inter alia, by the adoption on 15 October 1995 of
an Opinion on the Communication from the European
Commission to the Council and the European Parliament:
The European Community and MERCOSUR: An Enhanced
Policy (2) and its Opinion on the socio-economic situation in
Chile and its relations with MERCOSUR and the EU (3), adopted
on 9 September 1998. Moreover, the ESC has for some years
maintained institutional contacts with the bodies representing
economic and social interests in MERCOSUR and Chile, and
has established a cooperative relationship with the MERCOSUR
Economic and Social Consultative Forum (FCES), with which
it signed a Memorandum of Understanding for Institutional
Cooperation in December 1997. At
the
ministers for external relations of MERCOSUR, Chile and
Bolivia, held in Vilamoura on 23 February 2000, the ESC and

the meeting of

the FCES together proposed the establishment of a joint
consultative committee (JCC) in the framework of the associ-
ation agreement which the EU is currently negotiating with
MERCOSUR. The proposal was adopted by both parties to the
negotiations.

The signature of

1.3.
the fourth-generation framework
cooperation agreements with MERCOSUR (Inter-regional
Framework Cooperation Agreement of 15 December 1995)
and Chile (Framework Cooperation Agreement of 21 June
1996) was a milestone in the EU’s relations with the four
MERCOSUR countries (Argentina, Brazil, Paraguay and Urug-
uay) and Chile, and a qualitative leap in Europe-Latin America
relations. The ultimate objective of these agreements is the
establishment of a bi-regional association based on the insti-
tutionalisation of a permanent political dialogue, broadening
and diversification of cooperation and — a novel feature —
the gradual reciprocal liberalisation of trade.

1.4.
The negotiations with MERCOSUR and Chile on the
new association agreements, launched at the Rio de Janeiro
Summit, began in November 1999. Over the next few months
the negotiations will enter a decisive phase, with discussions
on the elimination of customs duties having begun in July
2001. Substantial advances in the negotiations are expected
before the second EU/Latin America-Caribbean Summit to be
held in Madrid on 17 and 18 May 2002 under the Spanish EU
Presidency.

(1) OJ C 169, 16.6.1999.
(2) OJ C 18, 22.1.1996.
(3) OJ C 407, 28.12.1998.

1.5.
In the light of this new stage in relations between the
EU, MERCOSUR and Chile, this own-initiative opinion sets
out to analyse the background to the negotiations, identify
both parties’ reasons for seeking stronger ties, examine some
of the main negotiating topics and the key issues to be resolved

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in achieving an association agreement, and describe the
positions of the parties to the negotiations on the most
important issues. At the same time the opinion looks in
detail at the social aspects of the possible future association
agreements with MERCOSUR and Chile.

1.6.
Thus, the opinion sets out to help familiarise the
economic and social organisations and European civil society
organisations as a whole with the current negotiations with
MERCOSUR and Chile. The opinion could also facilitate
dialogue between the European social players and MERCOSUR
and Chile on negotiating issues of particular socio-economic
relevance. Finally, the opinion could help define the content of
the social dimension of the future agreements, as well as
facilitate the establishment of JCCs in the framework of the
future EU agreements with MERCOSUR and Chile.

2. History and current state of EU-MERCOSUR and EU-

Chile relations

The Interregional Framework Cooperation Agreement with
MERCOSUR and the Framework Cooperation Agreement with
Chile entered into force on 1 July 1999 and 24 April 1999
respectively. Both agreements set out to intensify relations in
the commercial, economic and cooperation fields as well as in
other areas of mutual interest, establishing the conditions for
the creation of an association (in the case of MERCOSUR an
inter-regional association and in the case of Chile a political
and economic association). The two agreements, which are
very similar, cover three main areas:

— Political: The parties place the regular political dialogue
on an institutional footing with the aim of achieving
closer consultation on bi-regional and multilateral issues
of mutual interest and coordinating their positions in
international forums. The political dialogue will take
place through contacts and consultations at various levels.

— Economic: The parties agree to promote the development
and diversification of their trade and to prepare for
progressive reciprocal trade liberalisation, taking account
of the sensitivity of certain products and complying with
World Trade Organisation (WTO) standards. The parties
also agree to conduct a periodic dialogue on economic
and trade issues and to cooperate in areas such as agrifood
and industrial standards, as well as on quality policy,
recognition of conformity, customs matters, the compi-

lation of statistics and intellectual property, inter alia.
Cooperation on public procurement has also been estab-
lished with Chile.

— Cooperation: The EU’s cooperation with MERCOSUR and
Chile is mainly economic, pursuing objectives such as
the strengthening of international competitiveness and
scientific and technological development, the improve-
ment of conditions for job creation and quality of
employment and,
the diversification and
development of economic and social links between the
parties. Within these general objectives, cooperation
activities will take particular account of environmental
conservation, social development, and particularly the
promotion of fundamental social rights.

in general,

2.1.

Political dialogue

2.1.1.
Since 1996 the EU, MERCOSUR and Chile have
maintained an institutionalised dialogue, which has to date
taken the form of five meetings between the ministers for
external relations of the EU, MERCOSUR and Chile, as well as
a meeting between the Heads of State and Government prior
to the Rio de Janeiro Summit. Since 1998 the political dialogue
has also included meetings of senior officials. Following the
entry of Chile (and Bolivia) into the political consultation
mechanism of MERCOSUR from 1 July 1997, ministerial
meetings between the EU and Chile have been held jointly
with meetings with MERCOSUR.

