Uruguay will negotiate without Mercosur

Uruguay decided to take its distance from Mercosur by negotiating directly with third countries, escalating the disagreement with Argentina over the strategy of common external tariffs.

On July 7, Uruguay announced it would start negotiating independently with countries outside the Mercosur, despite a resolution from 2000 stating that members need to negotiate tariff agreements jointly.

The Uruguayan minister of foreign affairs justifies the decision by defending “the modernization of the bloc, through a substantive, agile, dynamic, flexible and permanent agenda of external negotiations.” The country wants to reduce the common external tariffs to ease trade with countries outside the bloc. Tariff reductions need a unanimous agreement from the state members. But Argentina doesn’t approve of Uruguay’s claims and wants to keep the trade tariffs higher to protect its economy.

Mercosur, for Southern Common Market in Spanish, is a South American trade agreement established in 1991. It set an internal free-trade market and built a stronger voice for negotiating with external parties. Founding members are Argentina, Brazil, Paraguay, and Uruguay. Venezuela’s membership was suspended in 2017 and several other Latin American countries, including Chile or Colombia, are associated with the Mercosur without being members. Bolivia, an associated member and in the process of joining Mercosur, said it would negotiate independently of Mercosur’s perimeter as well.

Uruguay is a long-time advocate for more flexibility to open its country to international commerce. However, it received little echo so far. But Brazil has been more inclined to open the gates. In March, it proposed reducing import tariffs, considering them outdated — they hadn’t changed since 1995 — and adapting to current standards. It didn’t receive unanimous approval. However, Argentina, which closed beef exports for a month to limit inflation of food prices, becomes more isolated.

Uruguay still claims to be part of Mercosur

Uruguay’s economy is relatively more stable than its Argentine neighbor, which faces staggering inflation and a debt overload. In the past, Uruguay suffered from its close ties with the Argentine and Brazilian economies, which faltered in the early 2000s.

During this crisis, the Argentines withdrew about a third of Uruguay’s deposits from bank accounts they had opened in what was often referred to as the Switzerland of South America. After a bank crisis in 2002, Uruguay recovered with 15 years of uninterrupted growth, a first for the country.

Earlier in March, during the 30^th anniversary of Mercosur’s creation, the disagreement between Argentina and Uruguay became more acute. The president of Uruguay, Luis Pacalle Pou, declared that Mercosur shouldn’t be a “ballast” or a “corset” for the country to move ahead. President of Argentina, Alberto Fernández, replied, “if we are a ballast, take another ship.”

In April, Uruguay advanced the possibility – unapproved — to negotiate directly with countries. It didn’t ask for repealing the obligation of a common consensus inside the bloc, though. The resolution ³²⁄₀₀, signed in 2000, mentions that member needs to “jointly negotiate agreements of a commercial nature with third countries” and that a member “may not sign preferential agreements that have not been negotiated by Mercosur.” Regarding the resolution, Uruguay considers that clause ³²⁄₀₀ is “not in force, since it was never internalized.”

Nevertheless, Montevideo, which hosts the headquarters of the trade bloc, claims to remain a full member of Mercosur.

The announcement came the day before a virtual summit between the presidents, marking the end of Argentina’s six-month presidency of Mercosur. The leadership will be transferred to Brazil.

Read more about Uruguay