In the EU-LAC Foundation’s publication, coordinated by Andrés Serbin and Andrei Serbin Pont (CRIES) (2018), we pointed out the economic and financial importance of the European Union (EU) in Latin America and the Caribbean (LAC). This importance and relevance were embodied in direct investments and trade, involving value chains and technology transfer, as conditions for sustainable development. This relatively optimistic perspective was not the result of chance, but of the EU's persistence in establishing a bi-regional relationship based on trade treaties and political consultation and cooperation agreements with different countries, as well as a forum for political dialogue with the region, which finally culminated in the EU-CELAC Summits.
Changes have been taking place since 2018. Although some were already brewing before, such as the crisis of multilateralism, the tensions between the United States and China, the rise of protectionism, the economic rapprochement of LAC towards Asia, the fact is that the COVID-19 pandemic has been disruptive in 2020. With this unexpected game-changer, new tensions have arisen, certain value chains have been broken and, above all, inequality has increased in Latin American countries and even the quality of democracy has declined in some of them[1].
In the current situation, therefore, the question must be asked once again whether the EU is relevant for Latin America. From an economic and European perspective, we can speak of mutual relevance. Of potential interdependence. In fact, the EU has been promoting the bi-regional strategic partnership that has been taking shape through trade and cooperation agreements. A long road to a stable and stabilising construction that has recently been altered by the emergence of China as a new strategic partner for LAC.
LAC countries are faced with the dilemma of choosing between the United States and China, and there is little mention of a third actor, the EU. The three factors that have shaped this new LAC relationship have been: 1) China's strong commercial dependence on countries that produce raw materials, hydrocarbons and agri-food products; 2) China's significant investments in infrastructure, technology and extractive industries; and 3) the health diplomacy that is praising recognition in favour of the People's Republic of China over Taiwan. China has also stepped up its diplomatic offensive in the region, with initiatives such as the Ministerial Meeting of the China-Community of Latin American and Caribbean States (CELAC) Forum. As a result, China is now South America's main trading partner, having displaced the United States and Europe, its traditional partners.
Most LAC countries cannot afford to lose China's market and investments. Nor can they pursue a joint regional strategy given the weakness and division they feature. Choosing between two powers is not a solution. That is why a third actor such as the European Union can avoid the bilateral contest and be a balancing point.
The pandemic has also altered the economic situation in the EU, although the transformation strategy had begun earlier with the decisions taken to address climate change and its consequences. The review of EU trade policy[2] was presented in February 2021 and the review of the new industrial strategy[3] in May. Both were drafted and presented right at the beginning of the pandemic and needed to be updated to cope with the economic impact of COVID-19. The key point is the reinforcement of the EU's “open strategic autonomy” (OSA), which has been encouraged by alerts on the supply of certain inputs produced outside the EU. Strategic industrial value chains in the EU depend on these inputs. These products on which the EU is dependent are raw materials, batteries, active pharmaceutical ingredients, hydrogen, semiconductors, cloud computing technologies and edge computing. More than half of these dependencies are on products originating in China and, to a lesser extent, Vietnam and Brazil, although these key products account for only 6% of the value of all products imported into Europe.
Before the pandemic, the great strategic shift in the EU was the European Green Deal, which was presented in December 2019. Its main goal is the transition to a climate-neutral, environmentally sustainable, resource-efficient economy with the aim of reducing greenhouse gas emissions by at least 55% by 2030 to achieve climate neutrality by 2050. This strategy leads to a progressive and profound transformation of the EU economy, which in turn will have an impact on trade patterns. Fits for 55 (Goal 55) is the package of measures presented by the European Commission in July 2021 to revise the EU's climate, energy and transport legislation and meet the mentioned goals.
The new orientation determined by climate change actions and trade and industrial resilience can and should be decisive in the EU's new relationship with LAC, as the EU in its new trade strategy already plans to consolidate its cooperation with key growth regions, especially in Latin America. The “open strategic autonomy”, despite the subtle balance it implies between a certain industrial self-sufficiency and trade openness, should not stand in the way of this relationship with LAC, as the Commission communication prescribes: “The EU's free trade agreements (FTAs) are platforms for enhanced cooperation pursuing our values and interests. They are the basis for engagement with important markets and countries around the world, particularly in the Asia-Pacific region, in Latin America and the Caribbean” (COM(2021) 66 final).
In this new EU strategic framework, how to achieve greater relevance in economic relations with LAC? Firstly, the strategic agendas of the EU and LAC must be brought closer together in what is fundamental and shared: action against climate change and in favour of greater equity and inclusiveness. In the economic and trade sphere, the EU's agenda, defined in the concept of open strategic autonomy, is a political choice based on the importance of openness, recalling the EU's commitment to open and fair trade, with diversified and sustainable global value chains. It thus focuses on the need for the EU to act responsibly and fairly. On firmness and rules-based cooperation, but also a readiness to combat unfair practices and to use autonomous tools to defend its interests whenever necessary. Hence, the EU asserts itself as a credible advocate of international cooperation and to this end maintains the importance of cooperating closely with its partners to support multilateralism and the rules-based international order (COM (2021) 66 final).
It is to be expected that as a consequence of technological changes, transport costs, resilience and the open strategic autonomy, new possibilities will open up with LAC countries that have trade agreements with the EU. The relevance, however, is twofold and runs in both directions. LAC trading partners could reorient in their favour some strategic EU value and supply chains located in Asia and support multilateralism in the reform of the World Trade Organisation. In addition, the EU should be relevant to LAC by supporting the solution of the two major challenges facing LAC countries, the low level of vaccination of the population and high levels of indebtedness, further compromised by the pandemic. Both limit the possibilities for growth and the reduction of inequality in LAC.
The EU cannot dispense with Asian markets, neither can it and should not dispense with LAC markets. The delay in concluding agreements (Mercosur) allows China to strengthen its role in LAC, which, in addition to an economic failure, could have important political consequences. In this relationship, the EU should be sufficiently relevant to curb down the possible emergence of authoritarian regimes brought in by China's assertive economic diplomacy.
[1] International IDEA, “La gobernabilidad democrática como respuesta efectiva y perdurable a los desafíos de América Latina”, julio 2021, Estocolmo [https://doi.org/10.31752/idea.2021.66]
[2] Comunicación de la Comisión al Parlamento Europeo, al Consejo, al Comité Económico y Social Europeo y al Comité de las Regiones. Revisión de la política comercial - Una política comercial abierta, sostenible y firme. COM (2021) 66 final.
[3] Comunicación de la Comisión al Parlamento Europeo, al Consejo, al Comité Económico y Social Europeo y al Comité de las Regiones. Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery. COM (2021) 350 final.