Meetings of the presidents of South America’s Mercosur alliance were usually quiet affairs — until Uruguay decided to “open up to the world” under its pro-business leader Luis Lacal Pou.
Since taking office in March 2020, working diligently to negotiate new trade deals outside the regional bloc, Lacalle Pou’s ambitions are at odds with other Mercosur members who are moving closer to Uruguay as political alliances shift.
Such tensions were on display at the Mercosur summit in the Uruguayan capital Montevideo in December. The news that Uruguay had already applied to join the Trans-Pacific Partnership (TPP) 11-nation trade alliance, which includes Australia and Japan, on its own a few days ago led to accusations of foul play and unsportsmanlike tactics. This follows separate bilateral trade talks with China and Turkey earlier this year.
“Uruguay has to choose whether to be with Mercosur,” Argentina’s Foreign Minister Santiago Cafiero told the Financial Times on the sidelines of a summit earlier this month in which Uruguay handed over the Mercosur presidency to Argentina. “If a party decides something without consensus, it violates a fundamental rule of Mercosur,” he added.
Along with Argentina, Brazil and Paraguay, Uruguay forms the Mercosur partnership, a three-decade-old customs union in which no individual country is allowed to negotiate preferential agreements with third parties.
But some experts have described the protectionist alliance as one of the “least effective” of its kind worldwide, both in terms of trade between its members and with external partners. It has also struggled to finalize a free trade agreement with the EU, entering its 24th year.
This delay and frustration is one of the factors driving Montevideo’s mission to explore opening up to foreign markets only. Mercosur can no longer be run “with the mindset of the early 1990s”, Lacalle Pou said, or stop the member’s economic progress.
Chile, Colombia, Peru and Mexico have looked to the Pacific region to expand trade with Asia. All have joined the TPP except Colombia, while Mercosur has floundered.
The three other Mercosur members have called for regional unity, threatening to punish Uruguay with a series of undisclosed measures if it continues to pursue trade deals on its own.
Critics describe the threat as intimidation against the smaller country, as it has sparked real debate about restructuring the alliance, which could eventually lead to a breakup. Argentina and Brazil account for nearly 90 percent of the bloc’s GDP, giving them more leverage in negotiations. Some say the two major countries are simply using Mercosur as a trade shield to protect their industries from global competition.
Uruguay’s foreign minister says the country wants to modernize rather than break away from the bloc, which represented about a third of Uruguay’s total trade in 2022. “My country has not taken and there will be no action that could be interpreted as Uruguay contributing to the end of Mercosur,” Minister Francisco Bustillo told his guests during the summit.
Lacalle Pou has defended his country’s actions. He claimed that the decision to lower the common external tariff, which was applied to goods from outside the bloc in September 2022, was made between Brazil and Argentina, and there was no consensus between the partners. “Since we are talking about football, I would like to see VAR to know who really broke the rules,” the president told delegates in Montevideo as the World Cup got under way in Qatar.
Last week, the Uruguay-China Chamber of Commerce reiterated its support for moves by the Uruguayan government to deepen trade relations between the two economies, saying that “advancing” the FTA with China was “central” to their strategy.
Ignacio Bartesaghi, a professor of international relations at the Catholic University of Uruguay, said the Uruguayan government’s mistake had been “doing too many deals at once,” worrying members amid political changes in Brazil that will inevitably affect the group’s dynamics.
From January, the leftist Luiz Inacio Lula da Silva takes over the presidency of Brazil. Outgoing leader Jair Bolsonaro was an ally of Lacalle Pou and, to a lesser extent, Mario Abdo Benitez of Paraguay.
Bolsonaro did not prioritize regional coordination. Instead, he saw Uruguay as a tool to change Mercosur’s border structure in favor of his conservative government — giving neighboring Uruguay “breathing room” to make progress with China and other partners, according to one Brazilian diplomat. Bolsonaro’s outgoing finance ministry even pledged support for Lacalle Pou’s efforts to make Mercosur more flexible, defying the foreign ministry in a rare declaration after the December summit.
Lula may have other ideas. He has already emphasized that greater Latin American integration and multilateralism will be critical to his administration’s foreign policy. His term also marks the first time in four years that the largest Mercosur countries, Brazil and Argentina, have been politically aligned under left-wing leaders.
“Lula thinks like us, that we have to strengthen Mercosur and we have to do deals [Americas] in the region,” said Argentina’s Cafiero.
Nicolas Saldias, a Uruguayan regional analyst at the Economist Intelligence Unit, said it was a “risky move” by Montevideo to continue ongoing international deals amid heightened political uncertainty: “They don’t know what Lula will do . . . and what he will say Brazil, is more important than Buenos Aires Because of his diplomatic power, Saldías did not expect Uruguay to be kicked out of Mercosur or punished.
Bartesaghi suggested that Uruguay’s commercial ambitions might not be lost. Lula strongly supports promoting trade, particularly with China, which remains Brazil’s biggest buyer. During Lula’s previous two terms as president in the early 2000s, Brazil became a member of the Brich bloc with Russia, India and China, which became an important instrument of global cooperation.
“Lula may want to lead the China talks himself,” Bartesagi said. “Lacal now has to convince him to do just that” regarding Mercosur.