Brussels What does Germany’s China strategy have to do with the EU-Latin America summit? Surprisingly, the federal government has set itself the goal of overcoming its dependency on China – a trading partner that is not only a competitor but also a system rival. This can only work if Europe establishes new economic relationships.
But on Monday and Tuesday in Brussels it will become clear how far the dream and reality diverge. The Spanish EU Council Presidency has invited to the summit with the countries of Latin America, more than 50 heads of state and government are expected, including Federal Chancellor Olaf Scholz.
Actually, the meeting should serve to seal the trade agreement between the EU and the Mercosur countries Brazil, Argentina, Uruguay and Paraguay – and thus to create the largest free trade area in the world.
That won’t work, that much is clear.
At a meeting of the Mercosur states in early July, Argentina’s President Alberto Fernández criticized that the Europeans were burdening the talks with additional demands for the environmental chapter and were paying too little attention to economic and social sustainability. Brazil’s President Luiz Inácio Lula da Silva had also rejected European proposals as “unacceptable”.
Controversy over forest protection
Specifically, it is about the additional declaration on the protection of the rainforest, with which the EU is trying to calm doubters in its own ranks. Brazil and Argentina reject such “conditions”. But a counter-proposal from the Mercosur states is a long time coming. It is therefore unclear whether the negotiations, which have now lasted more than 20 years, can still be successfully concluded.
The European economy is frustrated. “Companies are urgently waiting for the agreement,” says Uta Knott from the Federation of German Industries (BDI). Not only would the reduction of tariffs be an “enormous factor” for the German economy. The agreement would also be “an important signal that Europe is serious about diversifying supply chains”.
In Europe, environmentalists are putting pressure on and demanding binding clauses for forest protection.
(Photo: dpa)
The head of the automotive association VDA, Hildegard Müller, also calls for a solution to be found “as soon as possible” for the open issues. Müller emphasizes the new sales opportunities for his own industry, but also the “great macroeconomic and strategic importance” of the agreement. “Free trade is essential for our continent and a crucial guarantee of prosperity, especially for Germany as an export country,” she says.
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The EU Commission and individual member states, including Germany, have made new trade and raw material partnerships with Latin America a priority. The aim is to broaden one’s own supply chains and reduce China’s influence. That’s why commissioners and heads of government have been touring the region for months – with modest success.
Auto industry hopes for sales increase
A treaty text for the Mercosur agreement has been available since 2019. But the ratification still fails due to reservations on both sides. In Europe, environmentalists are putting pressure on and demanding binding clauses for forest protection.
The EU wants to address these concerns with an additional protocol. But the Mercosur states see this as paternalism – an encroachment on their national sovereignty. The argument goes that one does not need any instruction from Europeans who have cut down their primeval forests.
The standstill puts the EU strategically behind. “Other countries, such as Japan, South Korea and China, are also ready and want to conclude agreements with Mercosur,” warns VDA boss Müller. The four Mercosur countries are already an important sales market and production location for the automotive industry.
German companies have more than 300 locations there. South American import duties are relatively high at 14 to 18 percent on car parts and 35 percent on cars. Their elimination would probably give trade a significant boost.
Stefanie Sabet, Managing Director of the Federal Association of the German Food Industry, expects relief of several million euros a year for her industry from the reduction in tariffs.
Environmental organizations take a critical view of agreements
Environmental organizations, on the other hand, are critical of the agreement for precisely these reasons. It promotes trade in products that contribute to the destruction of the rainforest, says Martina Schaub from the Berlin Tropical Forest Foundation Oro Verde.
Above all, she is focusing on agricultural products such as beef and chicken, soya and ethanol, which require land to be produced. The additional declaration on forest protection proposed by the EU is not sufficient because it is not legally binding.
>> Read here: The EU’s Mercosur agreement is in danger of collapsing
“As Europeans, we should seize every opportunity to save the rainforest,” she says. “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 social-ecological transformation in this century.”
The trade associations want to prevent a further tightening of the climate protection requirements. Because then, so the fear goes, the trade deal will never come about. “Under no circumstances should the text of the contract be renegotiated again,” says Knott from the BDI. “An additional declaration on climate protection must be sufficient.”
The South American governments “have the impression that the Europeans are still demanding more. From a Mercosur perspective, the EU has already negotiated a very advantageous agreement for itself.”
Derisking through diversification
VDA boss Müller warns that the trade agreement should not be “overburdened” with issues that could be better solved at another level. This shows the critical reaction of the Mercosur countries to the additional declaration on sustainability.
The agreement is important because it promotes cooperation and rules-based trade. “With in-depth cooperation, even difficult issues can be addressed on a better basis.”
At a bilateral meeting on Monday morning, EU Commission President Ursula von der Leyen wants to urge Brazilian President Luiz Inácio Lula da Silva to conclude the agreement this year. “We have a real chance this year,” says an EU official.
It is also important for Chancellor Scholz that this opportunity is used. He is counting on the fact that dependence on China can be reduced through “diversification”, i.e. the gradual reduction of one-sided risks by opening up new markets. If the Mercosur deal fails, there will not be much left of his “derisking” strategy.
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