2.1.2.
At the ministerial meeting held in Vilamoura, Portu-
gal on 23 February 2000 MERCOSUR, Chile and Bolivia
presented the Declaration and Action Programme for Political
Cooperation, which includes proposals for cooperation in
areas such as the promotion and protection of human rights,
democracy and the rule of law, prevention of conflicts and
confidence and security-building measures. The proposal is
currently being analysed by senior officials of both regions.
Similarly, at the ministerial meeting held in Santiago de Chile
on 28 March 2001, the ministers of the 21 countries stressed
the need to step up and give a new impetus to their dialogue
in order to ensure closer consultation on bi-regional and
multilateral issues, especially by convergence of positions on
matters of common interest in international forums. The
Communication from the European Commission to the
Council and the European Parliament on the follow-up to the
first summit between Latin America, the Caribbean and the
European Union (1) establishes as one of the priorities for
relations with MERCOSUR and Chile the introduction of
reinforced cooperation mechanisms in international forums
on strategic questions and other matters of common interest.

(1) COM(2000) 670 of 31.10. 2000.

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2.1.3.
There has also been an institutionalisation of parlia-
mentary political cooperation between the EU and MERCOSUR
and Chile via declarations formalising cooperation between
the EP and the joint parliamentary committee of MERCOSUR
on the one hand, and the Chilean Congress on the other.

market for the MERCOSUR economies has declined. At the
same time, exports to the USA and Canada have expanded
faster than those to the EU, particularly over the last few years.

2.2.

Economic relations: trade and investment

Taken together, MERCOSUR and Chile are the EU’s
2.2.1.
main trade partners in Latin America. In 1999 they accounted
for 59 % by value of Latin America’s trade with the EU (64 %
of the region’s exports to the EU and 55 % of Latin American
imports from Europe), and 3,2 % of the EU’s external trade (1).
Unlike the rest of the region, these five countries of the
‘southern cone’ traditionally trade more with Europe than with
the United States, and in 1999 the EU was the main non-Latin
American trade partner for all these countries. Similarly, the
bulk of foreign direct investment (FDI) by the EU Member
States in Latin America goes to MERCOSUR and Chile, and
the EU has become the main source of foreign investment in
Argentina and Brazil. Despite the favourable trend in economic
relations over the last decade, however, trade relations in
particular exhibit imbalances which are an obstacle to the
realisation of the full potential of the EU’s economic links with
MERCOSUR and Chile.

2.2.2.
As a bloc, MERCOSUR is among the EU’s main
external trade partners; it is the EU’s biggest market in Latin
America and the EU’s biggest supplier in the region. EU-
MERCOSUR trade grew significantly during the 1990s, almost
doubling between 1990 and 1999. In 1999 MERCOSUR
accounted for 50,7 % of total Latin American trade with the
EU, compared with 44 % in 1990. This growth was primarily
due to the increase in MERCOSUR imports from the EU, which
grew by 246 %, whilst MERCOSUR exports to Europe
increased by only 30,3 %. Since 1995 exports to the EU have
virtually stagnated, growing by only 5 %. Between 1998 and
1999 they actually decreased by almost 10 %. As a result,
since 1995 MERCOSUR has run a trade deficit with the EU.

2.2.3.
The weak growth of exports to Europe, combined
with the very significant growth of trade within the MERCO-
SUR bloc, means that the relative importance of the EU as a

(1) Data on trade facilitated by the Inter-American Development
(Periodic Note on Integration and Trade in the

Bank (IDB)
Americas, December 2000) and EUROSTAT.

The majority view in MERCOSUR, expressed for
2.2.4.
example by a number of exporters’ organisations, is that the
unsatisfactory development of exports to the EU is due in great
measure to the high customs duties applied in sectors such as
agriculture and fisheries, which represent more than 50 % of
the bloc’s exports to the EU, where MERCOSUR products are
more competitive. Another aspect of the EU’s trade policy
which has traditionally been criticised by MERCOSUR is the
existence of a number of non-tariff barriers which adversely
affect exports of some manufactured products. In this context
it should be pointed out that whilst in 1999 food products,
agricultural primary products and metals represented 72 % of
MERCOSUR exports to the EU, they made up only 53 % of the
bloc’s total exports.

the sub-region as a market

The declining relative importance of the European
2.2.5.
for the MERCOSUR countries contrasts with the
market
growing importance of
for
European companies. The substantial increase in EU exports
to MERCOSUR in the 1990s meant that this grouping was the
only Latin American sub-region in which the EU increased
its market share, which shows that the consolidation of
MERCOSUR as an economic bloc has been relatively more
beneficial to European exporting companies than to their
competitors from other parts of the world.

2.2.6.
The trend in EU — MERCOSUR trade in 2000 points
to a possible further worsening of the existing imbalances,
with both a further fall in MERCOSUR exports to the EU and
a considerable reduction in the South American bloc’s imports
from the EU, despite the fact that its overall imports increased
by 7 %. These trends point up the importance of adapting
suitable instruments responding to the mutual
interest in
stimulating trade between the two regions.

In contrast to the persistence of certain trade prob-
2.2.7.
lems, European investment plays an increasingly important
role in MERCOSUR. Traditionally the greater part of European
FDI in Latin America, approximately 60 % over the period
1990-1997, has gone to MERCOSUR, particularly Argentina
and Brazil. In recent years the concentration of European FDI
in those countries has intensified; together with Chile, in 1999
they received about 90 % of European direct investment in
Latin America. That same year it is estimated that Argentina
and Brazil received FDI for a value exceeding US$50 bn, more
than five times the 1995 figure, a significant part of which
came from European firms.

