Uruguay’s president has sounded the alarm over rising trade protectionism in South America as the country battles to find new export markets in a bid to diversify its economy.
He singled out the Argentine government for criticism in the wake of its move to impose tariffs on hundreds of items and is examining the possibility of applying tariffs to another batch of 100 manufactured items.
The moves represent the most severe crisis facing the Mercosur, South America’s two-decade old trading bloc, he said.“Mercosur is in crisis,” Jose Mujica, said in wide-ranging interview with Emerging Markets in his presidential office on the eve of the IDB annual meeting.
“We export to the world, but value-added products we sell within the region,” he said. “This option is being closed by Argentina and we do not have the option to sell to other parts of the world. This is why it is so serious for us.”
Exports to Argentina fell precipitously in February, dropping to $25.8 million from $46.5million the same month last year. Exports to Argentina in 2011 totaled $587 million.
The Argentine government has moved to compel companies to sign agreements that they will invest in the country, use local products and hire new people in exchange for the new controls on foreign products. However, Mujica denied plans to impose tit-for-tat protectionism barriers were imminent – for now. “We have not touched trade directly, we have not established barriers. I cannot discard that this is something we might have to do, but it is not in our plans. We continue to purchase from Argentina without disruptions,” said Mujica.
The president highlighted the challenge of finding new export markets given the economy’s small size and location, vowing to remain within the trading bloc.
“Before we can make any important decision in Uruguay on this issue we need to be clear about what Brazil will do. There are people already calling for us to break from Mercosur, but where would we go, Antarctica?”
A growing market is Venezuela, which wants to join Mercosur but was blocked by a decision of the Paraguayan Senate.
Asked whether free trade agreements (FTA) with China and the US could boost the country’s export prospects, Mujica said: “A trade agreement between a country as large as China and one as small as Uruguay has implicit dangers. This does not mean that we cannot sign agreements that would be more practical, exchanging lists of goods.
He added: “I do not think that the cur-rent administration in Washington is interested in FTAs at this moment. And it would not resolve the problem we have right now.
Julio Velarde, Peru’s central bank president, said while protectionist measures were primarily affecting the Mercosur countries, they were also a stumbling block to efforts to create greater integration.
“We are talking about integration, about strengthening regional mechanisms, but at the same time there are increasing problems with trade barriers. It is does not make sense to talk about integration if there are still basic issues like trade on the table,” he said.