APPENDIX 11
Supplementary memorandum submitted by
the CBI
OVERVIEW
1. The Confederation of British Industry
(CBI) is the premier voice of UK business, speaking for around
240,000 companies and 150 trade associations. Our membership stretches
across the UK, with businesses from all sectors and of all sizes.
Through their worldwide trading activities, UK businesses contribute
25% of UK GDP. They are the world's second largest source of foreign
direct investment (FDI) and the UK is the second largest recipient
of global FDL.
2. This evidence supplements CBI's original
evidence to the Committee's inquiry on trade with Brazil following
the extension of the inquiry's terms of reference notified at
the end of November 2006. It is composed of four sections. Firstly,
we give a brief outline of the history of Mercosur integration.
The second section provides details of the UK's trade relations
with the region. In the third section, we highlight key barriers
to trade and investment and doing business. The final section
offers an overview of the state of play in the WTO Doha Development
Agenda and EU-Mercosur trade negotiations.
BACKGROUND TO
MERCOSUR
3. Mercosur was founded in 1991 with the
aim of establishing a common market between Brazil, Argentina,
Paraguay and Uruguay. Brazil has by far the largest economy with
a GDP of over US$794 billion compared with Argentina with a GDP
of just over US$183 billion. Paraguay and Uruguay have much smaller
economies. Progress towards achieving a common market has been
inconsistent and not without problems. Initially, the process
of integration brought clear benefits: intra-regional trade more
than doubled in the first three years of Mercosur's existence,
However, the Common External Tariff (CET)—the cornerstone
of a customs union—still contains many exceptions and certain
restrictions remain available to Mercosur member countries. Meanwhile,
trade in services, public procurement, tax and investment policies
remained largely untouched by liberalisation within Mercosur.[2]
4. The process of Mercosur integration has
not always been an easy one. The financial crises that afflicted
Brazil and Argentina and the currency devaluations retarded progress
towards greater regional liberalisation as economic policies turned
towards tackling internal problems. Renewed efforts emerged from
2002 onwards, culminating in a Mercosur summit in 2004 that led
to pledges to consolidate the CET and to eliminate unilateral
restrictions between member countries. It was also agreed to establish
a structural convergence fund to finance an improved institutional
framework for Mercosur.[3]
5. The internal dynamics of Mercosur are
being altered by Mercosur's expansion in July 2006. The addition
of Venezuela, the third largest economy of the group after Brazil
and Argentina, brings the regional bloc's population to over 250
million and a total GDP of $1.1 trillion. Venezuela will now need
to undertake important work to implement Mercosur rules and regulations,
including adopting the CET, and to transpose Mercosur's agreements
with third countries into its domestic legislation?
UK TRADE RELATIONS
WITH MERCOSUR
6. Brazil is the UK's largest export destination
for goods and services of the Mercosur countries.
UK Exports of good and services to Mercosur
countries (2005)
|
| Export of goods
| Export of services
|
|
| Brazil | £836m
| £353m |
| Venezuela | £234m
| £95m |
| Argentina | £167m
| £96m |
| Paraguay | £12m
| not available |
| Uruguay | £39m
| £16m |
|
Source: Pink Book
BARRIERS TO
TRADE AND
INVESTMENT
Note: certain barriers to trade and investment & difficulties
that are specific to Brazil have been detailed in the CBI's original
submission to the Committee's inquiry and therefore not repeated
here.
Doing business
7. Reference was made in the CBI's original submission
to Brazil's overall ranking by the World Bank on the overall ease
of doing business. Its position of 121st on the list compares
with Uruguay at 64th, Argentina at 101st, Paraguay 112th and Venezuela
at 164th. The 2001 financial and political crisis in Argentina
made trade and investment difficult and led to a loss of confidence
in the market and, indeed, led to the launching of several claims
against Argentina under the bilateral Investment Promotion and
Protection Agreement (IPPA). A freezing of utility prices remains
an issue. Other difficulties in Argentina include tax, employing
workers, dealing with licences and starting a business.
Tariffs
8. The Mercosur countries operate a Common External Tariff
at varying levels from zero to 23%. However, some goods, such
as electronics, continue to be excluded from the CET. In the past,
countries have unilaterally altered their tariffs from the CET
standard, for example, when Argentina recently increased import
duties on consumer goods. It will be important for Mercosur to
continue the process of integrating tariff levels and progressively
liberalising their import regimes.
9. There are also reports of additional duties being
levied on top of the standard import tariffs. This problem varies
from country to country. For example, in 2001 Paraguay implemented
a provisional tariff on certain sensitive imports. This has since
been removed but highlights the scope Mercosur governments enjoy
to deviate from a harmonised import regime.
