Title: Perspectives for the V EULAC LIMA SUMMIT Ministerio de Relaciones Exteriores del Peru
1Perspectives 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
2Lets 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.
3A 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
4Finding 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
5An 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
6What 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
7LAC 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
8Regional 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
9Regional 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
10Its 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
11Why 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
12The 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 -
13What 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
14What 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)
15What 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
16What 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
17Conclusion 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