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2.2.8.
The EU’s economic relations with Chile show some
of the same features as those noted in relation to MERCOSUR.
During the 1990s Chilean exports to the EU followed an
irregular trend, effectively stagnating since 1996, reflecting
fluctuations in international prices of the relatively small
number of products, above all copper, which make up the
bulk of Chilean exports to the EU. EU sales to Chile experienced
a sustained increase up to 1997, reflecting the strong growth
of the Chilean economy, but from 1998 exports declined, as a
result of the recession which the country experienced from the
end of that year. These trends may have been further aggravated
in 2000, with Chilean exports to Europe rising by a lower
percentage than overall exports and imports from the EU static
despite a general increase in imports of about 20 %.

2.2.9.
Consequently, the traditionally strong trading links
with Chile have weakened and have to some extent been
damaged by the dynamic development of Chilean trade with
the USA and with new trading partners in Asia and Latin
America itself. Between 1990 and 1999 the EU’s share of total
Chilean exports fell from 38,5 % to 26,2 %, whilst the share of
the USA and particularly the other Latin American countries
increased. The Union, which was Chile’s main trading partner
until 1993, is today the second largest market for Chilean
exports and the third largest source of the country’s imports.
European exporting companies have also lost ground in the
Chilean market, although less in relative terms. European
investment in Chile on the other hand has been a major
component of growing FDI inflows into Chile in recent years.

2.3. Cooperation

2.3.1.
The EU is the main source of official development
aid (ODA) for MERCOSUR and Chile. Of a total of almost
US$3,5 m. of ODA received by the five countries between
1994 and 1998, 56 % was granted by the European Com-
mission and the EU Member States. Nonetheless, in view of
their relatively high level of economic development, these
countries are not among the main beneficiaries of European
development cooperation, and financial resources earmarked
for cooperation with these countries, from both Community
and national sources, have been on a declining trend in recent
years. Between 1990 and 1998 these five countries received
total European ODA to Latin America (with
21,3 % of
MERCOSUR accounting for 15,8 % and Chile for 5,5 %).

However, in recent years the level of Community
2.3.2.
cooperation has been lower than in the mid-1990s, and in
1999 the five countries’ share of European Commission
cooperation fell to 9,8 %. Nonetheless, in view of the intensity
of their economic relations with the EU, the five countries are
major beneficiaries of the regional programmes such as AL-
INVEST, established to promote investment links and direct

cooperation between private-sector economic operators in the
two regions. In general, and in accordance with the principle
of reciprocal benefit, economic cooperation occupies a central
position in the Community’s overall cooperation with MERCO-
SUR and Chile: activities in this area accounted for 25 % of
total resources earmarked for cooperation between 1990 and
1998 in the case of MERCOSUR, and 20 % in the case of Chile.

2.3.3.
Another important feature of Community cooper-
ation with MERCOSUR and Chile is attempts to achieve greater
diversification of beneficiaries and greater participation of civil
society in cooperation. Apart from the role played by the
horizontal cooperation programmes in creating cooperation
links between various socio-economic and civil society players,
resources allocated to the financing of the activities of various
non-governmental organisations (NGOs) are also important.
Almost 20 % of total cooperation with MERCOSUR and Chile
during the period 1994 to 1998 was earmarked for supporting
activities by NGOs, without forgetting the important cooper-
ation work carried out for some time now by other European
social organisations, especially trade unions.

2.3.4.
For the period 2000 to 2003 the following priority
areas have been identified for EU-MERCOSUR cooperation:
macroeconomic coordination within MERCOSUR, the devel-
opment of infrastructure and transport networks, science and
technology, cross-border cooperation, the information society
and education. For the period ending in 2006, cooperation
will be intensified in areas which contribute to MERCOSUR’s
adaptation to the liberalisation of its trade with the EU and the
completion of its own internal market. For the whole period
2000 to 2006 some EUR 48 m. are earmarked for cooperation
with the MERCOSUR bloc.

2.3.5.
Support for the process of regional integration is a
key element of cooperation with MERCOSUR. With this end
in mind, programmes have been carried out or are being
carried out in areas such as institutional support, harmonis-
ation of customs standards, technical standards and statistics,
the adoption of veterinary and plant-health standards, and the
preparation of firms, particularly small firms, for the common
market. By means of the project for the socio-labour dimension
of MERCOSUR, which the ESC played an active part in
designing,
it is intended that the EU should support the
development of the social and participative dimension of the
process of regional integration in MERCOSUR by strengthen-
ing the structured dialogue between the political and socio-
economic players and placing the MERCOSUR parties involved
in this dialogue on a sound institutional footing.

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3. Prospects for strengthening EU-MERCOSUR and EU-

Chile relations

3.1.
The EU’s rapprochement with MERCOSUR and Chile
is based on a belief in the reciprocal benefits which will
accrue from an association founded on reciprocity and close
cooperation which, going beyond economic relations, will be
all-embracing, with political, social and cultural
links as
fundamental dimensions. In this sense, the EU’s association
with MERCOSUR and Chile could become a model not only
for the future of links with other parts of Latin America but
also for a new kind of cooperative relationship or strategic
alliance between industrialised and industrialising countries in
a multipolar world, which would be of great potential
assistance in ensuring that economic globalisation and the
growing interdependence of countries and regions contribute
to stability and economic and social development.

