Brazil & Southern Cone - January 2012 (ISSN 1741-4431)

“They want a war with Argentina, but we are not going to risk killing the goose that lays the golden egg, which is tourism.” Uruguay’s President José Mujica has a well-founded reputation for straight-talking as this response to charges of Argentine protectionism brought to him by the Unión de Exportadores del Uruguay (UEU) amply demonstrates. This does not mean he is turning a blind eye to the problem of Argentine protectionism, however; he is simply alert to the acute political sensitivity in the Casa Rosada to direct criticism. He is also intent on expanding trade to the Pacific, an issue he raised with his peer Sebastián Piñera during a visit to Chile this month.

Argentine protectionism is growing day by day. The latest measure to antagonise Uruguayan exporters, which will take effect on 1 February, is the requirement for Argentine importers to provide advance notification to the Administración Federal de Ingresos Públicos (Afip), Argentina’s national tax agency, of the products they wish to import in advance and wait approval before proceeding. This could take 30 days and potentially could be denied.

The Uruguayan chamber of industry (CIU) complained that the upshot of this “superlicence”, as it has been dubbed, would be a loss of trade because Argentine producers would try and procure what they need domestically to avoid the hassle of leaping the new bureaucratic hurdles. The result will be an even bigger bilateral trade deficit: Uruguay exported goods to the value of US$558m to Argentina in 2011 and imported products amounting to US$1.82bn.

The CIU pointed out that Mujica had “negotiated and negotiated” but had to get tougher through recourse to the founding treaty of Mercosur (Mercado Común del Sur, the Southern Common Market, comprising Argentina, Brazil, Paraguay and Uruguay). The trouble, as Mujica will be well aware, is that the Mercosur treaty will not provide Uruguay with much succour. What is the point of Mujica making a formal complaint when Mercosur lacks the supranational dispute resolution mechanisms to enforce the spirit of free trade enshrined in the founding statutes of the (perennially imperfect) customs union?

Mujica does not want to risk a sharp deterioration of relations with a hyper-sensitive Argentine government, like under his predecessor Tabaré Vázquez, over the construction of a pulp mill on the banks of the River Uruguay. “Punta del Este (Uruguay’s beach resort town) would not exist if it were not for Argentines,” he said in an interview with the national daily El País. Tourism took a big hit as a result of the blockade of bridges between Argentina and Uruguay in the long-running protests over the pulp mill, but it is booming again now. The number of Argentine tourists visiting Uruguay in the first half of 2011 increased by 45% to 943,841, on the same period the previous year.

The problem for Uruguay is that Argentina, and for that matter Brazil, both appear to be harking back to the import substitution industrialisation (ISI) of the 1950s and 1960s as a means of confronting the threat of cheap imports from Asia, especially China. This is completely contrary to Uruguay’s foreign trade policy: Vice-President Danilo Astori said last month that “the worst thing a country like Uruguay can do in times of crisis, like this one, is to close in on itself.

The constraints of Mercosur prohibit Uruguay from seeking bilateral free trade deals so Mujica is trying to mitigate what he accepted was an inevitable loss of trade with Argentina by looking to the Pacific. He discussed this matter with President Piñera during a visit to Chile earlier this month, during which the two men also visited the Antarctic. Mujica spoke of his desire to seek alternative markets in Chile and Peru, but he also has his eyes set on Asia, and China: Chile, Colombia, Peru and Mexico are currently trying to deepen trade with China and Japan through the Arco Pacífico, an economic integration pact to complement bilateral free trade deals. Mujica is keen to explore complementary accords with Chile and Peru to tap into Pacific markets.

• Off the grey list

The government of President José Mujica received a boost in December when the Organisation for Economic Co-operation and Development (OECD) removed Uruguay from its “grey list” of nations deemed to be taking insufficient action to combat tax evasion. The OECD released a statement saying that Uruguay had shown its commitment to meeting international standards by signing seven new bilateral tax accords, most recently with Ecuador, Liechtenstein and Switzerland, although it has yet to sign accords with Brazil or Argentina.