EU, Latin American Countries Move to Deepen Trade Ties

9 February 2017

Efforts on behalf of the EU and Mexico to modernise a sixteen-year old free trade agreement have been ramped up, following a phone call between EU Trade Commissioner Cecilia Malmström and Mexican Economy Secretary Ildefonso Guajardo Villareal last week.

Under the new plans, additional negotiating rounds have been scheduled for April and June and the leaders have agreed to convene in Mexico City between the two sessions to monitor progress.

"We will take our trade relations fully into the 21st century. We will be able to boost growth, making our firms more competitive and widening choices for consumers while creating jobs,” said the two trade officials in a joint statement issued following their phone call. 

“We are already well underway in our joint efforts to deepen openness to trade on both sides. Now, we will accelerate the pace of these talks in order to reap the benefits sooner," they added. 

The existing agreement, which entered into force in October 2000, aims to strengthen economic ties between the two trading partners, eliminating barriers to trade and creating a stable operating environment for trade and investment.

Today, the EU is Mexico's third-largest trading partner after the US and China, where the annual trade in goods between the two partners increased from €26 billion (US$27.8 billion) to €53 billion (US$56.7 billion) in the period from 2005 to 2015.

The accession of 13 new member states to the EU, the introduction of the euro, and the deepening of the single market since have been pointed to as driving forces for an upgrade to the agreement. Meanwhile, Mexico has seen a 20 percent increase in GDP in real terms since the deal was implemented.

Broader changes in the global trade landscape also have far-reaching implications, where lengthening value chains, a more prominent role for services, and advancements towards deeper integration and wider scope in bilateral and regional trade agreements have left the original agreement out of date.

A December blog post authored by Malmström on Mexico trade relations underlines that the European Union must “be proactive and work hard with our partners to ensure that our trade agreements can continue to deliver in the areas of jobs creation and economic growth, despite the many challenges that come with a constantly changing environment.”

Similarly, a press release issued following the first round of talks stated that it “is notably crucial to adapt EU-Mexico relations to the new realities of global trade and investment policies and flows…to better respond to the shared global challenges of a new modern world, from security threats, to migration, the fight against epidemics, and climate change.”

New leadership in Washington has similarly begun to signal a shift in the US trade agenda with direct consequences for Mexico, following President Donald Trump’s decision to withdraw from the Trans-Pacific Partnership (TPP) and discussions surrounding re-negotiation of the North American Free Trade Agreement (NAFTA). Mexico is a signatory to the former and a party to the latter. (See Bridges Weekly, 26 January 2017)

“Together, we are witnessing the worrying rise of protectionism around the world,” the joint statement from Malmström and Guajardo said. “Side by side, as like-minded partners, we must now stand up for the idea of global, open cooperation.”

Negotiations to upgrade the agreement were launched in May 2016, following a resolution at the EU-CELAC Summit in 2013 to explore options for an update, and subsequent preliminary investigations in the form of an EU-Mexico Joint Working Group and an impact assessment study. The first round of talks was held in Brussels in June, and a second took place in Mexico City in November. (See Bridges Weekly, 23 June 2016)

Negotiations will seek to build or otherwise elaborate on existing provisions pertaining to sanitary and phytosanitary measures, technical barriers to trade, intellectual property rights including geographical indications, small and medium-sized enterprises, public procurement, and rules of origin.

In terms of revisions to the sections on sustainable development and anti-corruption, the EU referred to the “Trade for All” initiative as a useful model, and Mexico highlighted lessons learned from the TPP. Discussions will also reportedly consider what contribution the deal could make in pursuit of the UN Sustainable Development Goals.

Greater Pacific Alliance cooperation

EU officials have also met in recent months with members of the Pacific Alliance, another regional grouping in Latin America that includes as members Chile, Colombia, Mexico, and Peru, with a view to deepen bilateral economic cooperation.

The Pacific Alliance was launched nearly five years ago among these four countries and has since drawn the interest of 49 observer countries, including several European ones. The group has since seen various advances, including a deal in 2014 to cut tariffs on 92 percent of products and progressively phase out the rest. (See Bridges Weekly, 13 June 2012 and 13 February 2014)

Along with the plans to upgrade the EU-Mexico trade accord, the EU has similar ambitions to modernise a free trade agreement with Chile, another TPP member, which entered into force in February 2003.

The EU already has a trade deal with Colombia and Peru, which Ecuador has since joined. (See Bridges Weekly, 17 November 2016)

French President François Hollande said late last month that both his country as well as the EU more broadly would be looking to have deeper commercial ties with the South American regional grouping, pledging that the EU and the Pacific Alliance “will launch commercial negotiations to be able to develop trade.”

EU-Mercosur progress?

Meanwhile, German Chancellor Angela Merkel discussed last week the ongoing talks between the EU and Mercosur, another Latin American economic bloc bringing together Argentina, Uruguay, Paraguay, and Brazil. While Venezuela is also a member, it is the newest in the group and its membership was suspended in 2016.

"We are fundamentally in favour of international trade agreements, which is why we are happy with the effort in the Mercosur countries" to forge a deal with the EU, said Merkel in her weekly video podcast. 

An initial agreement on bilateral cooperation was signed between the EU and Mercosur in 1999, followed by efforts to establish a free trade agreement between the two blocs. The talks have since struggled to advance and have been re-launched multiple times, most recently with the exchange of market access offers last May and a negotiating round in October. The next round is scheduled for March 2017 in Buenos Aires.

With regard to more sensitive issue areas, such as agricultural products, Merkel called for reaching “a fair agreement that takes into account both the interests of Europe and those of Latin America." (See Bridges Weekly, 19 May 2016)

The comments were made ahead of a visit by Uruguay’s President Tabaré Vázquez to Berlin on 8 February in which matters relating to trade and energy were prioritised.

Separately, a bilateral meeting was also held Tuesday between Brazilian President Michel Temer and Argentine President Mauricio Macri to discuss Mercosur’s trade ties with third countries, including the potential deepening of ties with the Pacific Alliance and the European Union.

ICTSD reporting; “France’s Hollande: EU to Talk Trade with Pacific Alliance,” REUTERS, 23 January 2017; “EU in Latin America trade push,” EURACTIV, 18 March 2016; “EU and Mexico accelerate free trade talks as Donald Trump threatens to tear up NAFTA,” THE INDEPENDENT, 1 February 2017; “Mercosur and EU feel ‘2017 is a window of opportunity’, but can’t find the path despite Brexit and Trump,” MERCOPRESS, 9 January 2017; “Germany’s Merkel Would Welcome South American Trade Deal With EU,” BLOOMBERG, 4 February 2017; “Merkel hopes for ‘fair’ EU-Mercosur trade deal,” THE LOCAL, 5 February 2017; “Brazil, Argentina push for closer trade with Mexico in Trump era,” REUTERS, 7 February 2017.