Uruguay-MERCOSUR regional integration trade policies

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Uruguay-MERCOSUR regional integration trade policies

Uruguay-MERCOSUR regional integration trade policies

Prospects for a new government, a turn of predictability

“The penalties and the little cows go the same way. The penalties are ours, the vaquitas are not ours.”

Atahualpa Yupanqui, excerpt from the song “El Arriero Va” (year 1944).

By: Adrián Larroca Ferrari

One year after the beginning of the new neoliberal Uruguayan government, and after 15 years of the uninterrupted government of the progressive Frente Amplio party, we discuss some recent developments regarding Uruguay’s performance in the international arena, with emphasis on the international trade policies adopted towards the Southern Common Market (MERCOSUR) and its tense discussion on the flexibilization and conclusion of new trade agreements.

Campaign promises, back to the nineties?

On March 1, 2020, a new government took office in the Oriental Republic of Uruguay headed by President Luis Lacalle Pou, the representative of the Uruguayan State in the Mercosur regional bloc, after having obtained the electoral victory with a republican and inter-party coalition, unprecedented in Uruguayan political history.

Five parties with a neoliberal political-economic character joined in the said coalition, they are the Colorado Party (headed by Ernesto Talvi, a scholar in finance who holds an MBA at the University of Chicago), Cabildo Abierto (headed by the former Commander in Chief of the National Army Guido Manini Ríos), the Partido de la Gente (headed by businessman Edgardo Novik), the Partido Independiente (headed by the current Minister of Labor and Social Security, lawyer Pablo Mieres) and the Partido Nacional, headed by the current president, lawyer Luis Lacalle Pou.

The coalition was formed with the aim of defeating at the polls the politically economically progressive Frente Amplio party, which without political alliances (although it had the support of various leftist groups) tried to defend its fourth consecutive government, which it could not retain, since Lacalle Pou representing the multicolor coalition was victorious with 50.79% of the votes, against Daniel Martinez of Frente Amplio, who obtained 49.21%.

Under the mentioned context, a new management begins to work within the Uruguayan State, thirteen days after its beginning as a multicolor coalition these five parties suffered the irruption of the pandemic caused by the Covid-19 throughout the national territory, is that on March 13 of that year a sanitary emergency was declared throughout the country. 

However, the sanitary pandemic did not stop the campaign promises of the new government, which, in terms of international trade policies, point towards openness, aiming to work on a MERCOSUR that achieves a better functioning and reaches new trade agreements, as well as bilateral agreements with third countries.

The foreign policy of this government is projected towards the Pacific, approaching the countries that make up the Pacific Alliance in order to deepen the processes of relief agreed in the Economic Complementation Agreements, in turn is projected in Asia, taking advantage of the opportunities provided by the emergence of China and other emerging players in the global economy, This government is also seeking to ratify the Strategic Association Agreement with the European Union, which shows that the intention of this new government is to project Mercosur as a true Open Regionalism.

This neoliberal perspective of economic integration (Open Regionalism) produces both positive and negative effects: The positive ones can be seen when the member countries of the integration (for example an FTA) are efficient in the production of some good or service since they export to the inefficient countries or markets, that country is going to capture the joint market, having tariff benefits over third countries, this type of integration is good for who captures the market and bad for the market of the most inefficient country.

In this sense we see an Uruguayan ruling class, which tends to promote large agro-exporting capitals, this is sustained by observing the government’s interest in the opening of new markets and the realization of new trade agreements. The opening of trade would benefit the external placements of the efficient Uruguayan agro-export market (soybean, meat, dairy products, wood), however, it would expose to unequal competition all the small and inefficient markets of Uruguay, such as small and medium industry and small producers, at this point the damage is serious since it could lead to closures of national companies, causing unemployment, less State revenue and less social investment, impacting on the national productive and social development, to the detriment of economic growth concentrated in a certain agro-export class.

At the same time, we would like to recall that the recent history of Open Regionalism in the 1990s in Mercosur brought a series of problems to the bloc associated with the primacy of domestic interests over regional ones, the financial upheavals of each member state, skepticism about the leadership and true interest of Brazil and Argentina in the integration process caused by the tensions created by the negotiation offers of external actors, such as the United States and the EU. This highlighted the lack of internal cohesion of the bloc, the institutional and political weakness, which caused the countries to begin to doubt each other and begin to place trade barriers unilaterally, as instruments of defense. Other consequences and weaknesses of Open Regionalism are the results of nationalism and the “Westphalian” conception of preserving sovereignty and thus maintaining a margin of maneuver for national interests vis-à-vis neighbors, covering themselves when there are asymmetries in size, power, and wealth. With this argument, countries such as Argentina, Brazil, Paraguay, and Uruguay use their veto power under the principle of sovereignty, defending their national interests, which implies maintaining their margin of regional autonomy. Finally, a weakness that was very much present in Open Regionalism was the so-called “dispersed regionalism”, i.e., various parallel agreements created by the member states to reduce the risk of access to other markets. These agreements weaken and limit the internal cohesion of the bloc since they imply regulatory or tariff commitments contradictory to Mercosur.

