EU's Latin linkup may trump US

Talks Monday to firm up Europe's South America trade ties. Can US still

It has been nearly 175 years since South America declared its independence from Europe in a series of uprisings, mostly against Spain.

But these are days of peaceful interdependence and globalization of trade and commerce. And when more than 40 heads of government from Europe, Latin America, and the Caribbean meet here Monday to advance talks on economic partnership, it will send a loud message north.

"This meeting is a wake-up call," says Manuel Mencia, vice president of Enterprise Florida, a trade-promotion group based in Miami. "It's obvious that the US has lost momentum and leadership in the integration process."

The 15-nation European Union (EU), and the four-nation South American Common Market (Mercosur), will meet for the first time to formalize trade talks for an eventual pact that is quite similar to the United States-proposed Free Trade Area of the Americas (FTAA).

In 1998, the EU, the world's second-largest trading bloc after the North American Free Trade Agreement (NAFTA), carried out $31 billion in trade with Mercosur nations, compared with $22.5 billion in trade with the US, according to Brazil's Foreign Ministry.

That trend could continue if EU-Mercosur integration becomes a more viable alternative than the FTAA. Brazilian Foreign Minister Luiz Felipe Lampreia has described the summit as "Europe and Latin America rediscovering each other."

Although both the EU-Mercosur and FTAA trade pacts are expected to begin in 2005, FTAA talks have stalled.

And for Brazil, Mercosur's leader, a close trade partnership with Europe makes sense. "We are all worried that the FTAA will mean a position of inferiority, of buying more US products than our own products," says Amaury de Souza, a Rio-based political and economics analyst. "It's important for Mercosur to be a global trader."

Moreover, a study by the Getulio Vargas Foundation, a respected Rio think tank, says an EU free-trade pact would be a far better deal for Brazil.

According to the study, an agreement with the EU would increase Brazil's annual economic growth rate by 5 percent while a similar pact with the FTAA would increase growth by just 2 percent.

In the end, Mercosur will undoubtedly turn to the region that first opens its economy. In the past, South American presidents have complained that the US and Europe are too protectionist in areas like steel and agricultural products. According to the Rio-based Brazilian Association of Agro-Business, such restrictions cost Brazil $18 billion annually in lost trade.

Between 1990-97, Brazil's imports from the EU increased 340 percent, while its exports to the EU rose a mere 30 percent, according to Brazilian President Fernando Henrique Cardoso.

"It's an unjust practice that causes financial loses for nations like Brazil," Cardoso has said. "I hope the Rio meeting will represent a reversal in asymmetrical globalization."

Yet French President Jacques Chirac nearly derailed any summit discussion over such issues this month when he vetoed an agreement to start free-trade talks, arguing that negotiations regarding European agricultural subsidies and quotas should be postponed until 2003.

EU foreign ministers then saved what would have been an embarrassing situation by voting to begin discussion on removing non-tariff barriers. The timetable to begin talks on tariffs and free trade was set for July 1, 2001.

As a result, heads of government are expected to sign the Rio de Janeiro Declaration. The document will outline major areas of economic, educational, cultural, and scientific relations between the two regions, from fighting drug trafficking to limiting the ubiquitous American films in Latin American and European movie theaters. There are even reports that the presidents may sign a framework for eventually ending farm subsidies.

Analysts say the summit will also help Mercosur persuade both the EU and the US Congress to take its cries of protectionism seriously.

"At the summit, Mercosur will be the teenager inviting a pretty girl to the high school prom," says Antnio Simes, director of the Foreign Ministry's Special FTAA Unit. "If she doesn't give you an answer, you call somebody else."

Yet observers say Mercosur can't bargain from a position of strength. Last January, Brazil's currency devaluation rocked the region's markets and Mercosur member Argentina. Argentina claims its exporters have since lost 25 percent of their exports to Brazil, since the Argentine peso remains tightly pegged to the US dollar.

Brazil wants its economic partner to end import taxes on sugar by 2000. Argentina says it will keep the tariff, arguing that Brazilian sugar is subsidized.

In Rio, President Cardoso will try to iron out such problems, and move on.

A powerful partnership

An EU-Mercosur pact would ally two of the world's four biggest trade blocs. They already do business: Last year, the South American Common Market (Mercosur) sent $19.2 billion in exports to the European Union. EU exports to Mercosur nations totaled $25.7 billion. Other major trade blocs: the North American Free Trade Agreement (NAFTA), world's largest, and the Asia Pacific Economic Cooperation (APEC).


Fourth-largest trade bloc

Members: Brazil, Argentina, Uruguay, and Paraguay (Bolivia and Chile are associate members)

Population: 211 million

Per-capita income: US$5,330


Second-largest trade bloc

Members: Germany, Austria, Belgium, Denmark, Spain, Finland, France, United Kingdom, Greece, the Netherlands, Ireland, Italy, Luxembourg, Portugal, and Sweden.

Population: 376 million

Per capita income: US$23,391

Source: Brazil Foreign Ministry

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