Université catholique de Louvain

ECOLE DES SCIENCES POLITIQUES ET SOCIALES

European Union-Mercosur Rapprochement What window of opportunity for both spaces?

An analyze in terms of resources

par Sebastian Bidegain

Promoteur: Professeur Françoise Massart-Piérard TFE présenté dans le cadre du

Rapporteur: Professeur Christian Franck Master 60 en sciences politiques,

Orientation générale.

Session de septembre 2009

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Mots clés à destination de la bibliothèque:

Mercosur European Union Global trade Geopolitics Free Trade Agreement

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Code de déontologie UCL

« Code de déontologie pour les étudiants en matière d'emprunts, de citations et d'exploitation de

sources diverses

Le problème La prolifération des sources d'information, en particulier celles proposant des travaux " personnels " sur le réseau informatique, renouvelle avec acuité le problème de la bonne utilisation de ces sources.

Des aspects positifs à encourager... En un premier temps, il faut souligner les aspects positifs de l'accès à l'information : - Les progrès que nous pouvons apporter à la connaissance puisent leurs racines dans les connaissances antérieures forgées par d'autres. Il serait vain de " réinventer la roue " et la collecte d'informations est un travail non seulement permis, utile, mais aussi indispensable, car il nous permet d'utiliser dans nos travaux les résultats et les idées d'autres auteurs pour élaborer notre propre réflexion et nous insérer dans le mouvement de la recherche intellectuelle. Il est donc indispensable que l'étudiant réalise très tôt dans sa formation universitaire combien il importe de rechercher toutes les sources pertinentes d'information : les premiers travaux personnels, qu'il convient d'encourager, en constituent un premier exercice; pour le TFE de master, la démarche est essentielle. - Par ailleurs, la qualité du travail réalisé dépendra de la qualité et de la variété de l'information recueillie. Dans sa recherche d'informations, l'étudiant peut s'appuyer sur les ressources mises à sa disposition par l'Université : accès aux bibliothèques, au réseau Internet, aux cours, conférences, colloques, laboratoires, etc. Dans ces divers domaines, l'étudiant doit pouvoir compter sur l'aide du personnel enseignant pour chercher, trier, vérifier les informations. mais aussi des règles de bonne conduite

L'utilisation de l'information doit respecter des règles éthiques simples mais strictes : le respect de la propriété intellectuelle et de la vérité interdit que l'on fasse passer pour sien, fût-ce par omission, un travail que l'on n'a pas accompli. Il importe donc de citer clairement ses sources, ce qui permet aussi de soumettre le travail au contrôle critique du lecteur qui peut ainsi apprécier par lui-même la qualité de l'information. En particulier, l'étudiant veillera à toujours bien distinguer ce qui revient à d'autres et ce qui lui est personnel : les citations d'auteurs sont signalées par des guillemets ou par les règles en usage dans la discipline; si elles sont modifiées légèrement, fût-ce par la mise en évidence de certains mots, on le signalera (par exemple au moyen des mots "souligné par nous"); les commentaires qui suivent de près un texte ou les travaux qui sont de simples adaptations doivent être signalés comme tels ("ici, nous suivons les idées de X, en les adaptant à notre contexte"); les traductions mentionneront leur auteur, qui peut être l'étudiant lui-même; les apports personnels peuvent bien entendu être signalés comme tels et sont à encourager. La bibliographie doit être précise et permettre de toujours retrouver la source (livres, articles, etc.). La courtoisie recommande de signaler les informations non écrites importantes recueillies oralement. L'usage n'a pas encore codifié l'utilisation des informations recueillies sur site Internet, mais l'éthique veut ici aussi que les sources d'un travail scientifique soient signalées; ici comme ailleurs, il n'est en tout cas pas admissible que l'étudiant fasse passer pour sien des travaux tout faits qu'il aurait recueillis sur un site ou l'autre. Le plagiat, la fabrication et la falsification des résultats sont unanimement considérés comme des fautes graves. » « Je déclare sur l’honneur que ce TFE a été écrit de ma plume, sans avoir sollicité d’aide extérieure illicite, qu’il n’est pas la reprise d’un travail présenté dans une autre institution pour évaluation, et qu’il n’a jamais été publié, en tout ou en partie. Toutes les informations (idées, phrases, graphes, cartes, tableaux, …) empruntées ou faisant référence à des sources primaires ou secondaires sont référencées adéquatement selon la méthode universitaire en vigueur. Je déclare avoir pris connaissance et adhérer au Code de déontologie pour les étudiants en matière d'emprunts, de citations et

d'exploitation de sources diverses et savoir que le plagiat constitue une faute grave. »

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Remerciements:

I want to thank all of the personnel of the secretariat, but especially Madame Isabelle Hennau

and Madame Chantal Herman for everything they did for me during these years. I couldn’t

have continued my studies if they hadn’t go an extra-mile.

I will like to thanks professor Françoise Massart-Piérard for her patience and advices, and

Professor Amine Ait-Chaalal for helping me the way he did. Also, I want to thank Madame

Cristina Gonzales from the Uruguayan Embassy in Brussels, Monsieur Franco from the

Paraguayan Embassy in Brussels and Monsieur Ary Quintalla from the Brazilian Embassy for

the interviews I had with them that I allowed me to have a better perspective on the South

American –European relations.

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TABLE OF CONTENT

INTRODUCTION 6

CHAPTER 1: CURRENT RELATIONS EU-MERCOSUR AND GLOBAL

CONTEXT

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1. Europe and South America: brief historic outline 12 2. Mercosur as Institution: genesis purely that of an economical need. 14 3. European Union 17 4. European Union- Mercosur 19 5. Bilateral Trade Relations 20 6. Global Context 22

CHAPTER 2: RESOURCE ANALYSIS 30 1. Energy 31 1.1. Gas 31 1.2.Oil 33 1.3. Coal 36 1.3.1. Producers 37 1.3.2. EU Imports 38 1.4. Energy Predictions 38 2. Agriculture 40 3. Water 44 3.1. The Environment Water 45 4. Demography 46

CHAPTER 3: FREE TRADE AGREEMENT CURRENT SITUATION AND

ANALYSIS

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1. Towards An EU- Mercosur Free Trade Agreement 52 1.1.Principles, Scope and Objectives 52 1.2. State of negotiations and Prospects 53 2. Opportunity Analysis 54

CONCLUSION 63

BIBLIOGRAPHY 67

ANNEX 73

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INTRODUCTION

In 2008 there were two events that could mark the future commercial relations of the entire

world: 1- the high oil prices and 2- the high food prices.

The first one is of a paramount importance for the European industry, house heating and

transport. The rise of its price and availability is a mayor national security issue. Not having

an energy source in a constant and at a cheap price could undermine the European society and

its economical and social well-being.

The second has a direct effect on the world household’s expenses and the availability to reach

month’s end. High prices on food (wheat, rice as well as others grains) could destabilize the

European economy and give rise to political unrest. Also, is important to consider how high

grains prices could affect third world countries politically, socially and most important

economically. An important remark has to be said regarding high grains prices. Countries like

Thailand, Brazil and Malaysia (all grain exporters) once the prices began rising their first

political-economical actions were to freeze exports of those grains to guarantee internal

demand.

The question here is: If the grain prices again rises as seen on 2008 and the grain exporter’s

countries again freeze exportation. How is the European Union going to guarantee its food

supply?

The events of 2008 made clear that an analysis of the world trade and balance of power

situation had to be addressed. Taking this into account is that the question of analyzing the

resources that the two spaces posses came to be. Analyzing the current state of both Mercosur

and European Union resources availability seem important to understand and implement

possible solutions to events like the ones of 2008 and that way be better prepare for the next

one to happen.

The main problem that this paper will try to answer is: if resources serve for a possible

rapprochement between two different political institutions: European Union-Mercosur? In

order to answer our main problem, the answering of the following 2 questions will help:

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1) Do the two geographical spaces (meaning European Union and Mercosur) are independent

in terms of resources availability?

2) What is the possibility of a rapprochement between the two blocks in today global context?

The resources that this paper will analyze will be the: demographic power, water, energy and

agriculture (food). It will establish the present possession-production-consumptions or

reserves, and the future trends that the two spaces will have concerning these 4 variables.

To the analysis of the 4 variables we have to take into consideration the context the world is

living today. So a brief description on the global situation and the major actors seem

necessary to further put into perspective a possible rapprochement of the two economic spaces

(Mercosur and EU). The global situation will help determine if there is a window of

opportunity to bring a possible rapprochement between the two blocks a reality or not.

The term rapprochement means the establishment of cordial relations between two countries.

In the case of this paper, rapprochement will be between two political units that encompass

each a geographical space: the European Union and Mercosur.

By window of opportunity: I mean any event, factors, variable, occasion, chance, incident,

affair or matter that serves as something positive in the closeness process of the two spaces.

But also, there will be the opposite of the window, that will be called constrain. The

constrains: are anything (again event, factors, matters, affairs, etc) that can negatively

influence the realization of an rapprochement between Mercosur and the European Union.

It is important to say that the rapprochement process where the two spaces can exchange their

resources will have its concretization with a Free Trade Agreement signed between the two

blocks. Why a Free Trade Agreement? Well, because it is the mechanism that seems to better

allow an exchange of resource to happen in an effective and fast matter.

As I will be analyzing resources as well as the current states of the world international

relations. It seems important to put it under a discipline that could help understand it better:

For this paper the geopolitics seems to be the best option.

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When talking about geopolitics I will be referring to the branch of political geography that

studies the reciprocal relations between geography, politics, international relations and power

(The interactions from all of them)1. Also, taking into account the geostrategy as a subfield

of geopolitics that guides states foreign policies using geographical factors as they affect

military and political planning2. Why the importance of geostrategy in the geopolitic? Well as

Gray Collin and Geoffrey Sloan3 said: « geography is the mother of strategy ». And

« geostrategy is the geographic direction of a state's foreign policy. More precisely,

geostrategy describes where a state concentrates its efforts by projecting military power and

directing diplomatic activity » according to Jakub Grygiel in his book: Great Powers and

Geopolitical Change4.

Even thought, military force is a major variable in all geopolitical theories. This paper will

only analyze geography, resources as well as the current global situation of all major players

that are concerned in the relations between Mercosur and EU.

All the great political scientists (Aristotle, Machiavelli5and others) have seen on geography a

key component to politician skill. One important objective of geopolitical theory is that it

should help politicians understand the relation between geography and the state or political

organization. It has 2 components: One is to understand the world (in different fields as

history, social science, geography) to then with that information be allowed to outline a clear

planned strategy option for the future of the state or political body. That’s what this paper will

try to do. Analyze the resources of two geographical spaces: Europe and South America, each

one with its own political body (the European Union and Mercosur), then having the global

context in mind, analyze if a possible rapprochement process can exist and in what format.

1 G. Jakub, « Great Powers and Geopolitical Change », Baltimore: The Johns Hopkins University Press, 2006,

p. 15. 2 Idem, p. 17. 3 G. Colin and G. Sloan, « Geopolitics, Geography and Strategy », Frank Cass, London, 1999, p .3.

4 G. Jakub, « Great Powers and Geopolitical Change », Baltimore: The Johns Hopkins University Press, 2006, p. 23. 5 For example Machiavelli said: « He should learn the nature of sites, and recognize how mountains rise, how valleys open up, how plains lie, and understand the nature of rivers and marshes - and in this invest the greatest

care ... and the prince who lacks this skill lacks the first part of what a Captain must have » in « The Prince», AC Classic, Vancouver, 2009, p.67.

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Referring to the methodological aspect of the work: This paper is divided in 3 chapters and

the conclusion:

The first chapter will consist on analyze the current commerce trade between the two blocks

and their genesis as institutions. This chapter will not have as is purpose to define what is the

European Union or the Mercosur nor its whole development as institutions (it would be too

ambitious for a TFE). Then it will analyze the current state of the world and it will mention a

possible window of opportunity for a rapprochement between the two blocks.

On the second chapter, I will analyze the 4 geopolitical variables mentioned above. This will

help establish 2 things on each one of them: First- the present amount each space has

(meaning their availability, possession or production), and Second- more important their

future quantities (meaning their reserves). With this information I will be in a better position

to draw a possible conclusion on what’s the state of the European Union and Mercosur in

terms of resources.

On the third chapter I will summarize both blocks current state of negotiations and an analysis

of it. Then it will be follow by the conclusion that will take into account everything written on

the previous chapters.

Some of the problems that this work found on its way was the major difficulty to access

diplomatic or international organization personnel willing to be interviewed. Also, the few

that were interviewed were against the recording of the interviews. This made the dynamic

slower due to the fact of the writing, and by lack of time not all the question that were

intended were asked. This problem was solved by recurring to more literature on the subject

which made the work process slower.

For the analysis of the water resources the data was taken from the Pacific Institute database

which has a compilation of water availability from the world using data from: FAO6,

Aquastat7, Eurostat8 and UNESCO9. The information concerning the energy section was taken

6 FAO: Food and Agriculture Organization. 7 Aquastat is FAO's global information system on water and agriculture developed by the Land and Water

Division. 8 Eurostat is the Statistical Office of the European Communities. Its task is to provide the European Union with

statistics at European level that enable comparisons between countries and regions.

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from the British Petroleum Company database review. Their statistics come from government

sources and published data. Also, data for the energetic section came from the European

Union Second Strategic Energy Review: AN EU ENERGY SECURITY AND SOLIDARITY

ACTION PLAN, the Market for Solid Fuels in the EU in 2004-2006 and Trends in 2007. The

demographic data was collected from a series of books specialized in geopolitics as is Vincent

Thébault Géopolitique de l’Europe. And Victor, Jean Christophe Le Dessous des Cartes.

They also served in the energy and agriculture section. But the main part for the demographic

section of Europe was taken from the European Commission 2005 Green Paper: Confronting

Demographic Change: A new solidarity between the generations. And the 2006 follow-up

The Demographic Future of Europe – From Challenge to Opportunity. For Mercosur

countries the data came from Eurostat, CIA world fact book and other specialized books.

