FDCL-Remarks on "TRADE SIA OF THE ASSOCIATION AGREEMENT UNDER NEGOTIATION BETWEEN THE EUROPEAN COMMUNITY AND MERCOSUR. UPDATE OF THE OVERALL PRELIMINARY TRADE SIA EU-MERCOSUR. FINAL REPORT. Consultation Draft", 15TH JUNE 2007

Christian Russau (FDCL), Berlin, August 2007

In June 2007 the "TRADE SIA OF THE ASSOCIATION AGREEMENT UNDER NEGOTIATION BETWEEN THE EUROPEAN COMMUNITY AND MERCOSUR. UPDATE OF THE OVERALL PRELIMINARY TRADE SIA EU-MERCOSUR. FINAL REPORT. Consultation Draft", 15TH JUNE 2007 (in the following mentioned as “SIA EU-MERCOSUR”?) was published on the EU's website:

“An international consortium led by IARC (University of Manchester) has been appointed, under the framework contract, to assess how the trade aspects of the Association Agreement could affect sustainable development in Mercosur and the EU. The aims of this first phase are to update the Overall Preliminary Trade SIA EU-Mercosur and to conduct three Trade SIAs for agriculture, automobiles and forestry.”?

http://ec.europa.eu/trade/issues/global/sia/studies_geo.htm#chile

With regard to the Final Report, Consultation draft, 15^th june 2007, FDCL wants to make aware of the following remarks on the "TRADE SIA OF THE ASSOCIATION AGREEMENT UNDER NEGOTIATION BETWEEN THE EUROPEAN COMMUNITY AND MERCOSUR. UPDATE OF THE OVERALL PRELIMINARY TRADE SIA EU-MERCOSUR. FINAL REPORT. Consultation Draft", 15TH JUNE 2007 (in the following mentioned as “SIA EU-MERCOSUR”?):

1. We do not share the conclusion, that increases in Trade Flows, as foreseen in the “Trade SIA EU-MERCOSUR”?, will mean that „the economic impacts are likely to be positive overall”? (page 12), nor do we share the opinion that “[a]dditional gains can be expected from dynamic effects whereby productivity is enhanced through greater competition and economies of scale”? (page 12). Economic impacts that „are likely to be positive overall”will not be produced by greater competition and economies of scale. Economic impacts that „are likely to be positive overall”for a country – as shown especially in the European economic history – only occur by using „tariff protection and subsidies to develop their industries”(Ha-Joon Chang: Kicking Away the Ladder: How the Economic and Intellectual Histories of Capitalism Have Been Re-Written to Justify Neo-Liberal Capitalism, 2002). And the social, economic and last but not least ecological impacts of widened „economies of scale”are likely not to be “positive”? at all.

2. With regard to the Industrial Sector we see as well the crucial risk in MERCOSUR „workers made redundant following trade – related events" (SIA EU-MERCOSUR, page 146). But we do not share the report's optimistic vision that “EU and Mercosur countries should initiate discussions on modalities for providing support to workers in Mercosur made redundant as a result of the EU Mercosur trade liberalisation adjustment process" (SIA EU-MERCOSUR, page 13, page 146). Instead of appealing to future mitigation measures in our point of view the more sophisticated alternative is not to sign an EU-MERCOSUR agreement in the way it has been negotiated so far (which in fact would be kind of a „trade – related event”that makes „workers redundant”).

3. With regard to the Services Sector, and given the methodological remarks on page 43: "We also restrain from formal modelling of effects where little is known about the actual flows and the factual barriers – as is the case for foreign direct investment in services" (SIA EU-MERCOSUR, page 43), and given the remarks on page 45: “However, large gains from trade in services are expected to arise from removing barriers to foreign establishment. These effects are not included in the model, and therefore substantial additional gains are expected from liberalising in this area as well”? (SIA EU-MERCOSUR, page 45), we hardly do understand, first, what the sense of analysing the possible impacts of an EU-MERCOSUR free trade Agreement would be, if mode 3 is not included formally in the analysis, and, second, how “additional gains are expected from liberalising”? mode 3. Especially mode 3 of the services sector is a crucial sector – as widely known and repeatedly stated by civil society in MERCOSUR and EU – when it comes to deal with services sectors that are commonly regarded as „public goods”, - like water for example. The given experiences with water privatisation and European transnational corporations – e.g. in the Argentina's water sector - are well known and documented (see the findings of the PERMANENT PEOPLES TRIBUNAL. Hearing on Neo-liberal Politics and European Transnational Corporations in Latin America and the Caribbean, 10-12 May 2006 - Vienna, Austria, see there the Water Cases: http://peoplesdialogue.org/en/node/69 ).