Signs of a predictable Uruguayan turn: towards Open Regionalism?

At this point we will show some facts that highlight the negotiating offensive of the Uruguayan State within Mercosur, is that after the summit of presidents of the bloc for the celebration of its 30 years, Uruguay as well as Brazil, proposed the relaxation and progress in negotiations with other blocs such as the European Union and Asian countries, This will provide the necessary conditions to get the country out of the asphyxia in which it has operated in recent years, claiming that the ability to place products in major international markets, where Uruguayan products cannot compete on equal terms with other countries and blocs that do have agreements, has been a limiting factor for national growth, attributed to the impossibility of concluding bilateral agreements (e.g. China).

The Uruguayan president also expressed his interest in reviewing the common external tariff, i.e. applying a partial and linear reduction for the entire tariff universe, as a key instrument for negotiating possible new agreements with other countries and blocs, and finally, Uruguay wants to advance in the negotiation of transport and logistics.  

The undiplomatic words of the president of Uruguay in the last Mercosur summit, infuriated the Argentinean president Alberto Fernandez, who replied that “Argentina is not a burden for any country, and if it is, let them take another boat”, finally and as the Uruguayan government intended, the flexibilization issue was placed on the table to be discussed in the next Mercosur meetings.

In any case, the reality is that the bloc is disjointed and there is little chance of a Mercosur-China FTA, since Paraguay has diplomatic and trade relations with Taiwan and Argentina and Brazil do not have this issue on the agenda in the short term, since they are industrially diversified economies and an agreement with China would disarticulate many sectors of power, businessmen and ruling classes within these States. In turn, Brazil, with its anti-China policy, is closing deals with countries outside the bloc and reducing the common external tariff unilaterally. China, for its part, is interested in an agreement with Uruguay and is approaching it diplomatically, since for Chinese diplomacy the first step to approach the more protectionist economies of Brazil and Argentina is through the small South American country, some clear examples of this have been the Strategic Partnership Agreement between the two countries signed in 2016 and the memorandum of understanding signed by Uruguay to join China’s New Silk Road initiative. The interest in Uruguay’s rapprochement with China is purely commercial and tariff competition, as it is an exporter of primary products such as beef, soybeans, dairy products, and their derivatives to that market.

Everything is discussed, and in transportation and logistics?

The new Uruguayan government is very focused on international trade and is working to increase the possibility of transforming the port of Montevideo into a state-of-the-art logistics hub, a logistics area for all activities related to the transport, classification, dispatch and distribution of goods for national and international transit.

To do so, it needs to dredge the access channel to the Port of Montevideo on the Rio de la Plata, from km 42.4 to km 57 of the river, which would increase the port’s competitiveness for the entry of deep-draft vessels. Currently, the access to the port is 12 meters deep, but it needs a depth of 14 meters to be more competitive. In order to dredge, authorization is required from the bi-national (Argentine-Uruguayan) agency in charge of accepting dredging permits, the Comisión Administradora del Rio de la Plata (CARP).

On March 25, 2021, the Argentine government issued a statement to the CARP, arguing the reasons why they do not authorize the dredging of the port one more meter (up to 14.mts), alleging among other things, that the conditions are not yet given to deepen the Rio de la Plata in 14 meters, which if done would breach the Treaty of the Rio de la Plata, mainly as regards technical and environmental aspects, since the only project made by the Uruguayan government and accepted by the CARP and the Argentine government, is the one that subscribes to dredge the river up to 13 meters. 

It seems that with political will it would be possible to dredge up to the 14 meters intended by Uruguay, therefore, the conflict is purely commercial between the two neighbors, members of the same regional block Mercosur. These countries are confronting each other and placing barriers at a time when the world, trade and the global system require joint efforts to overcome the crisis caused by Covid-19. To this effect, Alberto Fernandez, reactivated the agenda of the dredging of the Magdalena channel, which today has 4.5 meters of draft, which would give the port of Buenos Aires a great competitiveness, from Uruguay the chancellery alleges that the environmental permits for the dredging of the Magdalena channel are missing, in violation of the Rio de la Plata Agreement, but this would also be solvable in the short term.

