UNO October 2015

European Union – Latin America: cartes sur table



Those who are familiar with how relevant issues are analyzed in France will better understand the reason behind the title. The concept of “Cartes sur Table”, meaning “Cards on the Table” –which could be confused with the famous novel written by Agatha Christie– has a very specific meaning in French: “defining the intentions, being as honest as possible”, that is, being direct, showing the cards in order to be honest and transparent.

Let us be clear. Speaking about Latin America is increasingly complex if we want to describe something besides a geographical region. There are several political, social and economic contexts which make it extremely difficult to encompass the whole American subcontinent within the same concept. Thus, this is the first challenge in order to analyze the perception that Latin America may have on its relationship with the European Union or any other economic or political player in the world.

During the beginning of the current century, Latin America has experienced one of the best moments in its recent history. After suffering for many years due to the difficulties that the consolidation of the democracy entailed in many countries as well as the deep economic crises that delayed the development of many nations, it seems as if countries have learned the necessary lessons. This combined with the positive recent years as regards the price of raw materials, main element of the export basket in the region, entailed annual growth figures over 5 % between 2003 and 2012, according to the World Bank –however, there were large differences between countries, since Chile grew by 5.6 % in 2012, while Venezuela improved by 1.2 %–.

This situation made the region an interesting destination to be taken into account. On one hand, Latin America could become the heir to the “Asian Dragon”. Once Southeast Asia reached incredible development levels over the past years, the Western region could have been ready to experience its own boom. Therefore, China launched an aggressive foreign trade policy with Latin America. If we compare the Latin American imports trend between Asia/Pacific, the U.S. and the EU, we can clearly see that the former is the region with the largest growth (700 %) during the 2000-2010 decade, while the U.S. dropped by 34 % and imports declined by 3.5 % in relation to the EU. Moreover, for the first time ever, Latin American imports from Asia surpass those from the European Union1.

During the 2004-2014 decade, the EU went from having a general trade deficit with the region to a surplus, particularly significant with Mexico
and Brazil

Meanwhile, during the administration of President Obama, the U.S. has kept a more distant and less intense relationship with the region, mainly focusing on the issues that have had the largest impact within its borders: security and immigration, for instance. It should be noted that 16 % of the U.S. population is Latin and 73 % of them voted for Obama in the last elections. However, the most important event which could turn the whole U.S. strategy with Latin America upside down is the restoral of relations between the U.S. and Cuba. The resumption of trade and diplomatic relations with the island is certainly the most important action of the President of the United States as regards Latin America, putting an end to the last vestiges of the Cold War and opening a new scenario not only for Cuba, but also for Latin America, as it remains the largest trading player in the region in terms of volume.

Given this scenario, what is the future of the relation between the European Union (EU) and the Community of Latin America and Caribbean States (CELAC)? What type of bilateral agreements do they have? What is its current status? How has it evolved? These are issues that must be addressed in order to understand the scope of their relation and, especially, their expectations.

If we had to choose a single word to define the development of the relations between the European Union and Latin America, if we were frank, honest and clear we would describe it as “listless”. That is our impression. We do not know whether the European or the Latin American side is more to blame. But it concerns both parties.

Listless, according to the Spanish Dictionary means “characterized by lack of energy or spirit”. We could also add lack of interest. However, if we analyze the figures of the European-Latin American relations, even if it seems a tedious task at times, they lead to very different conclusions. Let us see them.

The European Union (EU) is the second largest trading partner of the Community of Latin American and Caribbean States (CELAC). In the last ten years, trade between the EU and Latin America has doubled, accounting for over 6 % of the global EU trade. On the other hand, the EU is the largest foreign direct investor for CELAC countries, with a figure close to EUR 505.7 billion in 2013, accounting for 10.3 % of the EUR 4.9 trillion of the EU’s foreign direct investment (FDI) and approximately 35 % of the FDI that the CELAC receives. It is very illustrative to see that EU investments in the CELAC region exceed those carried out by the former in Russia, China and India combined together.