Non-tariff barriers
10. We have concerns that non-tariff barriers risk undermining
the liberalisation achieved through tariff harmonisation and reduction.
Labelling requirements are also problematic, particularly in Argentina,
where labelling standards require the translation into Spanish
or Portuguese of the geographical indication of wines and spirits,
potentially undermining the value of the indication. In Venezuela,
there are quantitative restrictions on dairy imports that are
not applicable to Andean Community traders, thereby discriminating
against other exporters. Paraguay continues to block beef imports
from countries it deems affected by BSE, including the UK.
Taxes
11. There are instances of potentially discriminatory
taxation for imports. According to WTO rules, any taxes levied
on imports must not be higher than those levied on like goods
produced domestically. However, we are concerned that this principle
is not consistently followed in Mercosur. For example, in Argentina,
an additional VAT is levied at 3% domestically but at 10% for
imported goods.
Anti-dumping
12. Mercosur countries have undertaken to consider a
harmonised anti-dumping regulation that would apply throughout
Mercosur. We welcome this development and urge its rapid implementation.
A harmonised set-up would be beneficial for exporters, as it would
provide a transparent and more predictable system. Having a harmonised
internal system, as well as a uniform competition policy, would
also benefit Mercosur by enhancing regional integration.
Customs
13. CBI wants to see further improvements and harmonised
customs rules throughout the Mercosur countries.
Restrictions on services providers
14. A large number of restrictions on services providers
exist in Mercosur countries. In financial services, many limitations
remain.
Intellectual property
15. Absence of sufficient protection for intellectual
property rights is a major concern for UK business in the Mercosur
region. Argentina is reported to have a substantial patent backlog.
Paraguay is a major source of counterfeit goods.
TRADE NEGOTIATIONS
WTO and the Doha Development Agenda (DDA)
16. The Doha Development Agenda negotiations have recently
been restarted at the technical working level. However, they remain
suspended at the ministerial level, where key decisions are taken.
At the moment, the critical area of the talks that is blocking
progress is agriculture. Brazil, Argentina, Paraguay and Venezuela
are all members of the G20 group of emerging economies that are
competitive in agricultural exports. They demand greater access
to developed markets, in particular the EU, as well as the reduction
in trade-distorting subsidies paid to farmers.
17. Currently, the G20 offer of tariff cuts and reductions
in domestic support provides the centre of gravity for the negotiations.
However, the EU has been unwilling to meet the 54% tariff cut
demanded by the G20, while the US will not accept a cut in subsidies
of 60%. Meanwhile, the US in particular is concerned at the limitations
on market access that may be caused by India's failure to clarify
its position on the range of special agricultural products it
wants to be carved out from tariff reductions.
18. CBI is fully committed to a successful and ambitious
outcome to the DDA and we believe that the possibility of achieving
agreement in the next few months is realistic, but will require
high level political engagement. We believe that trade liberalisation
is best secured at the multilateral level and that the DDA provides
a vital opportunity to achieve this. An ambitious outcome to the
DDA will improve and enhance market access to the Mercosur region
and other developed and emerging economies. We welcome the UK
Government and the EU Commission's firm support for the DDA negotiations.
EU-Mercosur Association Agreement
19. Negotiations on an Association Agreement began in
April 2000 to build on the Framework Cooperation Agreement that
is currently in force. A significant aim of the talks is to establish
a free trade agreement (ETA) between the EU and Mercosur. However,
progress has been slow as outlined in the CBI's original submission.
The Mercosur-EU Business Forum (see below) has estimated that
the annual cost in lost business of not having a EU-Mercosur Free
Trade Agreement that covers goods, services and investment is
more than US$5 billion.
20. Progress has also been intimately tied to the DDA
negotiations, where G20 countries are looking for improved market
access for agriculture. The EU has been unwilling to offer Mercosur
greater market access until the DDA level of liberalisation has
been ascertained. Consequently, we do not expect substantial progress
towards an ETA until the DDA situation has been resolved.
The Mercosur-EU Business Forum (MEBF)
21. The MEBF is a business forum open to businesses in
both the EU and Mercosur. CBI has been involved in its work in
making business priorities known to negotiators. We generally
agree with MEBF's overall recommendations which include the need
to address non-tariff barriers and trade facilitation issues,
balanced rules of origin and tariff liberalisation for the bulk
of trade within 10 years.
December 2006
2
R Bouzas et al, In-Depth Analysis of Mercosur Integration, November
2002. Back
3
Inter-American Development Bank, Mercosur Report No 9,
2004. Back
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