CEO Agenda for cooperation with Latin America and the Caribbean

The LADW has developed a CEO Agenda to highlight the economic potential of Latin America, to provide the necessary strategies and approaches for the diversification of German companies and to promote the expansion of cooperation with Latin America. The basis for the development of the agenda is the perspective of the CEOs and board members of renowned companies that are gathered in the LADW. It combines information from various interviews and expert discussions with an in-depth analysis of the region.

 

 

Resume

 

Context

 

    • Due to the changed geopolitical situation, cooperation with Latin America has gained new momentum. Motivated by the change of government in Brazil in January 2023, the German government’s travel activities and efforts in the region are more intensive than ever before.
    • However, the lack of attention in recent years has had consequences. Germany and the EU have lost importance in the region. Latin America is increasingly valued as an attractive region and is receiving offers for investment from all over the world – from the USA, the Middle East, Russia and Asia. Germany is therefore also expected to make concrete offers of cooperation and projects.
    • The German economy is dealing intensively with the recession in its own country, is undergoing a costly transformation process in order to achieve climate targets and at the same time is being forced to diversify more strongly. All of this is tying up resources and could make additional investment capacity in new markets scarce, especially in the industrial SME sector.

 

The most important findings

 

1 Latin America’s potential

 

Latin America has a key role to play in strengthening the resilience of the German economy.

As a growth market, Latin America can keep pace with China and India – with annual growth rates of up to 6% from 2027 – if it focuses on future-oriented industries with sustainable technologies and intensifies international trade (e.g. through trade agreements with the EU). The region already offers higher margins for companies than Asian markets such as China and Malaysia.

    • Future industries have great potential for Latin America due to the region’s good natural conditions for sustainable technologies. In the past, for example, the wind energy market in Brazil grew by an average of more than 30 % per year, which means a potential impact on GDP of up to 1 %.
    • The economic impact of trade agreements, such as bilateral agreements or the Mercosur agreement, could generate additional GDP growth of up to 2 %.
    • To prevent a decline in GDP growth of up to 21% by 2030, Latin American countries urgently need an increase in productivity. The impact of productivity on GDP growth is currently lowest in Latin America. Latin America has a key role to play in strengthening the resilience of the German economy.

 

Today, the region is one of the most promising and competitive markets for the production of renewable energies in the world. In addition, there are immense reserves of important raw materials that are crucial for a green transformation of the industry. South America can become one of the largest export platforms for green hydrogen and other forms of exportable renewable energy.

    • Although Latin America already has a very high proportion of renewable energies in its electricity mix, electricity generation from renewable energy sources in the region still has room for expansion and is likely to increase further.
    • The global hydrogen market is expected to grow by around 40% annually – Chile and Brazil are among the world’s leading locations that could produce green hydrogen for less than USD 1.50 per kg of H2 in 2030. In Latin America, 12 hydrogen production projects are already in operation and around 70 are under development, with more than 500 industrial-scale projects planned worldwide.
    • Latin America has around 60% of the world’s lithium reserves, i.e. 11 times more than Europe. Demand for lithium will exceed supply as early as 2024 and the ratio will reverse from a surplus of around 30% in 2021 to a shortage of around 20% in 2025. Around 18% of rare earth reserves are also located in Brazil, the second largest reserves in the world and 18 times more than in Europe.
    • Chile and Brazil are international leaders when it comes to additional capacity for wind and solar projects.

 

Latin America is ideally placed to become a strategic market for attracting skilled workers for German companies, particularly in technical professions. In addition, labor costs there are among the most competitive in the world.

    • Engineering, IT and natural sciences account for more than 20% of university degrees in Brazil, Chile, Mexico and Colombia. In Germany, there have already been around 700,000 vacancies in tech jobs since 2018 and the gap is expected to grow to around 780,000 by 2026.
    • Another talent pool for German companies in Latin America are school leavers who do not start higher education – in Brazil, this amounted to 31 million young adults in 2021. They are potential candidates for new educational opportunities, such as programming schools, which German companies could launch in the country on a “tailor-made” basis.
    • In addition, Brazil produces around 500,000 university graduates in technology and around 900,000 in business every year, with a current low employment rate of around 83% for 25 to 64-year-olds with a university degree (around 60% overall). This leads to additional potential for recruiting skilled workers for German companies.
    • Tech hubs as locations with IT specialists and founders, such as São Paulo, Bogotá or Mexico City as part of the technological growth in the software and hardware industry, can also offer starting points to benefit from the talent pool in Latin America.