9 UNESCO: United Nation Educational, Scientific and Cultural Organization.

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CHAPTER 1 :

CURRENT RELATIONS EU-

MERCOSUR AND GLOBAL

CONTEXT

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1. Europe and South America: brief historic outline.

If an economical, political and cultural relation between Europe and South America is to be

established. Then to understand Latin American, it is important to start by a synopsis of its

history.

The first main difference between Europe and Mercosur members that can be established is

that of its origins as a nation. One is the home continent of previous colonizers and the other

one is the continent of the colonizes (The colony and the metropolis relation). Remembering

also the slave trade that brought to the American continent Africans that would serve as cheap

labor.

The once harmonious trade, political and economical relation between metropolis and colony

started to have friction do to different interest point of view. With the genesis of the

« criollos » (creoles in French: European descendant born in the American continent), the

feeling of belonging to the metropolis started to faint. The policy created by kings in Europe

sometimes went against the interest of American bourgeoisie.

When local bourgeoisie saw their economical interest (present and more over future) put in

danger by the Europeans (metropolis) powers. Is when the ideas of independency started to

flourish all over the continent.

Some military leaders (from the king’s armies) and the masses were persuaded to join the

revolutionary process that was infesting the American continent (it is important to note that

the revolution in South American (Spanish speaking countries) started during Napoleon’s

invasion of Spain. Once the revolution started and local military (general’s) heroes acquired

the title of: Libertador (liberator) such as Francisco Morazán (Central America), Simon

Bolivar (Venezuela 1811, Colombia, Ecuador, Peru, Bolivia), Bernardo O’Higgins (Chile

1813), José Gervasio Artigas (Uruguay 1811), José de San Martin (Argentina 1812), once the

revolution was done, it wasn’t long before the local bourgeoisie got themselves rid of those

heroes so they could put in place what they had planned all along: to be themselves the lords

of the lands.

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The once divided continent into Spanish administrative regions was now divided among the

different local bourgeoisie onto new countries (with each local bourgeoisie as its new master).

This is the second main difference with Europe: Latin American states were born before the

nations. What this means is that the local bourgeoisie created the states and then, notably by a

perfectly planned educational system created their respective nations. This in Europe was at

the inverse: the nations were before the states.

But is not only a political difference, is also an economical and cultural one: the fact that the

local bourgeoisie maintain power during the 200 or so years of independency, was done not

only by limiting the power of the citizen, but also as Machiavelli put it in his own words in his

book The Prince10: « One excellent way to unite the people under its ruler is to create (the

idea or in reality) an external enemy ». In South America, the rivalities between the different

bourgeoisie ended up in the creation of national pride (nacionalismo), which had as it main

focus another country as enemy (which underneath was an enemy bourgeoisie, which at 99%

of the times was a bordering country).

The argentinian-uruguayan conflict was born out of the Ports rivality that existed between

Montevideo (a natural port) and Buenos Aires (man-made port). It was rivality between

bourgeoisie that tried to control the commerce between Europe and the south cone

hinterland). The same can be said of the Bolivia-Chile-Peru conflict or the argentinian-

brazilian, they were conflicts originated out of their bourgeoisie interests and also promoted

by outside powers.

The problem in Latin America could be resumed in: institutional violence, the particular

(privates) interest, corporativism, economical and political dependency with exterior

countries. Also, the political system that was supposed to represent a political pluralistic was

confronted to the obligation of a single party that withhold power and populist waves. The

representatives of the political class had a clientelistic relation with the civil society, political

manipulation and the non renewable of the political class.

10 N, Machiavelli, « The Prince », AD Classic, Vancouver, 2009, p.38.

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According to Lechner11 « the cause of the weak democracy system in south America is based

on the presidential system utilized and the weak party system. With the presidential system,

there is an absent control of the parliament and a fertile ground for populist practices »12

.

Another difference between the two blocks is their genesis:

The European Economic Community (predecessor of the European Union) was born out of

two geopolitical needs: the first one to ensure peace on the European continent after the

Second World War. The second to create a block that could face the communism expansion

headed by the Soviet Union and the cold war (could be define as the confrontation military,

economically, socially, politically and culturally between USA and the URSS on third

countries) that was taking place.

2. Mercosur as Institution: genesis purely that of an economical need.

According to Dominique Wolton13

« between the act unique (1985) and that of Maastricht

(1992) Europe changes with a fast pace, nature and legitimacy. In effect, it passes from an

economical phase to a more political one. To understand the treaty of Maastricht, it is

necessary to see its context: the fall of the Berlin wall (1989), the German unification (1990)

and the end of the Soviet block (1991). The two main pillars of the ECC had vanished, so a

new political integration process had to be made ».

What happened in Mercosur on recent years was that the political part acquired a more

important role like the creation of the Mercosur Parliament14 and also as with the EU the new

international context or more of regional context played important part. The governments of

South American had a change on their political leadership; Lula won in Brazil, Chavez in

Venezuela, Kirchner in Argentina, Vazquez in Uruguay, Evo in Bolivia and recently Lugo in

Paraguay (all leftwing politicians). A new era of integration had started in South America.

11 N. Lechner, « Estado y politica en América Latina », Siglo Ventiuno Editores, Mexico D.F. 1981, p.245. 12 One important example is Central America where some countries like Guatemala, Honduras and El Salvador, were ruled-owned by the same 12-16 families in the last 200 years. 13 D. Wolton, « La Dernière Utpie », Flammarian, Paris, 1994. 14 The Mercosur Parliament created in 2005, which started to session on May 7, 2007 as a replacement of the

Conjoint Parliamentary Commission (CRPM) and its Presidency was created in 2003.

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Because of these past conflicts between nations (continuous suspicious among each other) in

South America that integration process were hard to achieve. That’s why when in 1985

Presidents José Sarney of Brazil and Raúl Alfonsín of Argentina signed the Argentina-Brazil

Integration and Economics Cooperation Program or PICE (Spanish: Programa de

Integración y Cooperación Económica Argentina-Brasil)15 it came as a surprise and it put to

an end more than a century of mutual rivalities. Mercosur origins trace back to the PICE

signing which had as its objective the progressive harmonization of their economical policies.

The PICE signing was later in 1988 reinforced with the PICAB (Programa de Integracion,

Cooperacion y Desarrollo entre Argentina y Brasil) which invited Paraguay and Uruguay to

join in16.

After 1990 Buenos Aires Act, the strategy of integration changed. Argentinean president

Menem and Brazilian President Collor decided to accelerate the integration process and to

achieve a common market by the year 1994 (This is the real genesis date of the Mercosur)17.

That’s how this Regional Trade Agreement (RTA) among Argentina, Brazil, Paraguay and

Uruguay was founded by the Treaty of Asunción in 1991, which with the 1994 Treaty of Ouro

Preto was later amended. Its purpose is to promote free trade, free movement of goods, people

and currency (the custom union is still in a construction phase)18

. The Ouro Preto Treaty

established a single external common tax, and since 1999 there is a free tax zone among its

members. An important fact is that after Ouro Preto Mercosur had a juridical person in

international law which allows it to sign international agreement and international

conventions. The European Union had asked for this condition so treaty could be signed

between the blocks (the genesis of Mercosur comes out of the model created by the European

Union)19

.

With the signing of the Mercosur, the Brazilian idea was to achieve a 0% custom tax on 80%

of its interregional products by the end of 10 years20. Ferrer attributes the dynamism of

15 Argentinian Subsecretary for Political and Commercial Management http://www.comercio.gov.ar 16 Idem. 17 Idem. 18 Idem. 19 Idem. 20 A. Arguello, « Les Relations entre l’Union Europeenne et le Mercosur », UCL Louvain la Neuve, Belgique, 1995, p.15.

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Mercosur thanks to the Buenos Aires-Sao Paolo axe which is the most industrialize region in

South America21.

Bolivia, Chile, Colombia, Ecuador and Peru currently have associate member status.

Venezuela signed a membership agreement on 17 June 2006, but before becoming a full

member its entry has to be ratified by the Paraguayan and the Brazilian parliaments22. Also

there is a cooperation agreement with the Andean Community trade block (CAN) since 2004.

In 2005 Colombia signed a FTA with Mercosur which gave access to its markets, and in 2006

Bolivia asked to become a Mercosur permanent member. Regarding outside countries, the

Mercosur signed a FTA with Israel in 200723.

The main problem with the Mercosur is the asymmetric of its members. The union is not

made of a homogeneous group: On one side we have Brazil and Argentina the 2 biggest

countries in South America (once confronted for hegemonic power on the continent) and on

the other side we have 2 small countries (economically, geographically and demographically).

The Mercosur intra-relations have a constant confrontation between the interests of the 2

giants with those of the 2 smallest. This political unity sometimes doesn’t work as it was

intended. The major problem is that the priorities of each countries inner lobbies overpower n

Mercosur’s priorities, and can result in frictions between member states. Brazilian reason of

Mercosur is as political intended as commercially. While for the other 3 countries is more

economically. The new member Venezuela24 has both needs, but with a little more emphasis

on the political level.

The main difference separating the countries is the dependency that each country has

regarding the rest of the members: It is clear (seen tables 1-4 on the annex) that the pair of

Uruguay-Paraguay have a great dependency on Brazil and Argentina, their economies have

those countries on their first 5 economic partners. At the same time they aren’t brazil-

Argentina first five economic partners.

21 A. Ferrer, « Mercosur: Trayectoria, Situación Actual y Perspectivas, » in Desarrollo Económico, N°140, Vol. 35, Enero-Marzo 1996. 22 Mercopress : http://www.mercopress.com 23FTA Mercosur-Israel :http://www.mercosur.int 24 Venezuela applied for membership, but its entry hasn't been ratified by Paraguay nor Brazil, although it was

ratified by Argentina and Uruguay.

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3. European Union

The European Union (EU) is a political and economic union (The EU has become an

economical giant while remaining a political dwarf)25 of twenty-seven member states. It was

established after the signing of the Maastricht Treaty, adding to the European Community

new areas of policy to the existing. With 490 million citizens, the EU generates a combined

estimated of 29% share of the world's nominal gross domestic product (GDP) of 16.8 trillion

dollars in 200726. It is also the largest exporter of goods,27 the second largest importer28, and

the biggest trading partner to several countries such as India, and China.293031

In May 2007

unemployment in the EU was at 6.7%32 while investment was at 21.4% of GDP, inflation at

2.2% and public deficit at -0.9% of GDP33.

The EU has developed a single market through a homogeneous system of laws which apply in

all member states, guaranteeing the freedom of goods, services and capital34. It maintains a

common trade policy, agricultural and fisheries policies35

. Fifteen member states have the

Euro as their currency. The European Union has developed a role in foreign policy, it

represents is members in the G8 summits World Trade Organization and at the United

Nations. NATO counts with 21 members from the EU. It has developed an important function

in home affairs and justice. Also, under the Schengen Agreement36 many members states

abolished the control of passport.

25 C. Franck, « Théories Politiques et Régime de l’Union Européenne », Université catholique de Louvain, Louvain la Neuve, DUC, 2007, p. 8. 26World Economic Outlook Database: http://www.imf.org 27 Central Intelligence Agency, « The World Factbook»: https://www.cia.gov

28 Central Intelligence Agency, « The World Factbook »: https://www.cia.gov 29 People’s Daily Online: http://english.peopledaily.com.cn

30 China Embassy: http://www.china-embassy.org 31 Centre for European Reform: http://www.cer.org.uk

32Eurostat: http://epp.eurostat.ec.europa.eu 33 International Monetary Fund : http://www.imf.org 34 European Commission: http://ec.europa.eu 35P, Farah: http://papers.ssrn.com 36European Commission: http://ec.europa.eu

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The EU is a mix of supranationalism and inter-governmentalism. In certain areas it depends

upon agreement between the member states. However, it also has supranational bodies, able

to make decisions without the agreement of members. Important of the European Union are:

The Council of the European Union, the European Parliament, European Commission,

European Central Bank and the European Court of Justice37.

The origins of the EU can be traced to the European Coal and Steel Community formed in

1951 by six countries and the 1957 Treaty of Rome in. Since then, the EU has grown thanks

to the accession of new member states. The EU has also increased its function by adding new

policy areas. In December 2007, the Treaty of Lisbon was signed with the intention to amend

the existing treaties to update the legal and political structures of the block. There was a

ratification process scheduled for the end of 200738, however the rejection of this treaty in the

Irish referendum of June 2008 has left its future unresolved and it can be seen as a political

backlash.

One of the problems of the European Union is the enlarging policy: Now a union of 27, it has

more countries as candidates, but the dilemma doesn’t end there. Turkey has applied for

membership (it’s already a member of NATO) and it is important to remember that Turkey is

the entrance of the orient, is of geostrategic importance in the trade sector and military. It is

the European door to the Middle East. But the main problem to its entrance is it religion

(Muslim) and the fear that once a member the free movement would let hundreds of

thousands of Turkish inside Europe. The question here is: Does the EU obtain all its

geopolitical needs out of Turkey using only the NATO mechanism? Or does it really need to

allow Turkey inside the union?

Who can be a member of this selected club?

As we know, the European Union cannot enlarge itself indefinitely, that’s why the EU has

created the European Neighborhood Policy that would help get better relations with countries

37 European Commission: http://ec.europa.eu 38 European Commission: http://ec.europa.eu

19

that will not be allowed inside the Union as is: the Maghreb, Middle Eastern and Eastern

Europe countries39.

4. European Union- Mercosur:

To understand the possible rapprochement between the two blocks and what its significance,

table 5 on the annex can help us fully appreciate it. The table shows the main difference

between the European Union and Mercosur in an important number of indicators.

Concerning the Gross Domestic Product, the EU is 5 times richer than Mercosur. territorially

speaking Mercosur is almost 3 times the size of the EU. Unemployment is just one point

lower on the EU than in Mercosur members in general. In labor force or economically active

population Mercosur has half of EU. And important fact is the median age: for Mercosur

members the average is 27 years, while in Europe in 39 years. Regarding United Nation

Human Development Index: Argentina is number 38, Uruguay 46 and Brazil 70, all of them

in the high human development section. While Venezuela is number 74 and Paraguay number

95 (considered medium human development).

