Key Points

• After 25 years of talks, the European Union and five Mercosur countries (Brazil, Argentina, Paraguay, Uruguay and, recently, Bolivia) reached a long-awaited trade agreement on December 6.
• France and Poland are among those who have expressed opposition to the deal, warning that it could create unfair competition for European agriculture.
• Analysts at Dutch bank ING said the importance of critical commodities such as lithium appeared to be “making less headlines” in coverage of the free trade agreement, despite the metal’s importance to Europe’s economic future.

The strategic importance of lithium is likely to have played a role in the European Union’s successful deal with Brazil, Argentina and three other South American countries, analysts say.

After 25 years of talks, the EU and five Mercosur countries (an alliance that includes Paraguay, Uruguay and, recently, Bolivia) reached a long-awaited trade deal on December 6.

If ratified by the 27-nation bloc, the EU-Mercosur partnership will create one of the largest free trade zones in the world, covering an estimated area of ​​more than 700 million people and representing approximately 20% of gross domestic product. world.

The European Commission, the EU’s executive arm, said the trade deal is designed to increase bilateral trade and investment, lower tariff and non-tariff trade barriers, create more stable rules and promote joint values, such as sustainable development.

Not everyone is in favor of the agreement, however. France and Poland are among those to have expressed opposition to the deal, warning it could create unfair competition for European agriculture.

Analysts at Dutch bank ING said the importance of critical commodities such as lithium appeared to be “making less headlines” in coverage of the free trade agreement, despite the metal’s importance to Europe’s economic future.

“That is surprising, given that a) the EU relies heavily on China for critical raw materials, b) countries such as Argentina, Bolivia and Brazil have large reserves of some of these critical raw materials and c) EU demand is expected to by these materials increases. increase enormously,” ING analysts said in a research note published on Friday.

“It may be difficult to quantify the exact economic value of having better access to these materials through closer links with Mercosur, but we believe that this particular element carried a lot of strategic weight for the EU [Commission] in closing the agreement, especially as diversification. or sourcing and ensuring supply is currently a priority,” they added.

Lithium, sometimes called “white gold” due to its light color and high market value, is considered a critical component in moving away from fossil fuels. It is commonly used in electric vehicles, mobile phones and rechargeable laptop batteries.

Latin America is estimated to supply approximately 35% of the world’s lithium, according to the International Energy Agency, with Chile (26%) and Argentina (6%) leading the way. It is estimated that the region holds more than half of the world’s lithium reserves, located mainly in Argentina (21%) and Chile (11%).

Lithium ‘essential for key industries’

European Commission President Ursula von der Leyen described the EU-Mercosur trade deal as a “win-win deal” that can save EU companies €4 billion ($4.24 billion) in duties. export per year.

Meanwhile, Kaja Kallas, EU foreign policy chief, highlighted the importance of access to critical raw materials in her statement on the trade deal.

“For Europeans, it opens up a vast region with which to trade freely, including access to critical raw materials, and decreases the risk that competitors will replace us in our absence,” Kallas said on Friday.

For Federico Steinberg, a visiting fellow in the Europe, Russia and Eurasia program at the Center for Strategic and International Studies, a leading American think tank, three factors made an agreement possible after a quarter-century of stalled negotiations.

These were the rise of protectionism, “exemplified by the re-election of Donald Trump”, the fact that the president of Brazil, Luiz Inácio Lula da Silva, and the Argentine Javier Milei were strong defenders of an agreement and “important strategic considerations on the part of of the EU”, as current concerns. on the rapid expansion of Chinese trade and investment in Latin America.

Under the terms of the deal, Steinberg said European companies would likely gain better access to public procurement markets, high-value service sectors and critical raw materials such as lithium.

“In exchange, the European Union will reduce tariffs on agricultural products and other goods and contribute 1.8 billion euros through the Global Gateway initiative to support Mercosur’s green and digital transition,” Steinberg said in a note published on Friday. .

While some in Europe remain unhappy with the proposed terms, the EU-Mercosur trade deal was warmly welcomed by the Federation of German Industries (BDI), a group of German producers of industry-related services employing around 8 millions of workers.

“The EU-Mercosur trade agreement presents a huge opportunity to diversify access to critical raw materials such as lithium and copper, which are essential for key industries such as electromobility and renewable energy,” the BDI said in a statement on 6 December.

“In times of increasing fragmentation of global trade, this trade agreement sends a clear and strategic message in support of free and rules-based trade,” they added.