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Uruguay wants to speed up trade talks with China, Mercosur, puts pressure on Paraguay

Taiwan ally Paraguay prized target for Chinese for free trade deal

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Chinese President Xi Jinping and Uruguayan President Luis Lacalle Pou reach to shake hands during a signing ce...

Chinese President Xi Jinping and Uruguayan President Luis Lacalle Pou reach to shake hands during a signing ce...

BEIJING, Nov 23 (Reuters) - Uruguayan President Luis Lacalle Pou said he wanted to "accelerate" negotiations over a free trade agreement between Uruguay, China and the Mercosur trade bloc while meeting China's Premier Li Qiang on Thursday, according to Chinese state media.

China, the world's second-largest economy, is already a major investor in South America, and has offered tariff-free access to its huge consumer market to four countries.

But a free trade agreement (FTA) with Mercosur would be a prize worth pursuing for Beijing as it could pressure Paraguay, the last remaining South American country with ties to Taipei, into reconsidering its links with Taiwan, which China considers part of its territory.

Lacalle Pou first proposed a FTA with China in 2021 to secure similar opportunities for its exporters as those enjoyed by Chile, Costa Rica, Ecuador and Peru, but faces opposition from fellow Mercosur members Argentina, Brazil and Paraguay who want to settle an FTA with Europe instead.

"Uruguay is firmly committed to close relations with China and active participation in the Belt and Road Initiative (BRI)," Lacalle Pou said, according a readout of the meeting in state media, "and is willing to... accelerate establishing a FTA between Uruguay, Mercosur and China."

China received 27% of Uruguay's exports in 2022, United Nations COMTRADE data shows, while Brazil purchased 17% of its outbound shipments, and Argentina and the United States 6% each.

On Wednesday, China and Uruguay upgraded their bilateral ties to a "comprehensive strategic partnership," elevating Montevideo's ties with Beijing to those of Argentina and Brazil.

The elevation of ties puts pressure on agriculture-dependent Paraguay, whose main exports include beef and soybeans, and which does not have ties with Beijing.

Li said China and Uruguay should: "take the signing of BRI cooperation documents as an opportunity to promote a continuing increase in bilateral trade."

Last November, Argentina, Brazil and Paraguay warned Uruguay that they could take "measures" against it if it forged ahead with its plans to unilaterally negotiate an FTA with China.

The South American country has also applied to join a major trans-pacific free trade pact that China also aspires to join, but both Montevideo and Beijing must overcome significant political hurdles before they can accede to the agreement.

At present, Uruguayan beef, which constituted 67% of the South American country's exports to China in 2022, according to COMTRADE data, is subject to a 12% tariff.

By comparison, other major beef exporters Australia and New Zealand, which have FTAs with China, pay tariffs at 3.3% and 0%.

Under the Mercosur "Common External Tariff," Chinese exporters must pay tariffs at 9%, should they wish to export to Uruguay.

Uruguay came close to signing an FTA with the United States in 2006, but its government at the time eventually rejected the deal over fears of expulsion from Mercosur if it did so.

According to a study conducted by the National Meat Institute of Uruguay in 2021, if China signs an FTA with Uruguay, the meat industry can implement a 0% preferential tariff, which will reduce tariffs by $150 million.