The European Union in Latin America: economy and institutions

EU-LAC relations are complex and comprehensive. The EU, and its member states, are widely present in the spheres of politics, economics and development cooperation. Although the extent of their engagement depends on sectors, periods and the individual EU member states, nonetheless two aspects stand out: first, the continuous EU economic relevance to Latin America in spite of objectively adverse economic conditions and the rise of non-traditional partners; and second, the institutional engagement and density that characterize EU-LAC relations.

In terms of trade, the EU is the third largest trading partner of Latin America, after the United States and China, totalling over €225 billion in 2018 (EU Commission 2019). While this is an increase in absolute numbers compared with one decade earlier, a study conducted by the Economic Commission for Latin America and the Caribbean (ECLAC) shows that "the EU’s share of external trade with LAC countries has not changed significantly over the course of this century (ECLAC 2018: 81). In 2017 the EU’s share of Latin American exports was 12%, the same as in 2000 and 1% higher than in 2013. Also in 2017 5.3% of the EU’s total imports of goods came from Latin America, while 6.1% of the EU’s total exports of goods went to Latin America (European Commission 2017). Although between 2014-2016 biregional trade declined, largely as result of concomitant economic crises in Argentina, Brazil and Venezuela, since 2017 there have been signs that a recovery has taken place.

An interesting aspect is the composition of trade flows. EU imports from Latin America remain concentrated in only a few products. Of these, two- thirds are primary products, and 51% alone are commodities. Almost 90% of EU exports to the region are manufactured goods. This is in keeping with the pattern that historically has characterized Latin American trade relations with its established partners. This pattern has often been regarded as posing a restriction to Latin American development and an obstacle to the production of value-added goods. Still, as Nolte (2018) noted, the EU and China share similar trade patterns with Latin America. In 2016 LAC exported to China 72% of products from the primary sector, while approximately 90% of Latin American imports from China were manufactured goods. Thus, if trade with the EU poses challenges to Latin America’s development, so does that with China. Additionally, commodities as percentage of total LAC exports to the EU (51%) is less than exports of commodities to China (approximately 70%), but more than to the United States (14%).’ After all, one may wonder if a region can sell what others do not want to buy, or if it has to try to make the best of the existing structural constraints.

Some countries and regions within LAC have a prominent position in the EU’s commercial presence. Brazil and Mexico absorb around 50% of the EU’s trade with the region (Mori 2018). In 2017 Brazil accounted for 34% of LAC’s total exports to the EU and Mexico 23%. Furthermore, Argentina, Brazil, Paraguay, Uruguay and Venezuela2 that together comprise the Southern Common Market (MERCOSUR/MERCOSUL) (Mercado Comim del Sur/Mercado Comum do Sul) accounted for over 46% of Latin America’s exports to the EU market. Only two Latin American countries ship more than 20% of their exports to the EU—Honduras and Costa Rica. Mexico leads the top importers from the EU in Latin America, with a share exceeding 38% of the total. Meanwhile, only two countries receive more than 20% of their imports from the EU—Brazil and Suriname. In fact, the EU favours bloc-to-bloc relations for both political dialogue and trade relations when possible. The EU accounts for 14.6 % of the Andean Community’s total trade in goods, 12.2% of that of Central America, and 10.3% of that of CAR1FORUM. the association bringing together most Caribbean states (Grieger 2019).

The EU is losing some ground in trade but it maintains the edge in investments and cooperation. The EU remains the largest investor in Latin America in terms of stocks. Between 2000 and 2017 European companies accounted for 39% of the total declared foreign direct investment (EDI) in Latin America (ECLAC 2018). The level of EU FD1 in the extractive industry has declined over the past few years, and is likely to reflect the end of the commodity boom. Projects in telecommunications and renewable energy have increased sharply, while the automotive sector remains attractive for EU companies. In 2017 five European countries—Spain. Luxembourg, the Netherlands, the United Kingdom and Germany—were among the top 10 investors in Latin America (UNCTAD 2017).