As regards the CELAC’s trading partners ranking, the EU is second, tied with China and at a considerable distance from the leading country, obviously, the U.S.

During the 2004-2014 decade, the EU went from having a general trade deficit with the region to a surplus, particularly significant with Mexico and Brazil. This volume was smaller with certain Central American countries, such as Guatemala and El Salvador. However, it should be noted that the EU-Central American relations have fluctuated in a context where there was no consistent trend. In relation to the total EU trade with the region, only Chile, Costa Rica, Panama and El Salvador have experienced a slight decline.

The EU accounts for over 14 % of the CELAC’s imports and 11.5 % of its exports, with Brazil and Mexico leading the ranking, followed by Chile, Argentina, Colombia and Peru.

20In 2014, the EU exported goods worth EUR 110000.6 million to the CELAC, that is, a 6.5 % of the total EU exports, while imports amounted to EUR 98000.6 million, 5.9 % of its total imports. Thus, the EU surplus was close to EUR 12 billion. Brazil and Mexico accounted for 2 % and 1.4 % of the total EU trade respectively. The main exported EU goods were machinery, transport equipment and chemical products. As for imports, it mainly involved agricultural products and raw materials.

Moreover, the EU has signed trade agreements with 26 of the 33 CELAC countries.

The EU reached a Cooperation Agreement in 2008 with the 15 Cariforum countries (Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Dominican Republic, Granada, Guyana, Haiti, Jamaica, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Surinam and Trinidad and Tobago). Currently, the EU is its second largest trading partner behind the United States, while Cariforum has a trade deficit of EUR 800 million. The scope of this agreement goes beyond trade. While it contains a quite important trade liberalization component, the truth is that the agreement seeks to put trade at the service of development, to boost investment and trade in services, promoting businesses in a free competition context. The Treaty is supported by the European funds and, logically, contributes to a greater integration of the countries of the region into the globalization context. The third EU-Cariforum Joint Council meeting held in Georgetown (Guyana) on July 16, illustrated the developments in the agreements between both parties, as well as its great potential to contribute to the sustainable development of the Member States of Cariforum.

Central American countries (Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica and Panama) have an Association Agreement with the EU since December 2013, which contains important elements for their trade. This agreement has been a significant development in the relations between both regions and has certainly contributed to the establishment of more stable business and investment relations, an increase in the direct benefits for their citizens and a boost for sustainable development. But, above all, the agreement should become a key element in the process of the Central American political integration and, therefore, foster stability and security across the region.

Of the four countries that make up the Andean Community (Bolivia –recently signed the Mercosur accession protocol–, Colombia, Ecuador and Peru), Colombia and Peru have had a Trade Agreement with the EU since 2013. Meanwhile, Ecuador became part of the Multi-Party Agreement in 2014. In 2014, the trade flows between the EU and Colombia reached EUR 14000.5 million (6000.4 million in exports and 8000.1 million in imports). As regards Peru, the figure amounted to EUR 8000.1 million (3000.2 million in exports and 4000.9 million in imports). It is still early to draw conclusions on the impact of the agreement, since, as pointed out by the European Commission on its report of December 4, 2014, certain data and information on its implementation are still lacking. Economic operators also need some time to adapt to the new context, in order to fully benefit from the new business opportunities that this agreement will entail.

Mercosur (Brazil, Argentina, Uruguay, Paraguay, Venezuela and now, practically, Bolivia) is a sleeping giant, which does not harness its power since it is unable to reach consensus; it is the fourth largest economy in the world after the EU, NAFTA and ASEAN, with a total GDP of EUR 2.6 trillion in 2014. The European Union is its largest trading partner, accounting for 20 % of the total trade of Mercosur and, for the EU, the latter ranks sixth, accounting for 2.8 % of its total trade. Both regions have been negotiating since 1999, through the Association Agreement with the EU which, after the last Mercosur Summit held in Brasilia on July 17, will be reviewed once again to reach an ambitious and balanced Agreement as soon as possible. It should be noted that this is the third largest agreement currently being worked on, only behind the negotiations with the U.S. and Japan.

