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The EU and Latin America: Comprehensive Free Trade Deals Abound

As the EU and the South American trade bloc Mercosur grow nearer to reaching a free trade agreement, the Union inches closer to having in-depth free trade deals with nearly every Latin American and Caribbean country.

The European Union is in the process of finalising a free trade agreement with South America’s Mercosur trade bloc. The success of this effort, combined with Europe’s ongoing economic cooperation with other regional players, big and small, would give the bloc comprehensive free trade deals with every South and Central American country, save three.

MERCOSUR: ARGENTINA, BRAZIL, PARAGUAY & URUGUAY

The EU’s trade deal with Mercosur – a trade bloc established in 1991 by Argentina, Brazil, Paraguay, and Uruguay – is nearing completion, with some betting a final agreement can be reached by September. Although negotiations on trade liberalisation between the EU and Mercosur have been ongoing since 1999, the election of two pro-business presidents – Mauricio Macri in Argentina in 2015 and Michel Temer in Brazil in 2016 – renewed impetus to complete the association agreement on free trade.

Agriculture is the main sticking point – EU products including beef, rice, and poultry will likely come under pressure once free trade is opened with Mercosur countries. However, a 2011 study estimates that if and when the deal is completed, the EU will gain between 21-29 billion euros through increased exports of industrial goods. The Union’s GDP could increase by 15-21 billion euros and Mercosur’s GDP by 2-3 billion euros. In 2016, the EU was already the largest trading partner for Mercosur, accounting for 20.4 percent of its trade, ahead of both the U.S. and China.

In the meantime, the EU maintains agreements with Mercosur’s individual members. The Union concluded framework trade and cooperation agreements with Argentina in 1990, Paraguay in 1992, Uruguay in 1994, and Brazil in 1995. Since 2007, Brazil and the EU have had a strategic partnership, which includes the Mercosur integration process, climate change, sustainable energy, and the fight against poverty. These agreements will all be superseded by the future EU-Mercosur free trade agreement, pending its finalisation.

MEXICO AND CHILE

The EU is simultaneously modernising its bilateral free trade deals with Mexico and Chile. In April, the EU and Mexico reached a deal that will revamp the EU-Mexico Global Agreement signed in 1997. It includes new trade issues like investment protection, regulatory cooperation, and sustainable development. Since the Global Agreement’s trade pillar came into force in 2000, bilateral trade in goods between the two has more than doubled, from 21.6 billion euros to 53.8 billion euros in 2016. The EU is Mexico’s third largest trade partner in the world; and Mexico is the EU’s second largest trade partner in Latin America, after Brazil. The new deal will come into force as soon as the legal text is finalised and voted on by ministers and members of parliament.

With regard to Chile, the process of modernisation is in the earlier stages, yet progressing smoothly. The trade pillar of the 2002 EU-Chile Association Agreement, which has been in force since 2003, led to a significant increase in bilateral trade in goods from 7.7 billion euros in 2003, to an all-time high in 2011 of 18.9 billion euros. Although total trade in goods has since declined, the EU, as of 2016, was Chile’s second largest trading partner after China. The European Commission estimates that with a revamped trade deal – updating components like rules of origin and non-tariff barriers – the EU would gain between 196 and 391 million euros in real GDP in the long run, while Chile would gain between 304 and 592 million euros.


The largest provider of Official Development Assistance in Latin America and the Caribbean is the European Union, with grants amounting to 3.6 billion euros between 2014-2020. Copyright: naeblys/Shutterstock.com

COLUMBIA, PERU & ECUADOR

Beyond the current trade talks between Latin America and the EU, the latter holds a number of substantial trade pacts with other Latin American nations. In 2012, the EU signed an ambitious comprehensive trade agreement on progressive and reciprocal liberalisation with Colombia and Peru, which has been provisionally applied since 2013 and provides for total liberalisation of trade in industrial products and fisheries over 10 years, along with increased market access for agricultural products. In January 2017, Ecuador joined the EU-Colombia-Peru trade agreement.

CENTRAL AMERICA

The EU and Central American countries – Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama – signed an association agreement in 2012, designed to eliminate the majority of tariffs on manufactured good and fisheries, with a complete end to tariffs for most products within 10 years. Central American countries are expected to liberalise 68 percent of their existing trade with the EU, which is the region’s second largest trading partner, after the United States.

CARIBBEAN COUNTRIES

Finally, the Caribbean countries – which account for only a small share of EU trade but are geopolitically important – agreed to an Economic Partnership Agreement with the EU in 2004. It entered into force in 2008 and was aimed at introducing the principle of reciprocity to EU trade relations with the ACP (African, Caribbean, and Pacific States). Under the deal, the EU grants Caribbean countries complete free market access – with the exception of agricultural and fishery products and a number of industrial goods. The Caribbean export markets have a 25-years-long transition period to liberalise.

ALL BUT THREE: BOLIVIA, VENEZUELA & CUBA

This all leaves Bolivia, Cuba, and Venezuela as the countries in Central and Latin America with no substantive free trade agreements with the EU. That being stated, Bolivia retains its GSP (generalised scheme of preferences) status with the EU and is currently in the process of joining Mercosur as a full member state, with its accession protocol pending ratification by all Mercosur parliaments.

Venezuela previously had a shot at being a part of the future EU-Mercosur trade deal. But in August 2017, it was suspended indefinitely from Mercosur until democracy is restored in the country, under the bloc’s democracy clause.

In July 2017, the European Parliament gave its consent to the conclusion of the EU-Cuba Political Dialogue and Cooperation Agreement, which may act as a stepping-stone to a more ambitious trade agreement in the future.

Still, the 33 countries forming the Community of Latin American and Caribbean States (CELAC) are together the EU’s fifth largest trading partner in the world. And the EU remains a leading foreign investor in CELAC countries and a main partner in development cooperation.

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Kaitlin Lavinder

Kaitlin is a freelance writer based in Washington, DC. She holds an MA in International Economics and European Studies from Johns Hopkins University School of Advanced International Studies (SAIS) and previously worked as a national security reporter and Europe analyst. She has conducted on the ground research in Germany, Poland, Estonia, Czech Republic, Belgium, and the United Kingdom.

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