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Mercosur-EU talks break down

By Christer Manhusen*

Differences between the two sides lead to collapse in negotiations to conclude a Free Trade Agreement, in spite of frantic last efforts at a ministerial meeting.

As envisaged in the article on this issue in the previous edition of our magazine, the negotiations to conclude a Free Trade Agreement between the two blocs met with great difficulties up to the very deadline of October 31. The reason for the deadline was that a new EU Commission was supposed to take over from November 1. So great were the obstacles that the talks broke down despite some frantic last efforts at a ministerial meeting that took place in Lisbon on October 20. The differences between the two sides in both form and substance were simply too important to bridge the gap.

On form, the negotiators could not agree on the negotiating methodology. The EU wanted a product-by-product negotiation, while Mercosur preferred to exchange concessions between different areas.

On substance, it was above all the almost eternal disagreement over agriculture that was the main hurdle. Mercosur's requests for openings in the European markets could not be met, and EU's requests for concessions in the service area like banking, telecommunications, transportation and insurance, as well as in the area of investment, government procurement and intellectual property, were not met by Mercosur.

A turn for the worst

As a matter of fact, both sides worsened their offers in relation to what they had presented some months ago. Under these circumstances, it would have taken a miracle to come to an agreement, and miracles do not happen, at least not in trade negotiations.

So, where do the negotiations go from here? A new EU Commission was to be installed by November 1, including a new trade commissioner, responsible for the EU's trade talks. Political problems with some of the nominees to the commission emerged, however, and it took until November 19 for the new commission president to get his commissioners accepted by the European Parliament. Some time has been lost, and it is now for the new trade commissioner, Mr. Mandelson, to get his trade portfolio in order and resume the work.

What, then, is the scenario for future talks between Mercosur and the EU? Discussions were scheduled to start again at a technical level between the two blocs in Rio de Janeiro December 2-3 (as this magazine was going to press). Their task was to take stock of the situation and then agree on a date for a ministerial meeting, most likely to take place in March next year.

It is not certain whether the present mandates for the two sides will be maintained. It could be that the EU and Mercosur will decide within themselves to negotiate new mandates for their negotiators. It is no secret that sharp differences of opinion exist between member states on both sides. Add to that a new factor, namely EU's enlargement with ten new members, which surely will not make the task of the new commission any easier. The price in time and energy to bring about agreed new mandates will be high.

One should also not forget that, on substance, the EU may not be in such a hurry to conclude an agreement with Mercosur, unless it clearly deems it advantageous. After all, Mercosur's importance as a market for the EU is rather modest. The most important trade-related concern relates to the danger of losing preferences or market shares in Mercosur, if and when a Free Trade Agreement for the Americas becomes a reality. As these talks are at a standstill at present, the political pressure to move forward with the negotiations with Mercosur is not very significant.

Unfortunately, Mercosur has its own internal problems. They must be solved to enable the Southern Cone to negotiate from strength. Argentina and Brazil in particular should get their act together and make a serious attempt to overcome the asymmetries between and among their different national productive structures.

Last, but not least, there are the ongoing multilateral trade negotiations in the WTO - the so-called Doha Round - that also play a role. A politically very sensitive area such as agriculture must be resolved as a result of a broad trade-off that only the WTO can provide across issues and countries. The results of the round will have a profound impact on every regional trade negotiation, not least on the Mercosur-EU.

I can only reiterate and underline the continued importance for European companies with interests in the Mercosur region to closely follow and monitor developments in the coming talks.

*Christer Manhusen, a former Swedish chief trade negotiator and former ambassador to Brazil, is chairman of the Swedish-Brazilian Chamber of Commerce.