With regard to the EU-MERCOSUR negotiations, the negotiation documents exchanged at the end of 2004 treated the sensitive area of water services only with respect to sewage. This, at first sight, seemed a victory mainly due to the persistent efforts of non-governmental organisations, which had been accusing the EU Commission of requesting the unilateral liberalisation of the developing countries’ water sector in the WTO/GATS negotiations. A second look, however, reveals a different picture as the European negotiators in the EU-MERCOSUR BNCs do not demand the liberalisation of water in the chapter on services in the EU-MERCOSUR negotiations. Instead, they disguised their demand rather cleverly in the chapter on investments (see “MERCOSUR-Improved Investment Offer – Sector-Specific Commitments”?, including BNC-EU-negotiators comments, June 2004, and our analysis: Christian Russau (FDCL): Investment Regimes in the EU-MERCOSUR Negotiations, Berlin, September 2005, page 11).

As for the liberalization of the Services Sector in general the SIA EU-MERCOSUR states that "[t]rade liberalisation in services often raises issues of national economic and social policy and concerns about policy autonomy. Where domestic regulatory capacity is weak, the over-rapid liberalisation of services can give rise to adverse effects. Financial sector liberalisation has been linked to increased financial instability; utility sector liberalisation has sometimes been accompanied by increased market concentration and higher prices for consumers; liberalisation of environmental services has raised issues of national regulatory capacity and autonomy; and liberalisation of distribution services has been associated with job losses and social unrest" (SIA EU-MERCOSUR, page 113). But we do not share the mere suggestion that "[t]he challenge for policymakers is to liberalise trade in a manner consistent with other public policy objectives" (SIA EU-MERCOSUR, page 113). Given the above stated „adverse effects”the liberalisation of the services sector in the framework of a future EU-MERCOSUR agreement is to be strongly opposed.

4. With regard to the Agriculture Sector the SIA EU-MERCOSUR predicts, on the one hand, that “[i]nformal farmers are likely to be displaced by the expansion of commercial farming. Depending on the labour productivity of new commercial activities, the number of employment opportunities may not be sufficient for the number of people displaced, and the standard of living provided by formal employment may be lower than in informal farming”? (SIA EU-MERCOSUR, page 82), but on the other hand, states that „ the increased employment in the sector comes from the pool of unemployed”and that „it will have a beneficial impact on rural poverty”(SIA EU-MERCOSUR, page 82). We do not share this double sided view of “beneficial impact on rural poverty”? and “adverse impacts”? because of the well-known structures of export-oriented agriculture production that is based on highly-productive and intensive monocultures offering only little employment with reverse-beneficial effects especially for small farmers: As the SIA EU-MERCOSUR report states „adverse effect associated with the need for additional land”(SIA EU-MERCOSUR, page 82) for the expansion of commercial farming (SIA EU-MERCOSUR, page 82) will occur, which in fact means implicitly the displacement of these traditional small farmers from their land. We do not share the vision that small farmers should accept further and tightened land conflicts and the loss of their land, thus ending up in a situation where they can only hope to get some of the newly created jobs in the cash crop farms, where, as the report itself states, “the number of employment opportunities may not be sufficient for the number of people displaced, and the standard of living provided by formal employment may be lower than in informal farming”? (SIA EU-MERCOSUR, page 82).

