Raw materials and skilled labour
Lula in Berlin: German industry is calling for better access to Latin America’s natural resources and wants to poach highly skilled workers. The tussle over a free trade agreement with Mercosur continues.
BERLIN/BRASÍLIA (Own report) – Ahead of the German-Brazilian government consultations in Berlin today, Monday, 4 December, German business has been pushing for a rapid expansion of economic relations between the two countries. Germany wants to expedite ratification of the free trade agreement with South America’s Mercosur alliance. Over the past ten years German industry has generally seen itself overtaken in Latin America by competitors, as a recent paper by the Latin America Committee of German Business (LADW) points out. The report says that German exports to the continent increased by just three per cent between 2012 and 2022, while US exports grew over the same period by 38 per cent and Chinese exports by as much as 87 per cent. German companies want this trend to change. It is not only about targeting Brazil as a sales market, but also a question of gaining access to Latin America’s raw materials and skilled human resources for deployment in German companies. This is the background to German industry’s push for the EU’s free trade agreement with Mercosur to be finally ratified after many years of talks. Brazil, on the other hand, has a different perspective, seeing itself as a representative of the Global South and increasingly opposing global Western dominance.
Falling further and further behind
German industry has increasingly been falling behind in Latin America. The 38 per cent increase in exports to the region over a decade gave the US annual export earnings of some 547 billion US dollars in 2022. And with its skyrocketing 87 per cent upswing, Chinese exports now exceed USD 252 billion (2022). While US trade is heavily focused on Mexico, which US corporations use on a large scale as a low-wage production location, China has now become the largest trading partner for Latin America excluding Mexico. German exports to the region, by contrast, have only increased by three per cent over the past ten years. They stood at just USD 44 billion in 2022.[1] In terms of foreign direct investment in Latin America, Germany lags far behind other European countries, recording a total of USD 53 billion in 2021. By comparison, the UK invested USD 133 billion and Spain USD 188 billion in that year. As for China, its direct investments in Latin America totalled USD 200 billion. The US, as the hegemonic power in the region for many decades, has a portfolio of more than one trillion.
The riches of Latin America
The LADW regrets that, “despite intensive travel activities and a recent increase in the German government’s efforts in the region,” it has not yet been possible to stop the ongoing loss of market share.[2] This failure is all the more regrettable as Latin America has major potential for the German economy in particular. Indeed, more than 60 per cent of global lithium deposits are located in the region, primarily in Argentina, Bolivia and Chile, known as the Lithium Triangle. Brazil, for its part, has around 18 per cent of the world's rare earth reserves. The LADW report adds that Brazil and Chile are likely in future to be among the leading producers of green hydrogen. It is estimated that hydrogen could be produced there for less than USD 1.50 per kilogramme by 2030.
In addition to its wealth of key natural resources, Latin America also has a skilled and educated workforce of considerable interest to German industry. The LADW report notes that, in Brazil alone, around 500,000 university students are graduating each year in tech programmes and around 900,000 are completing business and law degrees.[3] There are also large numbers of secondary school graduates who do not go on to study at university but are potential candidates for new opportunities such as on IT and programming courses with German companies.[4]
Dispute over the free trade agreement
To expand trade with the region, the LADW urges above all a final push to ratify and implement the EU's draft free trade agreement with the South American confederation Mercosur. Negotiations have been going on since 1999. The document was finalised in 2019 and could already have been ratified. The EU, however, is dragging its feet, insisting that Mercosur sign a supplementary declaration on environmental commitments, including rainforest protection (german-foreign-policy.com reported [5]). Pressure to conclude the deal has recently grown. Apart from the push by German industry in particular, the Mercosur states themselves are no longer willing to see further delays. A new complication is the election victory of Argentina's future ultra-right-wing president Javier Milei, who will take office on 10 December. His campaign slogans included a demand that Argentina leave Mercosur. This led to hectic efforts to sign the trade agreement before Milei takes office – if possible at the Mercosur summit on 7 December in Rio de Janeiro – but they failed to break the deadlock when Argentina's outgoing government refused to sign. However, the country's presumed future foreign minister, Diana Mondino, has since declared that Milei will ratify the EU-Mercosur deal, contrary to his campaign statements.[6]
A quarter of a century
Conclusion of the agreement still hangs by a thread – partly because France is reconsidering its support. The background to this stance is that French farmers fear significant disadvantages from the agreement. Paris, along with Dublin and Vienna, who also see their agricultural interests jeopardised, has added its weight to demands for comprehensive protection of the rainforests, probably in the hope that the agreement could fail. It is now being reported that the EU Commission has reached agreement with Mercosur on a few thinly worded provisions designed to suggest a serious commitment to rainforest protection. Still critical, French President Emmanuel Macron said at the weekend that the vague pledges were not enough for him.[7] The way forward remains unclear. The search for ways and means to finally wrap up the free trade agreement will presumably be an issue high on the agenda at the second round of German-Brazilian intergovernmental consultations on 4 December in Berlin. If the agreement were finally to come into force in the near future, its signing might mark the 25th anniversary of the start of negotiations back in June 1999. If it does not, both sides will have spent 25 years negotiating for nothing.
Struggle for the Global South
From Berlin's point of view, however, closer relations with Brazil are desirable not only for economic reasons. Brazil – along with India and South Africa – is one of the countries of the Global South that has, since last year, made a massive effort to break the global dominance of the West and itself become a pole of a new, multipolar world order. In this endeavour, Brazil not only hopes to leverage the BRICS alliance, which plans to accept new members on 1 January – presumably five, as Milei is likely to revoke Argentina’s original membership plans – but is also looking to closer cooperation with China. Importantly, Brazil has switched from the US dollar to the Chinese yuan for transacting growing parts of its foreign trade. It now holds higher currency reserves in yuan than in euros.[8] Brasília has repeatedly rebuffed Berlin’s attempt to buy back ammunition for the Gepard anti-aircraft tank, of which Brazil has ample stocks. Under President Jair Bolsonaro and under Lula there has been little appetite for helping Germany to supply Ukraine for its war with Russia.[9] Chancellor Olaf Scholz met with a blunt refusal when he pushed for this in Brasília at the end of January.[10] Likewise, Foreign Minister Annalena Baerbock faced an unusually frank rebuff during her visit in June.[11] For Berlin, the planned deepening of cooperation with Brazil has also become a question of German influence within a powerfully emerging Global South.
[1] CEO agenda for Germany’s economic cooperation with Latin America and the Caribbean. Lateinamerika-Ausschuss der Deutschen Wirtschaft. Berlin 2023.
[2] Time for a new approach to cooperation with Latin America. ladw.de 01.12.2023.
[3] CEO agenda for Germany’s economic cooperation with Latin America and the Caribbean. Lateinamerika-Ausschuss der Deutschen Wirtschaft. Berlin 2023.
[4] CEO agenda for Germany’s economic cooperation with Latin America and the Caribbean. Resümee. Lateinamerika-Ausschuss der Deutschen Wirtschaft. Berlin 2023.
[5] See also EU’s Latin America Offensive (II) and EU’s Latin America Offensive (III).
[6] Cecilia Devanna: La Argentina no firmará el acuerdo del Mercosur con la Unión Europea, en la cumbre de esta semana. lanacion.com.ar 03.12.2023.
[7] Hans von der Burchard: EU and Mercosur give up on clinching trade pact next week. politico.eu 02.12.2023.
[8] Joseph Bouchard: China’s Yuan Revolution Reaches Brazil and Argentina. thediplomat.com 27.09.2023.
[9], [10] See also “On the Side of Diplomacy”.
[11] See also Baerbock’s Lectures (II).
