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Perspectives for the V EULAC LIMA SUMMIT Ministerio de Relaciones Exteriores del Peru

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Perspectives for the. V EU-LAC LIMA SUMMIT. Ministerio de Relaciones Exteriores del Peru ... Lima, 26 February 2OO7. Let's make the LIMA Summit a success ... – PowerPoint PPT presentation

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Title: Perspectives for the V EULAC LIMA SUMMIT Ministerio de Relaciones Exteriores del Peru


1
Perspectives for theV EU-LAC LIMA
SUMMITMinisterio de Relaciones Exteriores del
Peru
  • Perspectives for trade and investment between the
    EU and LAC
  • Remarks by Pierre DEFRAIGNE
  • Directeur of eur-IFRI
  • Honorary Director General at the European
    Commission
  • Lima, 26 February 2OO7

2
Lets make the LIMA Summit a success
  • At a time of hectic globalization and of
    structural change in all our countries and
    particularly within the EU as a result of a
    massive enlargement-, political attention from
    political leaders is getting a scarce resource
  • This is why Summits should be made useful
  • Summits cant just be diplomatic exercises
  • But they should be turned in opportunities to set
    out goals and to take decisions
  • And once decisions have been made , they should
    be implemented in such a way that each Summit
    can build up on the previous one
  • Vienna has concluded on an agenda for action ,
    including the launching of RTA s negotiations
    Lima should take note of progress achieved since
    Vienna and should take our cooperation further
    down the road
  • We should not allow EU-LAC drift into rhetoric
    and diplomatic complacency.

3
A promising outlook
  • Due to difficult political and economic
    conditions and to policy responses mainly
    focused on crisis management under severe
    constraints, LAC has been lagging behind
    globalization
  • It had almost disappeared from the radar screens
    in the previous decades, but for outbursts of
    financial crisis
  • But now Latin America is making a rather
    impressive comeback and this for two reasons
  • The booming demand for commodities which so far
    are LAC s main comparative advantage
  • The tentative policy changes engaged by several
    governments - each in its own way- with the view
    of addressing the deep-rooted causes of LAC s
    main scourge and main obstacle to development
    i.e. social inequalities

4
Finding the right path together
  • The present commodity boom is a blessing, but
    past experience says that it wont last for ever
  • and anyway, terms of trade will resume their long
    term deterioration due to the productivity growth
    differential with manufacturing and services
  • So changes in policies aimed at diversifying
    production structures and at addressing seriously
    social inequalities should be welcome
  • The EU should support social change in Latin and
    Central America as it supports regional
    integration for both should move in parallel as
    part of the same agenda

5
An extremely difficult task
  • The paradox with development , as witnessed by
    the East Asian successes, is that only unorthodox
    strategies workbut most unorthodox strategies
    fail !
  • LAC countries have learned the hard way how to
    rein in inflation and to ensure a relatively
    stable and flexible macro-economic policy this
    lesson should never be forgotten
  • But using commodity resources revenues for
    economic diversification and for implementing
    effective social programs aimed at education and
    health so as to increase at the same time social
    justice and productivity, will prove extremely
    difficult
  • Allowing for the particularities of each country,
    some degree of policy consistency at regional
    would increase the chances of success
  • Intra-regional dialogue and policy dialogue with
    supportive foreign partners the EU as the first
    among them- can help governments to find the
    right balance between legitimate and even highly
    commendable social ambitions and the constraints
    imposed by globalization so as to ensure the long
    term sustainability of policies

6
What globalization does change ?
  • Globalization means a reshuffle of the world
    economic division of labour up to unprecedented
    width and depth it brings all countries in the
    picture and leaves no sector outside
    (manufacturing, services, agriculture, technology
    , finance)
  • But the main change is the new trade paradigm
    brought about by quick spreading of the global
    output chain by global firms across sectors and
    across countries
  • Although traditional inter-industrial and
    intra-industrial trade flows still make up the
    bulk of world trade, it is the intra-firm inputs
    trade which is expanding the fastest
  • High value-added activities at both ends of the
    chain are the most profitable in terms of
    qualified jobs and of profits the intermediary
    stage often labour-intensive- is squeezed in
    the process
  • Successful integration into globalization calls
    therefore for huge investments in education and
    infrastructures as well as drastic improvements
    in the political and administrative institutions
    so as to make markets work, attract FDI and
    secure the right supply of public goods

