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The convergence of the Pacific Alliance and , and its effects on agricultural trade: elements for IICA cooperation1

In response to the convergence between convergence of an important new the countries of the Southern Common development: the announcement that Market (MERCOSUR) and those of MERCOSUR and the European Union the Pacific Alliance, and its effects (EU) have struck a political agreement on agricultural trade, this technical aimed at concluding the negotiations and note, addressed to the ministers of implementing a preferential bi-regional agriculture of the , considers agreement. the contribution that the Inter-American Institute for Cooperation on Agriculture It will be vital to monitor the progress of (IICA) could make through the technical the activities aimed at completing the cooperation it provides to the countries of approval and effective implementation of the region under its Hemispheric Program that agreement, with a view to identifying on International Trade and Regional concrete actions related to trade in Integration. agricultural and agribusiness goods and services that could be promoted with IICA Specifically, this paper focuses on the technical cooperation, in particular for the potential impact on the aforementioned development of the convergence of the

1. Prepared by Félix Peña, member of the advisory group of IICA’s International Trade and Hemispheric Program. 2

Pacific Alliance and MERCOSUR within and then the Latin American Integration the network of bi-regional agreements with Association (ALADI). the European Union. They are also bound to be at the heart of any initiative for joint action aimed at The convergence addressing the situation in , between the Pacific especially in view of their importance to the region as a whole, accounting as they Alliance and do for 81% of the population, 86% of gross MERCOSUR product, 89% of foreign trade, and 81% of investment flows from overseas. Without Close links between MERCOSUR and these countries, it is hard to imagine the Pacific Alliance are recognized any initiative for in as being one of the priorities of both Latin America, a region characterized by regional integration groups. This does fragmentation, having an effective impact not necessarily mean the fusion of two at the regional level and, therefore, a integration processes undertaken in reasonable global projection. response to different situations which, at present, use dissimilar methodologies. Hence the interest, within and beyond But it does mean making progress with the region, in the actions aimed at the many steps that have already been intensifying the links between the set of agreed to increase the connectivity countries that make up the Pacific Alliance and convergence of the economic and and MERCOSUR (Grupo MAP). As in production systems of the member the case of other groups of countries countries, with the consequent positive that are important for understanding impact on regional governance. Steps in contemporary international relations (for that direction were included in the “joint example, the Group of 7 and the Group action plan” approved at the Thirteenth of 20), they are recognized for their Presidential Summit of the Pacific ability to take the initiative on issues that Alliance, held in , , facilitate international, global and regional on 24 July 2018. governance and can have an effective impact on current conditions. In acting The countries currently involved in as a group, they are perceived, in their the two integration efforts have a long respective spheres of action, as important history of working together. It should be stakeholders that must be taken into remembered that they were, together with account. Bolivia, and Venezuela, the same countries that in 1960 promoted the Latin Going forward, two areas of joint action American Free Trade Association (ALALC) can be foreseen for the Grupo MAP. The 3

first concerns the issues incorporated are not necessarily based on what is into the aforementioned joint action plan established explicitly in the text. approved at the Puerto Vallarta Summit, which calls for the implementation of A second important issue is the need various institutional and regulatory actions. to strengthen and make full use of the The second refers to joint initiatives that opportunities provided by ALADI, especially this group of countries could promote in through the mechanism of partial scope order to impact issues that are important agreements envisaged in the 1980 Treaty for their respective interests, be they of Montevideo and Resolution No. 2 of the global or regional in scope. They may Council of Ministers. This is a very practical come to think it desirable to undertake and functional instrument that allows two joint initiatives on three issues that are or more member countries to develop especially important for their respective strategies aimed at promoting many international trade relation agendas. different kinds of transnational productive linkages, intended to be regional in scope The first important issue for joint action and have a global projection. by this group of countries is the question of the reforms needed at the World Trade A third issue is the development of bi- Organization (WTO). What are the reforms regional preferential trade agreements of the WTO that could, or should, be of involving Pacific Alliance and MERCOSUR greatest interest to the MERCOSUR and countries. Some examples are the bi- Pacific Alliance countries? What concrete regional agreements with the EU, the proposals could this group of countries and , although others present? What position might the Grupo are perfectly possible. MAP countries take in response to the proposals that other countries or groups of The conclusion of the negotiations of countries, such as the United States, the the bi-regional agreement between EU, China, the Group of 7, etc., may be MERCOSUR and the EU will open the way interested in introducing? One issue that to the connection with the agreements that would warrant special attention are the the EU has signed with the Pacific Alliance standards that affect the harmonization countries, as proposed previously by of the preferential agreements that Ricardo Lagos and Osvaldo Rosales. This developing countries negotiate with the could lead to a very functional network of commitments assumed in the multilateral bi-regional agreements for the promotion trading system. In fact, the predominant of joint investments involving businesses interpretations that have predominated from both regions. The same thing could with regard to Article XXIX of the 1994 result from a network of bi-regional General Agreement on Tariffs and Trade agreements between the Grupo MAP and (GATT) have generated restrictions that other countries. 4