The first political approach made by the EU with Mercosur was little time after its creation. In

1991 there was the first meeting between the Foreign Ministers of Mercosur states and

representatives of the EU Commission. The Trade relations between the 2 blocks started with

a first basic agreement in the 1990s that helped bring together Europe and South America.

The main purpose of the agreement was to have economically, commercially, industrially,

scientific, institutionally and culturally co-operation while waiting for an inter-regional

association.

Today’s relations take the form of bilateral ties and multilateral co-operation within the

framework of WTO (World Trade Organization). More importantly, since 2000 the two

blocks are in the process of negotiating an Association Agreement between the two regions,

including a possible Free Trade Area40. This association will bring a mutual and progressive

39 Countries that will benefit with the Neighborhood Policy are: Algeria, Armenia, Azerbaijan, Belarus, Egypt, Georgia, Israel, Jordan, Lebanon, Libya, Moldavia, Morocco, Palestinian authority, Syria, Tunisia and Ukraine. 40 European Commission: « Mercosur Regional Strategy Paper 2007-2013 », Brussels, E/ 2007/1640,

02.08.2007.

20

liberation of all exchanges. It is important to mention that there is coexistence between the

basic agreement and those at bilateral level with every Mercosur member’s which would

allow different already existents cooperation to continuo on.41

Patricia Lombart, a representative of Mercosur to the Commission on a conference in Brussels

said referring to the basic agreement. She insisted on the democracy issue, that she simplified

on 3 points42:

1-Respect of human rights

2-Economical and social development

3-States functions

She also insisted in the clausal democratic of the accord, first article where the principles of

the human rights are mentioned.

It is important to say that a strong tie between Latin America and Europe had always existed.

There is a common idea of a mutual culture (occidental) and the sharing of the same values as

could be democracy.

One of the major points in the agreement is that of political dialogue.

5. Bilateral Trade Relations

EU- Mercosur trade represents as much as EU trade with the rest of Latin America countries

taken together. The EU is the 2nd trading partner of Mercosur, representing 17.5% (annex:

tables 6 and 7) of total Mercosur trade and its first source of direct investment in 2005 (annex:

table 8). The Mercosur ranks eight among EU trading partners, accounting for 2.7% of total

EU trade in 200643.

Trade in goods between the EU and Mercosur has risen considerably in recent years, more

than doubling during the 1990s. EU trade in goods with Mercosur amounted to 67.4 bn € in

41 Idem. 42 A. Arguello, « Les Relations entre l’Union Europeenne et le Mercosur », UCL Louvain la Neuve, Belgique, 1995, p.25. 43 European Commission: « Mercosur Regional Strategy Paper 2007-2013 », Brussels, E/ 2007/1640, 2.08.2007.

21

2006, with a 13.5 bn € trade surplus in favor of Mercosur, while trade in services totaled 8.3

bn € in 200544 (annex: table 9).

Mercosur's has for its agricultural exports the EU as it first market, accounting for 38.5% of

total EU imports in 2006. EU goods exports to Mercosur are mainly industrial products, with

transport and machinery equipment alone representing over 37% of total exports, followed by

chemicals and related products at 19%45 (annex: table 9).

EU (15) imports of services in 2005 totaled € 5.4 billion and EU (15) exports of services

totaled € 6.2 billion (annex: tables 10 and 11) and has been increasing since 200346.

The importance varies by the different member, while Argentina and the associated countries

are more incline to the USA, Brazil sales manufactured product to the USA, sell agricultural

products and products with no added value to the EU. Also, the EU has the most investment

in the Mercosur (annex: table 8). Many EU enterprises have invested in Mercosur, notably

after the year 1950 with the substitution of importation program, Sao Paolo is the biggest

German industrial (German capital) city, in the last 20 years the privatization has offered

many opportunities to the European companies47.

But EU commerce with the Mercosur only represent 2.8% of its export and 1.8% of the

import out of the extracommunitary figures (annex: table 12), and haft of it is of Brazil. For

the South America as a whole the direct investment coming from Europe was 145 billion

(between 1993 and 2003) of those 110 billion were for Brazil and Argentina. That number

represents only 8% of the extracommunitary flux of the EU1548.

44 Idem. 45 Idem. 46 Idem. 47 P, Gentelle, « Géopolitique du Monde Contemporain, Etats, Continents, Puissances », Nathan, Paris, 2008, p. 194. 48Idem.

22

6. Global context

The geopolitical theories of both Sir Halford Mackinder (Heartland Theory in 190449)

and Alfred Thayer Mahan (The Problem of Asia50

) helped shaped the current world. All

powers of the twentieth century used geopolitics to plan their policies, to expand their powers

and to block other nations from accessing strategic regions of the world that possessed rich

resources.

Sir Halford Mackinder termed the Heartland to designate a region which was basically

comprised of Ukraine, Western Russia and Mitteleuropa. The importance of the Heartland is

that it contained the grain reserves of Ukraine as well as other natural resources. Mackinder's

geopolitics theory can be summarized by saying: « Whoever owns East Europe will own the

Heartland. And who ever owns the Heartland will own the World-Island (Europe, Asia and

Africa). The ruler of the World-Island will own the World ». This doctrine was dominant

during the World Wars and the Cold War. Karl Haushofer51 the highest geopolitical analyst

during the Nazi Germany was also in favor of the heartland theory of Mackinder, which led to

the Nazi forces invasion of Eastern Europe and specially the grain rich Ukraine. Also Russia

saw the value of Mackinder’s Heartland theory and it’s one of the reasons that it controlled

Ukraine during the Cold War.

Now the question is: Where lies the grain rich region of the world? And as US former

Secretary of State, Colin L. Powell, calls Brazil an « agricultural superpower »52 (annex: text

1) making Brazil and other Mercosur countries the current granary of the world, thus making

this region our current heartland.

We have to take into account how the new theories of geopolitics are affecting the global

map. The geostrategic-geopolitical theories inside Samuel Huntington’s book the Clash of

49 H. Mackinder, « The Geographical Pivot of History », Royal Geographical Society, London, 1904.

50 A. Mahan, « The Problem of Asia: Its Effects Upon International Politics », Transaction Publishers, New Brunswick, NJ, 2003. 51 K. Haushofer, « Geopolitics of the Pacific Ocean and Studies in the Relationship between Geography and History », in Mellen Studies in Geography, N° 7, Edwin Mellen Press, UK, 2002.

52 Idem.

23

Civilizations and that of Zbigniew Brzezinski in The Grand Chessboard53 have deeply

affected the Middle East and Central Asia. Brzezinski defined Eurasia as « a region of

political importance for the USA if it wanted to keep its global hegemony ».

To answer our main question if Europe and Mercosur should engage in a rapprochement in

terms of resources? First, it is important to draw a picture of the world current situation.

How the diplomatic and trade policies that China and the USA are applying to the emerging

markets and third world countries could affect the EU and Mercosur rapprochement? More

important, how the commerce done by third parties (USA, China) on the developing countries

affect the EU security? The case of China business in Africa is a good example.

China is making « Diplomatic Push » into the African continent as well as in South America.

China needs more resources for its economical growth: In the period 2006-2007 according to

Jean Christophe Victor54

: China Prime Minister, President and Exterior Minister made several

trips to African countries where they visited half of the continent’s countries and made several

treaties with them regarding natural resources.

It is important to remember that China experimented a change on its commerce once it started

to play on the free market. Such radical change was done by its leader Deng Xiaoping who

said referring to its new economical policy « I do not care if the cat is white or black, what is

important is that he hunts mice »55.Since then, China has grown economically with an

important pace making it today one of the global power.

Also on another level, the establishment of a strategic association regarding energy between

China and India in 2005 supposes a deep geopolitical transformation on Eurasia leaving

behind old partnerships between China and Pakistan56. This could have an impact on

European energy imports as well as the USA geopolitics on Central Asia. India new

association with China had a direct impact on the USA policy toward it. Basically it changed,

USA sees important to courtship India in order to block China’s expansion to Central Asia.

53

Z. Brzezinski, « The Grand Chessboard: American Primacy and Its Geostrategic Imperatives » Basic Books,

New York, 2006. 54J.C. Victor, « Le Dessous des Cartes » Editions de Novelles, Paris, 2007, p.136. 55B. Quagliotti de Bellis, « La gran China con Proyección al 2050 » Geosur, Montevideo, N°324, Mayo-Junio,

2007, p.10. 56 J.R. Argumosa, « El gran juego del siglo XXI » Geosur, Montevideo, N°324, Mayo-Junio, 2007, p.13.

24

Today’s Brazil is the target of China; the Brazilian market is full of Chinese products in any

number of sectors. (Do to the importation of Chinese textiles; Brazil had jobs losses of around

250.000 in the last couple of years). Lula tries collaboration agreements with China. But for

China, Brazil will be a source of resources (mainly iron, soybeans, other grains and minerals)

and they aren’t letting Brazil adding value to the products that they are buying57. Also the

trade between China and Venezuela has been increasing over the years. The direct investment

done by China in Venezuela is estimated at 2 billion in 2005. Chinas main trade partners in

Latin America are Chile, Brazil and Mexico (they represent 62% of the trade with China

coming from Latin America, but China commerce with Latin American represents only

3.55%. With risk of angry the USA, China has put a foot on LA and has started to negotiate

bilateral trade agreement with different countries that have always been allied to the USA

(like Chile in 2005), already 92% of Chile’s export to China are tax free. Also, China has a

military cooperation with Latin America countries like Bolivia Venezuela and Peru58

.

How is the future demand that China, India, Brazil, Russia (the BRIC countries) and South

Africa affect the global commerce, trade routes and most important: the balance of power?

The dynamic difference between China, India, Brazil and South Africa are huge. China and

India after the year 1990 projected themselves on the international arena as economical and

military powers. They have both hegemonic pretensions on their respective regions and they

occupy geopolitical global positions that are absolutely asymmetric with Brazil and South

Africa. Even though these difference they occupy the position of emerging countries that are

advocating for a change on the world management system. They have the same agenda

regarding the United Nation system, which is a reform of its structure, especially concerning

the Security Council (Germany is in favor of this, as it is Japan). Regarding the World Trade

Organization they share a liberal position that they (inside G20) lobbied on the Doha Round

July 2008. According to President Lula what Brazil was lobbying for was to make the Doha

Round an instrument where the poorest nation of the world should be favored, whom depend

almost exclusively on selling their agricultural products with a European market almost

57 P. Gentelle, « Géopolitique du Monde Contemporain, Etats, Continents, Puissances », Nathan, Paris, 2008, p.

199. 58 Idem.

25

closed to them59. It is important to remark, that both countries member of the Mercosur

(Uruguay-Paraguay) felt that the position acquired by Brazil on the Doha Round, was against

their interest.

The chart 13 on the annex can illustrate better the world situation that Mercosur and the

European Union have to consider for a rapprochement between the two spaces:

The world map is shown on chart 13 (own designe), where the USA and China are

represented with a blue square. The red circles that are shown on Latin America are the

countries that are in political conflict with the USA (Bolivia, Cuba, Ecuador, Nicaragua and

Venezuela) and in a blue circle is Colombia, a political and military ally of the USA.

Colombia here is defined as the only door to which the USA has access to South America,

that’s why there is currently 7 USA military bases being negotiated between both countries.

Ecuador and Venezuela are blocking USA direct access to the continent.

The green circles on South America represent the Amazon region (biodiversity rich) and the

purple circle represent where the agricultural power of Mercosur lays.

On Europe, there is a grey circle encompassing Belorussia and Ukraine, both countries

represent a buffer zone between Russia and the EU. Not only that, but most of the gas and oil

pipes coming from Russia pass through them, given those 2 countries negotiation power over

the EU. Next, there is a black circle that shows the position that Turkey is playing. For years

Turkey has wanted to become a member of the EU. Due to the global context and

geographical position where it lies, now it finds itself as a key strategic player. The EU has

been for years trying to independence itself from Russian energy. A pipeline (Nabucco

project) coming from the Caucasus directly to EU has to pass over Turkish territory given the

Turkish government a political leverage over the EU on future negotiations regarding its

possible membership to the EU.

The Middle East is governed by 3 factors: 1 USA engagement in Iraq.2- Iran nuclear program

and 3-Israel relation with the Muslim world. These 3 factors can destabilize the whole region.

The nuclear program that Iran seeks can start a regional race that will put Syria, Saudi Arabia

59 M. Cantelmi, «Creamos una nueva clase dirigente en América del Sur: Reportaje al Presidente de Brasil Luis inacio Lula Da Silva », Geosur, Montevideo, N° 343, Noviembre-Diciembre, 2008, p.10.

26

(that can seek associations with Pakistan and China) and Turkey as competitors. This region is

rich in energy resources but it lack agriculture surface and more important water reserves.

It is important to remember that Iran posse 15% of gas and 11% of the oil’s world reserves

(table 14 and 15 on the annex) not only that but Iran has entered the Shangai Cooperation

Organization SCO60 which put the USA in a bad geopolitical position in Central Asia. The

membership of Iran to the SCO helped China obtain energetic resources of oil and gas: an

agreement of 100,000 billion dollars that will allow China obtain from the offshore region of

Yadavaran the oil it needs, as well as a contract of 250 million tons of liquid gas for the next

25 years. This move made by China and Russia has isolated the USA more in the Central Asia

region. Not only that, but any possible attack on the part of the USA or Israel to Iran seem

harder to be achieved when Russia has military cooperation agreement and China has its

energetic interest there. No UN Security Council resolution on an attack will ever exist, as

long as Russia and China keep its relation with Iran61.

On the African continent there are 2 circles: the first one on the Maghreb region; it illustrate

that that zone serves as a block to Europe’s entrance to the African continent, due to 2 facts:

first the dessert, second the Muslim religion. Also, this is one of the regions where illegal

immigrants depart from. The second circle represent South Africa as a new international

player and as a regional power. Also, it has a key strategic geographical position. It can

control the southern commerce trade routes that pass through the Cape of Good Hope. It is

important to remember that the trade routes that pass in-between the Middle East and Africa

have been for recent year the playground of piracy. The future of piracy in the region cannot

be forecast, and nothing seems to show that it will diminish on the next decade. If the piracy

continues the eastern commerce of the African continent will once again use the Cape of

Good Hope route to avoid piracy62.