7
LAC at the intersection of three major economic
circles
  • LAC over its recent economic History has drawn
    some benefits from its trade and investment links
    with the USA and the EU
  • Yet trade has been constrained by the
    agriculture factor both though insufficient
    market access and through unfair export
    subsidies
  • Foreign investment from Europe and America has
    focused too much on utilities , natural resources
    , services (finance, telecommunications, air
    transport) and not enough on manufacturing ( but
    for some bright exceptions in Brazil, Argentina
    and Costa-Rica)
  • Latin American migrant workers towards both
    continents are providing massive remittances for
    LAC countries
  • East Asia booming demand for commodities which
    raises the price and the volume of exports as
    well as th planned or already effective Chinese
    investment in infrastructures, first processing
    and agribusiness create new promising
    opportunities yet the appreciation of the
    currencies (remember the Dutch disease) and the
    cheap labour-intensive manufactured goods imports
    might complicate the industrialization of LAC
    unless strong strategies are worked out at the
    regional or subregional level

8
Regional integration is a powerful tool for
sustainable change
  • Diversification from commodities towards
    manufacturing and services is the key to Latin
    America social development
  • Manufacturing brings jobs and more and more
    qualified jobs as firms climb up the ladder of
    value-added they make possible the emergence of
    a middle-class in countries marred by the uneven
    distribution of ownership of land and mineral
    resources
  • But industrialization call for larger domestic
    markets which provide economies of scale and
    competition as well as platforms for overseas
    exports

9
Regional integration proves very difficult
everywhere
  • The EUs own integration owes a lot to dramatic
    events
  • from the Soviet threat in 1945 and the Marshall
    plan(1947) as the civilian pillar and Naton
    (1049) as the military pillar of a containment
    strategy in a way the EU is a by-product of the
    cold war even if we prefer to see it as a genuine
    European idea
  • To the collapse of the Soviet Union (1990) which
    allowed the reunification of the continent
  • All other attempts prove more difficult to bring
    up to a level of deep integration framed by
    robust supranational institutions which imply
    sovereignty sharing from Asean to Mercosur from
    Central America to the Andean Community
  • Only Nafta has proved a success but it is not
    necessarily the best benchmark for a North-South
    RTA

10
Its particularly very difficult in Latin America
  • Neither geography, nor the recent economic and
    political History prove particularly conducive to
    regional cooperation in Latin America despite the
    persisting Bolivarian dream
  • Small nations find it difficult to set up
    effective regional schemes when they cant rely
    on the commitment and on the goodwill of their
    large neighbours or partners
  • For example, the USA did not play in Latin
    America exactly the same role of a benevolent
    hegemon as they did willingly, unwillingly- in
    the construction of the EU quite the contrary!
    Brazil itself remains ambivalent about Latin
    American regionalism despite his important
    contribution to it
  • And yet notwithstanding all the obstacles and
    through all historical contingencies , the
    ambition remains to bring Latin America together,
  • There is indeed a deep aspiration towards some
    form of unity which probably bears witness to a
    strong sense of common cultural identity despite
    the diversity of local societies and cultures
  • Work has never stopped and has always succeeded
    to achieve often too modest progress there have
    always been politicians, officials, academia to
    keep the momentum of integration sometimes
    against all odds
  • The EU has relentlessly backed up their efforts
    and it will do more in the future with the new
    Association agreements

11
Why does the EU support regional integration in
Latin America
  • For three sets of reasons
  • Economic apart from the USA and now China, the
    EU has mainly relatively small trade partners
    whose growth prospects eventually matter a lot
    moreover EU firms have heavily invested in LA and
    they contribute thereby to EU competitiveness in
    the context of globalization
  • Political Latin America is , in terms of shared
    culture and values, the brother-continent of
    Europe, actually more than the USA in many
    respects the EU believes of the importance to
    promote a type of society where freedom and
    social justice create the best conditions for
    supporting human dignity and peace among nations
  • Geopolitical the EU believes in multilateralism
    and most EU countries are of the view that
    multipolarism strengthens multilateralism while
    unipolarism undermines it moreover for the EU
    war on poverty is a better solution tto security
    in the long term than wage on terror which
    mistakes the symptoms for the causes