3.2.
For the EU the strengthening of existing links with
MERCOSUR and Chile would demonstrate its ability to
translate the common foreign and security policy (CFSP)
objectives into binding agreements and to affirm the Union’s
international identity. Similarly, association with MERCOSUR
would reinforce this bloc and the role it plays in promoting
Latin American integration, as well as making a significant
contribution to consolidating a regional integration and coop-
eration project which shares various features with European
integration. Thus, the association, based on a broad cooper-
ation model, must contribute to the realisation of the funda-
mental objectives shared by both blocs: the promotion of
economic and social progress and the strengthening of econ-
omic and social cohesion, as required by the Treaty on
European Union, together with economic development with
social justice, an objective enshrined in the treaty establishing
MERCOSUR.

the economies of MERCOSUR and Chile,

In the economic sphere the trend in trade and invest-
3.3.
ment flows over the last few years has underlined the potential
of reciprocal relations. Trade with the EU and European
investment are of fundamental importance in promoting the
growth of
in
consolidating their growing participation in world trade and
in promoting further diversification of their export sectors. For
the EU, the substantial growth of exports to MERCOSUR
and the increase in investment in the region highlight the
advantages of stronger economic links. The high proportion
of SME sales to MERCOSUR, about 35 %,
is particularly
significant.

3.4. MERCOSUR and Chile together constitute a market of
almost 220 million people with a GDP above the world
average. Despite the uncertainty caused by the Argentine
financial crisis, forecasts suggest that the region will continue
the economic recovery begun in 2000 following a period of
stagnation in the wake of the 1998-1999 international finan-
cial crisis. If these forecasts prove correct, the prospects for
investment over the next few years are favourable, in part
owing to the need for major investment in infrastructure. It is
estimated that the ‘southern cone’ will need annual average
investment of some US$ 20 bn. for the development of its
infrastructure networks, a sector in which European firms have
broad experience.

The association agreements with MERCOSUR and
3.5.
Chile,
trade, will also
incorporating the liberalisation of
consolidate the European presence in Latin America’s most
dynamic and promising markets. The elimination of customs
duties and other barriers to trade will particularly benefit
exports of
investment products, machinery and transport
equipment, as well as chemical and pharmaceutical products,
sectors in which MERCOSUR currently applies high levels of
customs duty and in which European firms are particularly
competitive. Services, including banking and insurance, sea
transport and telecommunications among others, are also
likely to benefit from the liberalisation of trade with MERCO-
SUR and Chile. It will also become easier for European firms
to set up in those countries in order to produce for the region’s
markets; these firms will also enjoy the opportunity to import
manufacturing components free of customs duty.

For MERCOSUR and Chile the liberalisation of their
3.6.
trade with the EU not only means improving access to the
European market [approximately 60 % of the EU’s imports
from MERCOSUR are already free of customs duty or else
enjoy preferential conditions on a most favoured nation basis
or under the Generalised Scheme of Preferences (GSP)] but
also making its trade relations with the EU stabler and more
predictable by means of a mutually binding agreement.
Another important feature for these countries would be the
opportunity to eliminate or reduce import tariffs on certain
products, particularly in the agricultural and fishing sectors,
which make up the greater part of their sales to the EU and
where they enjoy comparative advantages. In general, cheaper
imports of capital goods from the EU and greater facilities for
European investment would strengthen the competitiveness of
MERCOSUR and Chilean firms.

3.7.
Investment by European firms in MERCOSUR and
Chile not only offers these firms an opportunity to benefit
from the growth of the regional markets and to harness the
region’s human capital and resources for their productive
processes, but also gives them an important role in promoting

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job creation, technological

productive development,
inno-
vation and the training of human resources. In this way,
European investment should be a positive factor in the
consolidation of the basic characteristics of the social market
economy, such as the social dialogue, attention to skills-
development and vocational training, suitable social protection
and respect for fundamental social and labour rights, just as it
is necessary to take account of the social and environmental
impact of trade and investment flows between two regions. In
this sense, the principles set out in the Resolution on EU
standards for European enterprises operating in developing
countries: towards a European Code of Conduct, adopted by
the EP on 15 January 1999 (1), and the OECD’s guidelines,
adopted by the OECD member states plus Argentina, Brazil
and Chile on 27 June 2000, should be followed.

4. The negotiating process: the key issues

4.1.
The negotiations for the association agreements with
MERCOSUR and Chile are being conducted via two formally
separate processes, although in parallel. This approach has
been followed in the light of the similarity of the agreements
under negotiation and of the close links between Chile and
MERCOSUR, reflected,
in the 1996 association
inter alia,
agreement which provides for the establishment of a free trade
area over a ten-year period and the participation of Chile,
together with Bolivia, in MERCOSUR’s political bodies. At the
same time, the Chilean government has confirmed Chile’s
intention of becoming a full member of MERCOSUR, although
the discussions have been affected by the start, in December
2000, of negotiations for a free trade agreement between Chile
and the USA. The parallel negotiations with MERCOSUR and
Chile would imply that in principle the two agreements should
also be completed simultaneously. However, in the light of the
possibility that negotiations with Chile may advance more
rapidly, given the content of the negotiations and the fact that
it is easier to negotiate with one country than with a group of
four countries, it is not impossible that at a given moment the
two negotiating processes might proceed at different paces.

4.2.
The negotiating rounds held so far have made it
possible to close the gap between the parties in various areas.
In the negotiations with MERCOSUR progress has been made
on defining the legal framework and institutional structure of
the future agreement and in the field of political dialogue, as
well as on the wording of the chapters relating to cooperation
in the social and cultural fields. The negotiations with Chile

(1) A4-0508/1998, 15.1.1999.

have also made major advances on the institutional structure
of the agreement and in the political sphere, as well as with
regard to various cooperation chapters, including science and
technology and social, cultural, educational and economic
cooperation. In both cases possible participation in various EU
programmes in fields such as education, culture, energy,
science and technology has been discussed.

