The news that Uruguay is seeking a trade deal with China is cheering at El Alamo Ranch, a lush area of grass surrounded by cactus and herds of cattle on Uruguay’s eastern plains.
Most of the cattle are shipped to buyers in China, where they face tariffs of 12 percent – more than double the rate applied to meat from Australia, China’s biggest exporter of beef. Cattle farmers in New Zealand, the second largest exporter, enjoy duty-free access to China.
“Bring the trade deal,” said Jasja Koterman, who runs the family-owned farm. “That will level the playing field for us.”
But the enthusiasm in this South American country has recently given way to resignation that a trade deal with China is unlikely to happen in the near future. What was seen as a new opportunity for Uruguay has turned into a cautionary tale of the pitfalls of trade policy for smaller countries grappling with complex geopolitical realignments.
Uruguay’s President Luis Lacalle Pou has put his economic legacy on the line to secure a trade deal with China. He announced the start of formal talks last July, saying “we have every intention of getting it done.” China is ready to negotiate a bilateral agreement with Uruguay.
But Uruguay’s aspirations have provoked anger and recriminations in neighboring Brazil and Argentina, as well as what is seen as economic retaliation. Along with Uruguay and Paraguay, they belong to Mercosur, an alliance formed more than three decades ago to promote regional commerce.
Brazil has sidelined Uruguay in recent months by pursuing a comprehensive trade deal with China.
Brazilian President Luiz Inacio Lula da Silva said, “We want to sit down as MERCOSUR and discuss the MERCOSUR-China agreement with our Chinese friends.” travel to uruguay in january Capital, Montevideo.
In April, Mr. Lula traveled to China, where he received the red carpet treatment, including a meeting with the country’s top leader, Xi Jinping.
Mr. Lula said, “No one will stop Brazil from improving its relations with China.”
Whatever interest the Chinese government had in reaching a settlement with Uruguay, it soon turned its attention to Brazil, a calculation based on basic arithmetic: Uruguay is a country of 3.4 million people, while Brazil is South America’s largest economy with 214 million. is the house of
Yet despite the Brazilian President’s interest in a trade deal, the prospects for an agreement between MERCOSUR and China appeared to be between minimal and negligible.
Mercosur, a notoriously slow-moving organization plagued by internal strife, has spent more than 20 years trying to complete negotiations on a trade deal with the European Union. And one of its members, Paraguay, has no ties with Beijing, instead maintaining ties with Taiwan. This alone made the prospect of an agreement between MERCOSUR and China almost impossible.
All of this raised the possibility that Uruguay could be harmed by its dealings with its neighbors while receiving no economic benefit.
“Uruguay is being used as a leverage chip by China to negotiate with Brazil,” Ms. Cotterman, who oversees the El Alamo ranch, said as the full moon cast a silvery sheen on the grass.
Uruguay’s reach for a trade deal with China extended far beyond the final destination of its cows. Its government was trying to rework the terms of engagement with the rest of the world, distancing the country from the legacy of trade protectionism prevalent in South America’s largest economies.
It clearly saw China as a counterweight to the dominance of the United States in the hemisphere.
Trade unions protested the prospect of the deal as a threat to high-wage factory jobs, while politicians – some from the ruling coalition – denounced the president’s alliance with China as a risk to national security .
But the biggest source of concern centered on the consequences of a possible breakup within MERCOSUR, which was formed in 1991.
Mercosur acts as a collective to set tariffs with the rest of the world. In trying to negotiate its accord with China, Uruguay was violating the solidarity of the group. It would open its markets to Chinese-made factory goods in exchange for lower tariffs on beef exported to China. The extra sales to farms in Uruguay would be at the expense of beef producers in Brazil and Argentina.
Mercosur is widely seen as falling far short of its goal of catalyzing a common market in South America. Its stated plans to promote trade have often been blocked by politically powerful industry interests in Brazil and Argentina. Both nations have been able to secure dozens of exemptions that have shielded their companies from competing with others in the bloc.