5. With regard to the Forestry Sector and Biodiversity and Indigenous People we do agree with the SIA EU-MERCOSUR stating that "additional land for agricultural production is expected come from forest clearance, resulting in the loss of livelihoods for indigenous people" (SIA EU-MERCOSUR, page 82). We do not agree with the prediction that mitigation measures could abate in any way this situation.

6. With regard to the area of Government Procurement we do agree with the SIA EU-MERCOSUR stating that "it has been widely used as a tool for domestic policy in both developed and developing countries. In developed countries, it has been used as an instrument for fiscal management. In developing countries it is used as tool for industrial and social policy, with government procurement expenditures being used to develop infant or strategic industries, and to support employment growth, small firm development or regional growth" (SIA EU-MERCOSUR, page 137). However, we do not agree with the findings of the SIA EU-MERCOSUR that "[a]n agreement on greater transparency in Mercosur governments’ procurement procedures may generate gains from increased competition for government contracts. Further economic efficiency gains might be expected to result from the improvement in the quality of public sector governance" (SIA EU-MERCOSUR, page 138). In our point of view the stated „tool for industrial and social policy”is of the most indispensable importance for the local, regional and national governments and needs to remain in their hands. Otherwise, it would be created a situation that threatens democracy.

7. With regard to the predicted growing Trade in Bioethanol we do not share the report's conclusion, that “[f]or expanding production of sugar cane for ethanol, some of these potentially adverse impacts may be countered by the introduction of a certification scheme for ethanol imports into the EU.”? (SIA EU-MERCOSUR, page 82, and TRADE SIA OF THE ASSOCIATION AGREEMENT UNDER NEGOTIATION BETWEEN THE EUROPEAN COMMUNITY AND MERCOSUR. AGRICULTURE SECTOR STUDY. FINAL REPORT. CONSULTATION DRAFT, 15th June 2007, page 55s). The German Advisory Council on the Environment (Sachverständigenrat für Umweltfragen (SRU)) of the Federal Government of Germany launched in July this year a special report on climate protection through biomass ("Klimaschutz durch Biomasse". Sondergutachten, Hausdruck Juli 2007), in which it states, that certification schemes cannot cover all the economical, ecological and social impacts, which would follow an increasing international boom in bioenergy ("Zertifikate können sich grundsätzlich nicht auf die gesamten ökonomischen, ökologischen und sozialen Systemzusammenhänge erstrecken, die ein internationaler Bioenergieboom auslösen kann" ("Klimaschutz durch Biomasse". Sondergutachten German Advisory Council on the Environment (Sachverständigenrat für Umweltfragen (SRU)), Hausdruck Juli 2007, page 90), and that for reasons of prevention of further damages and the protection of environment it is absolutely necessary to slow down the boom in bioenergy (ibd., page 90), and, with regard to imports of biofuels, concludes, that the european compulsory biofuel quotas should be reviewed and slowed down if not cut (page 132s and page 139). This, as the report finds, especially because of the still unpredictable ecological costs of the foreseen increases in biofuels-imports from Third Countries (for a substantial critique of the implications of world trade in bioenergy see Thomas Fritz (FDCL): Das Grüne Gold. Welthandel mit Bioenergie: Märkte, Macht und Monopole. Berlin, Juli 2007).