 

2 German involvement in the region

 

Germany is still well positioned in Latin America. However, political and economic cooperation is stagnating and market shares have been gradually lost.

    • With only around USD 50 billion in investments in Latin America, Germany is one of the worst performers in an OECD comparison (average investment portfolio of OECD countries: USD 80 billion).
    • German exports to the region have also barely grown in the last 10 years: while the USA and China have increased their exports by 38% (2022: USD 547 billion) and even 87% (2022: USD 252 billion) respectively during this period, German exports have only grown by 3% (2022: USD 44 billion).
    • China’s role as a technology partner in the local markets should not be underestimated. On the one hand, Chinese investments show a shift in investments from state banks to commercial banks, while on the other, the majority of transactions relate to advanced technologies such as communications, automobiles and the production of electronic components.

 

3 Conclusion: Strategies for expanding cooperation

 

New political and economic approaches are needed to expand Germany’s engagement in Latin America beyond the status quo. Only in this way will it be possible to seize opportunities arising from the economic reorganization of the global ecosystem in good time.

    • The economic reorganization of the global ecosystem could have a significant impact on Latin America’s development. Germany and the EU must have a stronger presence in this phase (e.g. long-term commodity contracts are now being awarded) to avoid losing even more of their importance for the region.
    • German companies would be well advised to review the importance of Latin America for their global diversification strategy and make long-term decisions regarding their involvement in the region.
    • Five strategies can help companies increase their presence in Latin American markets:

1) Import of critical/sustainable resources such as lithium, rare earths and energy from renewable sources, e.g. via green hydrogen.

2) Production in the region for export.

3) Equipping local companies with technologies that increase productivity, e.g. IoT technology, machines and digital tools.

4) Strengthening and aligning the offer to the growing middle class in Latin America and their needs in certain areas, e.g. mobility and healthcare.

5) Utilization of the large talent pool of highly qualified specialists in Latin America through targeted training offers and measures, as the region is culturally compatible with the USA and Europe.

    • In line with the five strategies, the CEO Agenda recommends four possible levers, ranging from actions by individual companies, alliances and cooperation between several companies to necessary political measures.
    • In addition, 9 concrete initiatives are proposed to boost engagement in the region, such as an alliance of interested companies to source/develop green hydrogen projects in Brazil or a shared talent pool as part of a digital manufacturing ecosystem, as well as the creation of programming schools in Latin America.

A breath of fresh air for a proven dialog format

As part of the German-Brazilian Intergovernmental Consultations on December 4, an addendum to the founding act of the bilateral Working Initiative for Cooperation in Agribusiness and Innovation (AI) was signed in the presence of German Agriculture Minister Cem Özdemir and his Brazilian counterpart Carlos Fávaro. In it, both sides agree to strengthen AI as an exchange platform, to involve new partners and to further develop it thematically.

The aim is to further intensify the dialog on innovative approaches to increasing sustainability and involve other players from the entire value chain.

The AI was founded in 2003 and receives its mandate for three years from the German-Brazilian Joint Commission on Economic Cooperation. Jordi Tormo, Vice President Business Management Industrial Formulators Europe at BASF SE, chairs the AI on behalf of German industry, which is coordinated by LADW and BDI. His Brazilian counterpart is Ingo Plöger, Vice President of the Brazilian National Agribusiness Association (ABAG). The political side is chaired by representatives of the respective ministries, the Federal Ministry of Food and Agriculture (BMEL) and the Brazilian Ministry of Agriculture (MAPA). The AI meets at least once a year in the context of the German-Brazilian Economic Meeting.

