brussels What is the relationship between Germany’s China strategy and the EU-Latin America summit? Surprisingly, the federal government has set itself the goal of overcoming its dependence on China — a trading partner not just a competitor but a system competitor. This will only work if Europe forges new economic relationships.
But in Brussels on Monday and Tuesday, the gap between dream and reality will become apparent. The Spanish presidency of the European Council has invited Latin American countries to the summit, where more than 50 heads of state and government are expected to attend, including federal chancellor Olaf Scholz.
In fact, the meeting should help sign a trade agreement between the EU and Mercosur countries Brazil, Argentina, Uruguay and Paraguay, creating the world’s largest free trade zone.
That doesn’t work, that’s clear.
At a meeting of MERCOSUR countries in early July, Argentine President Alberto Fernandez criticized the Europeans for burdening negotiations with additional demands for an environmental chapter and paying too little attention to economic and social sustainability. Brazilian President Luiz Inácio Lula da Silva also rejected the European proposal, calling it “unacceptable”.
Forest Conservation Controversy
Specifically, it was an additional statement on the protection of the rainforest, with which the EU sought to appease doubters within itself. Brazil and Argentina reject such “conditions”. But the counter-proposal from MERCOSUR countries waited a long time. Therefore, it remains to be seen whether the negotiations, which have lasted for more than 20 years, can be successfully concluded.
The European economy suffers. “Companies are eagerly awaiting a deal,” said Uta Knott of the Federation of German Industries (BDI). The reduction in tariffs is not only a “huge factor” for the German economy. The agreement would also be “an important signal that Europe is serious about diversifying its supply chains”.
In Europe, environmentalists are putting pressure on forest protection and demanding binding provisions.
(Photo: dpa)
Automobile association VDA president Hildegard Müller also called for solutions to outstanding issues to be found “as soon as possible”. Muller highlighted the new sales opportunities the deal brings to his industry, as well as its “huge macroeconomic and strategic importance.” “Free trade is vital to our continent and an important guarantee of prosperity, especially for Germany as an exporter,” she said.
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The European Commission and various member states, including Germany, have made new trade and raw materials partnerships with Latin America a priority. The aim is to expand its own supply chain and reduce China’s influence. That’s why commissioners and heads of government have been visiting the region for months – with some success.
Auto industry hopes sales growth
The treaty text of the MERCOSUR agreement has been available since 2019. But approval still fell through due to reservations on both sides. In Europe, environmentalists are putting pressure on forest protection and demanding binding provisions.
The EU hopes to address these concerns with an add-on agreement. But Mercosur countries see this as paternalistic and a violation of their national sovereignty. It was argued that people did not need any guidance from Europeans who felled virgin forests.
This stagnation has left the EU strategically behind. “Other countries such as Japan, South Korea and China are also ready to reach a deal with Mercosur,” warned VDA boss Muller. The four countries of Mercosur are already important sales markets and production sites for the automotive industry.
German companies have more than 300 branches there. South American auto parts import tariffs are relatively high, ranging from 14% to 18%, and automobile import tariffs are 35%. Their elimination could provide a major boost to trade.
Stefanie Sabet, managing director of the Federal Association of the German Food Industry, expects the reduction in tariffs to save the industry millions of euros per year.
Environmental groups critical of agreement
On the other hand, it is for these reasons that environmental groups have been critical of the agreement. Martina Schaub of Oro Verde, a Berlin-based tropical forest foundation, says it promotes trade in products that lead to the destruction of rainforests.
Most importantly, she focuses on agricultural commodities such as beef, chicken, soybeans and ethanol, which require land to produce. The additional declaration on forest protection proposed by the EU is not sufficient because it is not legally binding.
>> Read here: EU Mercosur deal in danger of collapsing
“As Europeans, we should take every opportunity to save the rainforest,” she said. “However, we cannot influence this trade agreement because it does not provide for sanctions.” The contract is outdated and must be renegotiated. “Trade should always contribute to the socio-ecological transformation of this century.”
Industry associations want to prevent further tightening of climate protection requirements. Because then, there will be fears that a trade deal will never be reached. “Under no circumstances should the contract text be renegotiated again,” said BDI’s Knott. “An additional statement on climate protection must suffice.”
South American governments “give the impression that the Europeans are still demanding more. From Mercosur’s perspective, the EU has negotiated a deal that is very favorable to itself.”
Reduce risk through diversification
Müller, president of the German auto industry association, warned that trade agreements should not be “overburdened” with issues that could be better addressed at other levels. This shows the critical reaction of MERCOSUR countries to the additional sustainable development declaration.
The agreement is important because it promotes cooperation and rules-based trade. “Through deep cooperation, even the most difficult problems can be better solved.”
In a bilateral meeting on Monday morning, European Commission President Ursula von der Leyen wanted to press Brazilian President Luiz Inácio Lula da Silva to conclude the agreement this year. “We do have a chance this year,” said an EU official.
It is also important for Chancellor Scholz to take advantage of this opportunity. He expects to reduce dependence on China through “diversification”, that is, to gradually reduce one-sided risks by opening up new markets. If the Mercosur deal fails, there will be little room for his “de-risking” strategy.
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