EU-Mercosur a ‘geopolitical deal’ to reduce dependence on China – German official

LONDON (ICIS)–The EU-Mercosur free trade deal is a geopolitical move to reduce Europe’s dependency on China, a German government official told participants at a webinar hosted by German chemical producers’ trade group VCI.

• EU needs Mercosur to diversify and counter China
• Trade deal nearly finalized, but ratification may take time
• EU wants to de-risk, US seeks to de-couple from China

“The agreement has a geo-strategic and geo-political significance” because Germany and the EU do not want to depend on any one country or region,” said Christian Forwick, director general, External Economic Policy, at Germany’s federal economic affairs ministry

“Our wake-up call was the Russia-Ukraine war”, Forwick said.

In the wake of the war, Germany lost access to the cheap Russian natural gas, which had helped power its chemicals and other energy-intensive industrial production.

The EU and the Mercosur nations – Brazil, Argentina, Uruguay, Paraguay – are on track to sign a free trade deal at next month’s Mercosur summit in Uruguay next month, the official said.

The European Commission has been invited to the summit, scheduled for 4-5 December in Montevideo.

Negotiations are close to being finalized, with only minor details to be sorted out, Forwick said.

“We have a ‘time window’ to conclude a deal now”, he said.

Forwick did not comment on recent protests against the free trade deal by farmers in France and elsewhere, who are worried about a surge of low-cost agricultural imports into the EU.

Following signing, the Mercosur deal will need to be approved by the European Council, and it must be ratified by each of the 27 EU countries.

Ratification can be a drawn-out process. For example, the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU from 2017 has up to now only been applied provisionally because it has not yet been ratified by all of the EU member states.

CHINA CHALLENGE
Mathias Blum, head of external trade at VCI, said that for Germany’s chemical industry an EU-Mercosur trade deal would be an important building block in efforts to diversify markets.

China is the world’s largest chemicals market and is therefore important for Germany’s chemical-pharmaceuticals industry, he said.

However, China is not just a customer, but also a strong competitor, using “fair and unfair methods”, he said.

Forwick noted that the US approach to China was more severe than the EU’s.

Whereas the EU focuses on “de-risking”, the US is pursuing a “decoupling” from China in certain sectors such as autos, and with Donald Trump’s victory in the election the US is expected to continue imposing tariffs on products from China, he said.

While Germany, for its part, has become more careful in its trading and investment relations with China, it continues to see the country as an important market, he said.

“I would not advise any company to exit China because of the geopolitical situation”, he said.

Germany continued to believe in a market economy and the advantages of globalization, he said.

“We do not believe that we should or could produce everything in Europe”, an approach that contrasted with the US efforts to make everything domestically, he said.

“The better, more innovative products are created through international cooperation”, including cooperation with China, which has technology advantages in certain sectors, he said.

Europe was innovative and benefited from the integration into the “international research community”, but on the negative side it has high electricity prices and lacks a common capital market, among other weaknesses, he noted.

Thumbnail photo of European Commission President Ursula von der Leyen and China’s President Xi Jinping; photo source: EU