Signing ceremony Addendum
Federal Minister of Agriculture Cem Özdemir, his Brazilian counterpart Carlos Fávaro, Ingo Plöger, ABAG Vice President, and Rafael Haddad, LADW Managing Director © BMEL
Federal Minister of Agriculture Cem Özdemir
© BMEL

New chapter opened in cooperation with Brazil

On December 4, the Brazilian and German governments met again for the first time in eight years for Intergovernmental Consultations as part of the strategic partnership between the two countries. President Luiz Inácio Lula da Silva traveled to Berlin with eight ministers, two vice-ministers and a delegation of high-ranking business representatives.

Many of the Brazilian ministers met with their German counterparts in the morning for bilateral talks. This was followed by a joint cabinet meeting in the Chancellery and a press conference with the Brazilian President and Federal Chancellor Olaf Scholz.

Both countries agreed on a comprehensive “partnership for a socially just and ecological transformation” between Brazil and Germany. Among other things, the focus here is on new projects relating to the energy transition, decarbonization of industry and skilled workers. A total of around 20 agreements and declarations of intent were signed. Progress in the partnership will be monitored through annual talks at ministerial level and Intergovernmental Consultations will be held every two years from now on. The full communiqué (in German) can be read here.

A German-Brazilian Economic Forum in the afternoon with almost 300 representatives from politics and business from both countries was part of the Intergovernmental Consultations. Chancellor Scholz and President Lula spoke out in favor of renewing cooperation at the event in the Haus der Deutschen Wirtschaft. Federal Minister of Economics Dr. Robert Habeck and – on the Brazilian side – Finance Minister Fernando Haddad, Environment Minister Marina Silva and the Head of the Presidential Office, Minister Rui Costa, were also prominent participants.

The commitment to the EU-Mercosur Agreement was also strong during the consultations. The Federal Chancellor in particular was optimistic: he was convinced that a majority would be found in both the European Council and the EU Parliament for the agreement if it was successfully negotiated to the end. President Lula is also not deterred by obstacles in the final stages.

Unfortunately, the consultations did not bring any progress on the agreement on the avoidance of double taxation, which has not been in force since 2006. This “homework” therefore remains at the top of the agenda for German-Brazilian cooperation in the coming year.

Federal Chancellor Scholz and President Lula
Federal Chancellor Scholz and President Lula © DIHK/Jens Schicke
LADW Chairman Gunnar Kilian
LADW Chairman Gunnar Kilian © LADW
BDI President Siegfried Russwurm
BDI President Siegfried Russwurm © LADW
Wolfgang Niedermark (BDI) und Ricardo Alban (CNI)
Wolfgang Niedermark (BDI) and Ricardo Alban (CNI) © LADW
Minister of Economics Dr. Robert Habeck
Dr. Volker Treier (DIHK), Prof. Dr.-Ing. Siegfried Russwurm (BDI), Minister of Economics Dr. Robert Habeck, Gunnar Kilian (LADW/Volkswagen), Dr. Oliver Blume (Volkswagen AG) © LADW
Politics in dialogue with the private sector
Politics in dialogue with the private sector © DIHK/Jens Schicke
President Lula's speech at the Economic Forum
President Lula's speech at the Economic Forum © DIHK/Jens Schicke
Minister of Finance Fernando Haddad
Minister of Finance Fernando Haddad © LADW
Environment Minister Marina Silva and Agriculture Minister Carlos Fávaro
Environment Minister Marina Silva and Agriculture Minister Carlos Fávaro © LADW

Time for a new approach to cooperation with Latin America

LADW presents new CEO agenda on the occasion of Intergovernmental Consultations with Brazil

Growth potential of the Latin America region can strengthen the German economy’s resilience to crises

Great opportunities for cooperation in renewable energies, raw materials, digitalization and skilled workers

 

The LADW has presented its new CEO Agenda for cooperation with the region on the occasion of the Intergovernmental Consultations with Brazil on December 4, 2023, at which Brazilian President Luiz Inácio Lula da Silva will be in Berlin with numerous cabinet members. The aim of the CEO Agenda is to highlight the economic potential of the Latin America region, provide the necessary strategies and approaches for the diversification of German companies and promote the expansion of cooperation with Latin America.