The Uruguayan government’s efforts to improve the port of Montevideo have to do with the alliance that the Uruguayan State, through its neoliberal ruling class, has just made with the Belgian multinational company Katoen Natie, port operator and provider of international logistics services, to which the use of the Terminal Cuenca del Plata (TCP) of the port of Montevideo has been extended for fifty years.

This terminal is a joint venture, whose capitals correspond to Katoen Natie S.A. (80%) and the National Ports Administration (20%), this association of an Uruguayan public entity with private capitals is regulated and protected under Decree 137/2001. This decree grants the Belgian company the administration and operation of the container terminal of the port of Montevideo, for a term of fifty years (as from 2021), while the Belgian company will invest approximately USD 455 million to expand the TCP and aborts the millionaire lawsuit it had in execution against the Uruguayan State for non-compliance. This agreement will be the driving force for Uruguay to strengthen the strategic position of its main port terminal, making it the most efficient container terminal in South America.

Mercosur challenges: will regional development, dependency be discussed in the flexibilization agenda?

We do not know precisely what the future holds, but we can glimpse some facts that should be on the table when talking about flexibilization.

Mercosur’s rapprochement with China must go hand in hand with regional policies that converge to take advantage of the opportunity offered by strategic cooperation with the Asian giant.

From what has been said, we can argue that the Mercosur regional bloc is at an opportune moment geopolitically speaking, to place on the agenda the opportunity offered by a partnership with China. This agenda for discussion within Mercosur invites us to reflect on the imperialist dependency relations that oppose and have been opposed over the years to the interests of Latin American societies.

This reflection should seek to establish an agreement with China in such a way as to avoid repeating current and recent past dependency formulas. In other words, we must avoid generating a new dependence on China, for which it is necessary to discuss in depth the political, economic, social and environmental dimension of a new treaty, and then make a strategic decision that meets the objectives of the countries and the region, as Latin American societies. The most important thing is to avoid any type of agreement that focuses on mere trade flexibilization.

Therefore, when drawing up an agreement with the emerging giant, it is necessary to discuss and establish guidelines within the bloc to protect and promote fair and equitable social relations of production that respect the rights of all citizens of the bloc. To think about the commercial and economic growth of a certain dominant class in antagonistic cooperation with large capitals, without discussing issues such as the limitation to the opening of foreign capital, and to shareholder and financial capital outside the bloc such as chima financing, would be a serious mistake for future years, preventing regional development, generating a new dependence and increasing economic asymmetries, which would compromise the socioeconomic gap of the region in the short and medium term.

Likewise, understand that although it is crucial for Uruguay to diversify its markets (as a country that depends on agro-exports), the discussion of a possible Mercosur-China FTA is based on a relationship of dependence, in which Mercosur countries that export raw materials (agricultural, mining and energy) not only receive technology from China, but we are also subordinated to the arrival of financing and capital from that country.

This forces us to think of trade integration as a united bloc, and to do so we must overcome the disputes within the ruling classes of the countries over whether or not to associate with China. This discussion is part of the conflicts in the countries of the bloc as part of the global dispute between U.S. and Chinese capital. It is necessary that Mercosur negotiates as a solid bloc, that recognizes itself under the same regional culture and history, outlining joint challenges, as a single group, removing the particular interests of each ruling class and carrying out joint policies, this would give the bloc a solidity that will allow to reduce asymmetries and be the starting point for the first negotiations with China, in conclusion we need to put “the house in order” before being able to negotiate an agreement of such magnitude and more in times of economic upheaval caused by the pandemic of Coivd-19.

In the case of Uruguay, taking advantage of conditions that can tactically bring it closer to China, it should not see this relationship as an idyll, as this obscures the economic asymmetries between the countries and the transfer of value from the Latin American country, which if realized would cause (among other things) social, economic and environmental consequences associated with extensive and industrial agriculture and monocultures, the impact on the intense use of land and the overexploitation of workers. Uruguay’s position in MERCOSUR, in these times of global economic upheaval, should be more integrative, calling to strengthen MERCOSUR and not to flexibilize, the agenda should be at the service of building a MERCOSUR that accounts for the needs of the population, the difficulties in the field of health, energy integration, industrial development, agriculture and infrastructure, which complement the aspirations of the partners of the bloc, always with a focus on avoiding irreversible consequences on the environment and labor conditions, The agenda must be at the service of building a MERCOSUR that takes into account the needs of the population, the difficulties in the areas of health, energy integration, industrial, agricultural and infrastructure development, which complement the aspirations of the bloc’s partners, always with a focus on avoiding irreversible consequences on the environment and labor conditions, which is the possibility of reorienting the bloc’s proposals and thus take advantage of the possibilities opened up by the new international geopolitical map that is in transition and in hegemonic dispute.

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