Europe has less and less weight in Mercosur: the bloc made up of Brazil, Argentina, Uruguay and Paraguay is now looking towards China. While the ratification of the free trade agreement signed in 2019 is still pending the approval of some community partners (France, Austria, the Netherlands, Belgium or Ireland), the American Southern Cone multiplies its trade in raw materials with the Asian giant. With the numbers in hand, the trade deal agreed after two decades of endless negotiations may be coming too late, leaving a market of 265 million people at the mercy of China.
The voices of warning, if not alarm, for the loss of muscle of European companies in Mercosur come from various fronts, and all of them urge to step on the accelerator in the ratification of the agreement. A recent study by the prestigious German Ifo institute warns of the “loss of importance of Europe as a trading partner of the Mercosur countries”, to the detriment of the Asian mastodon. When the South American bloc turns 30, “Mercosur’s imports and exports to and from Europe are generally decreasing,” the text, co-signed by the director of the Munich research center, reads. Lisandra flat.
In the case of South American sales to the European Union, the drop has been 25% since 2015. In contrast, China’s share of total Mercosur exports multiplied by 11 times between 2000 and 2018: from 2% to 22.1%. The second world power – which is already stepping on the feet of the first, the United States – is now the most important market in the bloc. At the expense, to a great extent, of the European Union, which one day not so far away was the most important trading partner of the American Southern Cone.
“Without a commercial agreement there is no platform to relate to you. If it had been closed on time, 15 years ago, the story would have been different “, he points out. Ignacio Bartesaghi, director of the Institute of International Business of the Universidad Católica del Uruguay and one of the leading trade experts in Latin America.
Cracks in community partners
The pact with Mercosur, the largest ever reached by Europe, would imply the gradual reduction of 90% of tariff barriers within a period of 10 years. Resistance, however, prevents its ratification, both in the European Parliament and in a not small number of Member States. The text is still in the process of being translated into the 24 languages of the Union and clashes with a front made up of France, which hides its agricultural protectionism after environmental questions, and others such as Austria or the Netherlands, which do not agree with the Jair Bolsonaro’s controversial policy for the Amazon. On the side of the defenders of the agreement are Spain – its president, Pedro Sánchez, has just promised that the text may enter into force “sooner rather than later” -, Portugal and the Nordic countries.
With Europe negotiating rules of the game in its relationship with Mercosur and more concerned with putting out the internal fires, in the last 20 years China has had an open field in the American Southern Cone. And it has taken the opportunity to become strong in a market with which, unlike the Old Continent, it has no cultural or historical ties.
“Mercosur has become the main protein production platform in the world, above the United States and far from the European Union. That is why the region has a privileged link, of a structural nature, with China, which is the axis of the global demand for agri-food ”, outlines Jorge Castro, Argentine analyst and president of the Institute of Strategic Planning. “All this occurs at a time when China experiences a consumption boom of more than seven trillion dollars in 2021, which puts the US for the first time in the history of capitalism in second place.”
China puts the demand and Mercosur the offer
Mercosur puts the supply of food and other raw materials, and China a voracious demand. On the contrary, the Asian country is willing to dump its financial surpluses in a region thirsty for investment in infrastructure and financing: between 2008 and 2018, Brazil was the fifth largest recipient of Chinese capital, after the United States (the world’s largest economy) , Australia (within its geographical area of influence), the United Kingdom and Switzerland (which, in turn, serves as a springboard to jump to third countries). Slightly more than one in every 20 dollars invested by Chinese companies abroad ended up in the South American giant, according to data from the American Enterprise Institute and the Heritage Foundation.
“Europe has lost weight, in the first place, because it has failed to approve the preferential agreement: that not only slows down trade, but also investment,” Bartesaghi warns by phone. “And, on the other hand, China’s investments in the last 10 years have been enormous, especially towards Brazil and Argentina.” Carlos Malamud, principal investigator for Latin America at the Elcano Royal Institute, agrees: “The stock —Accumulated volume— of European investment is still much higher, but China has been expanding much faster in recent years. ” The China-Mercosur relationship has been expanding far beyond the sectors to use: the technological dependence of the four members of the bloc is beginning to be substantive and “there is even a Chinese satellite base in Argentine Patagonia,” recalls Malamud.
Beyond the trade agreement
The advance of China in the region has stressed the ideological debate in the Mercosur countries about the advisability of changing the traditional Atlantic axis (US-Europe) for that of Beijing. But needs, so far at least, outweigh politics. “When Argentina is in crisis, it knows that it has financing from China; when you need investment, China is there. And that has allowed it to enter strategic sectors in these countries, which it was not in before, ”says Bartesaghi. The latest example of this flooding entry by the Asian giant in the Southern Cone comes from the side of vaccines against covid-19, with emergency assistance to the countries of the Southern Cone with millions of doses while the governments of the bloc fight with the Western suppliers to meet their delivery agreements.
So intertwined are the Beijing-Mercosur relations already, that at this point almost no one thinks that the ratification of the treaty between the EU and Mercosur would be enough to slow down their progress and rebalance, even minimally, the forces. “It can be a stimulus for exchanges and will create a more favorable framework for investment,” says Malamud, “but we must forget that Europe is going to replace China in the region: regardless of the treaty, what you see is a clear commitment of the Mercosur countries to trade with them ”. Castro also believes that the trend is nothing short of unstoppable. Times have changed: Mercosur and China are mutually beneficial, and Europe has moved to a rear-guard position.
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Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.