 

“Relations between Germany and Brazil, as well as other Latin American countries, are historically close and based on trust. Economic cooperation has traditionally played an important role. We want to build on this during President Lula’s visit” said Gunnar Kilian, LADW Chairman. New approaches are now needed from politics and business to ensure that Germany and the European Union do not fall behind. “The Intergovernmental Consultations with Latin America’s largest economy should be used to strategically establish long-term cooperation on renewable energies, raw materials, digitalization and the shortage of skilled workers,” demanded the LADW Chairman.

 

Despite intensive travel activities and a recent increase in the German government’s efforts in the region, the LADW believes that the potential of economic cooperation is at risk: Cooperation with Latin America stagnated for a long time and market shares were gradually lost. German exports to the region have barely grown over the past ten years. While the USA and China have increased their exports by 38 percent (2022: USD 547 billion) and even 87 percent (2022: USD 252 billion) respectively during this period, German exports have only grown by 3 percent (2022: USD 44 billion). “It is regrettable that it has not yet been possible to conclude the Mercosur agreement. A failure of the negotiations would be irresponsible. The EU Commission and the German government should leave no stone unturned to bring the Mercosur negotiations to a successful conclusion. That would send a strong signal for fair and free trade between Europe and Latin America,” emphasized Kilian.

According to CEO Agenda, Latin America is one of the most promising markets for renewable energies internationally. Brazil is one of the leading nations where it would be possible to produce green hydrogen for less than 1.50 USD per kilogram by 2030. Added to this are the country’s immense resources of important raw materials, such as the world’s second-largest reserves of rare earths. The region can also be decisive in attracting skilled workers for German companies, particularly in technical professions. Engineering, IT and natural sciences account for more than 20 percent of university degrees in Brazil, Chile, Mexico and Colombia.

For a successful repositioning of engagement in the region, the CEO Agenda is developing strategies and concrete initiatives, such as an alliance of interested companies to develop projects in the field of energy and raw materials, the creation of a joint talent pool as part of a digital production ecosystem or the establishment of programming schools.

Petro seeks strategic clean energy alliance with Germany

During his state visit to Germany, Colombia’s first left-wing president Gustavo Petro is focusing on strengthening cooperation for the production of renewable energies in Latin America’s fourth-largest economy. Petro was accompanied by Foreign Minister Álvaro Leyva Durán, Economy Minister Germán Umaña and Energy Minister Irene Vélez.

Speaking to German CEOs and board members during a luncheon hosted by BDI and LADW, Petro advocated for a bilateral alliance to advance large-scale green hydrogen production and export projects in Colombia in particular. The demand for innovations that impact sustainability is enormous, he said, and South America has unparalleled capacity to generate clean energy.

However, representatives of the companies have made it clear that more business-friendly framework conditions are indispensable for long-term investments. This includes, among other things, a reliable infrastructure for the distribution and transport of renewable energies, legal certainty for the often long-term contracts, and political stability for the implementation of large-scale projects.

Colombia would also like to see more sustainability in trade relations between the two countries. Coal is one of the most exported products to Germany – with an increasing trend due to the Ukraine crisis. Germany is Colombia’s largest trading partner within the EU and the volume of trade between the two countries exceeds 2.5 billion euros.

Petro appeals to business and politics in Germany to ensure that the political discourse is now jointly put into practice.

Gustavo Petro, President of Columbia
President Petro, Ambassador Salazar-Mejía, Minister Leyva, Minister Vélez, President of Ecopetrol Roa, Director of ProColombia Germany Bautista and Advisor Ramirez
Petro and representatives of German industry
Holger Lösch (BDI), Nico Warbanoff (DB E.C.O. Group), Anne-Laure Parrical de Chammard (Siemens Energy AG), President Gustavo Petro, Wolfgang Niedermark (BDI), Micheal Lewis (Uniper SE), Katherina Reiche (Westenergie AG)
Minister Leyva, Ambassador Salazar-Mejía and Managing Director LADW Haddad
Minister Leyva, Ambassador Salazar-Mejía and Managing Director LADW Haddad
President Gustavo Petro, José Blanco and Katherina Reiche
President Gustavo Petro, José Blanco (Nordex) and Katherina Reiche (Westenergie AG)
Wirtschaftsminister Germán Umaña, Marika Lulay und Victor Bautista
Minister Germán Umaña, Marika Lulay (GFT Technologies SE) and Victor Bautista (ProColombia Germany)

Opportunities for German companies in Colombia

Colombia sees Germany as a reliable partner for the envisaged transformation of the economy with a focus on sustainability and social issues. This was emphasized by the Colombian Minister of Economy German Umaña during his visit to Berlin this week in bilateral talks with members of LADW, including Gunnar Kilian, LADW Chairman and Member of the Board of Management of Volkswagen Group.

