How Uruguay’s trade negotiations with China threaten the Mercosur

How Uruguay’s trade negotiations with China threaten the Mercosur



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Greetings from the four seasons of summer in the southern hemisphere. During the pandemic, Uruguay, a South American country, has been working hard to reach a free trade agreement with China.

Beijing is Uruguay’s main buyer, accounting for one-third of all exports. Driving on the streets of Montevideo, the capital, it is easier to see BYD made in China than Mercedes-Benz. Meat, grain, and wool are the main goods shipped eastward in exchange for cars, chemicals, and industrial machinery. Uruguayan exporters have always been keen to facilitate the kind of deals New Zealand has reached with the world’s second largest economy, and gain preferential access to the Chinese market as a premium food supplier. Before the pandemic, demand for premium Uruguayan beef doubled year-on-year in 2019. Last year, the bilateral trade volume between the two countries reached US$2.9 billion, which was 16 times that of when China joined the World Trade Organization in 2001.

Today’s main article explores this relationship in depth and describes Montevideo’s efforts to consolidate its rapidly growing relationship with Beijing. We also asked about the broader impact of trade relations with neighbors closer to home.

We hope to hear from you.Send any ideas to [email protected] Or email me [email protected]

Regional impact of the Uruguay-China Treaty

As a Christmas gift, this is an unusual choice. But we are pretty sure that what Luis Lacalle Pou, the conservative president of Uruguay, hopes this year is that the results of a feasibility study show that there is room for a trade agreement between Uruguay and China.

In September, officials in Beijing and Montevideo began a new feasibility study for such a treaty, and the results of the study are expected to be announced in time for the traditional Uruguay Christmas barbecue in late December. Lacalle Pou said of the talks on September 8: “Uruguay is in a hurry. If the world shrinks and gets closer than ever,” we, as an agriculture-based economy, “will go to the world and open up.” .

If the results are positive, the next stage will be for representatives of Beijing and Montevideo to formally draft a free trade agreement.

Uruguay’s trouble lies in its domineering brother, Or brother, who got in the way.Uruguay, together with Argentina, Brazil and Paraguay, formed the Mercosur Union, which is a protectionist free trade area, which experts describe as “Least efficient” Whether in trade between its members or with external partners, it is a similar product anywhere in the world.

Tariffs on exports from the Mercosur to non-members can be as high as 35%. There are no tariffs between members, except for sugar and cars.under Asuncion Treaty These four countries hope to form a common market similar to the European Union, allowing people to travel freely, and agree to “the free flow of goods, services, and production factors between countries.”Mercosur even Consider introducing A common currency for one stage. No member may negotiate preferential agreements with third countries. Therefore, changing Uruguay’s rules means transforming the group from a customs union into a free trade zone.

Marcelo ElizondoForeign trade experts from Argentina believe that Mercosur has not reached a consensus on its international strategy. In the 30 years since it was signed in 1991, total exports to other countries related to GDP have fallen to the lowest level of any comparable international group. The possibility of a free trade arrangement with the European Union is falling into its 23rd year, and according to observers, negotiations are “paralyzed.”

Lacalle Pou believes that the Mercosur cannot be an obstacle to the economic progress of the member states. Transactions with China may generate new export routes. You only need to look at Chile, Costa Rica, and Peru. They have all reached deals with Beijing in recent years, and later gained new trade agreements in Asia and other regions.

Before the presidential summit on December 16, other MERCOSUR member states, headed by Brazil, proposed to reduce common external tariffs. 3.5%, Is seen as a sign of relaxation. Called on Montevideo to “reconsider” negotiations outside the European Union and insisted on removing any discussions about China from this month’s agenda. Uruguay is clearly disturbing this troubled alliance.

Ignacio Bartesaghi, professor of international relations at the Catholic University of Uruguay, told the Financial Times that, given that the content of the discussion has changed at the last minute, “the December meeting is a huge unknown.” “The best result is that Uruguay accepts tariff reduction, and Mercosur recognizes our business aspirations for China,” he said.

Bartesaghi explained that Brazil has always supported Uruguay’s ambitions in particular. “Brazil sees the country as a tool to change the broader structure of the Mercosur for its own benefit,” he said.

There are other options in the country. There may be Ulu withdrawing from the Mercosur, or it could use the December discussions as a springboard to trigger real discussions about restructuring the alliance.

However, Buenos Aires is a stumbling block. Successive Argentine governments have avoided calls to modernize the alliance, and the latest government issued a fierce ultimatum earlier this year. “They can reach a bilateral agreement with China outside of the Mercosur, or stay in the Mercosur,” said Matías Kulfas, Minister of Production and Development. September said News about the China talks.

In October, the Foreign Minister Santiago Caffero told the Financial Times in Buenos Aires that the so-called Uruguay problem had been resolved. He dismissed the idea that their neighbors could submit the preliminary results of the feasibility study before the end of the year: “These are all long and long processes,” said Cafiro, who had traveled to Brasilia to quell any speculation about the deal. Find the “necessary consensus” for lowering tariffs.

However, Argentina’s negotiating position is weak. Cafiro admitted that his country relies on trade with the Mercosur. Any member who leaves will severely damage the government’s coffers and may encourage others to do the same. Argentina also finds itself fighting the domestic economic crisis (this year’s inflation rate is 50%, and exports are strictly controlled in an attempt to control prices).

Therefore, Buenos Aires’ opposition to the new China-Uzbekistan agreement may not be enough to prevent the inevitable shift in the wave of protectionism in South America.

no matter what happens, The Mercosur is no longer its main trading partner of Uruguay at the turn of the century. Unlike the UK before Brexit, only Brazil is still the main commodity market. Argentina and Paraguay accounted for less than 8% of total exports in 2019 and less than 11% of imports (with the most recent data), but in 2020 and There are many distortions related to the pandemic in 2021).

Export (million dollars) bar graph display

As for China, I have to admire its tactics. The pursuit of the most socially and economically stable country in the region may trigger free trade negotiations with the entire group.As people in this football-mad country say, that is A great goal. Christmas gifts for Beijing are also good.

Although some people’s inventory Bargaining chip Is building, Semiconductor shortage Can stay A characteristic of the automotive industry in the next few years. has one Interesting reading how Import competition, Especially from China, Is affecting Made in india.

When a regional comprehensive economic partnership, or RCEP, The agreement will come into effect in February and it will be the first trade agreement between the two countries Japan with South Korea, It is possible to increase the share of duty-free trade goods from 19% to 92%, According to Nikkei ($).

Former Deputy Trade Representative of the United States Wendy Cutler Written in Nikkei Asia ($) Coercive actions pose a threat to the global trading system, such as arbitrary anti-dumping duties, delays in customs processing, and boycotts by government organizations. Claire Jones and Francesca Regalado

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