Thanks to the traditional relations between the EU and Latin America, there is still much room to strengthen the solid ties that unite them, exploiting the current synergies

Aware of the regional fragmentation, other approaches are being carried out at different paces. Brazil, Mexico and Chile should be highlighted. Brazil and Mexico are considered Strategic Partners for the EU and the latter has an Association Agreement with the EU since 2003, which Chile seeks to update, as occurred with the Global Agreement between Mexico and the EU. On a different note, there have been important developments in the process of removing the visas requirements to enter the EU for Caribbean countries as well as Colombia and Peru. Likewise, Brussels and Brazil are negotiating to build a submarine communication cable between Lisbon and Fortaleza in order to reduce the dependence on the U.S. in the field of telecommunications.

The importance of Brazil and Mexico for the EU has been illustrated by the recent EU-Mexico Summit (Brussels, June 12, 2015) with the attendance of Enrique Peña Nieto, as well as the EU-CELAC Summit (Brussels, June 10 and 11, 2015), with the attendance of Dilma Rousseff, in which the focus was put on the region to somehow try to compensate for the USD 250 billion that China has promised to invest over the next ten years. The consolidation of the Pacific Alliance, to which Chile, Colombia, Peru and Mexico belong, shows the perception that some regional leaders have about the location to which their future is shifting to.

Together, the EU and CELAC bring together 61 countries, that is, almost a third part of the UN members, eight G20 members and, in total, a billion people; 15.5 % of the world population.

The economic data and its development since 1999, even during a devastating financial crisis, shows impressive results, contrasting with the attitude of EU and CELAC members, who develop this relationship in a rather distant and perhaps unrealistic manner.

Thanks to the traditional relations between the EU and Latin America, there is still much room to strengthen the solid ties that unite them, exploiting their current synergies and trying to implement a different approach than the Chinese model. To the extent that the European Union is able to go beyond the Chinese raw materials import model and move towards a more relational model, based on the transfer of knowledge to develop more balanced production processes beyond the export of raw materials and the import of finished products, it will open a window of opportunity to not only improve its relationship with Latin America, but to create new, more developed markets which will translate into enhanced trade balances on both sides of the Atlantic.

Therefore, it is high time to put “cartes sur table”, to evaluate, in a proper manner, the importance of the relations between the EU and CELAC to enhance them. Both regions need to move in the aforementioned direction with more energy. If they fulfill this task, if they work together, they will be able to achieve much more in the complex globalization world, offering a great common space of stability and development to their citizens.

Javier Rosado
Partner and Managing Director of LLORENTE & CUENCA in Panama / Spain
Over the years, Rosado has mainly led projects related to crisis communication and infrastructure and litigation communication. Before joining the company, Rosado was the Communications Manager at CEPSA's Refinery in Gibraltar-San Roque, and managed communication for Petresa and Interquisa. Rosado has worked for four years at the publishing house Planeta, and for more than 6 years as a journalist for different media outlets in Spain such as Cadena Ser, Marca, ABC and Agencia EFE. [Spain]
José Isaías Rodríguez
Senior advisor of LLORENTE & CUENCA / Spain
A senior advisor of LLORENTE & CUENCA, Rodriguez began his career in the Spanish Confederation of Business Organizations (CEOE) as deputy director of the Department of European Communities. He has been a director of the CEOE Delegation in Brussels for 25 years, a position from which he has represented the interests of Spanish companies before the European Institutions and BUSINESSEUROPE. He was also deputy general secretary of the CEOE for two years. He has been director of the European Economic and Social Committee and vice president of the Employers Group for 24 years, as well as a trustee of the ADECCO Foundation. [Spain]

We want to collaborate with you

Do you have a challenge?

Would you like to join our team?

Do you want us to speak at your next event?