As the fourth largest economy in Latin America, Colombia is one of the most dynamic countries in the region. And the country’s position as a key market in South America for German companies can and should be expanded. Particularly in decarbonization and digitization, Colombia and Germany have great potential for even closer cooperation – also with regard to the production of renewable energy.

It is therefore all the more important that an agreement to avoid double taxation can now be negotiated between Germany and Colombia. This would give a decisive boost to economic cooperation. In the current situation, any facilitation for trade and investment would be very welcome to companies in both countries.

Gunnar Kilian in conversation with Minister Umaña and Ambassador Salazar-Mejía
Gunnar Kilian meets Minister Umaña and Ambassador Salazar-Mejía © PROCOLOMBIA

Latin America’s importance for the German economy is growing

“Latin America is and remains an essential building block in Germany’s diversification strategy. And we want to expand this and also push ahead with trade agreements – such as Mercosur,” emphasized LADW Chairman Gunnar Kilian yesterday at the annual meeting of LADW members, for which business leaders gathered in Berlin. Against this background, the strengthening of cooperation with the region is essential.

At the subsequent fireside evening, the exchange with the ambassadors of the region and high-ranking representatives of the Federal Government and the Bundestag continued.

In conversation with the evening’s guest speaker, Sarah Ryglewski, Minister of State to the German Chancellor, it becomes clear that the region has also become a top priority for German politics. Thanks to the travel offensive by members of the government, Germany has a greater political presence in Latin America than ever before. This creates a valuable economic policy basis for more economic engagement.

Latin America is – despite all the current challenges – an attractive market and business location for German companies. More than 650 million people live in this region – on around 20 million square kilometers. And it is one of the most important global suppliers of raw materials for industry. Around 50 percent of the world’s lithium, silver and gold deposits are located here.

The Latin America momentum must now be used to advance complex issues such as the EU-Mercosur agreement but also concrete projects, for example in the field of digitalization or decarbonization, which will boost growth and investment in this region.

LADW Chairman Gunnar Kilian, Sabine Bendiek, Member of the Executive Board SAP, and LADW Managing Director Rafael Haddad
LADW Chairman Gunnar Kilian, Sabine Bendiek, Member of the Executive Board SAP, and LADW Managing Director Rafael Haddad
Tim Holt, Member of the Executive Board Siemens Energy, Rolf Habben Jansen, CEO Hapag-Lloyd, and Minister of State Sarah Ryglewski and Dr. Chia Lehnardt at the LADW Member Meeting
Tim Holt, Member of the Executive Board Siemens Energy, Rolf Habben Jansen, CEO Hapag-Lloyd, and Minister of State Sarah Ryglewski and Dr. Chia Lehnardt at the LADW Member Meeting
Minister of State Sarah Ryglewski, Gunnar Kilian and Rafael Haddad
Minister of State Sarah Ryglewski, Gunnar Kilian and Rafael Haddad
Ambassador Salazar-Mejía, Ambassador Quiroga, Ambassador Atria
Ambassador Salazar-Mejía, Ambassador Quiroga, Ambassador Atria
Ambassador Frutos Ruiz
Ambassador Frutos Ruiz
Ambassador Arzubiaga Scheuch, Reinhard Houben, Member of the German Bundestag, Ambassador López Fabregat
Ambassador Arzubiaga Scheuch, Reinhard Houben, Member of the German Bundestag, Ambassador López Fabregat
Ambassador Brun, Gunnar Kilian, State Secretary Thoms
Ambassador Brun, Gunnar Kilian, State Secretary Thoms
Ambassador Ticona Cuba
Ambassador Ticona Cuba
Thomas Silberhorn, Member of the German Bundestag, and Deniese Sealey, Embassy Jamaica
Thomas Silberhorn, Member of the German Bundestag, and Deniese Sealey, Embassy Jamaica
Hubert Hüppe, Member of the German Bundestag, Eugenia Gutierrez Ruiz, Embassy Costa Rica, and Ingo Bodtke, Member of the German Bundestag
Hubert Hüppe and and Ingo Bodtke, both Members of the German Bundestag, and Eugenia Gutierrez Ruiz, Embassy Costa Rica
Ambassador Jaguaribe
Ambassador Jaguaribe
Ambassador De von Oehsen and Ambassador Atria
Ambassador De von Oehsen and Ambassador Atria
Minister of State Ryglewski and Ambassador García Silva
Minister of State Ryglewski and Ambassador García Silva
Manuel Gava, Member of the German Bundestag, and Dunja Kreiser, Member of the German Bundestag
Manuel Gava and Dunja Kreiser, both Members of the German Bundestag

