Euro-Latin Summit an Historic Step

European and Latin American heads of state will make history--and probably some progress on an ambitious new transatlantic trade accord--when they begin gathering today for a two-day summit here.

Under one roof for the first time will be all 33 Latin American heads of state and 13 from the European Union, led by French President Jacques Chirac. And it is no accident that Uncle Sam will be missing: He’s not invited.

Indeed, this unprecedented gathering is partly about countering U.S. dominance in Latin America--a sort of reverse Monroe Doctrine. It’s a topic that anti-Yanqui critics such as Cuba’s Fidel Castro can be counted upon to address with gusto.

The Rio meeting brings together two newly vigorous entrants in the world trade bazaar and is highly symbolic in underscoring the new realities and opportunities in both regions.

The European Union’s trade and monetary integration is unleashing new Continent-wide economic initiatives, while Latin America is embracing global trade after decades of insularity and protectionism.

The main goal is a Euro-Latin free-trade zone, though the summit that officially begins Monday will only get the ball rolling on what will be a years-long, uphill effort.

Europe does not want to further cede South America’s rich developing market to the United States. Despite aggressive investments here by Spain, U.S.-Latin trade is growing much faster than the EU’s, and its dominance is spreading from Tijuana to Tierra del Fuego.

Already, the EU has seen exports to Mexico fall by nearly half since implementation of the North American Free Trade Agreement. Europe fears more of the same if further U.S.-Latin trade deals are signed and has launched its own talks with Mexico.

Latins, in addition to winning access to Europe’s highly protected market for farm products, see their overtures to Europe as a means of wrangling concessions from the United States in the ongoing negotiations toward a hemispheric free-trade zone. Cozier ties with Europe--and the implied loss of Latin market share for U.S. companies--might also prod Congress to grant the White House “fast-track” authority to negotiate such a trade deal.

The Rio summit took on added importance earlier this week when EU foreign ministers, after much hemming and hawing, agreed to set a launch date for negotiations to create a trade zone linking Europe with the Mercosur trade group, which includes Brazil, Argentina, Paraguay and Uruguay. Chile may also be asked to join. If the Latin countries agree as expected, formal talks would start in 2001.

That start date is later than Latin countries had expected. But better late than never, said Gary Hufbauer, a senior fellow at the Institute for International Economics in Washington.

By waiting, “the Europeans get to see if the [U.S.-Latin trade accord] develops, and the Mercosur countries have the tactical advantage of saying to the United States, ‘We have another negotiating partner if you are too difficult for us,’ ” Hufbauer said.

Pushing hardest on the European side are Spain, Portugal and Italy. Spain has already made huge investments in Latin American telecommunications and energy companies in the 1990s, buying up formerly state-owned enterprises as they have been privatized. Spain will probably surpass the United States this year as the foreign country investing the most in the region. Its 1999 outlays will likely exceed $20 billion.

But domestic political pressure and shifting global trade politics have caused other, more influential EU members to put on the brakes. Agricultural interests in France and Germany want no part of markets in which they have to compete with South American wheat, sugar, beef and other farm products.

Hopes of getting the Europeans to lower farm barriers are simply unrealistic, economists said. Hufbauer noted that the full admission of Poland and Hungary to the EU has been held up for years over agricultural issues.

Meanwhile, Latin countries complain that Europe’s agricultural policies hurt them not just in Europe but in all global markets. That’s because European countries not only protect their domestic farmers, but also subsidize the export of their crop surpluses, causing Latin American farm producers problems in non-European nations as well, said Ricardo Markwald, director of the Foundation for the Study of External Commerce in Rio de Janeiro.

“We have problems selling the Europeans orange juice, tobacco, skins, meat, chicken and coffee,” Markwald said. “Europe gave Colombia’s coffee growers concessions because of their fight against drugs. So because Brazil doesn’t have those [drug] problems, we suffer.”

For now, Europe is feeling less urgency to press ahead with a Latin deal as the U.S.-Latin talks have bogged down.

Any major U.S. initiative to advance the negotiations is unlikely until after the 2000 presidential election and could then depend on who wins the White House and control of Congress, said Albert Fishlow, senior fellow at the Council on Foreign Relations in New York.

“Europe is in no great hurry to compromise with Mercosur, and the reason for that is the lack of ‘fast track.’ They’re worried they are going to get left out in the event that the United States and Latin America engage in closer agreements over time. But if there is no pressure from the U.S., they won’t budge,” Fishlow said.

EU-Latin America trade is increasingly lopsided in the Europeans’ favor, but that’s a state of affairs they know cannot last without retaliation by the Latins. While the EU’s exports to Latin America have grown 128% in the 1990s, Latin export sales in Europe grew by only 29%, according to the Institute for European-Latin American Relations, or IRELA, an EU-funded think tank in Madrid.

“The matter that particularly bothers the Latins is that the Europeans are making out like bandits, selling much more than they buy. For Latin America, a free-trade area might level the playing field, at least that’s the orthodoxy,” said Christian Freres, economist at AIETI, a Madrid-based economics think tank.

Trade deficits are unsustainable over the long haul because they result in losses in foreign reserves that must be financed, said Wolf Grabendorff, IRELA general director.

“You don’t want to use your financial reserves to buy things when you can’t sell things,” Grabendorff said.

Although the U.S. also enjoys a trade surplus of $9.3 billion with Latin America, it is providing a more hospitable export market than Europe for Latin goods. Since 1990, the U.S. share of Latin exports rose to 49.4% in 1997 from 38% in 1990, while Europe’s has fallen to 13.4% from 23% over the same period, Grabendorff said.

Sebastian Edwards, a UCLA economist and former World Bank official, said Latin American countries should follow the example of Chile by focusing on eliminating their own import barriers rather than waiting for reciprocal trade deals that may take years to achieve. Chile is widely regarded as the most advanced Latin economy.

“Lowering trade barriers has two positive effects. It encourages countries to be more productive, and you end by diversifying exports to various regions and being less dependent on a particular client,” Edwards said.

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Latins Losing Ground

Latin America is running bulging trade deficits with Europe and the United States. But the trend line is worse with Europe, its partner in an unprecedented trade summit that begins Monday in Rio de Janeiro. Latin Americas imports, exports and trade deficits with Europe and the United States, in billions of dollars:

Latin America-Europe:

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Year Exports Imports Trade deficit 1993 $26.34 $29.72 -$3.38 1994 31.51 35.83 -4.32 1995 36.07 40.69 -4.62 1996 35.73 43.66 -7.93 1997 38.07 52.39 -14.33

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Latin America-United States:

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Year Exports Imports Trade deficit 1993 $34.46 $36.84 -$2.39 1994 38.46 41.71 -3.25 1995 42.47 49.99 -7.52 1996 49.55 52.60 -3.05 1997 53.70 63.02 -9.23

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Sources: Institute for European-Latin American Relations, U.S. Census Bureau