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# 52001IE0932

**Opinion of the Economic and Social Committee on the "European Union negotiations with MERCOSUR and Chile: economic and social aspects"** 
  
*Official Journal C 260 , 17/09/2001 P. 0067 - 0078*

  

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

1.1. Since the beginning of 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 undertaken 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 meeting of the ministers for external relations of MERCOSUR, Chile and Bolivia, held in Vilamoura on 23 February 2000, the ESC and the FCES together proposed the establishment of a joint consultative committee (JCC) in the framework of the association agreement which the EU is currently negotiating with MERCOSUR. The proposal was adopted by both parties to the negotiations.

1.3. The signature of 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 Uruguay) 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 institutionalisation 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.

1.5. 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 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 compilation of statistics and intellectual property, inter alia. Cooperation on public procurement has also been established 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 improvement of conditions for job creation and quality of employment and, in general, 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.

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, Portugal 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(4) 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.

2.1.3. There has also been an institutionalisation of parliamentary 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.

2.2. Economic relations: trade and investment

2.2.1. Taken together, MERCOSUR and Chile are the EU's 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(5). 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 MERCOSUR bloc, means that the relative importance of the EU as a 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.

2.2.4. The majority view in MERCOSUR, expressed for 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.

2.2.5. The declining relative importance of the European market for the MERCOSUR countries contrasts with the growing importance of the sub-region as a market 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.

2.2.7. In contrast to the persistence of certain trade problems, 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.

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 Commission 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 21,3 % of total European ODA to Latin America (with MERCOSUR accounting for 15,8 % and Chile for 5,5 %).

2.3.2. However, in recent years the level of Community 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 MERCOSUR 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 cooperation 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 cooperation 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 development 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, harmonisation 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 strengthening the structured dialogue between the political and socio-economic players and placing the MERCOSUR parties involved in this dialogue on a sound institutional footing.

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 cooperation project which shares various features with European integration. Thus, the association, based on a broad cooperation model, must contribute to the realisation of the fundamental objectives shared by both blocs: the promotion of economic and social progress and the strengthening of economic 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.

3.3. In the economic sphere the trend in trade and investment 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 the economies of MERCOSUR and Chile, 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 financial 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.

3.5. The association agreements with MERCOSUR and Chile, incorporating the liberalisation of trade, will also 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 MERCOSUR 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.

3.6. For MERCOSUR and Chile the liberalisation of their 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 productive development, job creation, technological innovation 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(6), 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, inter alia, in the 1996 association 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 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.

4.5. As an initial measure to stimulate interregional trade, the EU has launched a broad-based initiative aimed at facilitating trade, including various measures for cooperation, exchange of technical assistance in areas such as customs standards, human and plant health standards, electronic commerce 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 economic and trade relations between the EU and MERCOSUR through dialogue and direct cooperation between the business communities and by submitting recommendations to government 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 contribution 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 liberalisation 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.

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 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 agricultural 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 opportunities 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.

4.8. 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).

4.8.2. According to the EU's negotiating mandate, 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 consequences. For this reason the possibility has been raised of a change to the negotiating mandate. In particular the EP has issued resolutions(7) 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, together 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 authorisation 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 establishment 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 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).

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 fact that it is a multilateral negotiation process, the 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 consolidation of the customs union. The possibility cannot be discounted that the FTAA process might create additional centrifugal effects, weakening the internal cohesion of MERCOSUR 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 the specific objectives of EU-MERCOSUR cooperation, is 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 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(8) 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 adjustment 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 consequences of this measure, which damages MERCOSUR's common external tariff, for European exports will require more detailed examination of its sectoral effects, the decision underlines the importance for the EU of basing its economic relations with MERCOSUR on reciprocal and binding agreements.

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 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.

5.3. The ESC expresses its complete agreement with the 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 complete 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 same time, given the reduction of the European resources earmarked for cooperation with MERCOSUR 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.

5.4. The ESC also welcomes the MERCOSUR presidential 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.

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 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 assigns to the promotion and protection of human rights, including economic and social rights.

5.6. The active participation of the various components of 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 Communication 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.

- 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 participation 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 organisations from the EU, MERCOSUR and Chile and their participation as observers in ministerial meetings and other forums for dialogue and inter-regional cooperation.

5.7. In order to bring the current negotiations between the 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 considered 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 parties, keep them informed as to the progress of the negotiations and obtain suggestions for development. Similarly, 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 activities of the MEBF and for 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.

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 organisations 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

(1) OJ C 169, 16.6.1999.

(2) OJ C 18, 22.1.1996.

(3) OJ C 407, 28.12.1998.

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

(5) Data on trade facilitated by the Inter-American Development Bank (IDB) (Periodic Note on Integration and Trade in the Americas, December 2000) and EUROSTAT.

(6) A4-0508/1998, 15.1.1999.

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

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

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.

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