"White gold", essential for the successful trade agreement of Europe with South America!
The strategic importance of lithium likely played a big 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, most recently, Bolivia) reached a long-awaited trade deal on 6 December.
If ratified by the 27-nation bloc, the EU-Mercosur partnership will create one of the largest free trade areas in the world, covering an estimated area of more than 700 million people and representing approximately 20% of GDP global gross.
The European Commission, the EU's executive arm, said the trade agreement was designed to increase bilateral trade and investment, lower tariff and non-tariff trade barriers, create more stable rules and promote shared values, such as sustainable development.
However, not everyone is in favor of the deal. France and Poland are among those that 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 raw materials such as lithium appeared to be "making fewer headlines" in coverage of the free trade deal, despite the metal's importance to Europe's economic future.
"This is surprising, given that a) the EU is highly dependent on China for critical raw materials, b) countries such as Argentina, Bolivia and Brazil hold large reserves of some of these critical raw materials and c ) EU demand for these materials is expected to grow massively,” analysts at ING said in a research note.
"It may be difficult to determine the exact economic value of having better access to these materials through closer ties with Mercosur, but we believe that this particular element has had a lot of strategic weight for the EU [Commission] when the deal is struck, particularly as diversification or sourcing and securing supply is currently top of mind,” they added.
Lithium, sometimes referred to as "white gold" because of its light color and high market value, is considered a critical component for moving away from fossil fuels. Commonly used in electric vehicles, cell 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. The region is estimated to hold more than half of global lithium reserves, located mainly in Argentina (21%) and Chile (11%).
European Commission President Ursula von der Leyen described the EU-Mercosur trade deal as a "good deal" that could save EU companies 4 billion euros ($4.24 billion) a year in export duties.
Meanwhile, Kaja Kallas, the EU's 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 huge region for free trade, including access to critical raw materials, and reduces the risk of competitors replacing us in our absence," Kallas said on Friday.
Three factors made an agreement possible after a quarter of a century of stalled negotiations. These were the rise of protectionism, "illustrated by the re-election of Donald Trump", the fact that Brazil's President Luiz Inácio Lula da Silva and Argentina's Javier Milei were strong advocates for a deal and "important strategic considerations on the part of the EU". , such as ongoing concerns about the rapid expansion of Chinese trade and investment in Latin America.
Under the terms of the agreement, European firms are likely to have better access to public procurement markets, high-value service sectors and critical raw materials such as lithium. In return, 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.
While some in Europe remain unhappy about the proposed terms, the EU-Mercosur trade deal was warmly welcomed by the Federation of German Industries (BDI), an umbrella group of German industry-related service producers employing some 8 million workers.
"The EU-Mercosur trade agreement presents a major 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," BDI said in a statement on 6 December. "At a time of increasing global trade fragmentation, this trade agreement sends a clear and strategic message in support of free and rules-based trade," they added.
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