In Asia, there is a half-moon in light brown which represent a conflict region that has put all

of USA focus on it. It encompasses Iraq, Iran, Afghanistan and Pakistan. The key State here is

Pakistan (Without mentioning the nuclear capabilities of Pakistan under Taliban regime),

because if it falls to Taliban hands, then India could be next even thought is a regional power

60 SCO members: China, Kirgizstan, Kazakhstan, Tajikistan, Russia. And as observers India, Pakistan and Mongolia. 61 F. W. Engdahl, «Los acuerdos estratégicos euroasiáticos sobre energía», Geosur, Montevideo, N° 331, Enero-

Febrero, 2008, p. 50. 62 Fishermen in the Somalia turned into piracy when the fish supply diminished on their waters.

27

(shown on a green circle). Japan is represented with a brown circle, and it’s only a

commercial competitor for the EU and a military ally to USA.

In Asia we can see a competition between Japan, South Korea and China. Japan seen is

regional power being replaced by China. South Korea could have a rapprochement with

northern Korea.

Australia and Canada are represented in yellow circles, are also only commercial competitor

but military allied to EU. Australia faces it mayor security problem from its northern

neighbor: Indonesia where Muslim terrorist could target it. Russia is represented in a purple

circle. Russia is not only a competitor on a commercial sense, it is a competitor on all levels:

from political to military. It provides with 25% of the energy that EU uses and has its own

resources (water, agriculture and demographic) for its future development.

There are two other countries marked with a light rose color circle. Those represent Mexico

(member of NAFTA and has a FTA with China as well as with the EU) and Chile (FTA with

China and EU) this two countries as shown on chart X3 have trade deficits with the Mercosur

(Mexico 4.4 bn € and Chile 3.1.bn €). With the EU, Mexico has a deficit of 10.4 bn € and

Chile has a surplus of 9 bn €. The USA has a deficit with Mexico of 64.7 bn $, and with Chile

a surplus of 3.6 bn $. China has a surplus of 3.7 bn € with Chile and 8.5 bn € with Mexico.

Canada has a deficit with both countries once again with Chile of about 453 million dollars

and Mexico 8 bn € (table 16 on the annex). This 2 country are of strategic importance if a

rapprochement between the Mercosur and EU happens.

After describing this brief picture of the world, it is time to see if there is a window of

opportunity for a rapprochement process between the 2 geographic spaces. To determine this,

I will enumerate as positive those factors that help the rapprochement process between the

blocks, and as negatives does that constitute a constrain.

Positive:

1- USA engagement in Iraq and Afghanistan has kept most focus of the American

administration and leaving unattended the South American region. Also with Iraq on the

hands of the American government, the need to look in others places for its energetic needs

has diminished. Iraq posses 1,8% of the world gas reserves and 9% of oil reserves (table 14

and 15 on the annex).

28

2- China courtship to South America could put in jeopardy the EU and USA negotiations

because contrary to the USA-EU, China doesn’t have an agricultural lobby that’s is pushing

against a FTA. I enumerate it as positive because seen that the Chinese can agree with the

Mercosur in signing a FTA together. This should be enough reason to motivate the European

Union in signing in one before the Chinese do.

3- China and India rapprochement is a positive factor because it gives the USA foreign policy

more worries and keeping it from a full engagement with Mercosur. We have to remember

that American foreign policy is trying to keep is mayor competitor: China, from obtain more

power via resources or political alliances.

4- The TFA signed with Mexico and Chile, because they could help in achieving one with the

Mercosur.

5- EU dependency in Russian gas, coal and oil. The EU has to profit now to make an

agreement with Mercosur, that way avoiding more dependency with Russia. Also, it serves

South American interest to become them the major energy providers of Europe.

6- The existence of the BRIC as an organization should also serve as a positive factor for a

rapprochement between the European Union and Mercosur. Waiting until the BRIC becomes

stronger could close a future FTA between the South American and European political

organization.

7-The agricultural lobby in Mercosur, and the industrial lobby in the European Union, and the

services lobby in both blocks are pushing for a FTA signing.

8-Venezuela (Mercosur member), Bolivia (associated country of Mercosur), Ecuador,

Nicaragua and Cuba are all countries with a negative relation to the USA. This serves EU

interest in South America because it plays in favor of a possible signing of TFA. At the same

times this countries are blocking the USA FTAA.

9- US president Obama recent trip to Africa to promote better relations. American trying to

obtain secure resources in Africa serves as a window for Europe. As said before, it helps in

the sense that it pushes the European politicians to a possible signing.

As constrain or negative factors that can contribute to slow down the rapprochement between

the 2 spaces are:

1-The agricultural lobby of the European Union is a one of the major constrain to a possible

signing of a FTA that could rapprochement the two spaces. The EU agricultural lobby seeks

to maintain it status quo.

29

2-The industrial lobby of Mercosur is another one of the big constrain. As the industry is in a

more « enfant » state « face à face » the European industries. The South American industries

are afraid that an open market relation with Europe will leave them in a worst position on the

market because European industrial products are more competitive. As describe in the

Mercosur history section, interest group in South America have great power. Overcoming

them will only be possible if signing a FTA with Europe can show some type of profits for

them.

3-The commercial relation between EU and USA can have a negative effect for a possible

TFA signing. A possible agreement between EU and Mercosur can be badly perceived by the

Americans and affect their trade relation.

4-The problem that Mercosur has as an institution can undermine a possible rapprochement

process between the two blocks. Mercosur as an institution lack the maturity that does the EU.

More sovereignty from countries should pass to Mercosur that way it can become a real

supranational institution, with more decision powers. This will give more fluidity to its

functions.

In this chapter I have describe both blocks genesis and commercial status. Also, a special

attention was drawn on South America history to better understand the impasse that current

negotiation between both blocks and intra Mercosur have. This type of history synthesis

didn’t seem appropriated in the European Union section because the evolution stages in which

both blocks are in is different.

A brief description of the world situation was also made to better determine if there exist a

possible window of opportunity for a rapprochement process between the 2 blocks. Also,

some possible constrains were mentioned.

In the next chapter I will compare the 4 resources (demographic, agriculture, water and

energy) between both block. This will allow us to have an overall view of situation of their

status.

30

CHAPTER 2:

RESOURCE ANALYSIS

31

This chapter will analyze the 4 geopolitical variables that have been mentioned above. They

were chosen because they represent the most vital resources that a political entity can posses.

It will establish the resources status for theses two spaces- European Union and Mercosur.

1. Energy

What is energy?

Energy in the modern world is everything. Is the difference between a rich society and a poor

one! Is the difference of surviving or dying as a country! Maintaining a constant flow of it is

of national security as much as having water and a guarantee food source. Who has and who

hasn’t, who sells and who’s buying and at what price are shaping the world geopolitical

balance of power.

1.1. Gas

The table 17 on the annex shows how the EU has a 68% gas dependency from exterior

countries, notably Norway, Russia and Algeria. Norway as a member of the NATO and other

European organizations is not a problem for the EU as a guarantee constant source of energy.

The other two main partners -Algeria and Russia- could play roles against the EU interests.

Russia already used its role as main gas provider of the EU for its political gain in the

Georgia- Russia conflict63

. Leaving little political leverage for the EU to pull in that conflict

even thought there wasn’t any menace of cutting the gas off by Russia (Russia needs

desperately the money the EU pays it for the gas). The EU knew that Russia could do it in

case of a non favorable result that came out on the negotiations on the Georgian conflict (Oil

and gas represent more than two thirds of Russia total export). This concern has grown

following a series of confrontations between Russia and its neighbors, threatening the flow of

gas. As a result, the EU should attempt to diversify its energy supply64. Russia in the years

2000 to 2004 had 52.1% of its exports as destination the EU, and 45.7% of its import came

from there65

.

63 The conflict between Russia and Georgia showed that Brzezinki « arch of crisis » that suppose to extend from Pakistan to Ethiopia passing by the Middle East, actually is much bigger. 64European Parliament: http://www.europarl.europa.eu

65 Idem.

32

In table 18 on the annex, the EU has been broken down to its different member’s and their

dependency on gas as a percentage of its energy consumption, and also how much

dependency they have on Russian gas. As it is shown, the dependency is very high.

The gas consumption of the EU (without Romania and Bulgaria) is equivalent to the 16%-

17% of the world’s gas market 2006 (annex: table 19). According to the International Energy

Agency (IEA) it will raise 50% from now to 2020. Also to take into account, the EU is

importing 68% of its gas. In 2020, the EU will only produce around 30%66 of its gas, and it

will be dependant of the 80% left by the year 203067.

The UK who was Europe’s first producer has become a gas importer (this could happen to the

rest of energy producer countries in Europe). Others big consumers like France, Germany,

Italy and Spain, have shown signs of more dependency on foreign gas68

.

It is with this energy context that the EU–Russian relations are taking place. Russia is the first

world producer of gas. Estimations give Russia 25% of the world’s gas reserves according to

British Petroleum Company (annex: table 19). In 2006, Russia already represented 24%-25%

of EU gas importations (annex: table 17). According to the Russian Ministry of Energy,

Russia could provide around 70% of the gas needed by the EU by the year 202069.If this

happens, the EU will be totally dependent on Russia regarding it energy needs. It will put

the EU in the worst position in any negotiations « face à face » Russia, leaving the EU with

much less negotiation leverage.

Table 19 of the annex shows how many years of gas are left for the European Union if all the

variables70 stay the same for the next 20- 40 years. The first problem arrives from inner EU do

to the fact that it has only 6 years left of its gas reserves. This means, that if in 6 years from

now the EU members don’t find anymore gas on its soil, they will have to import 38% more

gas, and become fully dependant of off the block countries.

66 J.C.Victor, « Le Dessous des Cartes », Editions de Nouyelles, Paris, 2007, p.110. 67 The difference between data has to do to the fact that countries and energy companies don’t give accurate information. 68 J.C. Victor, « Le Dessous des Cartes », Editions de Nouyelles, Paris, 2007, p.110. 69 Idem, p.111. 70 Variables meaning: amount of energy been needed, the prices remaining the same, the providers been the

same.

33

According to the IEA71, the EU will need 50% more gas from now to 2020. This means that

the EU will either have to import more gas from its normal providers, or it will have to find

new ones. In that case, there are only a limited number of countries that can be future gas

providers for the EU as shown on annex table 14.

The two first countries (USA and China) on annex table 14 are the main competitor of the

EU; the third country is an emerging one (India) and probably will need it resources for its

own use as those Australia. That leaves 2 blocks of countries: the first one- Middle Eastern

countries where Iran and Qatar together posses over 30% of the world reserves. The second

group, are South American countries: 3 of whom are Mercosur’s members and Bolivia who is

an associated country of Mercosur and already applied for full membership. The best option

seems to be Venezuela because has a large reserve and it’s relatively close to Europe with

only the Atlantic as a common frontier between them.

1.2. Oil

The EU in 2007 had a consumption of 14.8 million barrels per day (17.8% of world

consumption as shown on annex table 20) of which 78% of those barrels came from abroad.

As it has happened with the gas importation, as shown on annex 20 and 21: here again Russia

plays a major role, it’s the leading exporter of oil outside the OPEC72 to the EU: 33%

(equivalent to 4.8 million barrels per day) followed again by Norway (member of OECD73)

with 16 % (2.3 million barrels per day) and Kazakhstan with 5% (740 thousand barrels per

day)74.

Even thought OPEC countries represent 38% of the import, they aren’t a single country and in

a political sense, they are broken down by countries and not by block. That’s how Iraq will be

viewed different than Iran, Venezuela or Saudi Arabia on a political level.

71J.C. Victor, « Le Dessous des Cartes », Editions de Nouyelles, Paris, 2007, p.110. 72 OPEC members (Organization of the Petroleum Exporting Countries) Middle East: Iran, Iraq, Kuwait, Qatar,

Saudi Arabia, United Arab Emirates. North Africa: Algeria, Libya. West Africa: Angola, Nigeria. Asia Pacific: Indonesia. South America: Venezuela. 73 OECD members (Organization For Economic Co-operation and Development) Europe: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Republic of Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, Turkey, United Kingdom. Other member countries: Australia, Canada, Japan, Mexico, New Zealand, South Korea, USA. 74 European Commission, « Second Strategic Energy Review : an EU energy security and solidarity action plan

The Market for Solid Fuels in the EU in 2004-2006 and Trends in 2007 » Brussels, 2008, p.13.

34

Including Norway, the EU has 4 significant oil producers - Norway, the UK, Denmark and

Italy. Norway is the most important oil export country with a regular production of 3 million

barrels in 2005, compared with consumption of only 210,000 barrels75

. Norway is an

important (especially for the EU) oil exporter. Of significance is the fact that the Scandinavian

country had in 2001 its peak production and is now declining. As said in the gas analysis,

Norway will always be a secure energy provider, but Russia having already 25% of the gas

imported plus the 33% of oil gives Russia an advantage and leaves the EU in a vulnerable

position again.

Annex 15 shows how USA is the first consumer of oil with 23.9% of the world consumption.

Saudi Arabia is one of the first producers with Russia (12.6%) and is the country with the

most proven reserves (21.3% of world reserves). The 4 countries that follow the USA on the

table are either competitor of the EU or like Australia, a country that doesn’t have enough oil

to become a provider for the European Union. Then comes 3 blocks of countries: The first

Mercosur members and two South American Countries, with a combine 10.2% plus 0.4%

respectively of the world reserves, being Venezuela the biggest with 7% of world reserves and

the major South American oil producer with 3.2% of the world production. The second block

of countries is those placed at the Middle East with Saudi Arabia already providing 10% of

EU oil needs, Libya 9% and Iran 6%. It is important to remember that Saudi Arabia is the

USA major oil provider and in case needed it will furnish it with more. Iran could stop

providing oil to the EU depending on how the negotiations on the Iran-Nuclear negotiations

develop.

