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Europe’s Next Horizon: South America

As the U.S.’ attention is diverted to Canada and Mexico by the North American Free Trade Agreement, the European Union …

As the U.S.’ attention is diverted to Canada and Mexico by the North American Free Trade Agreement, the European Union continues to make inroads in trade and investment in South America’s southern cone, the continent’s most politically stable and economically viable region. While there is opportunity for multiple players in the southern cone, American investors appear to be unaware of-and unconcerned about-the potential challenge from European firms and the EU in establishing a beachhead in the hemisphere. Among the major European players: Germany‘s Volkswagen and Mercedes-Benz, Switzerland‘s Nestle, Italy‘s Pirelli, and Holland‘s Philips.

Indeed, European interest in the region is not a new phenomenon. Some statistics: About one-quarter of the imports of the Mercosur countries of Argentina, Brazil, Paraguay, and Uruguay originate in those of the EU. Fully one-third of the Mercosur countries’ exports are to the EU. Since 1985, European imports from those four countries have more than doubled. EU officials have acknowledged that the southern cone is by far the fastest-growing market for European exports.

In terms of investment in the region, EU countries are way ahead. Fully half of the 150 largest multinationals operating in Argentina are European, and they represent a variety of businesses. In energy, for example, major players include the U.K.‘s Sawgrass, France‘s Electricité, and Italy‘s Camuzzi. In transportation, European investors in the region include Belgium‘s Transure and Germany‘s Autolatina. EU member countries have provided the capital for 40 percent of all foreign banks in the subregion, and the European Investment Bank will expand its operation in the region (as well as in Asia), with half the total commitment (roughly $430 million) earmarked for Latin America, especially the southern cone.

Last December, economic ties between the EU and Mercosur were strengthened further by the EU’s decision to create an interregional association between the two subregions. The declaration, signed at a summit meeting in Essen, Germany, calls for closer political cooperation and the reciprocal liberalization of all trade. Among the proposals made by EU leaders at Essen: deepened trade cooperation with Mercosur; increased research and development ventures between the two regional groups; further EU participation in technical, industrial, and financial projects, particularly at the regional level.

Since the Rome Declaration of 1990, which called for a political dialogue at the minister level, relations between Europe and Mercosur have intensified, resulting in the Essen Summit declaration. The EU often points out that the U.S. has neglected the southern cone in favor of NAFTA and the Caribbean Basin-a mistake the EU will not make.

On the other hand, Europe and South America have a centuries-old tradition of trade and investment relations. Europe was the principal investor in and trade partner with the southern cone until 1914. After the First World War, it recaptured significant market share. It was only in 1945 that the U.S. took the lead in trade with Latin America, especially Argentina, Brazil, Uruguay, and Paraguay. But the ties of culture, language, and immigration have always favored Europe. European political parties and foundations have been instrumental in supporting the transitions from military to civilian rule, and European churches, labor unions, and nongovernmental organizations have targeted the southern cone countries as a priority for economic and technical assistance, and education.

Despite Europe‘s formidable history with South America‘s southern cone and its toehold in the region now, American investors will not be excluded, of course. But the U.S. government, given its laissez-faire attitude toward export promotion, is no match for the highly structured EU. The race is on for influence in the region, and most observers are placing odds on Europe, not the U.S., as the principal player within the decade.

Riordan Roett is director of the Latin American Studies Program at the School of Advanced International Studies, Johns Hopkins University, in Washington.

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