Brazil & Southern Cone - June 2013 (ISSN 1741-4431)

President José Mujica conducted the longest foreign tour of his whole term at the end of May, the main focus of which was China. While Mujica was away his vice-president, Danilo Astori, made a compelling case for Uruguay breaking free of at least some of the fetters of the Southern Common Market (Mercosur) and fully enlisting in the Pacific Alliance, the nascent trade and integration bloc comprising Chile, Colombia, Peru and Mexico, which is focused on reaching out to the Asia-Pacific region and complements Uruguay’s openness to free trade much more than Mercosur.

Mujica deepens ties with China

Mujica arrived in China on 25 May to begin a four-day tour of China at the head of a large coterie of ministers and other officials, including the presidents of the association of state railways, Jorge Setelich, the national port administration, Alberto Díaz, and the national meat institute, Alfredo Fratti. Mujica met the president of the national assembly, Zhang Dejiang, as well as President Xi Jinping, who shortly afterwards departed on a tour of the Caribbean Basin.

Xi said that bilateral relations between China and Uruguay were “an example of cooperation between countries in the process of developing”. This development is occurring at slightly different rates, and on a very different scale, of course, but Uruguay, unlike several other Latin American nations, retains a narrow bilateral trade surplus with China: exports to China in 2012 totalled US$1.84bn, leaving Uruguay with a US$176m surplus. Two-way trade has jumped from US$2.63bn in 2010 when Mujica took power.

During his visit Mujica signed seven different cooperation accords with Xi. These accords were in areas such as education, banking and mining. The main purpose of Mujica’s trip was securing Chinese investment for two major infrastructure projects in Uruguay: constructing a new deep water port in the department of Rocha and extending the railway network. Uruguay finished in 115^th place out of 124 countries in the 2012-2013 Global Competitiveness Index produced by the World Economic Fund (WEF) for the quality of its railroad infrastructure.

The Uruguayan delegation was hosted in the northern port city of Tianjin by China Railway Materials (suppliers of the Chinese system) and also met representatives from China Communications Construction Company and China Shipbuilding Industry Corporation, both of which are linked to the construction of major infrastructure projects and port terminals.

Mercosur vs. Pacific Alliance

While Mujica was away, Vice-President Astori gave a very candid interview about the current state of Uruguay’s foreign trade relations and the country’s aspirations in this arena, expressing his frustration with Mercosur and his desire to bring Uruguay into the Pacific Alliance and boost trade with Asia. Astori said that 38% of Uruguay’s trade was with the Asia-Pacific region and that, as such, the country wanted to move “as soon as possible” from being an observer within the Pacific Alliance to a fully-fledged member.

If the Pacific Alliance is full of youthful ebullience and strutting self-confidence, Mercosur is suffering a midlife crisis. Mercosur lacks the strength of the convictions it expressed in those halcyon days in the early 1990s when ever-closer ties within a thriving customs union were billed as its manifest destiny. Back then Mercosur bore the tag of the region’s outstanding trade bloc, which the new golden boy on the Pacific now proudly bears.

Astori brutally juxtaposed the two blocs. He said Mercosur had patently failed to live up to its “very ambitious” founding treaty in 1991 and was guilty of “inaction”. He said Mercosur was “vital” for Uruguay but it simply could not afford to “ignore the reality…of the impossibility of the bloc having common economic policies”. A cursory glance across the River Plate to Argentina suffices to see why. Argentina is practising exactly the sort of trade protectionism that Mercosur was designed to preclude. Astori conceded that relations with Argentina on the trade front were at “the lowest point for years”.

Astori said Uruguay needed “to diversify its international insertion”. He said the Pacific Alliance had “a lot of integrationist potential”, and was taking decisive steps forwards, through frequent presidential summits setting precise goals and achieving tangible results; Mercosur, meanwhile, was static, with presidential summits evincing more froideur than fraternity.

Astori also expressed “total disagreement” with comments by Brazil’s high representative to Mercosur, Iván Ramalho, that Mercosur would have to negotiate as a bloc with the Pacific Alliance. Astori maintained that as Mercosur already had free trade deals with Mexico, Colombia, Chile and Peru, Uruguay, as “a sovereign country”, was perfectly within its rights to define its foreign relations itself. Left unsaid, but implicit, was the mounting frustration in Montevideo that its bigger neighbours show a palpable lack of flexibility over Mercosur’s internal rules when it concerns Uruguay, but wilfully flout these rules when it suits them.

Uruguay’s former finance minister, Isaac Alfie, Latin American Finance Minister of the Year 2004, also waxed lyrical about the Pacific Alliance. Alfie said the Pacific Alliance had “very open trade policies and a much more pragmatic attitude than members of Mercosur which, between the imperialist pretensions of Brazil and the virtual insanity of Argentina and Venezuela, only generates vacuous talk, without practical relevance and ends up being a laughing stock.”

Alfie argued that the countries making up the Pacific Alliance had established clear rules of the game, competition and free markets and shared low inflation and fiscal equilibrium, with either surpluses or low deficits. By contrast, he said, Mercosur was stagnating.

The big question, of course, is whether the Pacific Alliance will suffer the same fate as Mercosur in the medium term. Colombia’s President Juan Manuel Santos expressed confidence that it would not while delivering a keynote address in London at the Financial Times conference ‘Investing in the New Colombia’ on 7 June. Santos argued that the Pacific Alliance was “the most important [integration project] in the whole history of Latin America” because it was deeply pragmatic and had not overreached by setting overambitious objectives. He said all four member states had a shared vision of openness to trade, the role of the State and attracting foreign direct investment and, crucially, it was steering precisely the same course forwards despite two significant changes of government (in Peru and Mexico) since it was formed.

Mujica was, perhaps uncharacteristically, more diplomatic than his vice-president. He completely agreed with Astori over the need for Uruguay to diversify its trade relations, and for Mercosur to establish closer ties with China (although he said this would be complicated by the “fear” Argentina and Brazil had of China’s productivity) but he did not show a marked preference for any regional trade bloc. “We are going to be in however many integration projects there are,” Mujica said. “I am Latin American as much as Uruguayan.” Uruguay is both an observer at the Pacific Alliance and the Alternativa Bolivariana para las Américas (Alba). Astori, pointedly, showed no interest in upgrading Uruguay’s membership from observer status in Alba.

• Falkland Islands

“We have affected our interests by defending Argentina’s cause, which no other South Atlantic or Pacific country is doing,” Jorge Pozzi, a deputy from the ruling left-wing Frente Amplio (FA) coalition, said this week. “The issue of fishermen is not small fry. There is US$400m to US$500m a year at stake in supplies, fuel, crews, foreign trips…loading and unloading of fish,” he claimed. He said the fluid trade involving mainly fisheries and general cargo now took place between Port Stanley and southern Brazilian ports. Uruguay has adopted a resolution pushed through Mercosur by Argentina banning the entry of ships sailing “the illegal Falklands flag” from its ports.

• Mujica in Spain

President Mujica travelled from China to Spain, where he met Prime Minister Mariano Rajoy to discuss future Spanish investment in Uruguay. He also urged Rajoy to get behind the perennially stalled free trade deal between Mercosur and the European Union, which he said had been displaced as the bloc’s main trade partner by China. During an interview in Spain, Mujica commented that “We (Uruguayans) work at half capacity…Humans did not come to Earth to die working. We must live well and not work as much as the Chinese. But…we could adapt a bit to the times.”