As said above with the gas, Venezuela again seems to be a good option for the European

Union. But first a brief analysis of Venezuela seems pertinent: In the geopolitical level,

Chavez Venezuela76 is the most turbulent country in the region regarding its past opposition

to George Bush. The ideological opposition between a unipolar world dominated by the USA

and one multipolar world that Venezuela wants are confronting themselves at the international

level. The international relations with the rest of the world, its membership to the OPEP, its

third world speeches, shows that Venezuela wants to be the spear of the anti Americanism.

Its leadership based in an offensive and backed by petrodollars (that Chavez plays as a

75 Idem. 76 J.C. Victor, « Le Dessous des Cartes », Editions de Nouyelles, Paris, 2007, p.117.

35

weapon in the regional and international spheres) its counter measured by Brazil as regional

power and by Chile and Argentina that don’t follow Chavez’s on its critics77.

Venezuela is the only country in the region to base its geopolitical strategy in its energetic

resources. It has as an object to enlarge its influence in the region. As a fact, Venezuela has

the fifth largest oil reserve (proven) and 68% of Latin Americas reserves. It gas resources are

also as big as its oil (annex: tables 14 and 15)78.

The Latin America market it’s about 30% of the oil sales of Venezuela, 50% sold to USA.

With the oil prices of 2008, the Bolivarian revolution has enough money to continue for many

years. Having say that, the USA it is still an oil market for Venezuela because selling its oil to

China, has a 12 dollars per barrel higher price due to transport (Even thought China has

started to built a 5 million per day barrel refinery)79. The anti Americanism of Chavez could

help in the rapprochement process between Mercosur and the EU, Venezuela could sell the

EU the oil that is currently selling to the USA: 1,5 million barrels per day. It is important to

say that is only in terms of resource that Chavez could benefit the EU It doesn’t mean that the

EU should have the same political opinions as Chavez.

In the energy sector: China has planned to invest 350 million dollars in Venezuela80 oil

fields and 60 million more for infrastructure (roads, highways), the relation between China

and Venezuela regarding the commerce of hydrocarbure are still connected to a number of

problems: the transport price which is higher to bring it to China than to the USA (12 dollars

higher per barrel), to get the situation better there will be the need to create an oil duct from

Venezuela to the pacific ocean, which posses a number of economical and strategically

problems (it has to pass by Colombia). Also, Venezuela oil is a heavy one, hard to refine and

China’s refineries aren’t capable of refining it. But if Venezuela and China can accomplish

this, then Venezuela can stop selling its oil to USA.

The third block is composed by African countries; of which Nigeria has the biggest reserve on

the continent with 2.9% of the world reserves (annex: table 15). Angola is already a major oil

77P. Gentelle, «Géopolitique du Monde Contemporain, Etats, Continents, Puissances »,Nathan, Paris,2008, p. 224-225. 78 Idem, p.224. 79 Idem, p.225. 80Idem, p. 227.

36

provider to China (with Sudan, Guinea Equatorial and Congo) 81. From Africa, China is

obtaining 30% of the oil it needs. But not only that, as said in the previous chapter China has

made a « Diplomatic Push » into the African continent.

1.3. Coal Reserves

Europe has important coal reserves as the German Federal Institute for Geosciences and

Natural Resources (BGR) shows: for Europe it gives reserves82 of 19 Billion tones83 and

resources84 of 479 Billion tones in Europe. The table 22 on the annex illustrates the world

distribution of reserves of coal.

What concerns supply and demand: According to the German Federal Institute for

Geosciences and Natural Resources (BGR): from 2004 to 2006 total world coal production

increased by 16% to 5,370 million tons (Mt). While European coal producers slightly

decreased their coal production in 2004, the « BRIC » countries (Brazil, Russia, India and

China) were the main factors in the increase in worldwide production. In 2006 production

increased by 8.8%, following an increase of 6.5% in 2005 and 9% in 2004.Updated analysis

of proven coal reserves indicates that at current world production levels there is close to 150

years of coal available85.

The situation of the EU is clearly shown on annex table 23: Europe is the third largest coal

consumer (10%), after China (4%) and the USA (18%). Two thirds of consumption is derived

from EU member’s production, with 164 million tons of coal (annex: table 26). The EU

depends of coal for power generation (one third comes from coal) according to the BGR.

European production has continued its decline over the period 2004/06, and is forecast to

decline further in 2007 (annex: table 24). The coal production reduced by 4.7% in 2005 (EU-

25) and by 5.4% in 2006 (EU-27). The largest reduction in production from 2004 to 2005, in

81 J.C. Victor, « Le Dessous des Cartes », Editions de Nouyelles, Paris, 2007, p.138. 82 According to BGR (Federal Agency for Geosciences and mineral resources) reserves are defined as the quantity that can be recovered economically from a mineral deposit at current prices with current technology. 83 IEA definition of 1 million tons coal equivalent equals 0.7 tones oil equivalent, or 7 million kilocalories 84 According to BGR resources are defined as demonstrated quantities that cannot be recovered at current prices with current technology but might be recoverable in the future, as well as quantities that are geologically possible but have not been demonstrated. 85 European Commission, « Second Strategic Energy Review : an EU energy security and solidarity action plan

The Market for Solid Fuels in the EU in 2004-2006 and Trends in 2007 » Brussels, 2008.

37

was in the UK. In 2006 both Germany and Poland showed important reductions mainly as a

result of mine closures in Germany and some poor outputs in Poland86 as shown on tables 24

and 25 on the annex.

1.3.1. Producers

World hard coal production showed a record growth in the period 2004-2006, driven by

growth in production from non-OECD countries, with an 8.8% growth in 2006, following

three years of annual growth averaging 12%. Production increased in China, Russia, India,

Indonesia, Kazakhstan and Colombia, but declined marginally in South Africa87 as shown on

table 25 on the annex.

China accounts for around 41% of world coal production. Output grew by 14.9% in 2006,

following 10.4% growth in 2005 and 17.1% in 2004. China’s production has more than

doubled since 2000 which allows the country to meet fast growing demand for coal-fired

generation and steel making88

.

Coal production in North America has shown (annex: table 25)89 slow growth for three

consecutive years, increasing by 2.8% in 2006 after 2.0% growth in 2005 and 5.5% in 2004.

India showed growth in output of 6.0% in 2006, similar to the 5.5% growth in 2005, and

slightly less than the 6.6% in 2004 (annex: table 25)90.

Australia remains the largest hard coal exporter and increased production slightly by 1.5%

after 6.6% growth in 2005 and 4% growth in 2004 (annex: table 25)91.

South Africa accounts for 98% of Africa’s coal production and is the world’s fourth largest

coal exporter. Production fell back slightly by 0.2% compared to 0.9% growth in 2005 and

1.7% growths in 2004 (annex: table 25)92.

Russia expanded its output by 14.9% in 2006, a steep increase from the 6.9% growth in both

2005 and 2004, and further increased its importance as a supplier to Europe, particularly the

UK. From 2005 it has overtaken South Africa as the world’s third largest coal exporter

(annex: table 25)93.

86 Idem, p.15. 87 Idem, p.16. 88 Idem, p.16 89 Idem, p.17. 90 Idem, p.17. 91 Idem, p.18. 92 Idem, p.19. 93 Idem, p.22.

38

Indonesia is the seventh largest producer but second largest exporter in the world. Coal

production was up 11.0% in 2006 after stronger growth of 15.0% in both 2005 and 2004

(annex: table 25)94

.

Colombian production increased by 7.8% in 2006 following an increase of 9.0% in 2005 and

7.3% in 2004. Colombia should continue to expand but Venezuela’s potential for expansion

will be limited unless the efficiency of port and rail connections is improved (annex: table

25)95.

1.3.2. EU Imports

In 2006 according to BGR, imports of coal to the EU-25 was 206 Mt reduced by 1.0%

compared with the previous year and represented 53% of total hard coal supply (annex: table

26). The major coal exporting countries to the EU-25 were South Africa, Russia, Australia,

Colombia, Indonesia the USA and Canada (The breakdown of these coal imports is illustrated

by annex: table 27).

The most significant change in coal import sourcing from 2004 to 2005 and again from 2005

to 2006 is the major growth in imports from Russia; offset to some degree in 2005 by a

reduction in South African supply (annex: table 27) making Russia one of the largest coal

supplier to the EU. It provides about 25% of the coal imported. The rest of the countries are:

South Africa also has 25%, Australia 12 %, Colombia 13%, Indonesia 9% and 6% USA

according to the IEA Coal Information 2007 report.

The question will remain: will Russia increase is quota on the coal imported? Or will the

European Union will search for more providers with less political leverage over the EU.

Colombia is already providing 9% of the coal imported. Venezuela could play an important

role as soon as it modernizes its ports and other infrastructures. But is it important to say that

Mercosur member’s and associated countries don’t have as much coal reserves as they do of

gas and oil which are their « forte ». This only means that they could provide with greater

quantities of gas and oil to satisfy the EU needs.

1.4. Energy Predictions

Between 1970 and 2000, the world energy consumption has increased 48%. The International

Energy Agency maintain that the energy demand should rise 52% for the 2000-2030 period,

but the American Department of Energy says that it will increase 71 %.

94 Idem, p.23. 95 Idem, p.24.

39

As it is shown on table 28 on the annex, the use of fossil fuels will maintain its hegemony.

They will represent around 80 % of the energy used on the futures years. According to Jean

Christophe Victor Author of Le Dessous des Cartes there are three factors that will determine

that the percentage of the different energies remains the same:

1-Those energies are and will be available. In 2006 the world coal reserves are estimated at

150 years. Also, the coal is better distributed around the countries than the oil (which reserves

are mainly concentrated at the Middle East). The coal still produces about 40% of the world

energy (even if in Europe it has decreased it use).

2-According to the International Energy Agency, China is putting in service one electric plant

every week (mostly coal based).To this, it is important to add the future demand in electricity

that will be made by the current population that doesn’t has nowadays but it could have in the

future (one out of four person in 2006 didn’t have electricity).

3-Also, the fossil fuels are more and more accessible. To the 59 years of gas reserve and 41

years of oil (estimation of 2006), we have to add the discovery of new reserves and the new

technology that’s allows better extraction. Also, the famous heavy oil that is present in

Canada and Venezuela with the prices of barrels going higher, make their extraction a feasible

possibility.

In Asia the car sales are on the rise. It has already tripled the numbers of cars in the period

between 1990-2005. the Chinese car fleet could triple in the next decades. Also, if it goes up

to the level of the American car fleet, then China were there are 20 cars every 1000 people

will have 775 cars per 1000 people (the equivalent of USA car’s- people ratio). In the scale of

a country with more than a billion people, the numbers of cars will have a great impact on the

automobile sector, the oil (energy and prices) sector and more important on the environment.

40

2. Agriculture

According to J. Simon the « Common Agricultural Policy (CAP) is one the oldest policies of

the European Community and was one of its core aims96.The policy has the objectives of

increasing agricultural production, providing certainty in food supplies, ensuring a high

quality of life for farmers, stabilizing markets and ensuring reasonable prices for consumers

(article 33 of the Treaty of Rome)97. It was, until recently, operated by a system of subsidies

and market intervention. Until the 1990s the policy accounted for over 60% of the then

European Community's annual budget, and still accounts for around 35% »98

.

The PESC and CAP and industrial policy emptied the country side of farmers and destroyed

the industrial regions. As a fact, in the sixties the CAP established a political consensus to the

necessity of a modernization in the agricultural sector that helped raise better performing

agricultures. It entered in a productivity logic that weakened the auto-provided food of the

CEE. Intensive farming became the model and small farms pay the price. Agro-food industry

rose between the years 1973-1985, the agricultural production of the CEE rose 20% while the

population employed on agriculture fell 25%and the number of agricultural establishment fell

by 15%. To make things worse the consummation during that period fell or stayed the same.

The CEE couldn’t absorb that production. The European agro food followed the United States

example: they created agro-food oligopolies with a standardization of the alimentation

model99.

The agro food industry with its modernization of production made the small farmers pay the

price, which had as effect the migration from the fields to the city of masses of farmer which

couldn’t any longer continue with their productions. Those regions where some farmers

stayed behind now have an elder population and are in debt.

96J. Simons, «The EU common agricultural policy EU farming ministers have reached a long-awaited agreement

on CAP », The Guardian, UK, June 26, 2008. 97Idem.

98 Idem. 99 J.P. Peemans, « the Agriculture in Europe », Contradiction, February, 1989.

41

The European agriculture policy since the creation of the CAP had as effect the change in the

production logic, the consummation model and the standardization of the products without

counting the human impact of that modernization.

The policy's price controls and market interventions led to considerable overproduction

(resulting in so-called butter mountains and wine lakes). These were intervention stores of

produce bought up by the Community to maintain minimum price levels. In order to dispose

of surplus stores, they were often sold on the world market at prices considerably below

Community guaranteed prices, or farmers were offered subsidies (amounting to the difference

between the Community and world prices) to export their produce outside the Community.

This system has been criticized for under-cutting farmers in the developing world100

. The

overproduction has also been criticized on environmental grounds in that it encourages

environmentally unfriendly intensive farming methods. Supporters of CAP say that the

economic support which it gives to farmers provides them with a reasonable standard of

living, in what would otherwise be an economically unviable way of life. However, the EU's

small farmers only receive 8% of CAP's available subsidies101.

Again J. Simons says that « Since the beginning of the 1990s the CAP has been subject to a

series of reforms. Initially these reforms included the introduction of set-aside in 1988, where

a proportion of farm land was deliberately withdrawn from production, milk quotas (by the

McSharry reforms in 1992) and more recently, the 'de-coupling' (or disassociation) of the

money farmers receive from the EU and the amount they produce (by the Fischler reforms in

2004). It is intended to move away from subsidy payments linked to specific produce, toward

direct payments based on farm size. This is intended to have the effect of allowing the market

to dictate production levels while maintaining agricultural income levels »102. The most recent

reform entailed the abolition of the EU's sugar regime which previously involved the carving

up of the sugar market between member states and certain African-Caribbean nations with a

privileged relationship with the EU103.

