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EU Trade With Latin America Sets New Record

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Chile replaces Mexico as the second-largest Latin American exporter to the European Union, while Italy replaces the Netherlands as the third-largest EU partner for Latin America.

BY CHRONICLE STAFF

The European Union last year set a new record in trade with Latin America thanks to strong growth in two-way trade between the top trading partners in each region.

Total EU trade with Latin America reached 141.1 billion euro (approximately $177.2 billion) last year, a 18.0 percent increase from 2005, according to data from EU statistics agency Eurostat.  EU exports grew by 14.9 percent to 62.8 billion euro, while imports from Latin America expanded by 20.6 percent to 78.3 billion euro.

Trade will likely continue to grow at strong rates, thanks to free trade negotiations underway between the EU and Central America and the Andean Community, experts say.

"Relations with the EU will intensify," predicts Isaac Cohen, president of US-based consultancy Inverway. Cohen is a former official of the United Nations Economic Commission for Latin America (ECLAC) who is advising Guatemala's Foreign Ministry on its negotiations with the EU.

European trade with Latin America will grow as a result of the growing interest among companies on each side of the Atlantic, as will European investment in the region, which is already growing significantly, Cohen points out.

Key European policy makers also are boosting their attention of Latin America.  Last month, Benita Ferrero-Waldner, the  European Commissioner for External Relations, visited Colombia, Guatemala and the Dominican Republic. Two months earlier - just as U.S. President George W. Bush was visiting Latin America - German president Horst Köhler visited Brazil, Colombia and Paraguay. And in January, relations between Germany and Mexico were boosted when Mexican president Felipe Calderon traveled to Berlin for meetings with German Chancellor Andrea Merkel.

Latin America's trade with the EU last year grew stronger than its trade with the United States, which grew by 14.3 percent. However, the EU still lags the United States when it comes to trade with Latin America. Its trade represents a third of total U.S.-Latin America trade.

LATIN AMERICA: VENEZUELA AND CHILE GROW MOST

Venezuela saw the strongest growth in Latin America in trade with the EU last year in percentage terms (44.8 percent), while Chile grew most in real terms (4.42 billion euros), according to a Latin Business Chronicle analysis of Eurostat data.

El Salvador and Haiti followed Venezuela in terms of percentage growth, with 44.1 percent 42.9 percent, respectively. The top five winners also includes Uruguay and Peru. Measured in real terms, Chile was followed by Brazil (up 4.39 billion euros), Mexico (3.6 billion euros) and Venezuela (2.9 billion euros).

However, when it comes to Latin American exports, Uruguay made the most progress. Its exports to the EU grew by 79.0 percent last year. Venezuela followed, with 61.6 percent. Other export growth winners include Chile (50.7 percent), Peru (46.3 percent) and the Dominican Republic (39.6 percent). Measured in real terms, Chile again is the winner - with a net increase of 4.1 billion euros. Brazil follows (2.7 billion euros), with Venezuela, Mexico and Peru rounding out the top five growth winners.

Thanks to the strong growth, Chile replaced Mexico as the second-largest Latin American exporter to the EU last year, our analysis shows. Chile's exports totaled $12.1 billion versus $10.6 billion from Mexico.

However, Brazil still is the undisputed exporter to the EU.  Its exports reached 26.2 billion, an increase of 11.7 percent from 2005. Argentina and Venezuela are also among the top five Latin American exporters to the EU.

But Mexico imports more from the EU than Brazil, making it the top EU market in Latin America. Last year, EU exports to Mexico reached 19.0 billion euro, an increase of 13.2 percent from 2005. Brazil's imports of EU products reached 17.7 billion euro, which was 10.3 percent more than it bought in 2005. Other leading importers from the EU are Argentina, Chile and Venezuela.

Brazil is also the top EU trade partner in Latin America. Last year, its trade with the EU reached 43.9 billion euro, an increase of 11.1 percent from 2005. Mexico followed, with 29.6 billion euro in trade, an increase of 13.9 percent. Chile, Argentina and Venezuela round out the top five trade partners.

The EU's top trading partner in Central America is Costa Rica. EU trade with that country grew by 6.0 percent to 4.1 billion last year. The top EU trade partner in the Andean Community is Colombia. EU trade with that country grew by 10.0 percent to 6.3 billion last year. 

