Bolivia's Trade Future: Why No Eu Agreement?

Bolivia and the European Union have a broad relationship based on political dialogue and development cooperation, which has been in place since 1995. The EU is the fourth-largest trading partner of Bolivia, while Bolivia is the EU's 110th trading partner. In 2020, trade between the two regions was valued at €932 million. Bolivia benefits from the EU's Generalised Scheme of Preferences (GSP), which allows duty-free access to the European market for a number of products. Bolivia is also a member of the Andean Community (CAN), along with Colombia, Ecuador, and Peru, and it can seek accession to the EU's trade agreement with these countries. However, it is unclear if Bolivia has a direct trade agreement with the EU.

Bolivia's membership in other trade agreements

Bolivia has been a member of the General Agreement on Tariffs and Trade (GATT) since September 1990 and joined the World Trade Organization (WTO) in 1995. Bolivia is also a member of the Andean Community (CAN) along with Colombia, Ecuador, and Peru. The CAN agreement has significantly reduced most internal trade barriers between these countries.

Bolivia is an associate member of the Common Market of the South (MERCOSUR) group, along with Chile, Colombia, Ecuador, and Peru. Bolivia subscribed to the Mercosur incorporation protocol in December 2012, which makes it the sixth member of the regional group. Bolivia will become a full member once the legislative bodies of the other full members ratify the protocol. MERCOSUR has virtually eliminated tariff and non-tariff barriers on most intra-regional trade between members with the implementation of a Common External Tariff (CET) system. Associate members enjoy tariff reductions but are not subject to the CET system.

Bolivia has had "complementary agreements" with Chile (since 1993), Panama, Cuba, and Mexico (since 2010). These agreements eliminate or reduce tariffs on explicit lists of products. Bolivia is also a member of the April 2006 "Peoples' Trade Agreement" (ALBA), founded by Cuba and Venezuela. Through this agreement, member countries give each other preferential treatment in specific sectors. However, little trade has occurred under ALBA due to bureaucratic obstacles.

Additionally, the European Union, Japan, Switzerland, Russia, Canada, Australia, New Zealand, Norway, and the United States have allowed many Bolivian exports to enter duty-free or at reduced duty rates under the Generalized System of Preferences (GSP).

Bolivia's exports to the EU

Minerals, vegetable products, and gold jewellery make up a large portion of Bolivia's exports to the EU. 37% of exports to the EU are minerals (73% of which is zinc), 20% are vegetable products (Brazil nuts and quinoa), and 17% are gold jewellery. Bolivia's exports to the EU are mainly based on raw materials, but the GSP+ system gives the country the opportunity to diversify its exports towards products with higher added value.

In addition to the EU, Bolivia has also had success exporting to other countries. In 2022, Bolivia was the 93rd largest exporter in the world, with total exports of $13.8 billion. The country's top exports are petroleum gas, gold, zinc ore, soybean meal, and soybean oil. Bolivia's main export destinations are India, Brazil, Argentina, Colombia, and Japan.

The EU's exports to Bolivia

The EU is Bolivia's fourth-largest trading partner, while Bolivia is the EU's 110th trading partner. In 2020, trade between the two regions was valued at €932 million.

In 2020, Bolivia exported €539 million worth of goods to the EU, an 11% decrease from the previous year. The EU's imports from Bolivia are largely raw materials, including minerals (37% of exports, 73% of which is zinc), vegetable products (20%, including Brazil nuts and quinoa), and gold jewellery (17%).

In 2023, Bolivia's top exports to the world were natural gas, zinc ores and concentrates, gold, precious metal ores and concentrates, and oilcake and other solid residues. Bolivia's main export destinations were Brazil, China, Peru, Colombia, and Argentina.

The EU's investor status in Bolivia

Bolivia is an attractive market for foreign investors due to its central location in South America, abundant natural resources, and the high demand for goods and services. However, the country's complex regulatory landscape, interventionist policies, and economic uncertainty pose challenges for investors. Here is an overview of the EU's investor status in Bolivia:

Market Access and Trade Agreements

Bolivia is a member of the Andean Community (CAN), which includes Colombia, Ecuador, and Peru. This membership has significantly reduced internal trade barriers within the community. Bolivia also has associate membership in the Common Market of the South (MERCOSUR) and is in the process of becoming a full member. MERCOSUR has effectively eliminated tariff and non-tariff barriers on intra-regional trade through its Common External Tariff (CET) system. Bolivia's "complementary agreements" with Chile, Panama, Cuba, and Mexico have also reduced tariffs on specific products.