100http://europa.eu/ 101http://europa.eu/ 102 J. Simons, «The EU common agricultural policy EU farming ministers have reached a long-awaited

agreement on CAP », The Guardian, UK, June 26, 2008. 103 BBC News : http://news.bbc.co.uk

42

The table 29 on the annex shows how the EC 15 countries in the last 13 years were losing

agricultural establishment year after year. The following table (N°30) shows how the

incorporation of eastern European countries (French acronym: PECO: pays de l’Europe

Centrale et Oriental) was among other thing a geopolitical move that had in aim 3 different

factor:

First: Enlarging the consumer population.

Second: Increase the agricultural surface of the European Union alongside the augmentation

of the population in the agricultural sector (40% of new agricultural surface and double the

agricultural active population according to Bernard Elissalde104).

Third: Already seen on the table 24, the European Union enlarging helped on getting new

energetic resources, notably Poland with its coal reserves but also as seen on table 46 it has

25% of its population on the agricultural sector. This means that Poland was a « Key »

geopolitical country for the EU.

Mercosur is the largest world food producer. The five members’ States are mayor food

producers and South America has been called the granary of the world. Even with the

incorporation of the PECO’s countries the EU 25 agricultural future regarding its food

independency will only last an amount of years before the need of a constant source.

Seen how the « intensive » agricultural process are been displaced for « extensive » bio-

environmental friendly process, the amount of land needed to fully supply the European

Union population will be more than that that the EU currently possesses.

The only place where land for agricultural in « extensive process » can be found is South

America, especially: Brazil, Argentina Paraguay and Uruguay. The EU is Mercosur's first

market for its agricultural exports, accounting for 38.5% (70 % are primary products) of total

Mercosur export to the EU in 2006 (annex: table 9) and 17% of all agricultural imports of the

EU in 2006, making it one of the prime agricultural partner of the EU. As shown on annex

table 31, the agricultural sector in Mercosur member plays an important role. Is higher than

that of the EU (2%) and in comparison with the years 1990 and 2004, it can be seen that the

agricultural sector grew.

104 B. Elissalde, « Géopolitique de l’Europe », Nathan, Paris, 2006, p. 157.

43

When talking about resources availability, Europe and USA are already saturated, Asia has its

consumption getting higher and Africa cannot compete because it doesn’t have the

infrastructure, the know-how or capital invest in. The only one that’s left is South America

(Brazil). According to Embrapa105 and IBGE106, of the 851 country’s million hectares that

Brazil has, 402 million are cultivable and only 62 million are used for agriculture, of which

35% are used in annual harvests and 65% in permanent harvest. The land occupies by the

forest represent 440 million hectares, of which 350 million are in the Amazon. There is then

350 million hectare that can be used in the future for agriculture purpose without having any

impact on the environment, of which 90 million are immediately available (three times France

useful agricultural surface). To this we have to add, the land that can produce twice a year, 26

million hectares of the 62 million (13%). This is why US former Secretary of State, Colin L.

Powell, calls Brazil an « agricultural superpower »107 (annex: text 1) and shared by President

Lula who said « that neither Brazil nor Argentina owe nothing to Europe regarding

productivity and technological advances on the agricultural sector. We can compete with them

on any agricultural situation »108.

This agricultural power has already being taking into advantage by Asian countries: The

commercial agreement between Asia and South America shows that since 2004 agricultural

and mineral products have been exported to China in an increasing pace. From coffee, cotton,

wood, soybean, wool, oil, etc. The soybean exportation have even impacted on the

international prices, and now have been called the soy-dollars (Brazil has 1/3 of the world

soybean production, also Uruguay, Argentina and Paraguay are big producer of soybean,

Paraguay been the fourth worldwide exporter with a 10% annual increase109.

Brazil has become an agricultural giant; it is the 3 world exporter after USA and the EU15.

Brazil sells 37% of this agro food to the EU (15% to USA) for a value of equivalent to what

Africa export in agro food to the EU. But Brazil has argued that EU has many subventions

and subsidies and disloyal competition do to the existence of the CAP110.

105 Brazil’s agricultural and livestock research agency: http://www.embrapa.br/english 106Brazilian Geographic and Statistic Institute: http://www.ibge.gov.br/home/ 107 Idem. 108 M. Cantelmi, «Creamos una nueva clase dirigente en América del Sur: Reportaje al Presidente de Brasil Luis inacio Lula Da Silva », Geosur, Montevideo, N° 343, Noviembre-Diciembre, 2008, p.10. 109 P. Gentelle, « Géopolitique du Monde Contemporain, Etats, Continents, Puissances », Nathan, Paris, 2008, p.

226. 110 Elissalde, Bernard: Géopolitique de l’Europe. Paris, Nathan, 2006, page 305.

44

To the agricultural part, it is important to add the environmental side. Table 32 (on the annex)

shows how much of its territory the EU 15 has as destiny the protection of the environment:

being 14.4% the average. According to International Union for the Conservation of Nature111

25% of the lands in Latin America are protected by different measures, it is the highest

worldwide. But not only that, it is important to remember that the Mercosur alone is 3 times

bigger in territory than the EU 27, which make the area left as protected territory an important

region. Regarding the Amazon is an important biomedicine and biodiversity haven, with

incredible potential for humanity, without mentioning it is considered the lungs of the world.

3. Water

The United Nations recently has estimated that one-fourth of the world population lacks fresh

water and that in the next 20 years that number will double. It is important to say that the total

hydraulic resource of the planet, fresh water only represent between 2%-3%. According to the

World Water Council with current investment (public and private) on water infrastructure, the

access to water will only be guarantee in 2050 in Africa, 2025 on Asia and 2040 on Latin

America and the Caribbean112

.

According to the American analyst Hughes Butts « No country will be able to be

economically or socially stable without a secured water provision »113

The fresh water that the Mercosur possesses is equivalent to 19.5 % of the world’s fresh water

(South America posses 30.9%), making it an important reserve (annex: table 33). Knowing

that water will become more important than any other resource in the future gives South

America and Mercosur a clear advantage over the other continents. Europe posses 5.5% of the

world reserves of fresh water, but the grade of pollution due to its industries has yet to be

determine. In this sense, Mercosur states even though having industries, they still have plenty

of clear water reserves.

111 http://www.iucn.org/ 112 V.M. Chiesa, and E. Rivas, « Acuifero Guarani » Geosur, Montevideo, N°324, Mayo-Junio, 2007, p.43.

113 V.M. Chiesa, and E. Rivas, « Acuifero Guarani » Geosur, Montevideo, N°324, Mayo-Junio, 2007, p.44.

45

3.1. The Environment Water

Brazil's environment is one of the richest in the world. Brazil’s natural wealth includes not

only the dense tropical rainforests of the Amazon, but also the important biomes of the

savannah-like Cerrado, the arid scrublands of the Caatinga, the Atlantic Forest, the grasslands

of the Pampa and the wetlands of the Pantanal114. Much of Brazil’s fauna and flora is found

nowhere else on earth, its ecosystems contains more than 15% of the plant and animal species

known to science. Brazil also holds 15% of the world’s available freshwater and Argentina,

Paraguay and Uruguay holds 4.5% (annex: table 33)115.

According to the Ministry Brazilian of the Environment116, the value of environmental

services rendered by Brazil's ecosystems (in terms of mega-biodiversity conservation and

carbon sequestration) is several trillion Euros per year. Therefore Brazil has a key and

strategic role to play on a global scale, a role which the country has assumed since it is party

to a number of international conventions on environmental issues (biodiversity, climate

change/Kyoto Protocol, desertification, endangered species, etc.) and participates actively in

international conferences on the environment.

Brazil's Amazon basin deserves a special mention since it covers 3.5 million km²117, around

50% of the country's territory. Several schemes are being implemented to curb deforestation,

such as the Program for Protection of Amazon Areas, or the Sustainable Amazon Program118

.

Deforestation in the Amazon region and elsewhere119 in Brazil is mainly due to economic

pressures (expansion of the surface dedicated to agriculture, infrastructure works like roads or

dams to improve production movements, activity in the timber industry in the Amazon region,

tourism in Pantanal or the Atlantic forest, etc.) and to urbanization120.

114 European Comission «Brazil: Country Strategy Paper 2007-2013». Brussels, p.11. 115 Idem. 116 http://www.mma.gov.br 117 Brazil’s agricultural and livestock research agency: http://www.embrapa.br/english 118 The Sustainable Amazon Program addresses policies for environmental management, land-use planning, sustainable production, social inclusion, infrastructure and a new financing model allowing integrated sustainable development policies. 119 The forest along the Atlantic coast is the most threatened forest. Only 8% of this forest is left over. 120 EC Delegation in Brazil: Country Strategy Paper 2007-2013, 14.05.2007 (E/2007/889).

46

4. Demography

The population decline that Europe is facing has become an absolute problem according to the

European Commission. This situation reflects a demographic table that shows the result of an

aging population mixed with the low fecundity (annex: tables 34-35 and text N°2). The

economical, social, and political implications of this demographic problem can be a menace to

Europe’s place in the world and its social model121

.

In all Europeans countries there is a low level of births; Europe’s medium is twice as low as

the world’s medium: in 2004, every 10 births per 1.000 people, against 21/1000. The African

continent natality is at 38. That natality index is linked to two factors: the behavior of the

Europeans homes that are limiting their descendance, and an aging structural problem, that

has a consequence a low population that can have children (annex: table 36)122

.

Aging, is a problem, Europe is the most affected continent: it has a medium age of 39 years,

while the rest of the world is 28 years in 2005 (18.9 years in Africa). With high life

expectancy, the medium life expectancy is about 79 years (Japan 81 and USA 77)123

.

With the enlargement: the EU has now 490 million people, making it one of the biggest

demographic units. Behind China (1.3 billion) and India (1.1 billion), but before the USA

(296 million), Russia (143 millions) and Japan (125 millions). Not all countries will be

affected equally, while France (9.6%) and UK (8%) will have an augmentation from here to

2050, others will see their population shrink before 2025 between (10%-15 %), notably

oriental Europe and middle Europe. Russia will lose almost 15 million before 2025. Ukraine

will lose 6 million124.

The geopolitical implication: an aging population has as effect the shortening of the working

population. Between 1970 and 2000, the number of young working men (ages 15-19) passed

from a 60% to a 33% of the total population. Having an active population shortening itself the

EU 25 will see it base of 303 million workers go down to 297 millions in 2020, and 280

millions in 2030. France is losing around 30,000 workers per year (2006) and will have an

121

European Commission, « Europe’s demographic future: Facts and figures on challenges and

opportunities », Brussels, SEC(2007) 638. October 2007. 122 Idem, p 25. 123Idem, p.27.

124 Idem, p.27

47

acceleration of those number by the year 2025 of 80,000 per year, the total number will be of

2.8 million by the year 2050 (annex: table 37)125.

The cost: according to the European Commission126 in its annual report of 2002, it estimates

that due to the aging of the population, the cost will be of 0.4% less annual growth per

GDP/capital in the 2000-2050 period. Having most variables constant in those years, then the

living standards will shorten themselves in a 22% in Western Europe due to the lack of

workers. Referring to retirement, it has a big cost on the governments and it will only get

bigger: in 2000, the cost for the Spanish government was of 8% of its GDP, 15.4% for Italy,

12.5% for France and Germany, 11% for UK. For the year 2050, those numbers will be

respectably the following: 12.4%, 21.4%, 17% and 16%.

The UN127 has estimated that to maintain the 15-64 ages ratio over the 65 years, in orders to

maintain the European social model, the Europeans countries will have to let around 14

million migrants per year in the next 40 years (around 560 millions). It is important to say that

the EU rejected this numbers given by the UN report on European demographics

The European Commission128 has recently acknowledged of the positive aspect of the

immigration. In a study done in UK, it has shown that in the years 1999-2000, the

immigrants have paid 3.28 billion Euros more (taxes that they don’t see in prestations); The

study also reveals that there isn’t any competition regarding jobs between native born and

migrants. Adding to the problem, there is also the brain drain. There are about 400,000

Europeans that studied in the field of technology and science that are currently living in USA

and of those only 13% have shown interest in going back to Europe.

The new laws passed by different European government regarding illegal immigration could

only worsen the demographic-economic outcome.

An important matter regarding illegal immigrants that the EU should take into consideration

are the misconception on them.

125 Idem, p.28 126 Idem. p.32. 127United Nation: http://www.un.org/ 128European Commission, « Europe’s demographic future: Facts and figures on challenges and opportunities », Brussels, SEC(2007) 638. October 2007.

48

Different studies have demonstrated that illegal migrant make the best population that a

country can have because of these factors:

1-They pay taxes (indirectly or directly) which helps the State treasury.

2-They end up working on the jobs that national normally don’t want.

3-They do not receive prestation (education, health and pensions, etc)

4-They do not complain publicly out of fear of being deported (reason why the majority of

them do not commit crimes).

Over the coming decades, Europe's demographic makeup will change dramatically. The

populations are becoming older than ever before because of three major trends. First, as the

baby-boom generation approaches retirement age, the share of older people will rise rapidly;

second, birth rates have remained low for several decades; and third, Europeans are living

longer and better lives (annex: tables 34-37).

How will EU provide health and social services to the third age population?

Demographic change is high on the European policy agenda and, indeed, Europe has to brace

itself for profound changes in its population structure. During the coming decade, the baby

boom cohorts will start retiring from the labor market. Young cohorts entering the labor

market will be much smaller as a result of low fertility. In about 2 years (2011), total

employment in the EU could start to fall, in spite of rising employment rates. Europe's

potential growth rate could decline at a time when significant additional resources will be

required to meet the needs of an increasing number of elderly people for whom adequate

pensions, healthcare and long-term care provision will have to be secured129.

Analyzing the demographic projections on table 43 (on the annex), and also seeing the

pyramids (annex: tables 38-42) of Europe and the Mercosur countries, we can see how in one

hand one block will have a population decline and the other one will not. It is important to

think how the weak point of one block, could be made stronger with a cooperation policy

between both blocks.

129

European Commission, « Europe’s demographic future: Facts and figures on challenges and

opportunities », Brussels, SEC(2007) 638. October 2007.p. 35.

