In a bold move signaling Uruguay's proactive approach in global trade, President Luis Lacalle Pou has announced an initiative to fast-track free trade agreement (FTA) negotiations between Uruguay, China, and the Mercosur trade bloc. This announcement, made during a high-profile meeting with China's Premier Li Qiang, has been widely reported in Chinese state media and is seen as a significant step in Uruguay's international trade strategy.
China, which stands as the second-largest economy globally, has been a key investor in South America. It has already granted tariff-free access to its vast consumer market to several countries, and an FTA with Mercosur is viewed as a major strategic gain. This potential agreement could exert influence on Paraguay, urging it to reconsider its diplomatic ties with Taiwan, which China considers part of its territory.
President Lacalle Pou's advocacy for an FTA with China dates back to 2021, aiming to mirror the benefits enjoyed by countries like Chile, Costa Rica, Ecuador, and Peru. However, this move faces opposition from Mercosur members Argentina, Brazil, and Paraguay, who are inclined towards an FTA with Europe.
Reinforcing its commitment, Uruguay has declared its dedication to fostering close ties with China and actively participating in the Belt and Road Initiative (BRI). This commitment was further cemented as China and Uruguay recently elevated their relationship to a "comprehensive strategic partnership," putting Uruguay on par with Argentina and Brazil in terms of its ties with Beijing.
This elevation in diplomatic relations adds a layer of complexity for Paraguay, a country heavily reliant on agriculture and without diplomatic relations with Beijing. China's increasing presence in South American trade, underscored by Uruguay's exports to China making up 27% of its total in 2022, highlights the shifting economic alliances in the region.
The development of these trade relations is not without its challenges. Last year, warnings were issued by Argentina, Brazil, and Paraguay regarding potential countermeasures should Uruguay proceed unilaterally with its China FTA plans. Furthermore, both Uruguay and China face considerable political obstacles in their efforts to join a major trans-pacific free trade pact.
Currently, Uruguayan beef, a significant export to China, faces a 12% tariff, in contrast to the lower tariffs paid by other major beef-exporting countries like Australia and New Zealand due to their existing FTAs with China. An FTA between Uruguay and China could potentially lead to a significant reduction in these tariffs, with a study suggesting a possible $150 million tariff reduction for Uruguay's meat industry.
These unfolding events highlight the evolving nature of international trade relationships, with Uruguay at the forefront of navigating and shaping these complex dynamics.