8. With regard to Investment the SIA EU-MERCOSUR states that the inclusion of investment in a free trade agreement "involve the removal of performance requirements and the adoption of a range of investor rights. The underlying premise in favour of an investment agreement is that it will increase the flow of foreign investment" (SIA EU-MERCOSUR, page 125). The report, however, fails to mention the risks of an increased flow of capital that would result from the prohibition of any capital-flow control mechanisms (as requested by the EU in the negotiation documents “MERCOSUR-Improved Investment Offer – Sector-Specific Commitments”?, including BNC-EU-negotiators comments, June 2004) as it would „discriminate”european foreign direct investment. Secondly, the SIA EU-MERCOSUR notes that "[t]he empirical evidence on the economic impact of investment provisions in regional trade agreements is generally positive" (SIA EU-MERCOSUR, page 126), and concludes that „[a]n investment agreement is expected to have positive impact on foreign direct investment and may also increase domestic investment”(SIA EU-MERCOSUR, page 127). We do not share this vision and refer to the SIA EU-MERCOSUR itself, which states "[w]ith respect to investment liberalisation, the provisions within the FTA will need to take into account any existing commitments in GATS services sectors. It would also need to take account of any TRIMS commitments. With respect to investment protection, the legal implications of the RTA investment agreement would need to take into account any existing international commitments on investment protection" (SIA EU-MERCOSUR, page 126). By having to accept these principles, non-discrimination and national treatment will have priority over national, regional or local policies. Any approved trade relevant regulation would have to prove beforehand that it was the least 'discriminatory'. Yet from a development politics perspective it is of the uttermost importance to protect the scope for political action, such as the use of macro-economic instruments (among others performance requirements, capital-flow controls and protectionist measures). And from the perspective of the democratic sovereignty of states it becomes absolutely indispensable to be able to make decisions in this crucial policy field.

And – last but not least – we do not share the vision of the SIA EU-MERCOSUR with regard to investment and poverty reduction: The report states that „[i]n the long run, the increase in real income attributable to higher FDI inflows may have a indirect trickle down effect on poverty”(SIA EU-MERCOSUR, page 127). Given the request made in the fall of 2004 by the European Commission negotiators to remove any references to agrarian reform in the investment provisions, we do share the opinion of the international movement Via Campesina that states: „In the initial offer, Brazilian Government introduced restrictions to foreign investment in agriculture which could, eventually, compromise national policies for the implementation of the agrarian reform, aiming above all to protect PRONAF (National Programme for the Agrarian Reform) and to maintain restrictive measures for the acquisition of land by foreigners. However, the EU handed over a document to Itamaraty where it asks for the removal of the restriction with reference to the "agrarian reform", and agriculture, among others”(ALERT FROM VIA CAMPESINA BRAZIL: BRAZILIAN NEGOTIATORS ARE BETRAYING THE INTERESTS OF BRAZILIAN PEOPLE IN THE NEGOTIATIONS BETWEEN MERCOSUR-EUROPEAN UNION, 28 September 2004). The attitude of the European Commission that it directs against the most important tool to reduce poverty - agrarian reform - is thwarting the own European Commitments on Development.

The European Commitments on Development are based upon:

- the development goals laid down in Article 177 of the European Community Treaty,

- Article 178 of the European Community Treaty, which defines the development objectives laid down in Article 177 as compulsory elements in European "policies, which are likely to affect developing countries",

- the Commission's commitment to coherence, coordination and complementarity of EU external, trade and development policies, as expressed in its Annual Report 2003 to the Council and the European Council on the EC development policy and the implementation of external assistance in 2002 (COM(2003)0527),

- the Commission's commitment to coherence, coordination and complementarity of EU external, trade and development policies, as laid down in Article 3 of the Treaty

- the Communication from the Commission to the European Council of June 2006: Europe in the World — Some Practical Proposals for Greater Coherence, Effectiveness and Visibility, Brussels, 08.06.2006, COM(2006) 278 final,

- the Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee: Policy Coherence for Development - Accelerating progress towards attaining the Millennium Development Goals, Brussels, 12.4.2005, COM (2005) 134,

- “The European Consensus on Development’, 14820/05, reflecting the EU willingness to make a decisive contribution to the eradication of poverty in the world and to help build a more peaceful and equitable world and which reaffirms the EU commitment to promoting policy coherence for development,

- the decisions of Agenda 21, the Monterrey Summit, the Doha Development Agenda, the World Summit on Sustainable Development (WSSD) in Johannesburg, as well as the Millennium Development Goals, which define social development, economic growth and environmental protection as the constitutive pillars of sustainable development,

- the indivisibility of human rights as the normative basis of all EU policies, as laid down in the Treaties of Amsterdam and Nice.

FDCL is appealing to the European Commission to accomplish its own commitments on development by guaranteeing coherence, coordination and complementarity for the EU's external relation, trade and development policies.

Christian Russau, FDCL, Berlin, August 2007