OBG talks to Karel de Gucht, EU Trade Commissioner

Interview: Karel de Gucht

How does the wave of expropriations and nationalisations in Venezuela and Argentina affect EU confidence in the legal stability of Peru?

KARL DE GUCHT: Each country needs to be treated at on an individual basis, and companies are well aware of this. Businesses all over the world recognise the solid economic fundamentals and stable framework for investors that have been patiently created by Peru over the past decade. That is why trade and investment has increased so much. European businesses and investors are no exception here: trade flows between the EU and Peru have practically doubled over the past five years, compared with an average of a third with the countries in the region as a whole.

How will the European Commission address the unwillingness of some European companies to do business with Latin America as a whole?

DE GUCHT: While it is true that European firms do view certain protectionist measures and expropriations carried out by individual countries in the region negatively, I do not see an “unwillingness” to do business with Latin America. Quite the contrary, as the figures amply demonstrate. The EU remains the biggest investor in the region and our trade with it has continued to grow over the past decade. Where others have seen their overall share of trade in Latin America decline in the face of new competitors, ours has stayed the same. Moreover, Latin America’s share of EU trade has also grown steadily in recent years; in 2011, it stood at more than 6%.

Most European foreign direct investment (FDI) comes from just three countries – France, Spain and the UK. What is being done to extend interest?

DE GUCHT: Indeed, most European FDI in Latin America comes from just six member states – in addition to the three you mention, Germany, Italy and the Netherlands are also big investors in the region. But these countries are the EU’s biggest outward investors generally, so it is no surprise that they come top of the list in Latin America. At the same time, EU member states are always looking to diversify their trade and investment and there is no reason why Latin America should not be able to attract investors. I am convinced that the EU’s strategy of striking deals on free trade agreements (FTAs) with countries in the region has helped identify trade and investment opportunities for businesses. And perhaps more importantly, the trade agreements provide a stable and predictable framework, which is crucial for making sound, sustainable and long-term investment decisions.

Two key benefits of FTAs are improved competitiveness and innovation. Is transfer of technology matching expectations in this regard?

DE GUCHT: The trade agreement concluded with Colombia and Peru is really very ambitious and comprehensive, addressing issues that go well beyond tariffs and Customs procedures: they actually tackle those trade barriers that are behind the Customs border.

Precisely because of these “beyond the border” measures, the agreement will help these countries to integrate in global value chains, promoting productive investment and encouraging transfers of know-how and technology. To what extent this happens depends largely on companies themselves, but I am convinced that this agreement will fundamentally change the pattern of our trade relations from now on and place Colombian and the Peruvian exporters in an excellent position to compete effectively on the EU market.

Which economic sectors are expected to benefit the most from the trade agreement between the EU and Peru and Colombia?

DE GUCHT: As is often pointed out, this trade agreement is both ambitious and comprehensive. It will open opportunities across the entire economy. All industrial and fisheries products will be able to enter the EU duty free and quota free from day one. On top of this, we have agreed to open the EU’s market for agricultural products to Colombia and Peru. In addition, the agreement will make trading and investment easier, more transparent and more predictable for businesses on both sides of the Atlantic. Independent studies show some sectors in Peru, such as textiles, meat, sugar and food products in general, could see demand for their products increase as a result of this trade agreement. But to what extent the opportunities created by the agreement will be used will largely depend on businesses.

Colombian textiles will enjoy zero tariffs as part of the FTA. How will the European brands be able to increase trade in the other direction?

DE GUCHT: First of all, the European consumer is not a clone. What you can sell to a Spaniard might need to be adapted to appeal to the average German. This is important to bear in mind as you tackle this market of 500m consumers. One thing they have in common, though: they want quality. So it is crucial that the marketing strategies of Colombian exporters focus on delivering high-quality products and nurturing an image of quality, as this will determine the appeal of your product to the average European consumer. The textiles business on both sides will be able to benefit from new opportunities. We hope that the EU synthetic fibres and textiles industries will benefit from reduced tariffs. But this agreement is not only about lowering costs – ultimately also for the consumer – of existing exports: its real added value is in the new opportunities it offers for boosting trade, investment, and creating more efficient integrated value chains.

The FTA features concessions in the fishery and agricultural sectors for Peruvian exporters. Will the sectors still benefit after regulatory reform?

DE GUCHT: Obviously, the trading concessions that have been agreed with Peru are not going to be changed by the reform of the EU’s Common Agricultural Policy (CAP). The CAP is the business framework for European farmers and the main aim of its reform is to make it suitable for the 21st century. Like other EU policy initiatives for 2013 onwards, the reformed CAP will make a major contribution to the EU’s growth strategy for the next decade – known as “Europe 2020”. It will address climate change, support jobs and growth, promote innovation and make agriculture more competitive while still respecting the environment. We need to prepare farmers for the challenges and opportunities of the modern world; issues like the environment have to be taken into consideration if we are to achieve truly long-term and sustainable development.

The Colombian dairy sector sees itself as the biggest loser of the FTA with the EU. How could both regions leverage their competitive strengths?

DE GUCHT: During the negotiations, we paid particular attention to the concerns of the Colombian dairy sector. As a result, some products will not be completely liberalised while others will have long transitional periods, in some cases combined with quotas limiting EU exports to Colombia. To help raise the competitiveness of the Colombian dairy sector, the EU has committed itself to provide support in the form of cooperation programmes worth up to €30m ($39m). I am happy to say that, in close cooperation with the Colombian government, we have committed the first part of these funds to projects and we expect to agree on the use of the remaining funds towards the end of 2013.

The FTA contains an accession clause for other Andean communities to make similar agreements. How do you determine the timeframe for action?

DE GUCHT: For those Andean countries not yet part of the agreement, the door remains open for talks. We have repeatedly stated that we are ready to sit down and negotiate a balanced and comprehensive trade agreement that would be on a par with the significant results we have achieved with Peru and Colombia.