Strong partnership with a lot of potential for expansion

Strengthening cooperation between Germany and Mexico – that was the consensus at the digital 2nd German-Mexican CEO Roundtable on 25 August 2021. CEOs and board members from both countries intensively discussed the topics of digitalisation, framework conditions for trade and investment, climate protection, rule of law and transparency. The meeting of the platform initiated in 2019 was organised by BDI and LADW in cooperation with the Mexican business associations CCE, CONCAMIN and COPARMEX.

“Mexico and Germany are well placed to work together to shape the digital and environmental transformation of the economy,” said Michael Heinz, Vice Chairman of LADW and member of the Board of Executive Directors of BASF SE. As export-oriented nations, he said, both countries are dependent on swiftly adapting their economies to the latest challenges of digitalization and climate change so that they remain internationally competitive in the future. “Climate neutrality will only be achieved in close cooperation between politics, business and science – and this on an international level,” Heinz said.

BDI President Prof. Dr. Siegried Russwurm also suggested closer bilateral cooperation at the global level: “Mexico and Germany are important allies in all international organizations. The positions of both countries on climate protection, global social and environmental standards, transparency and more are largely congruent. We should build on this. “

Mexico has already become Germany’s largest export market in Latin America. And conversely, Germany is the country’s most important trading partner in the EU. More than 2,000 German companies, many with more than 100 years of history, already have a major economic and cultural influence there.

Nevertheless, the improvement of the framework conditions in the country remains indispensable for the expansion of cooperation. Issues such as market opening, the rule of law or progress for the security situation are still urgent concerns for companies. A sustainable diversification of the economy with a well-trained workforce, a technology-oriented and climate-friendly modernisation of local industry, and the expansion of logistics and infrastructure would drive Mexico’s sustainable development.

The modernised trade agreement with the EU could also provide important impetus for more investment and trade, especially through new market opportunities for German companies in the procurement, agricultural and services markets. Both sides should join forces to ensure that the agreement can be ratified soon.

Mexico City
Mexico City © Pixabay/Carlos Alcazar
Michael Heinz
Michael Heinz, LADW Vice Chairman and Member of the Board of Executive Directors of BASF SE © BASF SE

EU-Mercosur Agreement as a driver for sustainability

EU and Mercosur business leaders are looking to the negotiated agreement between the two regions as a lever to strengthen sustainability. Political and business representatives from the EU, Portugal and Brazil agreed at the Debate organised by BusinessEurope on 30 April 2021 that the EU and Mercosur will have more benefits with the agreement than without.

It would promote technology transfers and stimulate economic growth in both regions. Moreover, it could create the very mechanisms that comprehensively promote sustainable agriculture and lower-carbon supply chains.

According to Valdis Dombrovskis, Vice-President and Trade Commissioner of the EU Commission, the agreement is one of the most progressive the EU has ever negotiated in terms of trade and sustainable development. In order to dispel existing doubts about this, the EU Commission has proposed to include an additional instrument in the agreement. This would make it possible to better monitor and ensure compliance with commitments to protect the climate and the environment. The Mercosur states are prepared to discuss this.

Now both sides need to work on the definition, negotiation and implementation of this instrument. Then the formal legal examination of the agreement – the so-called “legal scrubbing” – could be finalised. Dombrovskis expects this to happen by the end of 2021, and the ratification process could begin in 2022. For this to succeed, it is essential that the positive voices make themselves heard more, says the trade commissioner.

EU-Banner
© Pixabay/S. Hermann & F. Richter

Economic development and climate protection are mutually dependent

The Brazilian Vice President, General Hamilton Mourão, sees German companies playing a special role in the country’s transformation towards a green economy. In a virtual conversation with the LADW at the end of September, he assured that economic growth in Brazil would not be at the expense of the climate – economic development and environmental protection would not be mutually exclusive, but the one would not work without the other. Mourão chairs the National Council for the Amazon region and steers the government’s measures to protect the regulatory forest.

