Uruguay Saw Opportunity in China. It Got Schooled in the Hazards of Trade.

The El Alamo ranch rejoiced when they heard that Uruguay was seeking a trade deal with China. El Alamo Ranch is a verdant grassy area surrounded by cacti and herds of cows on the plains of eastern Uruguay.

Most of the cattle are destined for Chinese buyers, where they are subject to a 12% tariff, more than double the rate applied to meat from Australia, the largest beef exporter to China. is. Ranchers in New Zealand, the second largest exporter, enjoy duty-free access to China.

“Fix a trade deal,” said Jascha Cotterman, who runs a family ranch. “It would level our playing field.”

But the frenzy sweeping the South American nation has recently turned into resignation that a trade deal with China is unlikely to materialize any time soon. What has beckoned new opportunities for Uruguay has evolved into a narrative that warns of trade policy pitfalls for a small country grappling with a complex geopolitical restructuring.

Uruguay’s President Luis Lacale Pou is betting his economic legacy on achieving a trade deal with China. “We have every intention of making it happen,” he said when he announced the start of formal negotiations last July. China was willing to discuss a bilateral agreement with Uruguay.

However, Uruguay’s aspirations have provoked anger and condemnation from neighboring Brazil and Argentina, as well as what appears to be economic retaliation. Together with Uruguay and Paraguay, the two countries belong to Mercosur, an alliance founded more than 30 years ago to promote commerce in the region.

In recent months, Brazil has pushed Uruguay to the sidelines while pursuing a broader trade deal with China on behalf of the bloc.

“We would like to sit down as Mercosur and discuss the Mercosur-China Agreement with our Chinese friends,” Brazilian President Luis Inacio Lula da Silva said. Visit Uruguay in January The capital, Montevideo.

In April, Lula traveled to China for a red carpet treat that included a visit with the country’s supreme leader, Xi Jinping.

“Nobody is going to ban Brazil from improving relations with China,” Lula said.

Whatever interest the Chinese government had in concluding an agreement with Uruguay, it quickly succumbed to its focus on Brazil, according to calculations based on basic arithmetic. Uruguay is a country of 3.4 million people, while Brazil is South America’s largest economy with 214 million people.

But despite the Brazilian president’s open interest in brokering a trade deal, the prospect of a deal being struck between Mercosur and China appears to be somewhere between minimal and nonexistent. rice field.

Mercosur, notoriously strife-ridden and slow-moving, has spent more than two decades trying to finalize trade deal negotiations with the European Union. And one member, Paraguay, has no ties to China and instead maintains ties with Taiwan. That alone made the possibility of an agreement between Mercosur and China almost unthinkable.

All of this increased the likelihood that Uruguay would end up damaging relations with its neighbors while failing to reap any economic benefits.

“Uruguay is being used as a lever for China to negotiate with Brazil,” said Cotterman, manager of the El Alamo Ranch, as the full moon casts a silvery glow over the grass.

Uruguay reaching a trade deal with China was more than the final destination for cattle. The government sought to redefine the terms of engagement with the rest of the world while cutting the country off the legacy of protectionism that has pervaded South America’s largest economy.

It clearly looked to China as a counterforce to US dominance in the hemisphere.

Trade unions opposed the prospect of a deal, saying it would threaten jobs in high-paying factories, while politicians (some in the coalition government) said the president’s ties to China were a risk to national security. condemned.

The biggest concern, however, centered on the implications of potential rifts within Mercosur, which was formed in 1991.

Mercosur works as a tariff-setting collective with the rest of the world. Uruguay has violated the unity of the group in seeking an independent deal with China. In exchange for lowering tariffs on beef exported to China, it will open the market to factory-made products made in China. Additional sales to Uruguayan ranches will come at the expense of beef producers in Brazil and Argentina.

Mercosur is widely viewed as falling far short of its goal of promoting a common market in South America. Putative plans for trade promotion have frequently been thwarted by politically powerful industrial interests in Brazil and Argentina. Both countries have managed to secure dozens of exemptions to keep their companies from competing with other countries in the region.

Still, many regional leaders have jointly put equity as the key to achieving prosperity and liberating the continent from its overdependence on extracting raw materials and growing commodity crops such as soybeans.

Mercosur’s advocates argue that the partnership is the only way for member states to build a common energy market, international highways and other infrastructure needed for manufacturing progress.

Mercosur also positions itself as an alternative to dependence on the United States.

“MERCOSUR is important and should be more important,” said former Argentine Economy Minister Martín Guzman. “I don’t think there’s a way out of continental stagnation unless through deeper integration.”

He criticized Uruguay’s pursuit of a trade deal with China as a threat to the bloc.

“It would be costly in the long run if everyone acted like that,” he said.

Uruguayan exporters preferred to focus on the potential profit: a huge crack in sales to China, a population of 1.4 billion.

Facundo Marquez focused on prospects for additional sales for his company, Polanco Caviar, which keeps sturgeon in cages on the Negro River in central Uruguay. Rising incomes have increased demand for caviar in China, but Chinese producers have been almost completely shielded from foreign competition.

No industry had more to gain than beef.

Uruguay exports about 80% of its beef, earning about $3 billion a year, according to the National Meat Institute, a government agency in Montevideo. But domestic beef producers face tariffs of 26% in the United States and more than 45% in the European Union as a result of using up small quotas.

So while China is clearly the focus, it has also sparked a biting debate about Washington’s refusal to negotiate a trade deal to open the U.S. to Uruguayan beef exports.

“The United States often talks about how it values ​​Uruguay’s democracy and human rights, but ultimately turns its back on America,” said Conrad Farber, director of the National Meat Institute. “That’s why we trade with China.”

Jorge González, who runs a slaughterhouse in the modest town of Lavalleja, is particularly fond of Chinese buyers who buy whole cows. European buyers are usually only interested in the best cuts that make up less than half the cow. Americans buy a little more and turn the less valuable cuts into hamburger meat. But in China, a variety of dishes such as hotpot are creating demand for even less valuable meat slices.

Gonzalez, 56, buys cattle from surrounding ranches and sends them down an assembly line where workers carve the animals into meat and then pack the pieces into boxes. He exports most of his produce worldwide on container ships. 70% go to China.

His factory has enough capacity to slaughter about 100,000 animals a year, about double what he currently handles. A trade deal with China would encourage local ranchers to produce more, he said.

González is hopeful that some kind of deal can still be reached with China, given Uruguay’s virtues as a food producer. The country has a large amount of open land and about four times as many cattle as its population, making it a convenient place to produce meat for export.

“The Chinese want a guaranteed supply of food,” Gonzalez said.

El Alamo Ranch is one of Gonzalez’s suppliers. So Cotterman and his family are betting on another side of the Chinese market: rising demand for premium beef.

Over the past five years, her ranch has invested heavily in growing its wagyu herd. Wagyu is beef originally raised in Japan and famous for its amazing marbling and tenderness. El Alamo pays González to slaughter the beef and sells the meat directly to Chinese buyers.

There are worse places for cattle than the rolling hills of a 14,000-acre ranch. Gauchos set off at dawn on stately horses, leading their cattle to green pastures surrounded by shady eucalyptus groves. On a recent morning, as the pale sun struggled through the fog, veterinarians checked which cows were pregnant.

Cottermann’s father, Raymond de Smet, fears South American politics are complicit in sabotaging the economy.

China is the future, he said. Mercosur is past.

“This is a dead duck,” he said of the alliance. “Without MERCOSUR, it would have been better if everyone was doing what they wanted to do.”

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