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A Possible EU-Mercosur Agreement That Could Be Big Business For Pharma

Latin American and European leaders continue to progress in discussions for a EU-Mercosur trade pact, which would encompass 750 million people and US$140 billion of

 

The negotiations originally began with the formation of Mercosur in 1991, but stalled nine years ago and began again in 2010.  Argentinian and Brazilian tariffs are a major stumbling block, but at the Latin American-EU summit in Santiago, Chile in January “within Mercosur, those in favour of this agreement have won the battle”, said the EU Parliament’s Vice-President, Gianni Pittella.

These positive sentiments were reiterated as recently as April 6th. “We have advanced more than halfway on the negotiations roadmap”, said the Brazilian Foreign Minister, Antonio Patriota. He added he hopes the agreement will be in place by the end of 2013.

Any agreement will have a big effect on the pharmaceutical industry. 40% of finished pharmaceutical imports into Argentina are from the EU, while Mercosur is currently the EU’s eighth biggest trade partner. With the continuing economic growth in Latin America, Europe, and particularly the Eurozone countries, view greater access to these markets as a way to kickstart their stagnant economies.

Mercosur members boast strong pharmaceutical industries, mainly using generic medicines. A major trade discussion between the blocs is EU demands over Intellectual Property Rights (IPR), more specifically, for patent term extension for five years and data exclusivity for ten years.

Patent term extension is viewed in South America as potentially adversely affecting the local pharmaceutical industry, which is largely based on generic companies. The plan, though, is supported by European pharmaceutical companies who are based in South America, as it would see their products protected for a longer period from being used by generic companies.

Mercosur’s two biggest members, Brazil and Argentina, are particularly against the measures, as they wish to develop their pharmaceutical industries further through protectionist policies. But any trade agreement will likely encompass rules specifically affecting the pharmaceutical industry through new agreements on IPR. This means the protectionist policies of Mercosur members will have to be in some way broken down, all the while opening up massive new markets in which to do business.

Many hope Latin American countries will integrate their economies further and dismantle trade barriers worldwide, as Argentina and Brazil are two of the biggest offenders in retaining restrictive tariffs to trade. Argentina is the world’s worst transgressor for protectionist measures because it is across a vast swathe of industries which affect worldwide trade, says an independent body monitoring commerce, Global Trade Alert.

The emergence of Mercosur, or Mercosul as it is known in Portuguese, has proven one major step in breaking down protectionist measures among South American countries. Formed in 1991, it comprises 260 million people, is the 5th largest economic bloc in the world with GDP of US$3.3 trillion a year.

Brazil, Argentina, Uruguay and Venezuela are permanent members of the bloc, while Paraguay was suspended in 2012, although its recently elected leader, Horacio Cartes, has vowed to return the country to Mercosur. A promise agreed to by the leaders of the other member states.

The expected reinstatement of Paraguay into Mercosur is an important development for the EU-Mercosur trade negotiations. Its membership was revoked after President Fernando Lugo was ousted in June 2012 in what other Mercosur members considered a coup.

“We are not going to work with the exclusion of Paraguay. For us, it’s a member”, said the German ambassador to Paraguay, Claude Robert Ellner.

While modelled on the European Union, Mercosur doesn’t yet have the free trade rules of the EU. It is a customs union, unlike its European counterpart which is an economic and political union. It has a free trade area with a common external tariff, while promising to promote fluid movement and currency. Colombia, Chile, Ecuador and Peru are ‘associate members’ while Bolivia is moving towards accession.

In recent years, South Americans have started walking with a more confident glow. ‘Latin America’s Decade’ is a buzzword for economists and back at the EU-Latin American summit in January, many economists saw the opportunity for Latin American leaders to lecture their European counterparts on how to run an economy. Latin American economies predict 4% growth for 2013 and this in a worldwide outlook of expected Eurozone contraction and sluggish United States growth. The Gross Domestic Product (GDP) of Latin America is projected to double by 2030, according to the Inter-American Development Bank.