In the view of the Vice President, the EU-Mercosur agreement is of strategic importance for more climate protection in Brazil. With the agreement, the country is committing itself to the protection, preservation and sustainable development of the Amazon region while adhering to the goals of the Paris Climate Protection Agreement – it is important to preserve the region for future generations.

The representatives of German business also discussed the potential for intensifying bilateral cooperation with the Vice President. Starting with agriculture and infrastructure, through to Industry 4.0 and digitization. In this context, the LADW members pleaded for an improvement in the framework conditions for German companies in Brazil, for example by concluding a new double taxation agreement.

According to Mourão, the Brazilian government will continue the reforms of the tax system that have already begun in order to further reduce protectionism, bureaucracy and state intervention and to increase the productivity of the Brazilian economy. Particularly against the background that the largest global crisis since World War II, caused by the outbreak of the COVID-19 pandemic, must be overcome together, the strengthening of the economy plays a decisive role for the largest economy in Latin America.

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Virtual talk with the Brazilian Vice President Mourão © Christian Kruppa
Vice President Mourão
© Christian Kruppa

Let’s talk more with each other…

There is a great danger that states will retreat into themselves in the face of the Covid 19 pandemic and the rapid emergence of climate change. Entire regions, such as Latin America, could thus be left behind in the global context. This would threaten achievements in bilateral cooperation that have been built up over decades – with serious consequences for the German economy.

At the annual members’ meeting of LADW on September 30, 2020, the company’s board members agreed that this scenario must be avoided at all costs, and that Latin America remains an important market for Germany and its companies – despite the Corona crisis. The need for talks with the region was therefore still high. The current heated debates about the EU-Mercosur agreement also made this clear. This agreement in particular would be an instrument to provide urgently needed impetus for both sides – in the economy, but also in climate policy!

After all, economic development and environmental protection are not mutually exclusive, but rather mutually dependent, as Brazilian Vice President Mourão emphasized in talks with LADW in the run-up to the meeting.

In the discussion with the Parliamentary State Secretary in the Federal Ministry for Economic Cooperation and Development, Dr. Maria Flachsbarth, on the same evening, it became clear once again that politics and business in Germany, the EU and also in Latin America urgently need to work out a common denominator in order not to isolate themselves from each other in the current situation, but to find solutions together for the upcoming challenges.

LADW Chairman and PStS Flachsbarth
LADW Chairman Andreas Renschler and Parliamentary State Secretary Dr. Maria Flachsbarth © Christian Kruppa
LADW_Fireside_Chat_with_BMZ
LADW Kaminabend with BMZ © Christian Kruppa
LADW Kaminabend with BMZ II
© Christian Kruppa

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.

COVID-19 and the situation in Latin America

The COVID-19 pandemic has also reached Latin America and its markets with full force. The classic LADW Sunday Brief is temporarily adapted to this very volatile situation: From now on, you will be informed here every two weeks with trends and analyses on the economic impact of the pandemic on the region.

The reports are written by Alexander Busch, Correspondent for Handelsblatt and NZZ in Latin America, and are published every Thursday.

© CDC
© CDC

Argentina is seeking allies in Europe

Argentina’s President Alberto Fernández, who has only been in office since December 2019, also visited Berlin today as part of a European tour for a discussion with Chancellor Merkel.

In an economic meeting with the President and his delegation organized by LADW, Fernández expressed his great openness towards the involvement of German companies in Argentina. Argentina needs the German economy and sees it as a partner for a comeback of the country.

The revival of Argentina is the president’s top priority, but the first step remains a long-term strategy for rescheduling debt still to be negotiated, especially with the International Monetary Fund (IMF). The government is making efforts to restore confidence in the country and to improve the framework conditions for investment. For example, a new law is intended to strengthen investment security in the country. The current protectionist measures are bitter but temporary remedies. Fernández also spoke out in favour of multilateralism and international organisations.

During his trip Fernández also met the Pope, Italian Prime Minister Giuseppe Conte, Spanish Prime Minister Pedro Sánchez and French President Emmanuel Macron. Support from EU countries is sought for the intended renegotiation of the repayment of the IMF loan.

