On the Uruguay-China FTA: Q&A with Nicolás Albertoni

This post is also available in: Español 

Photo of Luis Lacalle Pou Flickr | CC-BY-2.0

This publication is part of Asia-LAC Dialogues, a series of interviews produced by the Inter-American Dialogue's Asia and Latin America Program, featuring global perspectives on recent developments in the Asia-Latin America and Caribbean dynamic. 

In July, Uruguay's President Luis Lacalle Pou announced the completion of a joint feasibility study with China on a potential bilateral free trade agreement (FTA) between the two countries, noting that study’s findings were positive for future FTA negotiations. Lacalle Pou also noted that Uruguay intended to proceed with negotiations, despite objections from Mercosur partner nations.  Uruguay’s decision to move forward with negotiations with China has created friction with Argentina and Paraguay, for instance, which strongly believe that Mercosur should negotiate any new trade agreements as a bloc. 

The FTA negotiations with China build upon the country’s expanding and evolving relationship with China. During a state visit in October 2016, then-President Tabaré Vázquez and Xi Jinping established a strategic partnership between Uruguay and China. At this meeting, Xi stated that China was willing to increase investment in Uruguay with a particular focus on infrastructure projects and sought to expand cooperation in agriculture, clean energy, communications, mining, manufacturing, and finance. Two years later, Uruguay joined the Belt and Road Initiative, becoming the first member of Mercosur to join. Uruguay has also sought deeper integration into China-led international financial institutions, joining the Asian Infrastructure Investment Bank in May 2020 and becoming a prospective member of the BRICS New Development Bank in September 2021.

Uruguay’s relationship with China is underpinned by already strong trade relations and a favorable trade balance. China is Uruguay’s main trading partner, accounting for 30 percent of Uruguay’s total foreign trade. In 2021, Uruguay’s exports to China totaled US$2.72 billion and imports from China reached US$1.996 billion. Uruguay’s exports to China mostly consist of raw materials, particularly beef, cellulose products, and soybeans. Beef totalled 56 percent of Uruguay’s exports to China in the second quarter of 2021. The trade agreement would aim to diversify Uruguay's exports to China to also include services, technology, and electronics.

Photo of Nicolas AlbertoniFor additional insight on Uruguay-China FTA negotiations with China, and the broader nature of the bilateral relationship at present, we spoke with Nicolás Albertoni, professor at the Universidad Católica del Uruguay and non-resident associate researcher at the University of Southern California's Security and Political Economy (SPEC) Laboratory.

Inter-American Dialogue: Where do China-Uruguay FTA preparations stand at this point in time?

Albertoni: For the moment, what is on the table is the conclusion of the feasibility studies that, as announced, have yielded a positive result with regard to commercial matters. This was expected given the already known trade complementarity that exists between the two countries. The next step will be to start formal negotiations, for which dates still have to be set in order to begin the negotiation rounds.

Inter-American Dialogue: What does Uruguay stand to gain from a bilateral FTA with China? To what extent will pursuing an FTA with China affect Uruguay’s relations with Mercosur partners?

Albertoni: It is important to note that Uruguay has been open from the beginning to joint negotiations with the other members of Mercosur. What is happening today is that the bloc’s partners seem unwilling to move forward with negotiations of this magnitude in the short term. On the other hand, Uruguay never framed these talks with China as precluding it from pursuing commercial negotiations with other countries. President Lacalle has always expressed his desire to sign the already concluded FTA with the EU (in the framework of Mercosur) and move forward with a future agreement with the US. Even recently, President Lacalle confirmed his intention to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).

Recognizing the importance of the Chinese market, it is undeniable that considering China’s proposal is of enormous trade and economic responsibility for Uruguay. That is why the path that President Lacalle decided to take is very reasonable.

It should also be noted that, as has happened in other Latin American countries, China has come to play a very important role as a destination for Uruguayan goods. While in 2001, when it entered the WTO, China represented 5 percent of Uruguay’s exports and 41 percent of Mercosur’s. Today China receives 28 percent of Uruguay’s exports and 23 percent of Mercosur’s, respectively.

Today, Uruguay pays (competitively) approximately US$137 million in tariffs to export goods to China. This represents 42 percent of the total tariffs paid by Uruguay to all export destinations. This clearly indicates the importance that the East Asian country plays today in global commerce, and the opportunity that a deeper commercial dialogue could have, which the national government has acknowledged. The decisive step of opening up to the world that this government is taking is key to the country’s development.

Inter-American Dialogue: Beyond trade, what does Uruguay expect in the way of engagement from China? Will Uruguay derive some benefit from its membership and prospective membership in the AIIB and the New Development Bank (“BRICS Bank”)?

Albertoni: Naturally, when progress is made in the establishment of commercial and economic linkages with a country like China, other opportunities may arise that must be examined closely. Cooperation and investments are two of them. Uruguay has a small number of cooperation and investment linkages with China in comparison to the rest of the region, which is why there are opportunities in these areas that should be explored further. In any case, the focus of Uruguay’s interest today is commercial. After years of stagnation, Uruguay urgently needs to boost commerce and this government seems determined to take that step.

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