4.3.
Although the negotiating processes cover the whole of
the association agreements, trade liberalisation has received
the most attention. In the light of the tariff negotiations which,
in accordance with the EU’s negotiating mandate, began in the
second half of 2001, the following basic principles have been
laid down for the future trade agreements:

— The agreements will cover not only the liberalisation of
trade in goods but also a broad range of trade disciplines:
services, investment,
intellectual property, government
procurement, competition and trade protection policies
and disputes settlement.

— No sector will be excluded from negotiations on trade
liberalisation and the agreement will have to comply with
WTO standards.

— Account will be taken of

the sensitivity of certain

products, in accordance with WTO standards.

— The agreements will be negotiated as a ‘single undertaking’

and will be applicable as an indivisible whole.

4.4.
Similarly, an exchange of information on the trade
policies and interests of each of the parties made it possible
provisionally to identify their respective negotiating positions
before the opening of tariff negotiations in the fifth round held
in Montevideo and Santiago de Chile respectively in the first
half of July 2001.

including various measures

4.5.
As an initial measure to stimulate interregional trade,
the EU has launched a broad-based initiative aimed at facilitat-
ing trade,
for cooperation,
exchange of technical assistance in areas such as customs
standards, human and plant health standards, electronic com-
merce and competition. In order to contribute to greater
transparency in trade relations between the parties,
this
initiative helps to identify barriers to this and seeks to address
the concerns of the private sector on both sides of the Atlantic,
as expressed for example by the MERCOSUR-Europe Business
Forum (MEBF). The MEBF, which is trying to establish closer

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economic and trade relations between the EU and MERCOSUR
through dialogue and direct cooperation between the business
communities and by submitting recommendations to govern-
ment bodies, has set up working parties to address the main
aspects of EU-MERCOSUR trade: access to markets, investment
and privatisation, and services. Apart from its concrete contri-
bution to promoting trade flows, this initiative is an instrument
for involving the private sector in the negotiating process and
fostering active commitment to the objectives pursued.

4.6.
The negotiation of a broad and balanced trade liberalis-
ation agreement between the EU and MERCOSUR, the first of
its kind between two customs unions, will be complex and not
without difficulty. The existence of various sensitive products
to which the two sides currently apply high levels of customs
duty could be a source of problems. In the case of MERCOSUR,
the main difficulties will probably be encountered in the
various industrial sectors, which are currently protected by
relatively high tariffs, and in the services sector. From the
European point of view, the most difficult aspects of the
negotiation are likely to be concentrated in the agricultural
chapter, a sector which contains the largest number of
products which are sensitive for the EU and which represents
the greater part of MERCOSUR exports. Moreover, the main
advantage for MERCOSUR of liberalising its trade with the EU
is precisely improved access for its food and agri-industrial
products to the European market.

direct support to farmers. Similarly, the recent problems
which have affected European agriculture, partly as a
result of failure to comply with existing Community
rules, particularly BSE, could prompt changes to agricul-
tural and stock-raising production systems.

Taking account of these factors, and recognising the
importance of agriculture for employment and social and
regional cohesion in Europe, as well as the principle of
multifunctionality, a further revision of the CAP, the
shape of which is the subject of debate, could facilitate
understanding between the parties in this field.

— The elimination or reduction of customs duties could
also generate new opportunities for exports of European
agricultural products with a high degree of added value
and quality which are currently subject to high levels of
duty (such as, for example, dairy products, wine, alcoholic
beverages and preserves). The exploitation of these oppor-
tunities would help to balance Europe’s current deficit in
agricultural trade with MERCOSUR and mitigate the
short-term negative consequences of trade liberalisation
for European agriculture.

4.7.
In view of MERCOSUR’s considerable potential for
increasing its agricultural production and the competitiveness
of many of its agricultural products, in some MERCOSUR
circles full liberalisation of trade in agricultural products is
considered incompatible with the maintenance of the CAP in
its present form. However, agricultural and fisheries products
categorised as sensitive account for only 14 % of EU imports
from MERCOSUR. Moreover, there are various reasons for
believing that problems in the agricultural sector can be
prevented from becoming an insuperable obstacle to the new
association agreements:

— The reforms of

the CAP and compliance with the
commitments entered into in the Uruguay Round have
required a considerable and continuous reduction of the
EU’s agricultural subsidies. This trend contrasts,
for
example, with the increase in US subsidies and the rise in
export credit guarantees for agriculture in that country
which is not under multilateral supervision. Moreover, it
is probable that the current agricultural negotiations at
the WTO, begun in March 2000, and the process of
enlarging the EU, among other factors, will promote
further changes to the CAP, with a consequent reduction
of production subsidies and their replacement by more

4.8. The background to the negotiations

4.8.1.
The negotiations with MERCOSUR and Chile are
taking place against a complex background, with other
international negotiations also in progress at the WTO, as well
as the negotiations for the free trade area for the Americas
(FTAA).

