How much does Uruguay depend on China: between commercial weight and geopolitical tension?

RIO DE JANEIRO, BRAZIL – “If the only option is to sell those products for a good price to China or not to sell them at all, what would I do? I sell,” said Uruguayan President Luis Lacalle Pou days ago during an interview with BBC when British journalist Stephen Sackur questioned him on whether there is not a risk in a country of 3.5 million inhabitants becoming “too dependent” on China.

“If I have a choice, I will not put all my exports in one country,” the head of state added, arguing that today there are no alternative markets for Uruguayan products.

How much do Uruguayan exports depend on China, and how have they evolved?

China is Uruguay’s first trading partner, appearing more consolidated in that position. Numbers are on the rise, and the relevance of the Asian giant’s participation can be seen especially in meat, the main product exported by Uruguay.

FTA AND HUMAN RIGHTS: DIFFERENT TRACKS

In this context, the Uruguayan government is seeking to advance a Free Trade Agreement (FTA) with China, an issue that has several points of tension. The negotiation had objections from Argentina and Brazil, its Mercosur partners.

On the other hand, the Asian government did not advance as fast as Uruguay had hoped in completing the pre-feasibility study.

But in addition, the move also comes at a time of growing tension between China and the United States, where every signal towards Xi Jinping is subject to the scrutiny of the Western powers.

In the BBC interview, Sackur also pointed to Lacalle Pou’s closeness to a regime that violates human rights.

“At the UN, for example, we had meetings, and obviously, we don’t line up in the same place with China. And they know what we think,” said the Uruguayan president, pointing out that politics and trade were on different tracks.

The Uruguayan president stated on different occasions that he considers “a false dichotomy,” a positioning closer to one than the other between the U.S. and China, even though he was also reiterative in remarking that Joe Biden’s administration should “look” more towards South America.

“If you run behind China, I don’t think it’s the best way to generate a more fluid relationship,” he said about the United States in June 2021 during an interview with Atlas Network.

Meanwhile, at the beginning of April of this year, the ruling party’s congressman Ope Pasquet, president of the House of Representatives, suggested “discussing” and “reconsidering” whether it is convenient for Uruguay to move forward with a trade agreement with China, after Russia’s military operation in Ukraine.

“It is clear that, in this new international scenario, an FTA between Uruguay and China would not mean the same as it would have meant two years ago. The world has changed and not for the better,” he stated on April 7 in a letter to the weekly Búsqueda in which he remarked on the “friendship without limits” between Moscow and Beijing.

In an interview with Bloomberg Línea, the director of the Institute of International Business of the Catholic University of Uruguay, Ignacio Bartesaghi, stated that in the current context, “nobody says no to a market that buys so voraciously”.

He pointed out that the entry of new products to the Asian giant and opening other destinations should be sought. In political matters, the analyst considered that “of course” China has interests, but that in the same way, Uruguay must “explain” clearly its position before the West.

TRADE FIGURES

In 2021, Uruguay had a record year of placements of goods abroad for US$11.6 billion, of which US$3.3 billion (28%) went to China, according to the annual report of Uruguay XXI, the agency in charge of promoting foreign trade.

Taking the total exported to China from January to December during the previous year, 45% was beef, 13% cellulose, and 12% soybeans, said the official document on the last closed year.

The trend shows that 2022 is on the way to breaking again the maximum value reached since, given the high prices registered, US$5.6 billion have been exported in the first five months of the year, 40% more than in the same period of the previous year.

Of this figure, some US$1.2 billion (22%) went to China, according to figures processed by Bloomberg Línea based on Uruguay XXI reports.

But the impact of the Asian giant is above all and increasingly more predominant in the meat sector, the star product of Uruguayan exports.

Taking into account only meat exports in 2021, according to data from the latest yearbook of the National Meat Institute, 60% went to China, 12% to the United States, Mexico, and Canada, and 11% to the European Union.

The previous year’s level in percentage was similar to 2019, the pre-pandemic level, but in turn, has been increasing over the past few years. In 2016, China accounted for 36% of meat placements measured in millions of dollars. In 2012, it was 9%.

In soybeans, the trend reversed in recent years, according to Uruguay XXI data. While in 2019, China accounted for 79% of placements, in 2020, it was 64% of the total, and last year 45%.

The change is mainly explained by the growth of Egypt, which went from receiving 5% of exported soybeans in 2019 to 39% in 2021.

One of the points that also enters into the analysis of the situation is whether China will sustain its level of demand in a situation of lower economic growth.

On May 30, economist Aldo Lema addressed in a column published in El País the relevance of China’s performance in the region and pointed out that although a “widespread deceleration” is not expected, “an exuberant recovery” will not occur either.

“More than the impact of Russia’s military operation in Ukraine, the world negatively affected the region because of the shift towards less expansive financial conditions from the United States, but above all because of the slowdown experienced by the Chinese economy,” explained Lema.

“THE MOST IMPORTANT ATTRACTION”

Uruguayan meat products access China without quotas and have relatively low tariffs compared to barriers in other markets, 12% for most of its products.

In any case, the beef and sheep meat chain registered a record payment of US$337 million for tariffs in 2021, 55% of that money was in China, according to Uruguay’s National Meat Institute (INAC) data.

Although he highlighted the current prices and the level of placements, the president of the Rural Association of Uruguay, Gonzalo Valdés, pointed out “certain risks” involved in placing most meat products in a single destination, as he said on May 26 at a luncheon before businessmen.

He also pointed out that work must be done on tariff reduction since direct competitors such as Australia are in the process of tariff reduction.

Uruguay’s dependence on China was also analyzed on May 20 by three senior executives of Uruguayan meat packing plants during the conference “La industria responde” (The industry responds) held at La Rural del Prado.

Marcelo Secco (Marfrig Uruguay), Alberto González (Las Piedras), and Daniel de Mattos (BPU-NH Foods) expressed confidence that China will continue to be the great axis of Uruguayan beef exports, even though they recognized the need to diversify into more markets, for which they pointed to other Southeast Asian countries.

“Undoubtedly, it will continue to be the most important attraction for Uruguay. We have to look at other markets in Asia, no doubt we have to, and try to diversify that basket of markets. Undoubtedly, it is possible. There are other markets with low tariffs or even some with zero tariffs in Southeast Asia,” said De Mattos during an activity organized by the Rural Association of Uruguay, the newspaper El País and Radio Carve.

Secco said that China “is a market that is here to stay,” although he warned that it might process price adjustments at present. And González was optimistic that consumption levels would be maintained.

Both Secco and De Mattos said that the pandemic outbreak prevented companies from knowing firsthand the latest changes in Chinese consumption due to the impossibility of traveling and “walking” that market. Still, they bet they will be able to move forward with this task in the short term.

With information from Bloomberg