The bi-regional overcome the practical difficulties that could arise in the future and affect the negotiations between necessary balances of the agreement. the EU and MERCOSUR Talent, political will and organizational technology will be required to address The negotiations between MERCOSUR those challenges. and the EU have taken 20 years to complete, while it is 28 years since the What are some of the steps that each political decision was taken to embark MERCOSUR country will have to take for on a journey that was never expected the bi-regional agreement to be concluded to take such a long time. The 28 June and enter in force? Some steps have to announcement of the signing of the bi- be taken simultaneously. Based on what regional political agreement marked the has been observed in other specific cases start of a new phase which, if successful, of agreements of this kind with the EU, will result in the full entry into force of the four main steps will be required, plus other agreement and, even more importantly, possible complementary ones. produce the desired effects in terms of trade and productive investment. The first step will be to disseminate details of the “small print” of the agreement. To be Throughout the years of negotiations with in a position to talk about what exactly has the EU, the idea was endorsed by the been agreed, it will be necessary to read various governments of the MERCOSUR all the texts carefully from the perspective countries. Now they have embarked on of the different sectors involved, both the final phase, which could take another at the national level and in the different two to three years. Then the agreement regions of each country, and in terms will be totally concluded, and its effects felt of the dynamics of trade and future in both regions. investments. Attention will have to be paid to mechanisms that, explicitly or implicitly, This bi-regional agreement will create would make it possible to activate different opportunities and pose challenges. If the types of “escape valves” and others opportunities are tapped correctly, they designed to enable SMEs to make an will translate into investments, trade flows “assisted transition” and modernize their and the creation of jobs. They will also operations for the new expanded market. enhance the image, and ultimately the The EU employed mechanisms of this kind prestige, of both regions, benefitting their to facilitate the incorporation of Eastern policies aimed at further integration into European countries. international trade. The challenges will be related to the capacity of governments, A second step will be for the countries to business and society as a whole to begin to reach the domestic consensus 5

required for their legislatures to approve and the delivery of services, to benefit the agreement. This means explaining its from the network of agreements with the contents in terms of the possible effects EU, taking into account those already on each sector and region of each country agreed upon with the Pacific Alliance and, especially, making it clear what the countries. effects would be if a given MERCOSUR member country were to be unable to secure parliamentary approval. The bi-regional

A third step will be for each country to negotiations with the make the preparations necessary to take European Union advantage of the agreement effectively. Businesses and institutions will have to The following are some of the main get ready to compete effectively in the questions that need to be considered with European market, especially in niches of respect to the bi-regional negotiations and goods and services in which, for various their potential impact on the convergence reasons, they may have significant of the Pacific Alliance and MERCOSUR: advantages. The internationalization of niches of competitiveness will, therefore, How could the agreement that be one of the main advantages to be MERCOSUR and the EU may sign be exploited in relation to the growing integrated into the network of different demand from the emerging middle classes kinds of preferential agreements that in numerous developing countries. It will the EU has already concluded with the also call for the training of good specialists Pacific Alliance countries, or with the to help stakeholders better understand countries engaged in the process of how to operate successfully in the modernization? European market, tapping the advantages offered by the bi-regional agreement. This What will be the effects of the will also be a priority sphere of action for negotiation and, in particular, the academic institutions, which would benefit effective implementation of the bi- from becoming involved in networks for regional agreement of MERCOSUR training specialists within the bi-regional with the EU on future interaction framework. in the field of foreign trade in both agricultural goods and services, The fourth step will be to promote in the Alliance and MERCOSUR concerted action by the MERCOSUR and countries? And, especially, what Pacific Alliance countries to achieve the prospects are opening up for future effective coordination of joint projects, collaboration between the countries of related to both the production of goods the two subregions, and with the other 6

countries of the region, bearing in carried over from ALALC. They even mind the preferential agreements that open up the possibility of sectoral already exist with the EU? and multisectoral approaches for the gradual construction of opportunities What effects would the network for integration among countries in the expanded by the MERCOSUR-EU region, compatible with the rules of agreement have on cooperation the multilateral trading system applied between businesses in the following approval of the Enabling MERCOSUR and Pacific Alliance Clause during the Tokyo Round. countries ―with the possible participation of European businesses― What impact could successful joint and on their joint investments in third action initiatives involving Alliance and countries, including those of the EU? MERCOSUR countries and the EU at And, if that were the case, what would the bi-regional level have on future bi- be some of the priority spheres of action regional agreements —for example, for facilitating such cooperation? In with the United States and China? other words, with regard to competitive intelligence; types of joint action What role could be played by between companies; options in the international financial institutions such areas of financing for trade, technical as the Inter-American Development assistance, technological cooperation, Bank (IDB), the Development Bank of and productive investments; Latin America (CAF) and, ultimately, and analysis of specific cases of the European Investment Bank (EIB), cooperation between companies, both to facilitate technical assistance and in the region itself and in Europe and financing for joint projects involving other developing countries, especially in MERCOSUR and Pacific Alliance Asia and Africa? companies?

How useful could ALADI’s institutional With regard to each of these questions, it framework be for the development is feasible to reach agreement on activities of the actions to be implemented? for implementation under different types of In that regard, what role could be technical cooperation promoted by IICA, played by partial scope agreements with the participation of interested countries in the different modalities envisaged and other international cooperation in the 1980 Treaty of Asunción and in agencies, including the EU itself. Resolution 2 of the 1980 Council of Ministers? Those rules were some of Finally, through the Hemispheric Program the main innovations introduced with on International Trade and Regional respect to the institutional framework Integration, IICA could contribute to 7

the preparation of technical documents sector to tap and make good use of the analyzing the characteristics of the trade agreements signed. interregional agricultural and intraregional trade of the Pacific Alliance member For further information, please contact countries, and offer technical assistance Adriana Campos Azofeifa, Manager to help the countries understand and of IICA’s Hemispheric Program on interpret the fine print of the text of the International Trade and Regional agreement and identify possible trade Integration, by email (adriana.campos@ opportunities that would allow the private iica.int) or phone (506) 2216-0170. Inter-American Institute for Cooperation on Agriculture

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