According to the EU’s negotiating mandate,

4.8.2.
the
negotiations with MERCOSUR and Chile can be concluded
only after the termination of a new round of trade negotiations
in the WTO. However, following the failed attempt to launch
a new multilateral round at the WTO ministerial meeting in
Seattle in November and December 1999, the prospects for
these negotiations are uncertain. Even if the fourth WTO
ministerial meeting, to be held in Qatar on 9 to 13 November
2001, succeeds in launching a new global round, it is unlikely
that this will be concluded before the end of 2004. Whilst
continuing to insist that the agreements with MERCOSUR and
Chile must be compatible with WTO standards and other
multilateral agreements entered into by the parties, such slow
progress on the negotiations could have negative conse-
quences. For this reason the possibility has been raised of a

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change to the negotiating mandate. In particular the EP has
issued resolutions (1) calling for an end to the subordination of
the negotiations with MERCOSUR and Chile to completion of
the WTO round, partly on the grounds that this condition
discriminates against other association agreements. The ESC
agrees that the deadline for conclusion of the negotiations
with MERCOSUR and Chile should not be made dependent on
the conclusion of the WTO negotiating round, believing
that the agreements with Chile and MERCOSUR should be
concluded as soon as possible in order to strengthen inter-
regional relations.

4.8.3.
Since September 1998 MERCOSUR and Chile, tog-
ether with 29 other countries in the hemisphere, have been
negotiating the FTAA. Although the negotiations are still at
the technical stage and although doubts persist as to whether
the US government will obtain from the Congress authoris-
ation to negotiate trade agreements by the fast track, the FTAA
process is on course. Thus, the Third Summit of the Americas,
held in Quebec on 20-22 April 2001, saw progress on the
establishment of the FTAA, including the drawing up of a
preliminary draft agreement. Similarly, the representatives of
the 34 countries participating in the process confirmed the
timetable for the establishment of the FTAA laid down for the
first time in 1994, agreeing to conclude the negotiations at the
latest by January 2005 so that the agreement can enter into
force no later than 31 December of that year.

4.8.4.
Although various estimates suggest that free trade
with the EU would bring the MERCOSUR countries greater
net benefits than the FTAA, the governments of the bloc
perceive the two processes as complementary and compatible.
Moreover, simultaneous participation in free trade negotiations
with the world’s two leading economic blocs offers the South
American countries opportunities for strengthening their
negotiating capacity in both processes and minimising the
costs of opening up their markets. For the EU, the establish-
ment of a pan-American free trade area without a trade
liberalisation agreement with its main partners in Latin
America could seriously weaken Europe’s position in the
economies of the ‘southern cone’ vis-à-vis its US competitors,
accelerating the tendencies observed in trade relations in recent
years. It should be borne in mind that an important reason
behind the negotiation of the association agreements with
MERCOSUR and Chile was the wish to prevent the FTAA

(1) A5-0049/2001 and A5-0050/2001 of 6 February 2001.

causing the same kind of loss of market share which has been
observed in trade with Mexico since the entry into force of the
North American Free Trade Agreement (NAFTA).

it

is a multilateral negotiation process,

4.8.5.
The FTAA is a challenge for the EU and not only in
the economic field. If, given the disparity in the economic,
political and cultural weight of the USA on the one hand and
the other countries of the hemisphere on the other, and despite
the
the fact that
formation of a hemispheric free trade area strengthens the
USA’s influence in the Latin American region, the FTAA holds
out the prospect of waning European influence in the region,
particularly in the MERCOSUR countries and Chile whose
closest ties have traditionally been with Europe. Faced with
this prospect, the association with the EU, which is identified
with a model of society based on the social market economy,
takes on particular relevance as the representative of a
more integrated interregional cooperation model without
pretensions to hegemony and not only compatible with, but
actually conducive to, development of the integration process
in the ‘Southern Cone’ and throughout the Latin American
region. In this context, it would be worth mentioning the
opposition in various sectors in MERCOSUR and Chile to
what is considered a purely mercantilist initiative, at odds with
an integration model embracing the social, political and
cultural dimensions as well as the purely economic and trade
dimensions.

4.8.6.
The internal cohesion of the MERCOSUR bloc is a
key precondition of the success of the negotiations with the
EU and those on the FTAA. Recently the effects of the Brazilian
devaluation in 1999 and of the Argentine financial crisis have
given rise to fears for the future, highlighting the need
to consolidate the cohesion of MERCOSUR, develop the
coordination of economic policies between its members,
strengthen its institutional mechanisms and develop the con-
solidation of the customs union. The possibility cannot be
discounted that the FTAA process might create additional
centrifugal effects, weakening the internal cohesion of MERCO-
SUR and the position of the bloc as the dynamo of regional
integration in Latin America, a prospect made more likely by
the beginning of free trade negotiations between Chile and the
USA in parallel with the FTAA process.

4.8.7.
The negotiating process with the EU, on the other
hand, both in terms of the concept of the association and of
is
the specific objectives of EU-MERCOSUR cooperation,
clearly aimed at strengthening the bloc, which in present
circumstances is more important than ever. In the light of one
of MERCOSUR’s main current priorities, achieving greater
coordination between the economic policies of its Member
States,
the EU could make a major contribution to the
consolidation of MERCOSUR as a regional area, capitalising

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on European experience of the establishment of the single
European market and economic and monetary union. In this
sense, one of the priorities identified in the Communication
from the Commission to the Council and the European
Parliament on the follow-up to the first summit between Latin
America, the Caribbean and the European Union (1) is precisely
support for greater cooperation in the macroeconomic field
with the objective of contributing to the regions’ financial
stability and promoting regional integration in the economic
and monetary sectors.