49

Knowing that Argentina, Uruguay, Paraguay and south Brazil have the most Europeans

whites on the continent. And that Europe will need migrants to tackle its future economical

problem do to the lack of workers, a possible exchange population cooperation policy could

be implementing.

In the last 5-10 years, many retirees from « first world countries » have moved to third

world (French in Senegal, Americans in Mexico) countries because of several factors, but the

two main ones are: First the weather and second the living cost (including healthcare which is

relatively not expensive) that are usually much lowers than on their countries of origin. It is

but recently that third world countries have seen these migrants as a source of income. Some

countries have started to improve security, healthcare institutions, supermarkets and

everything that could be related to the needs of these special migrants. The aims of these new

policies are to improve the services and that way attract large numbers of these retirees.

The first question that could be asked by some European countries, is why letting their

retirees go on living to third countries? The first answer is that the healthcare costs that each

retiree has on its own country is much higher than that on a third world countries, which ends

up being a cost to the state or to the healthcare company (first world countries healthcare and

insurance companies have seen this exchange favorably). Second, retirees get more out of

their pension money.

Mercosur and EU could benefit of an exchange of this sort. Uruguay and Argentina are the

most « Europeanize » countries in South America. Seeing a massive migration of retirees

could benefits their economies, and in exchange these countries as well as Brazil, Paraguay

and Venezuela could provide with young workers (as shown on table 5 on the annex, the

median age in Mercosur is between 28-33 years and that of the EU is 39 years, which for the

year 2050 will be 49 years) that the EU will need starting 2011 to maintain its economy.

Another reason to approve an exchange program between Mercosur and Europe, as also

between Europe and other countries is what Lula said regarding the African continent:

« Africa will have in 30 years 1,300 million people. And if the continent continues to be as

poor as now, there will be no Atlantic ocean that could withhold them130 ». But not only that,

130 M. Cantelmi, «Creamos una nueva clase dirigente en América del Sur: Reportaje al Presidente de Brasil Luis inacio Lula Da Silva», Geosur, Montevideo, N° 343, Noviembre-Diciembre, 2008, p.16.

50

as shown on the annex text N°2, the case of the Free State of Saxony in Germany is a vivid

example of the demographic problem faced by the EU. The situation is so bad that 50,000

homes were demolished because they were empty, and 250,000 more are to be demolished by

the year 2015.

This chapter served to demonstrate the status of both block on the 4 geopolitical variables

mentioned above. By comparing them we have a better idea on the situation that both blocks

are facing.

In the energy field, Mercosur countries have a clear advantage, not only over Europe but also

comparing to other countries or regions. The future energy demand by Europe will increase as

the experts have said.

On what water is concern Europe has some degree o independence, but it doesn’t have the

quantities that Mercosur has. And the future evolution on water demand is likely to increase.

Even though Europe at the moment can produce enough food for itself. The data provide

above, shows that it will need to import agricultural product with an increasing pace. In this

area, Mercosur is well positioned.

The last variable is where Europe has it advantage over Mercosur. The population of Europe

has an excellent living standard, and it is 3-4 time higher than that of Mercosur. Not only that,

but the European population has a higher degree of education than that of South America

countries. A population co-operation agreement could be clearly beneficial to Mercosur

countries.

On the next chapter I will summarize the current negotiation of a Free Trade Agreement, as

well analyzing the possible window of opportunity.

51

CHAPITER 3:

FREE TRADE AGREEMENT

CURRENT SITUATION AND

ANALYSIS

52

1. Towards An EU- Mercosur Free Trade Agreement

Negotiations for an inter-regional Association Agreement between the EU and the Mercosur

began in April 2000. The agreement under negotiation consists of three parts: a chapter on

political dialogue, a chapter on trade and economic issues (creating a bi-regional free trade

area) and a chapter on co-operation131.

1.1. Principles, Scope and Objectives132

:

Negotiations on the trade chapter are governed by three main principles:

1. A region-to region approach, which constitutes the basis of discussions on all

regulatory areas.

2. The agreement should be comprehensive and balanced, going beyond the respective

obligations in World Trade organization (WTO). No sector should be excluded, whilst

taking account of product sensitivities.

3. The agreement should constitute a single undertaking, implemented by the parties as

an indivisible whole.

The scope and objectives of the free trade agreement, agreed jointly at the 1st negotiating

round (April 2000) and at the Madrid Summit (May 2002), include133:

• The bilateral and reciprocal liberalization of trade in goods and services within an

agreed time frame in conformity with the relevant WTO provisions.

• The further improvement of access to government procurement markets for goods,

services and works.

• The encouragement of an open and non-discriminatory investment climate.

• Ensuring adequate and effective protection of intellectual property rights with the aim

of achieving an agreed high level of protection and taking into account on-going

technological progress and relevant international conventions.

• Ensuring adequate and effective competition policies and a mechanism for co-

operation in the field of competition.

131 European Commission, « Mercosur Regional Strategy Paper 2007-2013 », Brussels, E/ 2007/1640,

02.08.2007. 132 Idem. 133 Idem.

53

• Ensuring adequate and effective disciplines in the area of trade defense instruments.

• Establishing an effective and binding dispute settlement mechanism.

• An Agreement on Sanitary and Phytosanitary measures.

• An Agreement on Wines and Spirits.

• A Business Facilitation Action Plan.

In addition, in the area of goods both sides have discussed more specific objectives for

standards, technical regulations and conformity assessment procedures and for customs and

related procedures134.

During negotiations, a number of difficulties existed. The first one was the definition of the

free exchange zone concept, maritime transport, and intellectual property. For a fast approval,

the accord had general lines and didn’t touch issues as the agricultural.

1.2. State of Negotiations and Prospects

16 negotiating rounds have been conducted to date. The political and co-operation chapters

are almost concluded. Substantial progress in the trade chapter allowed both parties to

realistically envisage a conclusion of negotiations by the end of October 2004. However, on

20 October 2004, at the occasion of a Mercosur -EU trade negotiators meeting at ministerial

level in Lisbon, Ministers concurred that the offers on the table did not reach the degree of

ambition that both parties expect from this agreement and decided to give negotiations more

time. The two sides failed to agree on each other’s final offer. Mercosur requested better

access to European markets for its most important source of trade revenue and its prime venue

for applying its comparative advantage: agricultural goods. The European Union, meanwhile,

wanted to increase its access to Mercosur’s manufacturing sector, in particular, its

telecommunications, marine shipping and banking areas. Following a number of technical

contacts in 2005 to discuss the ways to re-engage the process, Ministers met again on 2

September 2005 to discuss on a way forward. Both sides also recognized the relation between

the ongoing Mercosur-EU negotiations and the Doha Development Agenda. Since then,

discussions have continued at the technical level135.In November of 2006, negotiations were

134 Idem. 135 Idem.

54

re-launched in Rio de Janeiro, once again without significant progress being recorded (the

European Parliament in October 2006 voted in favor of a FTA with Mercosur 136)

The negotiation process is expected to resume in 2010 according to the EU Foreign Relations

Commissar Benita Ferrero-Waldner. Taking into account that for that year Spain will have the

presidency of the EU and that it has a strong cultural tie with Mercosur members. The

possible future negotiation may have a better ending.

2. Opportunity Analysis

In the first chapter under the constrain section for a possible rapprochement between the two

geographical spaces was the power of the European agricultural lobby and the industrial lobby

of South America are exercising and impeding the signing of the TFA.

To understand what kind of power they have over the political bodies of their respective

regions is important to analyze 2 variables: the first one is the way the Gross Domestic

Product is divide by sector: Agriculture, industry and services. The second one is the division

of the labor force by occupation: once again agriculture, services and industry.

This data will allow us to have an idea of the economical power each sectors has. It will also

tell us the amount of political implication it could have in case that either sector find itself in a

worst position by a future rapprochement between the two economical blocks.

According to CIA world fact book data 137

(2008 est.), the European Union GDP division by

sector is as follow: The industry generates 26.8% of the GDP, agriculture 2% and services

71.1%. The labor force is divided in 27.7% for the industry sector, 5.6% for agriculture and

66.7% in services.

136Mercopress : http://en.mercopress.com 137 Central Intelligence Agency, « The World Factbook »: https://www.cia.gov

55

In Mercosur the GDP divided by sector numbers are: in industry 36%, agriculture 11% and

53% for services. The labor force is divided as shown on the chart below:

Labor force by occupation (% of GDP) 2008

Industry Agriculture Services

Argentina 23% 1% 76%

Brazil 14% 20% 66%

Paraguay 17% 31% 52%

Uruguay 15% 9% 76

Source: CIA World Fact Book.

Regarding EU, the data show that the industrial sector generates more revenues than the

agricultural sector, but not only that, it has more people employed. Only 5% of the

economically active population works on the agriculture sectors. A possible TFA with the

Mercosur space could put in « danger » does jobs. Which means that the political bodies of

the European Union have to take this into account before deciding if a TFA is possible. The

repercussion of TFA signing could be seeing on electoral day. Now, in the other hand the

industrial and services section both represent about 98% of the GDP. And they employ 94%

of the population. A possible TFA could benefit those sectors even more, creating new

opportunities. The end decision will be made taking these factors into consideration.

In Mercosur politicians will also have the same dilemma as their European counterparts. They

will have to analyze how the different sectors influence their GDP, and how many people the

possible losing sector of a TFA has, to determine the possible political loses and possible

policies solutions to diminish any negative effect on the industrial sector caused by the TFA.

By both data we can see that in terms of people possible hurt by a TFA are 5% of Europeans

and between 14%-23% in the Mercosur regions. In terms of the GDP, the European Union has

a 2% possible loss, and Mercosur a 36%. To this last number we have to add that even

thought they lose in one sector, they can be gaining a lot more on the other one. The idea of a

TFA is to create a freer, easier resource exchange frame that will benefit both parties. If we

take the NAFTA as an example: Then it is possible to imagine a triplication of trade between

56

the two spaces as the TFA between Canada, Mexico and USA did in 12 years since is

implementation138.

In another optic and mentioned above in the first chapter as a window of opportunity is that

USA military engagement in Afghanistan-Iraq can be seeing as well as China new entrance as

a major international.

After September 11-2001, the USA engaged itself in a military war against terrorism. The

invasion of Afghanistan (October 7/2001) and Iraq (March20/2003) has cost the American

government not only many lives but overall has a cost of 864 billion dollars for the fiscal year

2009 according to the Congressional Research Service of the USA139. To this we have to add

the military cost of cooperation with India and Pakistan, plus the foreign policy implemented

and the higher spending in the intelligence agencies of the USA (the creation in 2002 of the

Department of Homeland Security with a52 billion budget for fiscal year 2009 and 208,000

employees140)

This military engagement and massive resource spending has left other regions of the world

unattended. The priority of the USA is first security, and then comes the rest, including a TFA

with Mercosur. This is clearly a window of opportunity for an EU-Mercosur rapprochement.

The second window comes from one of the two major competitor of the Europe: China.

To define in a clear manner how the negotiations were held between the USA with its Free

Trade Agreement of the Americas (FTAA) and South America in one hand, and in the other

the EU with its FTA.

Mercosur holds a relative lead on agricultural productions, while EU and the USA are

predominantly strong in industrial, capital markets, automobiles and banking. Their

economies seem perfectly to complement each other. However the reason why neither accords

were signed was due to the fact of two main reason: the agricultural lobbies in Europe and in

the United States, and second the industrial lobby in Mercosur. Each block was trying to

protect is interest at the same time trying to obtain something from the other.

138 Mexico Precidency: http://fox.presidencia.gob.mx 139 USA Congressional Research Service:www.crs.org 140 USA Department of Homeland Security : www.dhs.gov

57

The strategy played by the USA and EU were the same, being both of them the strongest one

« face à face » Mercosur, they had the advantage on the negotiations and didn’t need to back

down from their positions. As long as the USA and the EU maintain their negotiation strategy,

and knowing that the Mercosur needs to sell its agricultural products, then it was clear that

both USA-EU had the upper hand on a possible treaty (signing of a treaty are accomplished

when actors find themselves better off by signing it, than by not) .

This strategy was interrupted when China entered the global trade as a major power. The

strategy implemented by both USA-EU is in serious danger « face à face » China who wants

also a FTA with Mercosur but it isn’t using the strategy played by its two other competitors

(USA and EU).

As we can see in table 44 on the annex, with the incorporation of China on the global scene,

the negotiations between Mercosur and USA-EU has entered into a new logic: that one of a

triangular competition.

The table 44 in the annex illustrates clearly how the trade balances between all of 4 players:

China is in terms of trade the winning player: it has a trade surplus with all of the other three.

Then comes the USA that has a trade deficit with all its trading partners. The EU has trade

deficits with China and Mercosur, but not with the USA. And Mercosur only has deficit trade

with China.

If China signs a Free Trade Agreement with Mercosur, then is could have the power to disrupt

global commerce. Precious resource needed by the USA and the EU could be saved for China.

As already said above, China is growing on an alarming pace. Mercosur will be an ideal

partnership for China to secure the resources it needs for the next decades.

The EU has to act now not only because China is in courtship with Mercosur states, but also

because there has been another window of opportunity opened by the USA. This window was

opened due to the engagement of the USA in Afghanistan, Iraq and Iran, which for the

moment been its taking enormous amount of energy and time to the foreign policy of the

USA.

Both strategies played until now by the USA and EU is in serious danger, and the USA is

already worried that the EU backs down from it. To this we have to add that Mercosur has as

58

target the future markets of: India, Russia and Korea. Indian and South Korea have already

shown their interest on signing a FTA with Mercosur.

China entering into scene has created a new context of triangular competition. To determine

which is the best option for both the Mercosur and the EU it is important to analyze other

variables.

What are the advantages of a rapprochement between EU-Mercosur?

The first answer is that the Mercosur has a trade surplus with EU of around 13bn Euros.

Second: There is the cultural background that ties Mercosur countries with Europe and not

with China. With the USA there is a cultural tied due to the « cultural bombing » that Latin

America has received during the past 30-40 years. American television has impregnated the

Mercosur households, but this tied is not as strong as it is the one that binds Mercosur

countries with Europe (not to mention the anti-Americans that an important part of the

population of the region has). In this sense, Europe has much lower cultural ties with Africa

and Asia.

