1. EU External Trade MERCOSUR

3. Historic Rundown
EU - MERCOSUR trade relations are in the form of bilateral ties and multilateral co-operation within the framework of WTO.
Mercosur: Argentina, Brazil, Paraguay and Uruguay in March 1991; Venezuela in process of joining
EU has supported Mercosur from the very beginning. 1992
Inter-institutional Agreement
The 1995 US project to create a Free Trade Area of Americas (FTAA)
Impetus for LATAM – EU
FTAA perceived as threat to EU regional interests, leading to 1995 Interregional Framework Co-operation Agreement
Framework agreement enters into force 1999
Fostering political dialogue, co-operation and trade issues.

4. Statistical Overview
EU is MERCOSUR’s largest partner for trade and investment
1/3 of MERCOSUR trade is with EU compared to ¼ with US.
MERCOSUR is the EU’s 9th largest trade partner.
2% EU exports 
3% EU imports 
i.e. The importance of the EU to MERCOSUR is disproportionately large 

5. Capital Account/Levels and Types

6. Significance of EU as Trading Partner
“The European Union has been able to increase its market share, whereas the US share remained rather constant and that of Japan and the rest of Latin America has declined. Thus despite the the existence of the North American Free Trade Agreement, the EUR is currently MERCOSUR’s main supplier.” (Holland 2002:157)

7. Principles and Objectives (1)
EU used its influence as a major trade partner of Mercosur and its position in the 1990s as the biggest single aid donor to Latin America as a vehicle to promote democratic reform and citizenship.
The EU believes the two trading blocs have a great deal in common in terms of languages and culture. Therefore the EU feels it is in a unique position to offer Mercosur countries advice, guidance and policy assistance. 
This approach has been examined by constructivists who highlight it as an example of the importance of norms and ideas in affecting international and domestic policy, through two main processes: persuasion and social influence.

8. Principles and Objectives (2)
However there are several problems:
It is not clear that democracy is understood in the same way in Mercosur as in EU. The different histories and experiences of the Latin American countries have not been taken into consideration.
The identity of the state actors in the Mercosur member states have been largely misunderstood by the EU. The elites of these countries do not always see their duty as protecting the rights of poor.
The importance of non-state actors in the Mercosur member states has been underestimated. These organisations have been involved in short term aid programmes, but should maybe have a more central role.

9. Power from Trade/Power to Trade
“New international trade”
Behind-the-boarders/deepening (Holmes), shift in power balance (BRIC), technicalization (Uruguay) (De Bièvre) - WTO a European mission? (Baldwin
EU trade significance/liberalization leader
Penetration/Single market/Lisbon/MacSharry CAP reforms
Members do not see sovereignty further curtailed
Article 133
Not a clear cut case – organizational issues; what is the EU’s real policy… (Baldwin)
Union vs. Community policy making (Smith)

10. Cont’d… MERCOSUR/the B in BRIC
Increasing (diplomatic influence in multi-lateral trade regime
E.g. Positive-list approach wrt GATS Hoekman and Kostecki)
Higher stake than prior to WW2– e.g. Agriculture sector
Globalisation undermines EU’s position (Young & Peter)

11. EU Agenda Trade – the only effective FP tool
Kissinger jibe does not apply
Incorrect realist focus on CSFP (Santander)
Neo regionalism/Neo interregionalism (Higgott)
EU-Mercosur relationship build on overall EU needs
Singapore principles (competition policy, investment, government procurement and trade facilitation - as well as environmental protection and core labour standards)
deep trade agenda/liberalization

12. MERCOSUR Agenda
Econometric analysis shows clear welfare gains for MERCOSUR in FTA w/ EU
Monteagudo and Watanuki / Philippidis and Sanjuán
Multilateralism – policy falling in line with BRIC
Oppose “deepening”
Problems with CAP
Protective member states neutralize EU developmental efforts (Young & Peter)

13. US Encroachment FTAA - Intrusion in EU interests
Two-track US policy (multilateral and regional) threatening to “squeeze” EU out (Santander)
Solution: – convergence/divergence FP thesis; rapprochement – Madrid 95
Cancun – multilateral failure so:
Race to bilateral ties
US insisted on agricultural agreement within WTO (not to liking of Mercosur)
EU pursues more interregional track

14. From the US to regionalism
Traditionally weaker position in WTO vs. US (historic determination)
Shift away from mulitlateralism/attempt to gain influence
Bargaining/strategic competition
Union/Community; Competition for regions
Experience in regionalism as advantage (Thurow)
More clout in Washington thanks to involvement in Americas (Allen & Smith)

15. Main References
Thurow, L. (1992) Head to Head: The Coming Economic Battle among Japan, Europe and America, New York: Morrow
Smith, M (1998) Competitive Cooperation and EU-US relations JEPP
Philippidis, G. and Sanjuan, A (2007) An Analysis of Mercosur's Regional Trading Arrangements The World Economy, 30/3
The European Partnership with Mercosur: a Relationship Based on Strategic and Neo-liberal Principles Sebastian Santander, journal of European integration, 2005
Grugel, J. Democratization and ideationla diffusion: Europe Mercosur and Social Citizenship, JCMS, 2007
Gibb, R (2000) Post Lomé: The European union and the South, Third World Qarterly 31/3
Alasdair R. Young; John Peterson, (2006) The EU and the new trade politics, Journal of European Public Policy, Vol 13/6
Baldwin, M (2006) EU trade politics - heaven or hell? The EU and the new trade politics, Journal of European Public Policy, Vol 13/6
Holland, M. (2002) The European Union and the Third World. New York: Palgrave.  
EU External Relations (2005).The EU’s relations with MERCOSUR.
Select Committee for Trade and Industry Seventh Report-‘Mercosur’s Future, Trade Relations with the EU, & The Doha Round’.
EC delegation to Uruguay and Paraguay-Based on Eurostat information-
EU bilateral trade-Eurostat-