Bolivia has benefited from preferential treatment by the EU and other countries under the Generalized System of Preferences (GSP), allowing duty-free entry or reduced tariffs for many Bolivian exports. However, Bolivia does not currently have a trade agreement with the EU, and its Bilateral Investment Treaty (BIT) with the United States was abrogated in 2012.

Investment Climate and Opportunities

Bolivia offers investment opportunities in various sectors, including agriculture, energy, critical minerals, and mining. The country's energy sector, particularly fossil fuels, has been a significant revenue source. However, Bolivia recently became a net importer of fuel due to challenges in meeting natural gas export commitments.

The country also has growing sectors such as agriculture, manufacturing, and food processing. Agriculture exports increased by 27% in 2022 compared to 2021 and have more than doubled since 2020. Manufacturing is expanding in areas like food production, oilseeds, chemicals, and lithium derivatives.

Investor Protections and Challenges

Bolivia's investment climate presents a mixed picture. On the one hand, the 2014 Investment Law guarantees equal treatment for national and foreign firms. Foreign and domestic private entities have the right to establish and own businesses, and the government can provide sector-specific investment incentives.

On the other hand, there are concerns about legal frameworks, judicial independence, and property rights. Bolivia's judicial system is perceived as politicized and challenging for judicial recourse in investment disputes. The country's constitution allows the government to expropriate property for the public good or if it does not fulfill a "social purpose." This has led to nationalization in sectors like hydrocarbons, electricity, mining, and telecommunications.

Additionally, bureaucratic procedures, complicated regulatory systems, and corruption adversely affect the investment climate. The lack of a central point of contact for investment and the absence of an investment promotion agency further complicate the investment landscape.

Recommendations for EU Investors

While Bolivia offers attractive investment opportunities, particularly in natural resource-based sectors, EU investors should carefully navigate the country's complex regulatory and political environment. Seeking specialized legal advice is essential before entering the Bolivian market. Additionally, investors should closely monitor sector-specific incentives and be prepared to navigate bureaucratic challenges.

Bolivia's political relationship with the EU

Bolivia and the European Union have had a relationship based on political dialogue and development cooperation since 1995. The EU is the fourth-largest trading partner of Bolivia, and in turn, Bolivia is the EU's 110th trading partner. In 2020, trade between the two regions was valued at €932 million. The EU is also the largest investor in Bolivia.

Bolivia benefits from the EU's Generalised Scheme of Preferences (GSP) and the special incentive arrangement for sustainable development and good governance, known as GSP+. The GSP+ allows Bolivia duty-free access to the European market for a number of products, including raw materials, minerals, vegetable products, and gold jewellery. In 2020, 37% of Bolivia's exports to the EU were minerals, 20% were vegetable products, and 17% were gold jewellery. The system also gives Bolivia the opportunity to diversify its exports towards products with higher added value.

The EU and Bolivia maintain regular contacts to improve institutional and legal frameworks conducive to trade and foreign investment. Bolivia and the EU also hold regular high-level dialogues to establish common ground on relevant bilateral matters. During the 2019/20 transition phase, the EU co-facilitated political dialogue leading to peaceful and transparent elections in October 2020. The EU also supported the COVAX-facility in its efforts to ensure fair and equitable access to vaccines for Bolivia.

The Multi-annual Indicative Programme (MIP) 2021-2027 sets the objectives and priorities for the European Union's support for sustainable development in Bolivia in the coming 7 years. Under this framework, Bolivia remains one of the main recipients of EU bilateral development aid in Latin America, through grants totalling an indicative maximum of €104 million for the initial period of 2021-2024. The MIP is aligned with the national development strategies of the Bolivian Government, such as the Patriotic Agenda 2015-2025 and the Economic and Social Development Plan 2021-2025.

The two priority areas under the 2021-2027 MIP are:

• Environment, Climate Change and Inclusive Economic Development, including sustainable environment management, water, sanitation, solid waste management, and integral rural development; and
• Governance and Human Rights, including the rule of law, democracy, human rights, and the fight against corruption and illicit drug trafficking.

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