Gone are the days when coffee and sugar were the only goods South America produced for the world economy. The continent has developed dramatically and now produces an array of exports. But trade with the EU is lagging.
Latin America offers Europe more than just coffee.
When the leaders of the European Union meet with their Latin American colleagues in Mexico on Friday, politics and economic issues will get top billing. For two days, the heads of governments and state will discuss possibilities for improving cooperation between the two regions. Chief among the goals of the third EU-Latin America summit is the improvement of trade relations.
Even though South American imports from Europe grew somewhat last year, exports to Europe continued to lag. For Germany, the euro zone's largest economy, trade with Latin American countries ranked low in the overall picture. Last year the trade volume with Mexico, the biggest market in the region, totaled only €6.5 billion, putting the country in 26th position. Of that amount, the vast majority, €5.9 billion, was based on German exports. The situation is not much different in the rest of Europe.
Focus on trade
Vincente Fox, President of Mexico.
Worried about the growing gap, South American leaders have called for a rapid improvement in the trade balance. Speaking to reporters ahead of the summit, Mexican President Vincente Fox (photo) said there was general agreement among his colleagues on the need for multilateral approaches to trade. With an eye to U.S. plans to forge a Free Trade Area of the Americas stretching from Canada to Chile, Fox said it was also time to boost economic cooperation with Europe.
German Chancellor Gerhard Schröder echoed his Latin American counterparts on the eve of the summit. "The biggest economies in Europe and Latin America are determined to work more closely," he said after meeting with Fox on Thursday.
Establishing free trade zones
During the summit, representatives from the 33 South American and 25 EU countries will try to find areas where progress can be made toward the establishment of a free trade area, something the European Parliament would like to see implemented by 2010.
The two regions have already begun moving closer to that goal. Last week, Mercosur, which groups Argentina, Brazil, Paraguay and Uruguay, exchanged free-trade proposals with the EU. Five Central American countries (Guatemala, El Salvador, Panama, Honduras and Nicaragua) are currently seeking more trade flexibility with the Europeans and are aiming for a deal on free trade in January 2005. The Andean Community (Bolivia, Colombia, Ecuador, Peru and Venezuela) is also hoping to use the Friday gathering to encourage EU leaders to strike a deal with their group.
More than coffee and sugar
Improving trade is not a one-way street, and Europe too stands to benefit from an increase in exports from South America. The region of 530 million people offers an enormous potential in terms of natural resources and industrial products, which Europe relies on. In addition to agricultural goods such as coffee, sugar, soy and beef, the continent also exports cars, electronics and chemical products.
Due to the considerably lower wages in the region, several major European companies have opened production sites in Latin America. Germany, for instance, has 800 firms located in Mexico, and nearly all the major German automakers have set up factories in Brazil.
But why aren't Germany and its consumers purchasing more goods from Latin America? According to Christof Römer from the Cologne Institute for Business Research, poor market conditions in South America are chiefly to blame. In two of the most important countries in the region, Brazil and Argentina, the economy is still struggling to recover from serious setbacks.
"These countries must first guarantee economic stability and get a good grip on their fiscal policy," he told Deutsche Welle. "Once that occurs, they can concentrate on markets elsewhere," he said.
But before that happens, competition in Asia will most likely have already secured the most lucrative contracts. That's the case in the electronic sector now, Römer said, and in terms of raw resources such as coal, steel and agricultural products, Asia isn't sleeping either. Latin America can only succeed in improving its trade with Europe when its own economy begins improving.