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Scholz urges swift EU-Mercosur free trade deal on first South America trip


German Chancellor Olaf Scholz addresses the lower house of parliament Bundestag in Berlin, Germany January 25, 2023. REUTERS/Fabrizio Bensch

German Chancellor Olaf Scholz on Saturday urged a swift conclusion to talks on a free trade deal between the European Union and the Mercosur South American trade bloc, on the first stop in Buenos Aires of his inaugural tour of the region.

Seeking to reduce Germany’s economic reliance on China, diversify its trade and strengthen relations with democracies worldwide, Scholz is visiting Argentina, Chile and Brazil, all led by fellow leftists who came to power in the region’s new “pink tide.”

Berlin wants to lower its dependence on China for minerals key to the energy transition, making resource-rich Latin America an important partner. The region’s potential for renewable energy output is another attraction.

“There is great potential to further deepen our trade relations, and the possibilities that could come from the EU-Mercosur deal are obviously particularly significant,” Scholz told a news conference alongside Argentine President Alberto Fernandez.

Fernandez has blamed European protectionism for holding up the deal, agreed to in principle in 2019 but not ratified by national parliaments. EU ambassadors have said Brazil must take concrete steps to stop soaring destruction of the Amazon rainforest.

Berlin hopes that concern can be put aside with the election in Brazilian President Luiz Inacio Lula da Silva, who has promised to overhaul the country’s climate policy. Scholz is to meet him on Monday at the end of his three-day tour.

Russia’s invasion of Ukraine, which sparked an energy crisis in Germany due to its heavy reliance on Russian gas, increased awareness of the need to reduce economic reliance on authoritarian states.

For Germany to reduce its reliance on China for minerals it will need to embrace sectors it has shied away from, a German government official said on Friday.

“For example lithium mining – that’s a challenging task, especially regarding the environment and social standards,” the official, traveling with Scholz, told reporters.

Argentina and Chile sit atop South America’s “lithium triangle” which holds the world’s largest trove of the ultra-light battery metal.

About a dozen business executives – including the heads of Aurubis AG (NAFG.DE), Europe’s largest copper producer, and energy company Wintershall Dea AG (WINT.UL) Dea – are accompanying the chancellor.

Fernandez said he and Scholz discussed the possibility of attracting German investment to the country’s vast shale gas reserve, lithium deposits and green hydrogen production.

Wintershall Dea, for example, is part of a consortium that in September announced it was investing around $700 million to develop a gas project off the coast of Argentina’s southernmost tip, Tierra del Fuego.

“Argentina has the potential to supply Europe with energy in the long term,” chief executive Mario Mehren said in a statement.