Speech Verheugen over economische impact associatie EU-Mercosurlanden (en)

Günter Verheugen

Vice-President of the European Commission responsible for Enterprise and Industry




The EU-Mercosur Agreement and its impacts on the Economy and Society

Mercosur-EU Business Forum (MEBF) V Plenary Conference
Luxembourg, 31 January 2005

I am glad to be here and address for the first time the Mercosur- EU Business Forum. The Forum is important not only as a place for meeting and discussing how in concrete terms we can strengthen the EU Mercosur co-operation. It is also a good example of how civil society, in this case business, constructively contributes to an important negotiation process.

Before I go into the substance of my intervention today let me convey my thanks to Mr Dollé and Arcelor for hosting this event.

I am especially glad to see among us politicians and business leaders from both sides of the Atlantic who over the years have provided leadership to the Business Forum.

You can be assured that I will see to that the Commission will continue to look very closely on your recommendations in particular on how we can overcome the current admittedly difficult situation.

I don't think it would be useful at this juncture to concentrate on why we are where we are. We should not let us be lured into any blame game. Instead we should look forward constructively. We should aim at getting the process fully on track. We should have the objective clear in our minds; an ambitious and comprehensive agreement between EU and Mercosur.

The arguments for such an Agreement are in my view straightforward:

• The agreement would establish the first ever region-to-region association and the largest free trade area in the world, covering almost 700 million people:
• It would enhance competitiveness of our economies on both sides of the Atlantic. Let's not forget that EU is the first trade partner of Mercosur and its first source of investment.
• It has the potential to increase growth and thereby contribute to economic and social integration, in the EU and Mercosur; and
• The agreement would also seal a strategic partnership between two regions which share common values of democracy, respect for human rights and rule of law.

Your last plenary conference in Brasilia in October 2003, was held against a gloomy background:

• the WTO talks had failed one month before in Cancun and
• the bilateral negotiations were in a deadlock

But the combined positive notes from the top politicians and industrialists assembled in Brasilia had real impact. You meeting turned out to be very successful. Soon after the Conference, the negotiations restarted with October 2004 as the deadline.

In the following months the negotiators made progress.

• On industrial tariffs, the EU offered 100 % tariff dismantling with a quick dismantling schedule.
• On agriculture EU made the most ambitious offer ever made in a bilateral context tackling at the same time export subsidies and domestic support. The ambitious reform of our agricultural policy leaves furthermore some additional margin for market access concessions to Mercosur, but we have constraints.
• On services, crucial for both our economies, there was progress, although additional steps are needed for instance on maritime transport and telecommunications.
• In addition, there were also progress in implementing a number of your recommendations relating to trade facilitation including dialogue on regulatory co-operation. Such dialogue needs still to be developed, and for this your input continues to be essential.

However, we were not able to conclude the negotiations in October. But I would like to underline that this was a common decision. When we saw that the offers on the table did not meet our respective ambitions, we decided to take some time for reflection and to re-start again in early 2005.

At this moment of reflection your input is therefore crucial, and you need to make your message heard.

You have the opportunity to repeat what you did in Brasilia and to once again infuse new momentum to the process and remind negotiators of your expectations.

I can assure you that the European Commission is as adamant as ever to work towards reaching an ambitious and balanced agreement with Mercosur. We are convinced that it will contribute to the competitiveness of our economies, the deepening of regional and inter-regional integration and, finally, to the promotion of common values.

The globalisation with an ever increasing open competition calls for a continuous adaptation of our economies. In the EU we are presently in the middle of an important discussion on just that. It boils down to efforts to revitalize the Lisbon strategy. For those who are not familiar with EU terms, the Lisbon strategy is an ambitious approach outlined in 2000 with the objective to make Europe the most competitive knowledge based economy by 2010. It is a comprehensive strategy encompassing three pillars, economic development, environmental sustainability and social cohesion.

This week the Commission will present a proposal on how we can streamline the objectives and instruments of the Lisbon Strategy to make it more effective. We suggest in particular further and strengthened efforts for growth and employment.

Mercosur faces similar challenges. The economies need to be more competitive, create more jobs and be open to reform. The Mercosur countries have efficient and productive sectors, but also structural problems that need to be addressed.

The conclusion of an agreement would help us to meet these challenges of adaptation, growth and employment.

Let me highlight some examples:

• In Maritime transport the high freight costs imposed act as indirect tariffs. Liberalising this sector would benefit the service providers and Mercosur exporters, which would pay lower transport costs.
• In the automotive sector, liberalisation of parts and components would allow re-sourcing between us that would lead to more competitive final products both in Europe and in Mercosur.
• On re-insurance, an agreement would not only benefit EU re-insurance companies. It would also mean lower costs for companies in for instance Brazil or Argentina.

The EU have just undergone the most extensive enlargement in our history. 10 new Member States joined the Union on 1 May 2004. It was the end point of a process that begun 15 years ago. It was also the result of reforms undertaken by the new Member States in meeting the conditions called for in order to be member of the EU. Many of these reforms were initially both difficult and costly politically and socially. The result however is vibrant new Member States with growth rates far above the EU average.

The enlargement shows that regional integration, can be a win win process where the advantages by far exceed the disadvantages.

It is therefore to no surprise that EU actively promotes further integration within the Mercosur.

We believe that deepening the Mercosur common market will allow the Mercosur countries to progressively liberalise their economies and thus allow the Mercosur companies to be better placed to face global competition.

The Mercosur countries would benefit from increased economies of scale, consumers would be offered a wider choice and the region would be more attractive for investments.

We should be clear on one thing. Market size is important. In terms of Foreign Direct Investments Brazil, Argentina, Uruguay and Paraguay is competing with China and India. These are economies with huge potential markets. To attract investments in the future further regional integration within Mercosur will be crucial. It is about issues such as dismantling barriers to trade and a stable and predictable business environment. It is also about reducing red tape and fighting corruption.

The Association Agreement will support Mercosur's integration efforts. But further integration will also be a condition for effective implementation of the agreement. We are offering Mercosur access to a single market of over 450 million consumers. In return we expect EU products to circulate freely within Mercosur.

Finally, the completion of the Association Agreement will serve a further purpose.

It will be a clear recognition that the EU and Mercosur share common values of democracy, respect for human rights and the rule of law.

The agreement would indeed seal a strategic partnership matching the depth of our historical and cultural links.

Conclusion:

We are at a crucial moment in EU-Mercosur relations. The arguments for moving ahead and finalise the negotiations on an ambitious and balanced Agreement are clear. We know that it would create substantial benefits for Mercosur and the EU. We know that it would contribute to regional co-operation, stability and security in Latin America.

I am convinced that our discussions today will give further momentum to this important negotiation process so that we can see a real re-launch in the near future.

Thank you for your attention.