China is sowing discord in Mercosur

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Leaders of Mercosur, an economic grouping that includes Argentina, Brazil, Paraguay and Uruguay, are due to meet on Thursday, July 21, near Asuncion. On the list of discussions: the controversial draft free trade agreement between Uruguay and China.

From our correspondent in Buenos Aires,

At the dawn of the first summit in attendance since the beginning of the pandemic, the feud has worsened more than ever within Mercosur, particularly between Argentina and Uruguay. The basis of the dispute is this free trade agreement that Uruguay would like to conclude with China and that Argentina, keen to protect its economy, does not want to hear about.

The topic had already crystallized the tensions at previous summits. In March 2021 in particular, Uruguayan President Luis Lacalle Poe He had warned that the block had to open up to the world in order not to become a burden. The comments angered his Argentine counterpart, Alberto Fernandez, who told him that Uruguay was free to leave Mercosur if they wished.

Despite this direct opposition from Argentina and a tradition of unanimous trade decision-making, the Uruguayan president announced last week that his country would officially start negotiations with the Asian giant. While he reaffirmed his commitment to Mercosur and invited other bloc members to join these discussions, he warned that if he was not supported, his country was ready to move forward on its own and move forward with free bilateral trade with China, which is already its own. largest business partner.

Trojans

For China, a free trade agreement with Uruguay, a small country of barely 3.5 million people, would be a gateway to Mercosur and its 265 million inhabitants. Because of course The Brazilian and Argentine markets that Beijing is looking forward towhich used these negotiations to try to force the hand in Buenos Aires and Brasilia.

To prevent Uruguay from becoming a kind of Trojan horse, which allows China to sell its products without having to free itself from tariffs, Brazil, Argentina and Paraguay will be forced to isolate or even exclude their Uruguayan neighbors from the common market.

Towards exit from Uruguay?

At this point, it’s still a bit too early to imagine a full breakup. First, because Uruguay, which is preparing to take over the rotating presidency of the bloc for a period of six months, has always confirmed its desire to remain in Mercosur. The small South American country considers it entitled to negotiate individually with China, and argues this with a precedent dating back to 2003, when it was authorized to sign a bilateral free trade agreement with Mexico.

So, it is not impossible for Brazil, less resistant than Argentina to the flexibility of the bloc, to rally in favor of the Uruguay cause. The country, led by Jair Bolsonaro, has been demanding for several months now to reduce tariffs at the entrance to Mercosur by 20%, but here it comes again against the Argentine refusal. By supporting the Brazilian demand, Montevideo could find strong support in Brasilia that would allow it to rebalance the balance of power in its favour.

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