Between 2014 and 2020 the EU maintained its leading position as a provider of aid in Latin America, totalling over €3.6 billion in spending on bilateral and regional programmes (EU Commission 2019). This is remarkable considering the challenges posed by new South-South cooperation models and ideological impact as well as the recent major shift that the EU cooperation strategy has experienced (Sanahuja 2016). The EU has been phasing out direct development aid to those states that have achieved strong economic growth and poverty reduction, including many Latin American countries. These countries are no longer eligible for bilateral aid, although they may still request assistance with regional and thematic programmes. EU aid has thus focused on the Caribbean, Bolivia, El Salvador, Guatemala, Honduras, Nicaragua and Paraguay. In 2018 the EU launched the Regional Facility for Development in Transition to help Latin American countries to achieve the 2030 United Nations (UN) Sustainable Development Goals. EU- Latin America trade patterns may not be ideal from a LAC perspective, but they are better than many others, signalling that the problem may not lie in Europe. Moreover, to date the EU has provided very generous, indeed the most generous, aid packages to Latin America.

In addition to maintaining an economic presence, the other prominent feature of the EU’s role in Latin America is the institutionalization of regular forums for political dialogue. This involves dialogue at the subregional level and region-to-region relations. The process started in 1984 with the establishment of the San Jose Dialogue between the then European Community (EC) and Central America in support of the regional peace process. It intensified from 1987 with the dialogue between the EC and the Rio Group.3 The initial agreements between the EC and LAC subregional organizations were formalized first with the Grupo Andino (Andean Group) in 1983 and then with the Central American Common Market in 1985. These are examples of the EU’s preference for regional organization-to-regional organization relations.

In the 1990s EU support for integration in other regions became one of the pillars of its international strategy. This was one of the results of the merger of interests and development models between Europe (and the United States) and Latin America that took place in the post-Cold War years (Lit- segard and Mattheis 2018). With the second regionalist wave in the 1990s, Latin American subregional blocs largely abandoned ‘developmentalist’ policies and embraced ‘open regionalism', hoping to reach world markets and ripen the promises of globalization. These subregional blocs increasingly looked at the EU as a model for economic integration, institutional setting and regulatory policies (Jetschke and Lenz 2013). This convergence resulted in new subregional political dialogue with MERCOSUR, the Andean Community and the Sistema de la Integration Centroamericana (Central American Integration System). In 2019 the EU and the Pacific Alliance, comprising Chile, Colombia, Peru and Mexico, signed a Joint Declaration to deepen their partnership, paving the way to a possible fourth subregional institutionalized political dialogue.

The EU preference for bargaining collectively with existing similar bodies displayed its influence also at the region-to-region level (Gardini and Ayuso 2015). The strategic partnership between the EU and Latin America was launched in 1999. Europe tried to distance itself from adopting a purely commercial approach and to promote a regulatory role incorporating three dimensions: political (through multilevel dialogues); economic (including trade and investment); and development cooperation (incorporating social policies). Interregional political dialogue was institutionalized in the EU- LAC Summits between Heads of State and Government and in the EU-Rio Group Summits at ministerial level. With the creation of the Community of Latin American and Caribbean States (Comunidad de Estados de America Latina у el Caribe—CELAC) in 2011, biregional dialogues took the new form of EU-CELAC Summits. Regrettably, this new instrument was used only in 20013 and 2015 before it was indefinitely suspended.

The EU-LAC strategic partnership was developed not only as a top-down process led by governments but also as a multiple consultation mechanism between social partners, business associations, academia, Courts of Justice and parliamentarians. It formed an inclusive, dense, "multi-player’ (Torres 2018) and "multi-level’ (Ayuso 2018) inter-regionalism, involving a large number of actors, constituencies and issues. Inclusiveness, representativeness and a sense of ownership at different levels are the advantages of the model proposed by the EU. Cumbersome procedures, limited coordination and unclear results, costs and cost-effectiveness, and the selection, legitimacy and accountability of the participants are the challenges of the system (Gardini and Malamud 2016). Overall, the model that the EU has offered to Latin America has proved itself to be flexible, inclusive and adaptable. The agenda is often a shared one. Yet the EU remains in the driving seat.

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