President Fernández and LADW Vice Chairman Kerkhoff
President Fernández and LADW Vice Chairman Kerkhoff © Christian Kruppa
Minister of Foreign Affairs Solá, President Fernández and Ambassador Villagra Delgado
Minister of Foreign Affairs Solá, President Fernández and Ambassador Villagra Delgado (from left to right) © Christian Kruppa
President Fernández in conversation with German business
President Fernández in conversation with German business © Christian Kruppa

Strengthening cooperation with Latin America

The German industry is pressing to expand its engagement in Latin America. To achieve this, new emphases are needed in Latin America policy. The Latin America Committee of German Business (LADW) and the Federation of German Industries (BDI) are therefore presenting a joint position paper for stronger cooperation with the region.

On the occasion of the publication of the position paper, LADW Chairman Andreas Renschler stressed: “Free trade agreements are urgently needed for German companies in their cooperation with Latin America so that we can continue to play a strategic role there in the future. An early ratification of the EU-Mercosur Agreement is indispensable”.

The paper is based on the findings of the CEO Agenda for economic cooperation with Latin America of LADW and McKinsey & Company and contains recommendations for action to politicians.

Minister Maas at the Latin America-Caribbean-Conference
Minister Maas at the Latin America-Caribbean-Conference © Christian Kruppa

Modernising the strategic partnership with Brazil

“The strategic partnership between Germany and Brazil that has existed since 2008 must be modernized and expanded to include topics related to digitization and sustainability. In addition, the bilateral government consultations must again take place at regular intervals. Because if not now, then when?” demanded LADW Chairman Andreas Renschler, member of the Group Board of Management of Volkswagen AG and CEO TRATON SE, in the economic and trade policy panel at this year’s German-Brazilian Economic Meeting. These were clear sounds against the backdrop of Natal’s beautiful Atlantic beaches, where the conference organised by BDI and CNI took place from 15 to 17 September 2019.

As one of the opening speakers of the event, the Brazilian Vice President General Hamilton Mourão, who was also acting President at the time, stressed the determination of the government to restore confidence in the country and its institutions – among other things through structural reforms, combating crime, modernising the state and trade liberalisation. This was received with great interest by more than 1,200 guests from business and politics.

In his speech, BDI President Prof. Dieter Kempf stressed the importance of rule-based trade: “The free trade agreement between the EU and Mercosur is an important signal in times of backward-looking isolation. And it will also have a positive effect on environmental and sustainability standards in the Mercosur region.”

The Joint Economic Commission met during the conference under the German co-chairmanship of Andreas Renschler and Parliamentary State Secretary for Economic Affairs Thomas Bareiß. Both sides expressed their great satisfaction with the progress achieved in the talks – for example on a new double taxation agreement and other relief for German companies in Brazil. The meeting also focused on expanding cooperation in the areas of infrastructure and digitization.

The next German-Brazilian Economic Meeting will take place in Munich from 26 to 28 August 2020.

EEBA Natal Andreas Renschler
© FIERN
BDI President Kempf
© FIERN
Opening Session
© FIERN
German-Brazilian Economic Meeting in Natal
© FIERN

LADW and BDI in conversation with Brazilian Vice President

In the context of the 37th German-Brazilian Economic Meeting from 15 to 17 September 2019 in Natal, BDI President Prof. Dieter Kempf and LADW Chairman Andreas Renschler met with the Brazilian Vice-President General Hamilton Mourão, who took part in the event as acting President of the country.

The Vice-President assured German industry that Brazil would remain committed to its growth agenda with ambitious economic reforms, such as the ongoing pension reform or the tax reform in preparation, and market opening through free trade agreements, such as with the EU. Brazil’s commitment to the protection of the Amazon region was also discussed at the meeting.

Renschler confirmed the interest of German companies in bilateral cooperation and introduced General Mourão to the recently launched CEO Agenda.

Meeting with Vice President Mourão
© Vice-Presidência da República