Forty-eight heads of state from Europe, Latin America and the Caribbean are holding their first summit in Rio de Janeiro this week. This long overdue meeting between two of the world’s largest trade blocs — the European Union and Mercosur — could yet prove to be no more than a symbolic gesture, but the initial signs are promising. Not only did the leaders talk of inaugurating a new era of relations between the old world and the new, but they backed up that rhetoric with an agreement to begin talks on a trade pact between the two regions. Those negotiations have a long way to go, but the effort itself is important: It underscores a commitment to trade liberalization at a time when the world trade order is under unprecedented strain.
The two-day summit is designed to build a bridge between Europe and Latin America, a region traditionally considered to be the back yard of the United States. Links already exist. Europe is the leading donor of foreign assistance to Latin America and the region’s second-largest source of foreign investment. Since 1990, Latin America’s imports from the EU have increased 164 percent, and exports have climbed 29 percent.
The backbone of any new relationship will be ties between the EU and Mercosur, the world’s first- and third-largest trade groupings respectively. The EU is already Mercosur’s largest trade partner: Bilateral trade last year reached $46.5 billion, but Mercosur governments are certain it could expand. They are probably right. Mercosur only accounts for 6 percent of EU trade and Europe’s share of Mercosur’s total trade has been shrinking throughout the decade. European businesses want increased access to Mercosur’s 200 million citizens and its economy, worth $1 trillion.
If trade is to expand, its composition must shift: The current imbalance is insupportable. But Mercosur’s chief export is agricultural products. This pits any trade deal against Europe’s powerful farm lobbies, which are committed to protecting the continent’s inefficient producers. European leaders, eager to expand ties with the region, were anxious to include a statement on trade in the summit communique. The Latin Americans demanded that the talks include all areas of trade. Only
a last-minute compromise by EU officials broke the deadlock. The statement endorsed by the heads of state calls for gradual liberalization of all trade. Talks will begin in November, but no deadline has been set for completion.
Those talks will be framed by two other sets of negotiations: the next round of World Trade Organization talks, which is also scheduled to begin in November, and the sputtering efforts to create a Free Trade Area of the Americas, stretching from Alaska to Argentina. Neither Europe nor Latin America wants its room for maneuver in the WTO negotiations to be cut by the trans-Atlantic talks. That means that no commitments will be made ahead of a WTO deal — at least three years down the road. Latin America also wants to jump start the FTAA talks, which have languished since U.S. President Bill Clinton lost “fast-track” trade authority. The prospect of Europe establishing stronger ties with Latin America is designed to prod Washington into action.
U.S. officials are not — and should not be — concerned by Latin American attempts to play the European card. The EU agricultural regime is one of the last great obstacles in world trade; every negotiation that focuses on it whittles away at its legitimacy. Along with Japan’s system of protecting its rice farmers, it is a historical relic that has outlived its usefulness.
The industrialized world must be ready to abandon those fossils if it expects the developing world to stick to trade liberalization. The continuing dispute over the next head of the WTO and the failure to address issues that concern less developed nations have raised questions about the equity of the international economic system. The wealth that was destroyed by the Asian economic crisis has forced many governments in developing countries to reconsider their priorities. Free trade has to be more than a lash for the developing world; concessions have to be reciprocated.
The EU-Latin American meeting also takes aim at another relic: spheres of influence. Since the Monroe Doctrine, the U.S. has declared Latin America its back yard. It is an intuitively appealing idea — if balanced by the claim that the EU has a similar stake in Eastern Europe and that Japan’s turf is Asia. If such thinking made sense in the past, it no longer does. The world is too small for such divisions; its parts are too connected. Spheres of influence are anachronistic and inefficient. Rio de Janeiro is a fine place to bid them farewell.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.