- Leandro Prazeres – @PrazeresLeandro
- BBC News Brasil special envoy to Montevideo
1 hour ago
President Luiz Inacio Lula da Silva (PT) is making an official visit to Uruguay this Wednesday (1/25), in a climate that should be different from the one that marked his visit to Argentina at the beginning of the week.
In Buenos Aires, Lula was received with celebration by the president and political ally Alberto Fernández. In Montevideo, however, the expectation is that the atmosphere will be a little more tense. After participating in the 7th meeting of the Community of Latin American and Caribbean States (Celac), the PT lands on Uruguayan soil with the mission of convincing the president, Luiz Alberto Lacalle Pou, to give up a free trade agreement with China that comes next being negotiated for at least two years. For the Brazilian government, the agreement could represent the “destruction” of Mercosur.
Brazilian government sources heard by BBC News Brasil on condition of anonymity pointed out what the Brazilian government should offer in return to dissuade it from joining the agreement with the Chinese.
In the package, so far, there are three main items: the resumption of infrastructure works that connect or benefit Brazil and Uruguay – such as bridges, railways and waterways; return of Brazil’s contributions to a fund to promote projects within the bloc; and the promise that Brazil will no longer make unilateral reductions in tariffs on imports of products from outside the bloc.
Uruguay, Mercosur and China
Uruguay, like Brazil, Paraguay and Argentina, is one of the four founding members of Mercosur, created in 1991. Venezuela joined the group in 2012, but has been suspended since 2016 for failing to comply with the accession protocol. Bolivia is an associate member.
The bloc has as one of its main rules the adoption of a common external tariff (TEC), a kind of single tax to be charged in the countries of the group, although there are rules providing for exceptions.
Another rule considered to be fundamental to Mercosur is that which would prevent member countries from signing trade and customs agreements in isolation. The idea is that the unity of the bloc cannot be maintained if one of its members provides more advantageous trade conditions for a country outside the group.
It is at this point that the main controversy of the group currently resides. Since at least 2021, the Uruguayan government led by the country’s traditional right-wing politician, Lacalle Pou, has been negotiating with China to sign a free trade agreement.
In practice, Chinese products could enter Uruguay paying lower import taxes than those practiced within Mercosur, which could harm the functioning of the bloc.
In recent years, during the government of former President Jair Bolsonaro (PL), Brazil has avoided publicly criticizing the Uruguayan stance. In November last year, however, in a joint note, Brazil, Paraguay and Argentina announced that they would take the appropriate legal measures if the agreement went ahead.
With the change in management this year, Brazilian diplomacy began to send new signals that the agreement would not be welcome.
In an interview with the Folha de S. Paulo newspaper this month, Brazil’s Minister of Foreign Affairs, Mauro Vieira, said that the agreement could “destroy” Mercosur.
Despite the demonstration by the Brazilian minister, Lacalle Pou reinforced, on Wednesday afternoon (24/1) that Uruguay’s intention is to move forward with negotiations with China.
“The Uruguayan decision is to move forward with a Free Trade Agreement. If it goes with Mercosur, it’s better, everyone knows the strength that Brazil, Uruguay, Paraguay and Argentina can have together. If not, what we’ve done so far is advance in a feasibility study with China that had positive results and we are about to start bilateral negotiations,” said Lacalle Pou, in a press conference during CELAC.
Hours later, also in Buenos Aires, the former Minister of Foreign Affairs and current special advisor to President Lula, Celso Amorim, said he valued relations with Uruguay, but stated that Mercosur needed to be “preserved”.
“Our position is the following: we highly value the relationship with Uruguay. [país] it is an example of civility in many aspects within Latin America, that in many things they are very advanced. But we think Mercosur needs to be preserved,” he said.
The sources heard by BBC News Brasil detailed the points that should be put on the table during talks with the Uruguayan government this Wednesday.
The first is the resumption of infrastructure works between the two countries which, according to these sources, would be at a standstill. Among them are bridges, highways and waterways, which would increase the physical integration of the two countries.
The second point is the regularization of Brazil’s contributions to the Fund for Structural Convergence of Mercosur (Focem).
This is a fund maintained with resources from member countries to finance works and projects in the area of the bloc. By the rules, the countries with the biggest economies are the ones that should contribute the most and the ones that should receive the least. The idea was that the mechanism would help reduce the asymmetries between the bloc’s countries.
Of the US$100 million that must be provided to the fund each year, Brazil has to contribute 70%, Argentina 27%, Uruguay 2% and Paraguay 1%.
The problem is that Brazil had, until the end of last year, a liability of at least R$ 518 million with the fund.
The Brazilian proposal is that arrears are paid and regular contributions are maintained. This favors Uruguay because, despite contributing only 2% of the total fund, the country can receive up to 32% of the resources.
The third item on the Brazilian agenda is the end of unilateral reductions in import taxes for countries outside the bloc. Unilateral reductions are provided for in Mercosur rules as a way to meet specific demands for some products.
The problem is that, in recent years, these reductions have created tensions between the bloc’s members.
This Tuesday, Celso Amorim also mentioned the possibility that Mercosur might review some of its policies to allow Uruguay to be integrated into the region’s automobile complex, made up mostly of Brazil and Argentina. The idea, according to Amorim, is that, in the same way that the two largest countries in the bloc work together in the manufacture of cars, Uruguay can also be part of this arrangement. The suggestion, however, has not yet been formalized.
Finance Minister Fernando Haddad avoided a frontal attack on the Uruguayan posture during his visit to Buenos Aires, where he also participated in CELAC. He should also participate in Lula’s trip to Montevideo.
“I am not aware of the terms under which China’s agreement with Uruguay is being negotiated. But this type of thing is not new. [Esta] it is a visit to strengthen Mercosur. I believe that South America, its successful destination, passes through the economic bloc. As to that, I have no doubt,” she said.
The expectation in the Brazilian government is that the agreement between China and Uruguay does not materialize. Among other factors, this could not happen to avoid the country’s attrition with China’s biggest trading partners in the region: Brazil and Argentina.
According to World Bank data, the trade flow (imports and exports) between Brazil and China in 2020 (last year available on the institution’s basis) was US$ 103.7 billion. Meanwhile, the flow between China and Uruguay was only US$ 2.7 billion.
Asked whether the Uruguayan claim to negotiate an agreement directly with China was compatible with Mercosur, Haddad said that he was not yet aware of the proposal and that he would wait for the meeting with Lacalle Pou’s team to manifest.
“That we will see tomorrow,” he said.
In addition to meeting with Lacalle Pou, Lula will also meet with former president and personal friend José Mujica. The meeting will be at the former president’s farm in the interior of the country.