SILK ROAD TO LATIN AMERICA!!

Latin America (LATAM) has been the playground of bigger powers jostling for influence for its riches and resources. LATAM continued to be inextricably linked to Europe and the U.S. throughout a substantial chunk of the 19th and 20th centuries, depending upon the balance of power on the oceans. In the multipolar 21st century, this equation has undergone a significant transformation. While the U.S. still regards LATAM as its backyard, the region is being courted by a wide range of foreign actors, spanning Beijing and Tokyo to New Delhi and Tehran. None, however, has had a more significant influence than China.

While negotiations between Uruguay and China have been going on since September 2021, the curtain was formally raised in July when China’s Ministry of Commerce confirmed that both countries were close to concluding a Free Trade Agreement (FTA). Even Uruguay lawmakers were caught by surprise by this announcement and called upon the government to make public the road map of the deal.

Background

Uruguay provides the best example of Chinese outreach into the region. A trade agreement between Beijing and Montevideo offers an economic breakthrough that could be mutually beneficial. This marks the culmination of a long-standing effort on the part of Beijing to strengthen its commercial ties with the developing nations of South America, mainly to tap into the region's commodity and energy resources. Calling the deal a path-breaking one that will galvanise Uruguay's exports of advanced products, cutting-edge technology and raw material, President Luis Lacalle Pou was upbeat about it.

Even still, Uruguay's readiness to seek trade agreements independently of the other Mercosur members (the Southern Common Market with Argentina, Brazil, Paraguay, and Uruguay as its primary members), raised eyebrows in the region. Because Mercosur was initially designed to be a customs union, it often negotiates trade deals together. Mercosur resembles a free trade zone more than a union since it lacks a uniform tariff or a coordinated trade policy. Contrarily, Argentina has aggressively opposed Uruguay's trade policy, which has resulted in heated discussions in Mercosur summits.

Uruguay was the pioneering participant in the Chinese Belt and Road Initiative (BRI) in South America. The regional markets' decline compelled Uruguay to look for new commercial partners.

Mercosur disagreed with Uruguay's choice to sign an FTA with China. All bilateral agreements between members of Mercosur must go through the consortium. Other Mercosur countries, except Brazil, are concerned about introducing cost-efficient Chinese goods through the Uruguayan market. Uruguay, however, is obstinate in progressing the FTA.

China's presence in Latin America grew with its entry into the World Trade Organization (WTO) in 2001. According to the World Economic Forum, the trade between China and the Latin American and Caribbean regions increased 26-fold between 2000 and 2020, from $12 billion to $315 billion. The exponential trade growth made China the region's biggest trading partner surpassing the U.S.

Since 2013, twenty South American countries have become part of the BRI project. In the past two decades, Chinese banks have offered more than USD140 billion in loans to South American countries. China's import of petroleum, copper, soybeans, pork, and oil from the region has remained consistent due to its gro.w.ing domestic needs. China provided almost 300 million Sinovac shots to South America during the pandemic, becoming the first country to do so.

In the post-covid era, in addition to economic stagnation, governments in Latin America are struggling to keep up with the mounting expenses of climate change. Their increasingly disappointed populace has become more agitated as there is no job creation.

Analysis 

One would wonder why China is interested in a free trade pact with a nation whose economy pales compared to its own. Despite the discrepancy, Beijing may believe obtaining an additional source of agricultural products and other raw materials is worthwhile. It might also view a settlement with Uruguay as a drive toward eventually settling with the rest of Mercosur, even if it still seems doubtful.

First, Paraguay has no diplomatic relations with China due to its close links to Taiwan. Second, an agreement with the European Union has been in limbo for a while, and Argentina has been reluctant to participate in Mercosur free trade talks. Three, Bolsonaro in Brazil has somewhat softened his stance toward China, but it is still unknown how his policies will impact the nation's economy. Additionally, considering it has agreements with Chile, Costa Rica, and Peru, it may consider negotiations as part of an enormous effort to expand its presence in Latin America.

U.S. ties with Latin America run deep, to the extent that they had dominated trade and politics throughout the 20th century. However, South America has recently become a flashpoint in the superpower competition. It is interesting to note that China has gained influence not by using sticks but by deftly tossing carrots. The largest economy in the region, Brazil, saw an increase in bilateral trade with China from $2 billion in 2000 to $100 billion the year before. Additionally, since 2007, China has offered Argentina credit totalling over $17 billion.