International Business : European Union, Latin America Look Toward Closer Trade Ties : Summit: Agreement will commit EU and Mercosur to economic and political talks over 10 years or more.

European and South American leaders will shake hands Friday on a groundbreaking agreement aimed at freer trade and closer cooperation between the two continents.

The framework will commit the European Union and Mercosur--Latin America’s first full-fledged trading bloc--to a broad process of economic and political negotiations over a period of 10 years or more.

It will be signed at an EU summit in Madrid, also to be attended by presidents of the Southern Common Market, or as it is known by its Spanish acronym, Mercosur.

The South American bloc’s members are Argentina, Brazil, Paraguay and Uruguay. Together, they account for nearly half of Latin America’s economic production.

One long-range goal of the agreement is transatlantic free trade. But authorities on both sides have emphasized that the pact will not interfere with a parallel process of negotiations to form a free-trade zone covering the Western Hemisphere.

And no one is suggesting that the EU will compete with the United States and its North American Free Trade Agreement for commercial predominance in South America.

Manuel Marin, a vice president of the European Commission, told a Brazilian newspaper recently that he sees the two negotiating processes as complementary. “This is not about creating antagonism in Latin America between the United States and the European Union,” he said.

Marcela Cristini, an Argentine economist who specializes in international trade, said the agreement with the EU is unlikely to produce rapid movement toward a free-trade zone between Europe and South America. But she said it does show increased European interest in doing business with Latin America.

“It is a signal that Latin America is an interesting region for Europe as well as for the United States,” Cristini said. “I see it more as a letter of intent than as an agreement leading to anything concrete.”

For South American countries, a major problem in trade with Europe is its tariffs and other barriers to agricultural imports. The framework agreement does not deal specifically with such barriers but will set up work groups that could draft agreements on such issues.

A statement by the European Commission predicted that the process will permit “gradual and reciprocal liberalization of all trade” between the two blocs.

On the other hand, Cristini observed, negotiations among Western Hemisphere countries are more ambitious, aimed specifically at creating a free-trade zone that would extend from Alaska to Tierra del Fuego, the southern tip of Argentina.

In a hemispheric summit convened in Miami last December by President Clinton, presidents and prime ministers agreed to a goal of negotiating a free-trade agreement by 2005. High-level negotiations started formally at a June meeting of economic and trade ministers in Denver.

Mercosur governments remain actively involved in those negotiations and are aware of EU intentions also to develop closer trade ties with Eastern Europe, Asia, the Mediterranean Basin and North America.

Economic analysts say both the hemispheric talks and the EU-Mercosur agreement are in keeping with a widely accepted concept of “open regionalism” that foresees increasingly fluid commerce among expanding regional trade blocs.

For example, NAFTA and Mercosur could be expanded to include new members, then eventually merge in a hemispheric trade bloc. At the same time, they both could negotiate free-trade agreements in Europe, Asia and other regions.

The main attraction of Mercosur as a trading partner lies in the large Brazilian and Argentine markets. Brazil’s gross domestic product is about $610 billion and Argentina’s about $300 billion, while those of Paraguay and Uruguay together are about $50 billion.

The four countries became a “customs union” in January when reciprocal tariffs on trade among them were reduced to zero for more than 95% of all products. They also set common tariffs on imports from outside countries. Chile is expected to join the group.

Mercosur members all have liberalized their trade policies in recent years, opening their doors to increasing imports. European exports to Mercosur countries have grown five-fold in the past decade. About one-fourth of Mercosur’s trade is with Western Europe.