STRONGEST DECLINES

Despite the strong growth in EU trade with Latin America, there were some declines and less-impressive results. Honduras saw its trade with the EU fall by 1.3 percent, the only Latin American country to note a decline. Meanwhile, countries like Ecuador and Nicaragua saw the weakest growth - 2.6 percent and 2.8 percent, respectively - in Latin America. 

Honduras was one of only two Latin American countries to post a decline in imports from the EU last year.  The other was Nicaragua. Honduras imports from the EU fell by 20.8 percent, while Nicaraguan bought 11.4 percent less goods from the EU last year than in 2005.

In terms of exports to the EU, El Salvador and Costa Rica were the only Latin American that posted declines -  21.1 percent and 1.4 percent, respectively. Other export losers include Cuba and Ecuador, which posted weak growth of only 2.0 percent and 2.5 percent, respectively.

THE EU: FINLAND AND GERMANY GROW MOST

Among the top 10 EU partners of Latin America, Finland posted the strongest increase in total trade in percentage terms (34.2 percent), followed by Portugal (27.6 percent) and Spain (19.7 percent).  In real terms, Germany grew most - 5.0 billion euro. Spain followed, with an increase of 3.3 billion euro. Other growth winners include Italy, the Netherlands and France.

Portugal led the pack when it came to export growth in percentage terms - 42.4 percent, followed by the Netherlands (31.4 percent) and Finland (22.7 percent). In real terms, Germany posted the strongest increase (1.9 billion euro), followed by France, Spain and Italy.

When it comes to imports from Latin America, Finland saw the strongest percentage growth - 50. 0 percent, followed by Germany (31.0 percent) and Italy (25.4 percent). In real terms, Germany again posted the strongest growth (3.1 billion), followed by Spain (2.1 billion). Other growth winners in real terms include Italy, the Netherlands and France.

The strong growth in Finnish trade was due to imports doubling from countries ranging from Mexico and Colombia to Cuba and the Dominican Republic. Meanwhile, Finnish exports to Brazil nearly doubled.

Germany remains the undisputed top EU trading partner for Latin America. Its total trade with the region reached 31.4 billion last year, an increase of 19.2 percent over 2005. Spain came in second, with total trade reaching 19.9 billion last year, which was 19.7 percent more than the previous year. Italy came in third, replacing the Netherlands. Italy's trade with Latin America grew by 19.2 percent last year to 17.7 billion euro. Meanwhile, the Netherlands also saw growth, albeit at lower levels. Its trade with Latin America increased by 15.8 percent to 17.3 billion euro.

Germany's top export market in Latin America is Mexico, but its top provider in the region is Brazil. All in all, German trade with Brazil reached 10.8 billion euro last year, an increase of 9.7 percent from 2005. Germany's trade with Mexico reached 9.1 billion euro, an increase of 17.0 percent.

OUTLOOK

The EU and Central America recently agreed to start their first formal round of negotiations in September. However, Costa Rica has subsequently asked that talks start after the country holds its referendum on CAFTA, which is scheduled for September. Negotiations will likely take some 10 rounds over 12 to 18 months, Cohen predicts. But he is optimistic the result will be an agreement after that time.

"There is a very good possibility of an agreement," he says.

Unlike CAFTA, the EU association agreement will also include political and social criteria aimed at reducing corruption and boosting democracy. "The Europeans are not afraid of adding social elements to trade negotiations," Cohen points out.

The EU also is demanding a customs union in Central America, which will benefit the region, he points out.

Meanwhile, the EU is also looking at negotiations for an association agreement with the Andean Community, although that will likely take longer to reach than the one with Central America. The Andean Community is currently split between free-trade countries like Colombia and Peru on the one hand and anti-market countries like Bolivia and Ecuador on the other. However, they all have an interest in reaching an accord with the EU, Cohen argues.

"Bolivia and Ecuador are interested in increased cooperation with the EU, which will give them an incentive to reach an agreement with Colombia and Peru to negotiate," he says.

The EU has firmly insisted it will only negotiate with the Andean Community as a bloc, not individual countries. 

While free trade agreements with Central America and the Andean Community will help boost EU trade with Latin America, the big prize is Mercosur. And any negotiations with that group is stalled as long as there is no global agreement on agriculture. If such an agreement is reached, though, the EU and Mercosur will likely move quickly on negotiations for a free trade agreement, Cohen predicts.

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