As announced on 13 July 2022 by Uruguayan President Luis Lacalle Pou, Uruguay and China have decided to enter formal negotiations on a free trade agreement (FTA).

President Lacalle Pou said in a press conference that the FTA feasibility study initiated jointly with the People’s Republic of China in September 2021 had concluded with a favorable opinion and that formal negotiations with China will begin in the next few days.

While the Uruguayan president said that the government’s idea is to move towards the conclusion of an FTA with China in conjunction with Mercosur, he made it clear that Uruguay is not willing “to stand still”, implying that ultimately the country could negotiate and eventually conclude an FTA with China individually.

Despite the fact that Uruguay is a member of the Southern Common Market (Mercosur), Lacalle Pou expressed his belief of the fact all international law and treaties ratified by Uruguay provide the country with leeway to enter into negotiations with other countries.

The conclusion of an individual agreement between Uruguay and China would reopen the debate on Common Market Council Decision 32/00, which would prevent Mercosur member states from negotiating individual agreements with third countries.

However, Uruguayan media indicated that, according to a legal report prepared by the Uruguayan government in early 2017, Decision 32/00 would be a decision of a “mere declaratory” nature that Uruguay could circumvent without legal consequences. 

According to the report in question, that rule is neither in force nor enforceable for the States Parties since it was never incorporated into the legislation of the countries of the bloc, and therefore Uruguay has a legal basis to seek trade alliances outside Mercosur.

Furthermore, the report would indicate that Decision 23/00 would have to be previously approved and ratified by the Uruguayan Parliament, in accordance with Constitution provisions, since it would impose limitations and restrictions to the Uruguayan State in the exercise of its commercial sovereignty.

Moreover, the report would refer, as an example, to the freedoms Uruguay had to negotiate the FTAs with Chile and Mexico, without the need for a resolution by Mercosur or its partners.

In line with this position, Uruguay’s Foreign Minister, François Bustillo, stated last year that Argentina’s veto would not prevent the entry into force of an eventual agreement with China.

On that basis, in July 2021 Uruguay informed its Mercosur partners that it would start negotiating trade agreements with third countries.

It is striking that after so many years the partners have not sought to settle the issue definitively by submitting it to the decision of an impartial tribunal, such as the constitution of an Ad Hoc Arbitral Tribunal, as provided for in Article 9 of the Brasilia Protocol of 17 December 1991 or, more simply, by requesting an Advisory Opinion from the Permanent Review Tribunal which, although it is not binding, allows obtaining the genuine interpretation of Mercosur law from the most appropriate body for this purpose. In the event that Uruguay finally concludes an FTA with China, it is very likely that the other partners will resort to the arbitration procedure.

The Argentine government has been the strongest opponent of the Uruguay-China FTA initiative, while Brazil and Paraguay seem more willing to relax Mercosur rules.

According to an analyst and consultant in international business, the problems within the block would arise from the high tariffs that Mercosur has, which average 13% for imports, when in the world the average is 5%. So Uruguay and Brazil are reacting against that. The difference is that Brazil is pushing for agreements as a bloc and Uruguay would ultimately be willing to negotiate on its own.

International media and analysts agree that the summit of heads of state of the Mercosur member countries scheduled for July 21 this year in Asunción will be transcendental in that sense, if it finally takes place, as, in addition to the integration agenda, the presidents are expected to discuss the bloc’s external relations, negotiation scenarios and their immediate prospects.

Some media have recently pointed out the possibility that the summit may finally be suspended, due to serious differences on this issue, in addition to the firm decision of Brazilian President Jair Bolsonaro not to attend.

According to media reports, Lacalle Pou has prepared a series of legal, political and economic arguments to justify his negotiation of an FTA with China including, among others, that:

- Mercosur is stagnant and does little to help Uruguay’s economic growth;

- Article 8 of the Mercosur Treaty would allow Uruguay to negotiate an FTA with China;

- Paraguay concluded a special agreement with Taiwan and there were no objections;

- Argentina and Brazil concluded an agreement on the automotive industry that is outside of Mercosur; and

- Uruguay will submit the FTA with China to Mercosur for consideration before its final agreement and would propose Argentina, Brazil and Paraguay to join. 

On the other hand, the completion of the feasibility study was also confirmed by China’s Ministry of Commerce Spokeswoman Shu Jue Ting, who also stated that the Chinese government is “open to negotiating free trade agreements with other Mercosur members and in general”.

According to media reports, the director of the Chinese Foreign Ministry for Latin America and the Caribbean, Cai Wei, will be arriving at Montevideo on 23 July, one day after the end of the Mercosur summit.

As reflected by various South American media, including La Nación of Argentina [see here], diplomatic sources have reportedly revealed that, in its negotiations with Uruguay, Beijing prefers to remain cautious “so as not to clash” with the other members of the regional bloc.

On the contrary, China would prefer to negotiate an FTA with Mercosur as a bloc, as it considers it a more efficient mechanism, despite the fact that the Chinese government’s proposal in recent years for an FTA with Mercosur never materialized. 

TAO will follow these negotiations very closely as further developments are expected very soon, as the Summit of Presidents of Mercosur Member States is taking place this week.