4.8.8.
The importance of preventing macro-economic
imbalances giving rise to measures which damage the process
of regional integration in MERCOSUR and have potentially
harmful effects on third countries has been emphasised by the
decision of the Argentine government, as part of the adjust-
ment plan introduced at the end of March 2001, temporarily
to increase import duties on consumer goods to 35 % and
to cut those applying to capital goods originating outside
MERCOSUR to 0 %. Although an evaluation of the conse-
quences of this measure, which damages MERCOSUR’s com-
mon external tariff, for European exports will require more
detailed examination of
the decision
underlines the importance for the EU of basing its economic
relations with MERCOSUR on reciprocal and binding agree-
ments.

its sectoral effects,

5. The social dimension and the participation of civil

society

5.1.
The development of links with MERCOSUR and Chile
must constitute a strategic priority objective for the EU’s
external policy and a priority in its relations with Latin
America. The current negotiations offer the EU an opportunity
to demonstrate its will to develop closer links with a region
which shares profound historical and cultural ties with Europe,
as well as to deepen mutually beneficial cooperation with one
of the world’s most important regions. The bi-regional nature
of
the negotiations with MERCOSUR, being negotiations
between integration bodies, and the integrating nature of the
association processes taking place with MERCOSUR and Chile
point to a new kind of relationship between regions which
could serve as a model
in an increasingly globalised and
interdependent world.

5.2.
The ESC considers that the current phase of developing
closer relations with MERCOSUR and Chile and the future
association agreements with MERCOSUR and Chile are a
prime opportunity to put into practice the provisions of the

(1) COM(2000) 670 of 31.10. 2000.

European social agenda adopted by the Nice European Council
(7 to 9 December 2000) which calls for strengthening of the
social dimension of the EU’s external relations. In this context,
the EU can make a major contribution to the development of
the social dimension of regional integration in the ‘southern
cone’, particularly in parallel with the implementation of the
principles set out in MERCOSUR’s socio-labour declaration
adopted in 1998. In this connection, the ESC expresses its
satisfaction with the initiative to support a cooperation
project aimed at strengthening the socio-labour dimension of
MERCOSUR which will be put into effect in the framework of
the Inter-regional Framework Cooperation Agreement with
MERCOSUR.

The ESC expresses its complete agreement with the
5.3.
definition set out in the Communication from the European
Commission to the Council and the European Parliament on
the follow-up to the first summit between Latin America, the
Caribbean and the European Union of support for society’s
most vulnerable groups and with the statement that combating
poverty must be a matter of the highest priority in cooperation
with MERCOSUR and Chile. The Committee notes the com-
plete agreement between the objectives of the EU and those of
MERCOSUR and Chile, as for example expressed in the Charter
of Buenos Aires on Social Commitment in MERCOSUR, Bolivia
and Chile adopted by the presidents of the six countries on
30 June 2000, which recognises the primary responsibility of
the state for formulating policies designed to combat poverty
and support the activities of civil society in pursuit of the same
objective. At
the
European resources earmarked for cooperation with MERCO-
SUR and Chile over recent years, the ESC points to the need
for EU commitments in this area to reach at least the highest
levels achieved in recent years in order to ensure that they are
sufficient to make an effective contribution to reducing poverty
in those countries.

the same time, given the reduction of

The ESC also welcomes the MERCOSUR presidential
5.4.
declaration of
fundamental consumer rights, adopted on
15 December 2000, in which the signatory states commit
themselves to a series of fundamental rights, such as the right
to life, health, and consumer and environmental safety; the
provision of public and private services and products under
suitable and safe conditions; easier access to judicial and
administrative bodies for the protection of individual and
collective consumer rights. This declaration is a major step
forward in bringing regional integration closer to citizens’
interests and concerns, and is fully consistent with the EU’s
efforts to ensure the compatibility of integration of markets
with consumer protection; it also offers new opportunities for
inter-regional cooperation.

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5.5.
Given that the ultimate objective of liberalising trade
and opening up markets must be to promote economic and
social development, the ESC recommends that the future
association agreements with MERCOSUR and Chile make
explicit reference to the fundamental labour standards set out
in the ILO’s 1998 declaration of principles which together
with other fundamental human rights and commitment to the
principles of democracy and the rule of law, will form the
basis for the new agreements. The incorporation of these
principles would be of great help in giving practical expression
to the priority which the Communication from the Com-
mission to the Council and the European Parliament on the
follow-up to the first summit between Latin America, the
Caribbean and the European Union assigns to the promotion
and protection of human rights, including economic and social
rights.

— The emphasis placed by the final summit of the presidents
of MERCOSUR, Bolivia and Chile, held on 14 and
15 December 2000, on the importance of the partici-
pation of civil society in the integration process, and the
stress placed on the role of the Economic and Social
Consultative Forum.

— The recommendation of the EP, in resolutions adopted
on 1 March 2001, that the future association agreements
permit the structured participation of civil society in
the political dialogue, with the holding of periodic
conferences with representatives of civil society organis-
ations from the EU, MERCOSUR and Chile and their
participation as observers in ministerial meetings and
other forums for dialogue and inter-regional cooperation.

The active participation of the various components of
5.6.
civil society is essential in ensuring stronger links between the
EU and MERCOSUR and Chile on a lasting basis, in order to
ensure that the future association agreements are based on
solid relations between societies in both regions. The ESC
expresses its satisfaction with the recent recognition of the
importance of the participation of economic and social players
and of other sectors of organised civil society in the various
inter-regional forums for cooperation and dialogue, and in
particular the following:

— The declaration of the meeting of EU and Rio Group
ministers for external relations, held in Santiago de
Chile on 23 March 2001, stressing the importance of
promoting and intensifying exchange and cooperation
between the civil societies of both regions.

