Days after his nation assumed the rotating presidency of the Council of the European Union, Spain’s prime minister, Pedro Sánchez, opened a key session of the bloc’s meeting with the Community of Latin American and Caribbean States (CELAC). Given its cultural ties to the region, Spain hopes to make progress on the European Commission’s new strategy for Latin America. This includes negotiating a new Free Trade Agreement with Brazil, Argentina and other Mercosur nations securing critical raw materials for the EU’s energy transition – in this case access to both the continent’s lithium and vast volumes of liquefied natural gas (LNG) for its still grey present. With Argentina set to join Brazil as a key supplier of oil and LNG, Brussels is seeking to install green strings onto their new agreements. But CELAC nations are pushing back, countering that their interests shouldn’t be dictated by their former colonial powers. As lead blogger and podcaster, Michael Buchsbaum, reviews, though oil deals are easy, Mercosur agreements are proving harder to forge.

Complimentary needs

With the goal of facilitating trade deals between the private and public sectors of both regions, the mid-July European Union organized summit, the first to take place with CELAC in over eight years, gathered together both politicians as well as financial representatives from throughout Europe and Latin America.

Topping their agenda was the hope of clinching a new sweeping free trade agreement (FTA) between Brussels and four southern nations: Brazil, Argentina, Uruguay and Paraguay – the Mercosur countries.

‘Latin America and the Caribbean have an abundance of energy and mineral resources, while Europe has the capital, technology and know-how that Latin America needs for its development’, Spain’s prime minister, Pedro Sánchez, said, stressing the importance of deepening trade and economic integration agreements to make the most of these complementarities.

Trade has grown enormously between Europe and Latin America over the last decade, with the combined imports and exported trade now worth over 300 billion euros per year.

Negotiations for the Mercosur agreement date back to 2000. While some agreements were already signed in 2019, the coronavirus pandemic, the growing climate crisis, and the need to reduce Russian energy dependency have led calls for reopening and expanding existing terms.

Additionally, under the Critical Raw Materials Act, the European Commission has recognized the need to ramp up partnerships with green energy resource-rich nations like Argentina, Brazil and Chile to avert a growing dependency on Chinese supplies – even as Beijing becomes a major investor in Latin America’s critical minerals sector.

With the region’s lithium as prize, since 2000, China has been partnering on efforts to also unlock Latin America’s trove of nickel, cobalt and rare earth elements – all crucial for electric vehicles and wind turbines.

Expanded trade agreements could also open up markets on both sides of the Atlantic as the EU hopes to reduce China’s growing influence on Latin America’s green energy boom.

In recent years, China’s government, banks and companies have propelled the continent’s transition, with about 90% of all wind and solar technologies installed there produced by Chinese companies.

As a recent GreenBiz story illustrates, nothing better exemplifies the interwoven complexity at play than the fact that China’s State Grid now controls over half of Chile’s regulated energy distribution.

Looking forward, ‘it’s absolutely vital that we complete three agreements: one with Chile, one with Mexico, and the Mercosur agreement’, said Sánchez in Brussels.

To get there, the Spanish government is working intensively with the European Commission to reach an agreement on the Additional Joint Instrument, which will allow environmental protection and Amazon conservations efforts to be reconciled in a way that respects the sovereignty and capacities of the Mercosur countries.

The European Commission has so far pledged a €45 billion investment to launch projects related to new technologies in Latin America and Caribbean nations, thus making the EU a preferential partner for the region.

‘Spain is committed to this agenda’, said Sanchez, ‘and, for this reason, we are also going to mobilize €9.4 billion over the next few years through different public investment instruments, in addition to another €10 billion from other European institutions’, he promised during the meetings.

Negotiations stall around environmental protections

As of this writing, Mercosur nations haven’t come to an agreement with the EU around certain environmental commitments – a point French President Emmanuel Macron has been particularly insistent upon, personally stating that he will not approve any free trade agreement that does not contain commitments on sustainability and deforestation.

‘Our trade policy has to be consistent with our climate policy’, Macron told reporters at the July summit.

EU negotiators are under pressure not to agree on a deal that could increase environmental damage or climate change.

In March, the European Commission proposed an additional protocol clarifying the obligations of both sides in terms of environmental compliance, including compliance with the Paris Agreement. But Mercosur has not been as welcoming to the idea, with member countries seeing it as a violation of their sovereignty and some even characterising it as neo-colonialism.

However, some speculate that Macron’s concerns are not just about sustainability and environmental issues, but also about the effects of bilateral agreements on the European market.

In June, the French Parliament passed a resolution calling for the negotiations to be reopened and for so-called ‘mirror clauses’ to be added, which would subject imports to Europe from Mercosur countries to the same environmental and climate standards as domestic products – with life cycle verification requirements.

Though many hoped newly re-instated Brazilian President Luiz Inacio Lula da Silva would prove an easier negotiating partner than his predecessor, he’s clearly finding a third way.

While Lula quickly revoked restrictive climate and environment policies domestically, he has been more reticent to enter into new international guarantees or promises.

Repeatedly stating that he will not accept foreign interference with Brazil’s national environmental standards, he accuses Macron of using environmental concerns as a mask for ‘protectionism’ in favor of French domestic agriculture.

With Paraguay’s seconding, during the Brussels’ meeting Lula referred to France’s stance as ‘aggressive’, and then added his confidence that an agreement could be reached by the end of 2023.

New EU gas agreement with Argentina

While Mercosur floundered, at the summit the EU managed to agree on a sweeping bilateral energy and LNG deal with Argentina. Under the non-binding memorandum of understanding (MoU), Argentina will facilitate a stable LNG to the EU in exchange for cooperation on green energy technology.

Following upon a similar agreement on materials agreed in June, this MoU also calls for Argentina and the EU to cooperate on the use of hydrogen and its derivatives in industrial applications, as well as energy storage and transport.

As extraction in Vaca Muerta booms, the pact calls for the EU helping Argentina to tackle methane emissions, particuarly widespread venting and flaring – though how that will happen is not clear.

The views and opinions in this article do not necessarily reflect those of the Heinrich-Böll-Stiftung European Union.