12
The regional common good as the essence of
regionalism
  • From EU experience , regional integration is
    above all a win win game because cooperation
    generates a superior regional common good which
    is out of reach of individual countries . In that
    respect , regional integration does not belong to
    diplomacy and to tit-fo-tat negotiations among
    partners it must be a politically-driven
    process where common goals are clearly
    identified an then
  • Among those common goals , three stand out as
    particularly crucial
  • A larger domestic market which allow for
    economies of scale, competition ,attractiveness
    for FDI, and public cooperation in key horizontal
    sectors such energy, finance, environment, higher
    education and research, interconnection of
    infrastructure networks
  • More bargaining power in dealing in multilateral
    and bilateral fora as well as with global firms
  • Policy convergence this benefit is often
    overlooked or underrated and yet its absolutely
    essential macroeconomic cooperation or even
    coordination including through a common
    currency-, cooperation on reform agendas which
    generate positive spill-over effects for the
    whole region in terms of growth and of social
    cohesion

13
What should be the features of the bi-regional
trade agreements with the EU?
  • First, and this goes without saying , they
    should be fully WTO-compatible
  • Second, the negotiations should follow separate
    tracks and should progress at their own pace for
    their own merits in particular because of the
    link with the conclusion of the Doha Round
  • Third, bi-regional trade deals should be designed
    so as to enhance intra-continental cooperation
    and allow for further continental-wide
    liberalization
  • Four, the trade deal should not be a mercantilist
    one EU concessions should take fully into
    account LAC effective progress towards genuine
    development strategies and regional integration
  • Last but not least full consistency should be
    ensured between the three sections of the
    Association Agreements in such a way that they
    reinforce each other

14
What could be the trade off?Expectations from
the EU side ?
  • The EU is not interested in a shallow integration
    deal it is going for the real thing deep
    integration i.e. of WTO type
  • So nothing short of a full-fledged Customs Union
    will do i.e. with harmonized tariff with minimum
    temporary exemptions and appropriate institutions
    ( speaking with a single voice, Court of justice,
    single trade defence policy ) will do the
    customs system (rules, procedure and staff) must
    be upgraded so as to allow the smooth, efficient
    and fair functioning of the Customs Union at all
    levels of power and implementation
  • But the degree of regional integration needed to
    ease movement of both domestic and imported goods
    goes beyond institutions it calls for
    appropriate infrastructures and proper
    transportation rules (including the elimination
    of the transbordo practice)
  • The Deal should have an extensive coverage
    services, investment, intellectual property,
    environment and labour provisions, competition
    policy, public procurements transparency
  • With regard to agriculture sensitive products,
    the market access concessions must be made
    consistent with the Doha deal (single pocket)

15
What should be the EU approach towards RTAs with
LAC
  • Contrasting with the USA who aim for bilateral
    deals with the twin risk of divide and rule
    tactics and of hub-and-spokes continental mdel-
    , fully reciprocal deals and no N-S financial
    transfers attached to the deals,
  • the EU should follow another approach
  • region-to-region deals
  • asymetric reciprocity , graduated according the
    development differntial and to the regional
    integration progress
  • financial transfers aimed at institutional
    reforms and at the modernisation of
    infrastructures

16
What should be the trade-off ? EU commitments
towards LAC ?
  • Nothing less than GSPplus
  • Asymetry in reciprocity graduated according to
    the level of development and the progress towards
    integration transition periods, exemptions
  • Balancing of provisions with regard to
    competition, investment so that they are made
    development friendly ( e.g combating business
    restrictive practices, imposing corporate social
    responsibility)
  • TRTA institutional capacities, technical
    facilities in areas of negotiations, customs
    management and oprations, TBT, SPS, trade
    facilitation
  • Rules of origin aiming at regional cumulation
    and even continental cumulation as inter-regional
    agreements are concluded
  • Financing of infrastructures for intra-regional
    trade and exports to global markets

17
Conclusion towards a virtuous triangle
  • The EU-LAC deals as such wont deliver wonders
  • unless they are paralleled by progress into
    regional integration
  • and the real benefits of regional integration
    will come from its contribution to ambitious
    reforms agenda aimed at regional
    industrialization and social progress
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