Uruguay wants to accelerate trade negotiations with China and Mercosur

The Uruguayan president, Luis Lacalle Pou, expressed his desire to “speed up” negotiations on a free trade agreement between Uruguay, China and the commercial block Mercosurwhen meeting with Chinese Premier Li Qiang on Thursday, according to Chinese state media.

China, the world’s second largest economy, is already a major investor in South America and has offered four countries tariff-free access to its huge consumer market.

But a free trade agreement (FTA) with Mercosur would be a prize worth pursuing for Beijing, as it could pressure Paraguay, the last South American country to maintain ties with Taipei, to reconsider its ties with Taiwan, which China considers part of of its territory.

Lacalle Pou proposed for the first time a FTA with China in 2021 to ensure its exporters opportunities similar to those enjoyed by Chile, Costa Rica, Ecuador and Peru, but faces opposition from fellow Mercosur members Argentina, Brazil and Paraguay, who instead want to agree to an FTA. with Europe.

“Uruguay is firmly committed to close relations with China and active participation in the Belt and Road Initiative (BRI),” said Lacalle Pou, according to a reading of the meeting in state media, “and is willing to (…) accelerate the establishment of an FTA between Uruguay, Mercosur and China.”

China received 27% of Uruguay’s exports in 2022, according to data from the United Nations COMTRADE, while Brazil bought 17% of its shipments and Argentina and the United States 6% each.

On Wednesday, China and Uruguay elevated their bilateral ties to the category of “comprehensive strategic partnership”with which Montevideo began to have the same relationship with Beijing as Argentina and Brazil.

The heightened ties put pressure on agriculture-dependent Paraguay, whose main exports include beef and soybeans, and which does not maintain ties with Beijing.

Li said China and Uruguay should: “take advantage of the signing of the IFR cooperation documents as an opportunity to promote a continued increase in bilateral trade.”

Last November, Argentina, Brazil and Paraguay warned Uruguay that they could take “measures” against him if he went ahead with his plans to unilaterally negotiate an FTA with China.

The South American country has also requested to join a major trans-Pacific free trade pact to which China also aspires, but both Montevideo and Beijing must overcome important political obstacles before being able to access the agreement.

Currently, Uruguayan beef, which constituted 67% of the South American country’s exports to China in 2022, according to COMTRADE data from the United Nationsis subject to a 12% tariff.

By comparison, Australia and New Zealand, other large beef exporters that have free trade agreements with China, pay tariffs of 3.3% and 0%.

According to him “Common External Tariff” of Mercosur, Chinese exporters must pay tariffs of 9% if they wish to export to Uruguay.

Uruguay was about to sign an FTA with USA in 2006, but his then government ultimately rejected the agreement for fear of being expelled from Mercosur if he did so.

According to a study carried out by the National Meat Institute of Uruguay in 2021, an FTA with Uruguay would reduce tariffs for the meat industry by US$150 million.