Third: There is a clear need of Mercosur by Europe on 3 geopolitical variables that I have

shown on the chapter before. But on the fourth one (demographic), is Mercosur who clearly

needs Europe. In the demographic variable, the USA and China are well positioned because

they have a young population with a median age of 36 years for the USA and 34 years for

China141 and it will maintain itself like that for the next decades.

Fourth: A trade alliance between both blocks could leave better positioned the EU on a global

scale. Not only it could obtain energy source that will cut its dependency on Russia (or any

other country that uses the energy card to gain political advantage), but it will also give it

more power on the global arena. Mercosur will also be better positioned on an international

level, making it one of the global players.

Fifth: The world will enter a multipolar logic instead of the « one power » being applied since

the fall of the Soviet Union in 1991. A multipolar world is of mutual interest for both

Mercosur and Europe. As the tables 45 and 46 on the annex shows: The world situation will

clearly be of advantage for the USA and China for the years 2025 and 2050 if all remains the

141Central Intelligence Agency, « The World Fact book » : https://www.cia.gov

59

same. Making an agreement between the two blocks, could diminish the difference that those

countries have between themselves (in 2050) and with the countries that follow on the chart.

In Goldmans and Sachs142

prediction for 2050: Brazil (12 trillion $) and Mexico (trillion $)

become the fourth and fifth global economies. A rapprochement between the EU-Mercosur

blocks could put them « face à face » to China (70 trillion $) and USA (40 trillion$).

Sixth: A FTA between block could have a great impact on the economy. For Europe citizens

it could be the chance to access cheap agricultural products (notably meat and its derivates).

For Mercosur a better and cheaper access to industrial products and other technologies. If a

FTA between blocks works as well as the NAFTA143, then it will have the capability to triple

their trade in 12 years.

Seventh: A direct route between both blocks exist that cannot be disrupted by third nations,

nor by the new piracy affecting the Suez Canal route.

Eighth: Mercosur members enjoys now of political stability, the same cannot be said about the

African continent due to tribal, political, religious and economical unrest.

Ninth; It could have the possibility of blocking access to the EU major competitors: China and

USA. This could have the capability of slowing down their economical growth.

As mentioned above, Mexico is of importance for the Mercosur-EU possible rapprochement

strategy as well as it is Chile. They both have trade deficit with Mercosur, they both have

FTA with China, EU and Canada. Entering them into the Mercosur block will allow Mercosur

to achieve a number of objectives:

1-Chile will give access to the South Pacific and its mineral resources (Chile is the biggest

producer of copper in the world). With the bi-oceanic corridors in place its production could

pass by the rest of the Mercosur countries to follow its course to Europe.

2-Mexico will give access to North Pacific, the Gulf of Mexico (the access to the Caribbean

Sea has been achieved with the incorporation of Venezuela and the South Atlantic is already

in the hands of Mercosur).If Mexico enters the Mercosur, the Central American countries will

142 Goldman and Sachs Global, « The N-11: More Than an Acronym », Economics Paper , NY, N° 153, March 28, 2007.

143 Mexico Presidency: http://fox.presidencia.gob.mx

60

most likely follow. Which will mean that the Panama Canal could end up inside the block

given a strategic advance over other competitors in the trade arena.

3-With both countries inside the Mercosur, reaching a possible FTA with EU and Canada is

more plausible. And if Mexico and Canada reach agreement with Mercosur, then the political

and economical dominance that the USA has over the western hemisphere will drastically

diminish an so its global power. Also, taking into consideration the economical prediction of

Goldman and Sachs for 2050. Mexico has to be taking into consideration in a possible

rapprochement EU-Mercosur.

Analyzing the relation between EU and Mercosur and of the 4 geopolitical variables we have

to add the bio-oceanic corridors that will put a physical infrastructure to the political and

economical union of Mercosur.

The « Corridor Bi-oceanicos » are a network of communications (rail, roads, highways,

bridges and energy grids) that have as an objective to simplify, unite and improve the

communications of South America. Also, it will make possible an easy and fast

communication system between oceans from one side of the continent to the other. This

network will cut South America and Central America with « corridors » going from east to

west and from south to north.

The Bolivia, Brazil and Chile Pacific-Atlantic corridor, will create network that will unite the

Santos and San Francisco ports of Brazil with those of Chile (Antofagasta and Mejillones).

2,600 km of highway and train rails that will pass by Brazil- Paraguay-Bolivia into Chile, but

it will also have connection to Argentina. Already 4 years ago, the Brazilian Strategic Affairs

Secretariat (SAE) elaborated a map of South America with all the highways, hidroways

(canals) and railways that would unite Brazil with the rest of South America. With this

corridor the agricultural, mining, forestall, industry sector will be beneficiary. This way the

production will have easy access to the different markets, either inside the continent or

elsewhere (there is a gas duct been built from Venezuela going south to Argentina that will

connect Venezuela-Brazil-Bolivia-Paraguay and Uruguay 8,000 km long144). The creations of

the corridors will let Mercosur have a direct exit to Asia, Mexico and western United States.

144 B. Quagliotti des Bellis, « IIRSA, la infraestructura del ALCA » Geosur, Montevideo, N° 313, Mayo-Junio, 2006, P.3.

61

The impact of the future « corridors » will permit the development of the interior of the

South American continent, but not only that, it will reduce the cost not only of production but

moreover on transport, given those countries an advantage on the global commerce. These

infrastructures being created are of paramount importance for rapprochement between EU-

Mercosur. It will allow Mercosur countries to deliver easily and faster the resources Europe

needs. On the side of the EU, the communication infrastructure is already placed

To this we have to add the new decision made by the UN concerning Law of the Sea

(UNCLOS145), which will give new sea rights to member’s states. With the new ratification

of the Law of Sea Brazil gained rights to its continental shelf, which will give Brazil a total of

more than 712,000 km² of sea (called by Brazil Navy Commander Julio Soares « the Brazilian

Blue Amazon ») and are still in negotiation for 250,000km² more. This will give commercial

rights to that zone of the ocean to Brazil, which will be beneficiary for its mineral and fishery

industry without mentioning the oil and gas reserves that are there. Also, Uruguay

(150,000km²) and Argentina (almost a million km²) demanded for their right to their

continental shelf. The Argentinean demand will put it in direct conflict with the UK due to the

Falkland issue (1982 Falkland war) UK will not only oppose to Argentina’s demand because

cause of their political needs of the island, but also to the possible energy discoveries in that

region. The south Atlantic has become a zone of interest, and that is good reason why the

USA has re-entered service its 4th

fleet which will have the South Atlantic as its operational

zone (Brazil bought 5 submarines from France in 2008).

This new decision by the UN will give more resources in the energy, mining and fishery

fields. These resources should play an important part in a rapprochement between the EU and

Mercosur.

In this chapter I described the current Free Trade Agreement negotiation status. A brief

analysis of the major constrain that is impeding a rapprochement between the two blocks has

been made, as well as two factors that could be considered as windows of opportunities (the

Chinese case and USA military engagement).Also, I enumerate various factors that plays in

favor of the rapprochement EU-Mercosur.

145 United Nations Convention on the Law of the Sea (UNCLOS)

62

CONCLUSION

63

CONCLUSION

The Mercosur integration process faces the most important dilemma that it has in the last 15

years of its existence. And it’s due to a series of factors that for the first time makes the block

have to decide important decision that will determine its future.

The possibilities faces by the south block could be summarizing into 3 different scenarios:

First: This scenario envision It members state acting more into bilateral relation with

third countries. The USA is pushing Latin American countries to enter this scenario

with its FTAA treaties.

Second: A more extreme scenario could be the dissolution of the block. It seems to be

the least probable.

Third: The reformulation of the integration model that the Mercosur was based on. It

is important to point out that the Mercosur begin its process (1991) which had

influence from the denominated Washington consensus146

.But, if it wants o survive as

a block, serious changes have to be made.

In consequences and seen that its conception wasn’t that of a political block, but more over of

an economical union. The current Mercosur cannot face the current member states needs and

is in a crisis which has many phases. One of the most important is the tension between the 2

biggest countries (Argentina-Brazil) and the 2 smallest (Uruguay-Paraguay) regarding: the 1-

decision process inside the Mercosur, 2- the lack of a common goal about the necessities, 3-

the characteristic and objet of the integration process.

Even though these problems, Mercosur has achieved on the last years important steps that

permitted it to conclude international treaties and position it as an important international

player. That way, the current treaties signed with the Andean Community of Nations, can

point out to a bigger integration union, that will finish into the South American Union of

Nations. As also the pacts signed with Egypt, India, the South African Custom Union, where

the South American block is trying to position itself as a mayor actor on the international

arena.

146 Washington consensus: A set of policies that had as objective the liberalization of the trade, privatization, deregulation, fiscal discipline, property rights and tax reforms.

64

The Mercosur has to give more power to its institutions basing in ceding national sovereignty

power in favor of Mercosur supranational structures, that way the integration process doesn’t

stay only in an association, but rather in a broader entity. The Mercosur needs to learn from

the steps already done by the European Union in is process to become a stronger political

institution. The Mercosur should copy (knowing the Latin idiosyncrasy) the EU subsidiaries

principles and proportionality. This is of paramount importance for a rapprochement between

the two blocks. The EU needs a properly working Mercosur if a rapprochement is wanted.

According to Bernardo Quaqliotti de Bellis, the main point of the world geopolitical conflict

is reduce to a single factor: « the current world powers and those that are emerging tent to

control as much of oil and natural gas as possible for the next 30 years according to the

Hubber Peak147, otherwise their economies will easily crumble »148. This means that resources

are the key to economical growth. A rapprochement between the two blocks is not only for

political gains or because of cultural ties, is above all an exchange of resources in a relation

that will put in a winning situation both parties. The rapprochement only serves if both parties

gain something out of it, and not if one block ends up in a worst position than before.

Since the 1970 crisis qualify by Kissinger as the mayor threat to the developed world, passing

by the Carter doctrine and the Iran crisis (the fall of the Shah), the world hasn’t seen, and least

lived a crisis as today’s. The food crisis and the energy, without mentioning the global

warming and the economic crisis that is affecting the world today can easily be worst on the

near future. Only cooperation between all the global actors can bring answers to this problem.

A rapprochement EU-Mercosur could serve to face those future problems in a better position

for the two blocks.

As Shown on the second chapter, Mercosur countries possess an advantage on 3 variables: on

water it has 19.5% of the world fresh water, while the EU has 5.5%. On agriculture the EU is

now well positioned but the tendency shows that in the near future it will need to import

agricultural products in an increasing pace. The Mercosur regarding agriculture is « the world

granary » according to Collin Powell. Brazil alone has 403 million cultivable hectares (the

size of the EU territory), of which is now only using 62 million. This means that there are 340

147 Hubbert peak: term used in the oil industry to denominate when the world would have arrived to used half of the proven reserve. 148B. Quagliotti de Bellis, « Atlántico Sur, un espacio estratégico y codiciado », Geosur, Montevideo, N° 341, Septiembre –Octubre 2008, p. 5.

65

million hectares for agriculture if needed. On energy, Mercosur has 3.7% of the world gas

reserves. The EU gas reserves are already declining. It is already importing 60% of its gas

needs (25% of the gas comes from Russia). On Coal, the Mercosur states only posses 19 bn

tones of reserves and 27 bn tones. The EU has a clear advantage in coal with about 19 bn

tones sin reserves and 479 bn tones as resources. In coal, EU has to import 56% (half from

Russia). Regarding oil, the Mercosur possess 10.2% of the world reserves, while the EU is

importing 80% of it (33% of importation coming from Russia). On demographic, the EU will

face a decline in its working population starting in 2011, but overall it has a population with a

high living standard and a GPD per capital 3 times higher than that of Mercosur. Even thought

Mercosur will not have a demographic problem. It faces poverty and unequal wealth

distribution. A possible rapprochement between the two blocks could permit the EU to

acquire working population that could help balance the future expending in health and

pensions that the members states will face. The Mercosur will see as benefit the possibility

that a portion of it unemployed population accede the European job market (having in mind

that most migrant send large amount of money to their countries of origin).

After analyzing the resources that the two blocks have and the existence of a window of

opportunity, the most logic recommended step is the signing of a Free Trade Agreement that

between both spaces. As mentioned above, the TFA format seems to be the more efficient in

terms of resources exchange.

But a possible FTA to be signed faces 2 major obstacles:

First: Mercosur has to take care of is asymmetric problem that is facing the smaller countries

with the bigger. It also has to make itself stronger in a institutional way. The block priorities

should overcome nation’s priorities.

Second: Negotiations with the industrial lobby of Mercosur and the agricultural lobby of the

EU should be carried out to come to a mutual compromise that will satisfy all parties. As said

before: the signing of a TFA is done once the negotiating parties realize that they are better

off by signing than not signing.

A possible rapprochement faces one major window of opportunity that has 2 factors: The

United States military engagement that has left the Mercosur region unattended and the

66

Chinese entrance into scene. If the EU and Mercosur do not take advantage of this situation

now, this window could close itself once both China and the USA realize they had left it open.

As a final word: It can be said that a possible rapprochement EU-Mercosur under a FTA

format will put a definitive end to United State President’s James Monroe (1823) doctrine

« where America (the continent) was for the Americans (USA) », doctrine that acted as a

menace to the European power trying to obtain resources from Central and South America.

An important question to ask ourselves is if the USA will permit such a rapprochement to

happen between the European Union and the Mercosur? Or will it try diplomatically to stop it

or stall it?

The USA has the power via bilateral negotiation with any single country of Mercosur or EU

to include in a possible agreement clauses against an EU-Mercosur rapprochement. As

mentioned above, the USA could lose a lot if such a rapprochement happens.

This paper doesn’t intend to say that a possible rapprochement between the two blocks has

only to consider the resource variable, but rather being an important one of the consideration

process. A possible rapprochement will touch many other variables (diplomacy, politics and

many others) that weren’t analyzed here but that they could be interesting for future papers.

67

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