© Christian Kruppa

Brazil 2023: Where are the Germans this time?

German-Brazilian Economic Meeting 2023 in Belo Horizonte with high-ranking participants.

2009: Where are the Germans?! – With this question, President Luiz Inácio Lula da Silva provoked German politics and business during his state visit to Berlin in the fall. The reason was obvious: His country was experiencing unparalleled hype, attracting the attention of all the world’s major nations – except Germany’s.

2010: Germany was too slow to pick up the trend. When the various German delegations arrived in Brazil months later, it was already too late – others had been there for a long time. In the decade that followed, Latin America and Brazil were not a priority for German policy.

2023: A new international hype suddenly starts for Brazil – this time not due to the prospect of high growth, but as a result of political change.

And how are German politicians reacting now? A paradigm shift: This time, Germany is politically present in Brazil as never before: Within 72 days, the country was visited by Federal President Frank-Walter Steinmeier, Environment Minister Steffi Lemke, Chancellor Olaf Scholz, Development Minister Svenja Schulze and today: Economics Minister Dr. Robert Habeck and Agriculture Minister Cem Özdemir! They were at the German-Brazilian Economic Meeting in Belo Horizonte. Other cabinet members will follow.

Today’s conference with about 1400 participants from politics and business has left a clear message: The Germans are here!

Governor Zema, Vice President Alckmin, Federal Minister Habeck, Federal Minister Özdemir
Governor Zema, Vice President Alckmin, Federal Minister Habeck, Federal Minister Özdemir © CNI
BDI President Russwurm
BDI President Russwurm © CNI
Sabine Bendiek, Member of the Executive Board of SAP SE
Sabine Bendiek, Member of the Executive Board of SAP SE © CNI
The audience
© CNI

The five priorities in German-Brazilian cooperation

Joint statement by CNI, BDI and LADW on the occasion of the meeting between Chancellor Scholz and President Lula.

In just 72 hours, German Chancellor Olaf Scholz visited the three countries Argentina, Brazil and Chile at the end of January to take cooperation with the region decisive steps further. One highlight of the trip was the meeting with President Luiz Inácio Lula da Silva, who has only been in office for 30 days, at the Planalto Palace in Brasília. On this occasion, a joint declaration of the National Confederation of Industry of Brazil (CNI), the Federation of German Industries (BDI) and the Latin America Committee of German Business (LADW) was presented. Gunnar Kilian, LADW Chairman and member of the Group Board of Management of Volkswagen AG, was able to accompany the trip as a member of the business delegation.

The business community’s document identifies five priority measures that can be used to strengthen Germany’s economic and political cooperation with Latin America’s largest economy:

1. Conclude EU-Mercosur Agreement.

2. Modernize the action plan of the strategic partnership Germany – Brazil.

3. Launch negotiations for a new, modern bilateral Double Taxation Agreement (DTA).

4. Progressing on Brazil’s roadmap to accede to the Organization for Economic Cooperation and Development (OECD).

5. Promote bilateral initiatives in digitalization and Industry 4.0 with topics such as 5G technology, cybersecurity and sustainable energy transition.