— The communiqué of the meeting of EU ministers for
external relations and those of MERCOSUR, Chile and
Bolivia, held at Vilamoura in February 2000, stressing the
importance of
the contribution of new civil society
players, partners and resources and the importance of
promoting mutual exchange and cooperation between
civil society in both regions.

— The proposal of the European Commission, in its Com-
munication on the follow-up to the first summit between
Latin America, the Caribbean and the European Union,
that promoting dialogue and cooperation with civil
society and economic players be a priority in relations
with MERCOSUR and Chile.

In order to bring the current negotiations between the
5.7.
EU and MERCOSUR and Chile to a successful conclusion, it is
essential that full information be available on their progress,
aimed at civil society in general and in particular at the
organisations representing those interests which will be most
affected by the decisions taken in the course of the negotiations.
The greatest possible transparency and the existence of suitable
mechanisms for channelling expectations and suggestions by
the various sectors of organised civil society must be con-
sidered as decisive contributing factors in strengthening the
legitimacy of the negotiating process and optimising social
support for the objectives pursued in the negotiations.

5.8.
In this connection, the ESC expresses its satisfaction
with the agreement adopted at the most recent ministerial
meeting of the EU, MERCOSUR, Bolivia and Chile in Santiago
de Chile on 23 March 2001 to promote periodic meetings
with representatives of civil society in the various countries in
order to encourage exchange and cooperation between the
the
parties, keep them informed as to the progress of
negotiations and obtain suggestions for development. Simi-
larly, the ESC would like to see specific initiatives put into
effect promptly on the basis of this agreement. The ESC also
welcomes the interest shown by the European Commission in
involving civil society organisations in the negotiations with
MERCOSUR and Chile, as expressed at the conference held by
the Commission on 12 October 2000 which was attended by
a broad range of representatives of European civil society. The
ESC expresses its hope that there will be regular initiatives of
this kind in the future. The ESC also expresses its support for
the consolidation of
the MEBF and for
the activities of
rapprochement with MERCOSUR and its satisfaction at the
holding of the first business summit between the European
Union, Latin America and the Caribbean in Madrid on 20 and
21 November 2000 which confirmed the positive role which
business cooperation can play in facilitating interregional
negotiations. Similar initiatives monitoring and supporting the
negotiating process should be facilitated, promoted by other
sectors (workers, consumers, farmers) representing economic
and social interests.

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5.9.
The future association agreements with MERCOSUR
and Chile must facilitate cooperation and direct contacts
between civil society players and guarantee them a central
position in the system of inter-regional relations. Apart from
the establishment, already approved, of a JCC in the framework
of the institutional structure of the agreements, the organis-
ations representing social interests must take on an active
central role in the implementation of the various cooperation
programmes and activities, thus contributing to the principles

of economic and social cohesion and responding to the need
for reduction of imbalances between social sectors and regions.
Similarly, priority should be given to promoting activities
carried out directly between economic and social players
in order to facilitate more direct cooperation between the
organisations representing citizens in the EU, MERCOSUR and
Chile, making them real participants in the new association-
based relations.

Brussels, 12 July 2001.

The President

of the Economic and Social Committee

Göke FRERICHS

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APPENDIX

to the opinion of the Economic and Social Committee

The following amendment, which was supported by at least a quarter of the votes cast, was rejected by the Committee
in the course of the debate:

Point 4.7

Redraft as follows:

‘MERCOSUR countries are producers of tropical and temperate-zone agricultural products. In 1999 they became the
European Union’s third supplier of European temperate-zone agricultural products (12 % of imports come from
MERCOSUR and Chile). These imports mainly comprise products benefiting from little or no protection (oleaginous
fruit and vegetables). However, further productivity gains made in MERCOSUR agriculture will affect other European
Union products that are already subject to stiff competition, such as:

— beef, which is facing a consumer confidence crisis,

— poultry, which faces stiff competition in international markets,

— oil seeds and pulses, which must be developed within a context of European dependency with regard to

vegetable protein.

Furthermore, the possible gains in terms of European agriculture and European agri-foodstuffs exports appear to be
very limited, as this sector is in the throes of intense development in MERCOSUR countries. The agricultural aspect
of EU-MERCOSUR relations is therefore a sensitive issue for European agriculture.Moreover, the way the MERCOSUR
market operates and is managed is very different to that of the single European market, and to consumers’
expectations regarding traceability of products throughout the chain and quality identification.Finally, the successive
reforms of the CAP and compliance with the commitments entered into in the Uruguay Round have required a
considerable and continuous reduction of the EU’s agricultural subsidies. This trend contrasts, for example, with the
increase in US subsidies and the rise in export credit guarantees for agriculture in that country which is not under
multilateral supervision. The CAP also has to cope with deadlines and challenges related to the success of EU
enlargement and health concerns. The discussions with MERCOSUR countries — which take place within a larger
framework addressing social issues and human rights — must also take account of non-commercial considerations,
such as health, production conditions and animal welfare, and recognise the European agricultural and agri-foodstuffs
model. The development of agricultural trade relations between the EU and MERCOSUR should not be limited to the
issue of market access.’

Reasons

European agriculture is directly challenged by agricultural products from MERCOSUR countries that do not have to
meet the same production constraints in terms of health, environmental and animal welfare. In the same way that
relations with MERCOSUR are not about purely commercial issues, agricultural negotiations must not be confined
to purely commercial considerations.

Result of the voting

For: 19, against: 43, abstentions: 11.