Germany's Scholz sets off on first South American tour to boost trade, environment ties

By Sarah Marsh

BERLIN (Reuters) - German Chancellor Olaf Scholz heads to Argentina on Saturday for the first leg of his inaugural tour of South America as his government seeks to reduce Germany's economic dependence on China and strengthen relations with democracies worldwide.

On the three-day tour, Scholz, a Social Democrat, will visit the region's three top economies - Argentina, Chile and Brazil -, all currently led by leftist leaders in the region's new "pink tide".

High on the agenda for talks will be the war in Ukraine and the lessons drawn from it - including for Berlin, a greater awareness of the need to reduce economic reliance on authoritarian states. Germany's dependence on Russia for gas sparked an energy crisis after relations deteriorated over the Kremlin's invasion.

Europe at large is racing to reduce its reliance in particular on China for critical minerals key to the transition to a carbon neutral economy - minerals that South America is rich in.

"These three countries are all interesting partners for the diversification of our economic relations generally but also of our sourcing for commodities," a German government official said on Friday.

Regarding the competition posed by China which has invested heavily in the region over the last decade, the official said Germany simply needed to be more active and also more prepared to embrace sectors it had hitherto shied away from.

"For example lithium mining - that's a challenging task, especially regarding the environment and social standards. And in the past we probably shied away from it ... but we cannot allow ourselves that luxury if we want to stand on our own two feet."

Argentina and Chile sit atop South America's so-called "lithium triangle" which holds the world's largest trove of the ultra-light battery metal.

The chancellor will be accompanied by a delegation of around a dozen business executives from various sectors, as well as Deputy Economy Minister Franziska Brantner.

In Brazil, the last leg of his trip, Scholz will be joined by Development Minister Svenja Schulze given the new impetus for joint projects since the election of Lula, who has promised an overhaul in Brazil's climate policy.

Deforestation in the Amazon reached its highest levels in 15 years under far-right President Jair Bolsonaro.

Lula's new focus could help clear the way for a free trade agreement between the European Union and the South American trade bloc Mercosur - an issue also on the agenda for Scholz's talks with regional leaders.

EU ambassadors have previously told Brazil that the free trade deal with Mercosur, agreed to in principle in 2019, will not be ratified unless concrete steps are taken to stop soaring destruction of the Amazon rainforest.

Scholz's visit is also a strong show of support to Lula after Bolsonaro supporters ransacked government buildings on Jan. 8., just one week after his inauguration.

The chancellor will address that as well as visit the memorials of victims of Argentina and Chile's military dictatorships.

(Reporting by Sarah Marsh; editing by Diane Craft)

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