Palacio_Planalto
© Pixabay/daherjr

FAQ Free Trade Agreement between EU and Mercosur

The Association Agreement between the European Union and the Mercosur countries – Argentina, Brazil, Paraguay and Uruguay – contains provisions on political dialogue, cooperation and trade. On the sidelines of the G20 summit on 28 June 2019, an agreement on the trade part was reached after almost 20 years of negotiations. The agreement creates the world’s largest free trade area with a population of almost 800 million. It is a milestone for closer economic cooperation. Above all, innovative small and medium-sized enterprises will gain greater legal security for their business activities as a result of the agreement. Before it can enter into force, it must be ratified by the European and national parliaments

But Europe must not miss the great opportunity to conclude one of the first free trade agreements with the South American economic area. This will open up many new business opportunities and competitive advantages. Especially in a global economic crisis, this would provide valuable impulses for the economy and jobs in the signatory states. However, it would be at least as important to consolidate geopolitically significant partnerships at a time when multilateral trade rules are often disregarded, and protectionism and national interests are placed above international cooperation by some states. With the FTA, the EU can actively shape globalisation according to its own ideas. The agreement permanently shapes the rules for good trade relations, promotes the multilateral principles of transparency, equal treatment and non-discrimination and strengthens international agreements to promote social and environmental standards. In addition, the FTA creates the basis for an intensive political and social dialogue to implement the agreements. If we do not succeed in working more closely together on a contractual basis, we will miss a good opportunity to align values and standards in the Mercosur countries with the high level of the EU.

1) Why does the EU want a free trade agreement with the Mercosur states at all?

Europe and the global economy as a whole benefit enormously from international trade and cross-border investment, including the division of labour behind it. EU trade policy aims to create the conditions for a smooth and rule-based exchange of goods, services and investments through agreements with groups of states, for example in the World Trade Organisation (WTO), and individual states. EU bilateral trade agreements complement the general multilateral framework of the World Trade Organization. Bilateral agreements are concerned on the one hand with mutual market opening, but also always with spreading high EU standards and fundamental values internationally, such as openness, the rule of law and transparency. Although the European Union has long maintained substantial economic relations with the Mercosur states, there is still no comprehensive bilateral trade agreement. Instead, large parts of the Latin American market are still characterised by high customs and other barriers. The EU-Mercosur Free Trade Agreement would significantly facilitate trade with the South American states.

2) Why does the German economy need a free trade agreement with Mercosur?

The German economy cannot survive without open markets abroad. More than in almost any other country, prosperity in Germany depends on rule-based trade. The close integration into the global economy is reflected in employment: almost 30 percent of German jobs depend directly or indirectly on exports, and in the manufacturing industry the figure is as high as 56 percent. Already today, around 240,000 jobs in Germany are attributable to exports to Mercosur. Only 2.4 percent of German exports today go to the Mercosur countries. Through free trade with Mercosur, Germany could significantly increase its exports to the region and at the same time reduce its risk exposure when exporting to other markets.

3) What advantages does the EU-Mercosur agreement offer German companies?

The free trade agreement with Mercosur gives German companies free, rule-based access to a market of around 265 million consumers. The Mercosur countries, which are currently still sealed off by high tariffs, have a great need for modernization. High import costs can be a major obstacle – the average customs duty applied to industrial goods imports in Argentina and Brazil is more than three times as high as in the EU (2018 according to the WTO: 14.2 / 13.9 / 4.2 percent). South Americans are also young, open-minded about new technologies and have an affinity for Europe. All this means that there are great sales opportunities for German products and solutions. Companies and consumers will also benefit from the savings potential resulting from the abolition of customs duties and other trade barriers. This is a matter of several billion euros annually.

4) Is the agreement also attractive for small and medium-sized industrial enter-prises?

Absolutely! Trade barriers place a much greater burden on small businesses than on large companies, as they often have neither the time nor the resources to overcome these hurdles. The increased transparency that the agreement would create and the simplification of customs procedures would be particularly helpful to small businesses on both sides. In order to address the particular challenges faced by small and medium-sized enterprises (SMEs) in international trade and investment, the EU trade agreement with the Mercosur countries contains a special chapter on their promotion. This can benefit not only SMEs, which will only be offered interesting business opportunities under the improved conditions, but also the almost 10,000 SMEs in Germany that already export to Mercosur today.

