China's advance in Latin America scares EU

"The EU is no longer Latin America's second largest trading partner, the second largest is China". The European Union's High Representative for Foreign Policy, Josep Borrell, warned in late 2020 that if Europe does not establish "more and better relations" with a region that is key to the Union's partners, it will be displaced by the Asian giant. Europe is beginning to be aware of this situation: the three major trade issues on the EU's agenda for the first quarter of 2021 are the modernization of the agreements with Mexico and Chile and trying to save the agreement with Mercosur. 

Borrell, for whom "the bi-regional EU-Latam relationship is below its potential" and Latam is a fundamental political and commercial partner for the Union, has called in recent weeks, along with other prominent members of the Commission, for closer work between the two areas in order to face the great challenges they share and to defend common goals at the international level. And he is not alone. “Portugal thinks that trade and trade agreements are, right now, the best way to improve the relationship between Europe and Latin America”, said Portuguese Foreign Minister Santos Silva, presenting Portugal's priorities for the EU Presidency, which he took over on January 1. And he put special emphasis on the need to advance for the agreement with Mercosur.

Out of the reports, the revision of the agreement with Mexico is the most advanced: the modernization of the Mexico-EU Global Agreement is very close to being completed. Both parties plan to close the signing of the modernization of the Economic Association, Political Coordination and Cooperation Agreement this first quarter of 2021. In April 2020, the modernization of the EU-Mexico Free Trade Agreement (FTA-MU) was achieved, which is part of a global pact in force since 2000 and has been renegotiated since 2013. In 2019, Mexico-EU trade amounted to 75.5 billion and EU investment in Mexico to $180 billion. 

Regarding the Chile-EU Association Agreement, which dates back to 2003, the Commission and Chile started the ninth round of negotiations this January to update the Agreement, a dialogue that began in 2017 and which Santiago hopes to be able to close in the first half of 2021. For Chile, the priority is that 10% of Chilean agricultural products that do not currently have differential access to European markets will have access to these markets as a result of the negotiations. Besides, when updating the pact, Chile expects to revive European investment.

The next round is scheduled for April and the path is not without its pitfalls. Criticism has arisen on both sides, despite the fact that trade has doubled and the EU is now Chile's third largest trading partner. Since 2017, negotiations are underway with the goal of further dismantling trade barriers, adapting environmental standards and protecting investors. The EU's proposals include a chapter on energy and raw materials which should further facilitate EU access to Chilean commodities and which Chile views critically, such as the EU's proposal to include a dispute settlement chapter with an Investment Court System to resolve investor-state disputes.

A separate chapter is the long negotiated and unfinished pact with Mercosur, rejected by the European Parliament in October 2020, with criticism of the sustainability chapters and President Bolsonaro's policy in the Amazon. The difficulties that the 27 and the Mercosur partners (Argentina, Brazil, Paraguay and Uruguay) have in ratifying the trade agreement they agreed on in 2019, after 20 years of negotiation, and which was expected to be closed in 2020, are growing. 

Borrell, like other members of the Commission, is in favor of saving the deal “I think this should have a political solution because, if we do not establish more and better relations with Latin America, we will be displaced by China”. Beijing has already evicted the EU as the second largest trading partner of Mercosur, notably in Brazil and Argentina. 

The Spanish politician underlined the need for the EU to reverse this situation: “We have to re-occupy the space to continue having influence and to benefit from the development of Latin America, and Latin America too needs it”. According to Borrell, the 27 must be able to complete the agreement, not in the commercial aspects, already closed, like the political ones, but in the "environmental and climate aspects". 

The European doubts about environmental issues or sustainable development have been expressed by France, Holland, Austria and Belgium. The Portuguese Presidency has also called for more guarantees on the environment. “We cannot use environmental issues as a screen behind which to hide, for example, if we have problems regarding Mercosur imports to Europe,” Santos Silva stressed.

Against those who think that no pact is better, Borrell maintains the opposite for reasons of influence. "We Europeans have placed our best in the Latam basket, Spanish probably in a greater extent that Poles, this is very important and we are not aware of it", he told Efe, not without admitting that the area does not occupy the role it should in the European agenda, "perhaps because the economic projection is great for Spain, Italy, Portugal and France," but not for Eastern Europe. 

The members of Mercosur and a few Caribbean states are the only countries in the area that do not have a trade agreement with the Union. The EU has the largest global network of pacts with Latin America: it has negotiated with 27 of its 33 countries, with agreements with Mexico and Chile (in modernization and where the EU is the first and second investor); it has an EU-Central America Association Agreement; an EU-Cariforum Economic Partnership Agreement and a pact with Colombia, Peru and Ecuador that Bolivia can join.