Still, many regional leaders place stock in cooperation as a key to achieving prosperity and freeing the continent from its reliance on mining raw materials and growing commodity crops such as soy.
Mercosur’s champions say the alliance is the only way for its members to build a common energy market, international highways and other infrastructure needed to advance manufacturing.
Mercosur has also presented itself as an alternative to dependence on the United States.
“Mercosur is important, and it should be more important,” said Martin Guzmán, Argentina’s former economy minister. “I don’t see a way out of the problem of continental stagnation if it is not through deeper integration.”
He criticized Uruguay’s pursuit of a trade deal with China, calling it a threat to the bloc.
“If everyone behaves like this,” he said, “it will have long-term costs.”
more cows than humans
Uruguayan exporters preferred to focus on the potential profits – a major blow to sales in China, home to 1.4 billion people.
Facundo Marquez focused on the additional sales potential for his company, Polanco Caviar, which raises sturgeon in cages in the Negro River in the center of Uruguay. Rising incomes in China have fueled an appetite for caviar, but Chinese producers have been almost completely shielded from foreign competition.
No industry has benefited more from beef.
According to the National Meat Institute, a government agency in Montevideo, Uruguay exports about 80 percent of its beef, earning about $3 billion a year. But the country’s beef producers face tariffs of more than 26 percent in the United States and 45 percent in the European Union after small quotas expire.
That has apparently turned the focus back on China, while fueling bitter talk that Washington has refused to negotiate a trade deal to open Uruguayan beef exports to the United States.
“The United States talks a lot about how it values Uruguay’s democracy and human rights, but at the end of the day they turn their backs on us,” said Conrado Ferber, president of the National Meat Institute. “That’s why we’re doing business with China.”
Jorge González, who runs a slaughterhouse in Lavalleja, a modest town, is particularly fond of Chinese buyers because he buys whole cows. European buyers are generally only interested in the head part of the cow which is less than half of the cow. Americans buy a little more, turning the less valuable pieces into hamburger meat. But in China, a wide variety of culinary offerings, such as hot pot, also creates a demand for thinly sliced portions of less valuable meat.
Mr. Gonzalez, 56, buys cattle from surrounding ranches and sends them to an assembly line where workers carve the animals into meat and put the cut pieces into boxes. It exports most of its production around the world by container ship. Seventy percent goes to China.
His plant has enough capacity to kill about 100,000 animals per year, which is almost double the number of animals he currently handles. He said that the trade agreement with China would motivate the local livestock farmers to produce more.
Mr. Gonzalez is hopeful that some sort of deal can still be reached with China, given Uruguay’s strengths as a producer of food. The country has vast open spaces and almost four times more cows than people, making it a useful place to produce meat for export.
“The Chinese are looking for a guaranteed supply of food,” Mr. Gonzalez said.
El Alamo Ranch is one of Mr. Gonzalez’s suppliers. There, Ms. Cotterman and her family are betting on another aspect of the Chinese market: a growing appetite for premium beef.
Over the past five years, his farm has made significant investment in producing a growing herd of Wagyu – cows originally raised in Japan that are renowned for their exceptional marbling and tenderness. El Alamo is paying Mr. Gonzalez to kill its Wagyu, and selling the meat directly to buyers in China.
There are worse places for a cow to live than the rolling hills of a 14,000-acre farm. The gauchos set out at dawn on royal horses, leading the cows to green pastures surrounded by shade trees of eucalyptus. On a recent morning, as the faint sun was trying to pierce the haze, a veterinarian checked to see which cows were pregnant.
Ms. Cotterman’s father, Raymond de Smedt, fears that South America’s politics are plotting to destroy the economics.
According to him, China is the future. Mercosur is the past.
“It’s a dead duck,” he said, referring to the alliance. “We would have been better off without MERCOSUR, and everyone would be doing what they want.”