5) Does the agreement entail risks for the German economy?

The agreement is designed precisely to minimise risks in trade transactions with Mercosur by clearly regulating the exchange of goods and services. Major risks would be more likely to arise if the agreement did not enter into force. Mercosur is currently negotiating numerous free trade agreements with other countries and regions. European products and services would no longer be competitive in the long term in comparison with goods from these countries if they were subject to import duties and trade barriers in the Mercosur countries, but the offers of competitors were not.

6) What opportunities does the agreement offer the Mercosur countries?

The agreement offers Mercosur countries a great opportunity to modernise their entire production chain – in agriculture, industry, trade, transport and services – in a sustainable manner. The EU is one of the largest and most attractive markets in the world, and the agreement will make it easier to access it. This could bring major benefits for the local economy, with more economic growth, jobs, social security and better products for the end consumer.

7) Does the agreement weaken European agriculture?

The interests of European agriculture are duly taken into account in the Agreement. Sales of European products popular locally, such as wines, spirits and cheeses, will no longer be burdened by excessively complicated procedures and customs duties of 20 to 35 percent. In addition, the EU could be the first trading partner to conclude an agreement with the Mercosur states. This would give the EU and Germany privileged market access in the coming years. Even if adjustment processes on the European side are to be expected, the agreement as a whole would also benefit the German agricultural and food sector. The partnership agreement offers a good basis for fair competition.

8) Will the high standards of consumer protection in the European Union be maintained?

Yes, the high EU consumer protection standards are not negotiable. As with all free trade agreements, agricultural and food products imported from Mercosur must meet strict EU safety standards. These apply to all products sold and consumed in the EU, whether domestically produced or imported. The agreement will not change this.

9) What does the agreement mean for the environment and the Amazon rainforest?

The FTA offers a unique opportunity for the EU to have a positive impact on environmental and sustainability standards in the Mercosur region. In a separate sustainability chapter, the countries are obliged to comply with regulations on biodiversity, sustainable forest management and combating illegal logging. The European Commission is relying on a dialogue-oriented enforcement mechanism for this purpose: cooperation in bilateral, regional and international forums is to ensure that the agreements of the sustainability chapter are implemented. This mechanism also offers civil society organisations an active role in monitoring the implementation of the agreement, in particular all environmental concerns.

10) Does the agreement have an impact on climate protection?

The EU agreement with the Mercosur countries offers concrete mechanisms that can be expected to have a positive impact on climate protection, although an increase in trade may lead to more transport and possibly emissions. The agreed commitments ensure, among other things, greater efficiency in trade and production, faster diffusion of environmental technology, better compliance with international standards and, with increasing prosperity, a tendency to invest more in environmental protection and more environmentally friendly products. In addition, the agreement increases the commitment of the parties to climate protection. For example, the EU and Mercosur have also committed themselves in the FTA to implementing the Paris Climate Change Convention. This provides additional leverage to bind the partner countries to it. For Brazil this also includes a commitment to combating deforestation. In addition, the 2030 Agenda for Sustainable Development, to whose goals the Mercosur countries have committed themselves, is to develop mechanisms to counter climate change.

11) Are workers' rights protected by the agreement?

The chapter on sustainable development also protects respect for labour rights. The parties have agreed that the EU-Mercosur agreement must promote existing rights and not dilute them. They refer to the fundamental rights of workers as defined by the International Labour Organisation (ILO), such as non-discrimination in the workplace, the abolition of child and forced labour, freedom of association and the right to collective bargaining. A speedy entry into force of the agreement could counteract regressions in workers’ rights earlier, which trade unions in individual Mercosur states recently reported.

12) Will the agreement include provisions on investment protection?

Investment protection was not part of the negotiations between the EU and Mercosur countries. Germany has bilateral investment promotion and protection treaties (IPTs) with Argentina, Paraguay and Uruguay. An IPT with Brazil has been signed but is not yet in force.

MORE Information

Answers of the European Commission to other important questions can be found here.