Wednesday, June 30th 2004 - 21:00 UTC

Pessimism about EU-Mercosur talks.

Reaching a cooperation and free trade association agreement between Mercosur and the European Union by next October, as committed by both sides, seems ever distant, according to Argentine diplomatic sources.

"Negotiations remained locked in several issues" and besides August is vacation time in Europe and in September the new EU authorities will be taking office.

"Mercosur (Brazil, Argentina, Uruguay and Paraguay) have ceded all they could cede, now it's up to the Europeans", indicated Argentine sources adding that Brazil has shown encouraging willingness in two main points demanded by Europeans, investments and a greater opening in services, banking, insurance and telecommunications.

Apparently President Luiz Inacio Lula da Silva's administration has indicated it will consider granting EU investors similar conditions to those which apply for local investors, including taxing. Similarly cutting red tape and other administrative requisites for EU banking, insurance and telecommunications, most of which are non existent in Uruguay and in Argentina, since former president Carlos Menem's time.

But Brazil and Argentina are demanding from the EU greater access for beef and other farm produce as well as for Mercosur processed food, which were quiet limited in the EU latest proposal.

For example regarding beef, EU is willing to expand the current Mercosur 42,000 tons to 100,000 tons, some of it immediately and the rest conditioned to World Trade Organization agreements. Mercosur is demanding 315,000 tons. Regarding other commodities EU proposes a limited expansion in similar conditions; some of it conditioned to future WTO agreements.

"They consider their proposal, --for Mercosur unacceptable--, as the best ever presented by the EU", added Argentine diplomatic sources.

Except for a few sensitive items such as steel, cellulose and paper, textiles and shoe wear, Mercosur has offered EU industrial goods zero tariffs in a ten year period. EU has a similar proposal although the departure point is different since EU tariffs range 3 to 6% and Mercosur's average 12%.

However Mercosur sources indicate that both sides are most interested in reaching the October deadline, the EU because they want their corporations to advance and compete with US corporations in the region, and Mercosur is well aware of the EU market potential, particularly for agriculture given its greater cost efficiency.

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