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The European Union's Trade with Latin America

By Luis A. Ferreira 

As the European Union searches for solutions to problems within its economic model, it is imperative that it finds ways to stimulate economic growth. Given that trade is one of the European Union’s foundational characteristics, it should look to expand trade as a means of promoting growth. Although Asia often grabs headlines due to its economic performance, and Brussels has begun negotiating a free trade agreement with the United States, the European Union should put effort into expanding trade with Latin America, a region that has seen significant economic growth in the last decade and has strong economic ties with Europe.

In the last 10 years trade between the European Union and Latin America doubled to around $280 billion. The European Union has free trade agreements with the Central American and Caribbean countries, with the members of the Pacific Alliance -- Colombia, Chile, Mexico, and Peru -- while similar talks are in progress with Mercosur, which comprises of Argentina, Brazil, Paraguay, Uruguay, and Venezuela. Additionally, a recent UN Economic Commission for Latin America and the Caribbean (ECLAC) report shows that Europe is essential for Latin America’s development, with European foreign direct investments (FDI’s) outmatching those from China, India, and Russia.

Europe already trades extensively with Latin America. Last year, the European Union exported over $145 billion to Latin America, or 6.5 percent of its total exports, with more than $52.12 billion to Brazil and $36.76 billion to Mexico alone. Meanwhile, America Móvil, a Mexican telecommunications company, doubled its investment in Europe to $25,597 billion from 2011, with Austria and the Netherlands receiving $4.48 billion. Spain is equally involved in Latin America, with half of the profits in 2011 from Spanish banks coming from their Latin American branches, while in 2010 these subsidiaries sent $151 billion to Spain. These figures illustrate strong regional commerce.

While this is a good foundation, European-Latin American commerce must be expanded further. The European Union can aid this process by finalizing its free trade agreement with Mercosur, while also reducing agricultural tariffs. The end of the 20 years banana dispute last November, in which the European Union agreed to reduce its tariff on bananas, was a good step forward. While securing the free trade agreement and altering European Common Agricultural Policy tariff will not be easily accomplished, the completion of both would significantly boost trade and invigorate European growth.

Given their strong economic and social ties with Latin America, Spain and Portugal can lead the way. In early June, Spanish Foreign Minister Jose Manuel Garcia-Margallo reiterated Latin America’s importance to Spain during talks with EU High Commissioner, Catherine Ashton. Portugal has also benefited tremendously from Brazil, with President Dilma Rousseff pledging solidarity and calling for an expansion of trade between the two countries. Similarly, both Madrid and Lisbon have led European ties with Latin America through the Organization of Ibero-American States (founded in 1949) and its annual Ibero-American Summits (started in 1991). Finally, despite their disappointment, the EU-Latin America summits, which began in 1999, should continue so that leaders from both sides have a forum to expand relations on strengthening democracy, the rule of law, international peace and political stability. This past January’s EU-Latin America summit in Chile failed to deliver on European leaders’ hope of finalizing the free trade agreement with Mercosur, yet it delivered a declaration calling on legal safety for European investments.

Although the European Union’s largest problems are institutional and the Union cannot rely on trade alone to pull itself out of recession, it has a great opportunity to begin its economic recovery by expanding commerce with Latin America. As Latin American economies continue to increase, the European Union should use that opportunity for its own growth.

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Luis A. Ferreira is a candidate for a Masters of Public Administration at Cornell University.

[Photo courtesy of Rock Cohen]

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