US should forge deeper partnership with Uruguay

Uruguay is a good news story in a region plagued by social, economic and political challenges. A small country of 3.5 million people, Uruguay is the leading democratic country in Latin America, according to the latest ranking by The Economist. Uruguay also enjoys high scores for respecting its population’s political rights and civil liberties. The United States is Uruguay’s fourth largest trading partner, mainly involving agricultural purchases. The country is currently led by a moderate government that could get more attention from the Biden administration.  China is engaging more aggressively in Latin American and is ready to meet the needs of many countries: digital connectivity, vaccine supply, trade and — possibly — security. If the United States does not find better ways to engage with the region, even with small but vibrant economies like Uruguay, China will fill the void.

Historically, Uruguay’s open trade policies have largely helped it develop one of the most stable and advanced economies in the region. Uruguay scores very high on the economic freedom score, well above the global and regional average (i.e. it is ranked 5th among 32 countries in the Americas region). As a result, the country boasts the largest middle class in Latin America, accounting for 60 percent of its population.

The election in 2020 of President Luis Lacalle Pou of the center-right National Party was a welcome change and a needed political shift after more than a decade of tired, left-leaning governments. His administration brought more energy to regional challenges, for example, when he publicly denounced the governments of Cuba, Nicaragua, and Venezuela for their authoritarianism during the 2021 Summit of the Community of Latin American and Caribbean States (CELAC). His criticism of the Cuban leader, Miguel Díaz-Canel, went viral. President Lacalle Pou’s courageous stand puts him in the first ranks of democratic leaders not just in the Western Hemisphere but also in the world. Uruguay is an increasingly engaged global player in international affairs, for example ranking in the top 20 contributing states to the United Nations peacekeeping force.

Within the region, Uruguay is a founding member of the Latin American trade bloc, MERCOSUR (i.e the Southern Common Market). Uruguay is looking for ways to reshape MERCOSUR and develop new partnerships including with the United States. Despite being a founding member of MERCOSUR, the bloc’s protectionist policies and lack of value-added supply chains have made it hard for any impactful trade agreements outside of MERCOSUR. This has resulted in Uruguay demonstrating interest in pursuing economic relationships outside the bloc.

Among such engagements stands China, which has become Uruguay’s top buyer of goods.  Uruguay also joined the Belt-and-Road initiative in 2018, with the promise of completing projects like water ports, highways, and railroad infrastructure. Chinese companies have been involved in petroleum, mining, and agriculture. Uruguay has been negotiating a TFA with China since 2021, but a bilateral trade agreement would go against MERCOSUR’s current rules. Uruguay is looking for ways to renegotiate MERCOSUR’s rule regarding bilateral trade restrictions; if successful, Uruguay could become the “front door” of economic integration between China and the four Mercosur economies, allowing China’s influence in the region to potentially increase.

Like many of its Latin neighbors, Uruguay’s economy was significantly hit by the COVID-19 pandemic, with its GDP contracting 6.1 percent in 2020. Partly due to an effective vaccination campaign, its economy bounced back in 2021, registering 4.4 percent growth in 2021; however, half of Uruguay’s vaccines came from China, partially because China was willing to move quickly to offer them. With help from China and the West, Uruguay achieved an 82 percent vaccination rate.

There are many areas of opportunity where Uruguay and United States could pursue a deeper economic engagement. Technology is one such sector. The United States has purchased Uruguayan IT services, buying $655 million of Uruguayan IT exports in 2019. Financial technology or FinTech industries have proliferated during the pandemic. Uruguay’s emerging technology sector is going to be a big part of the country’s future.

Another sector that has good potential is pharmaceuticals. Uruguay has a highly qualified workforce, excellent infrastructure and a strong intellectual property rights regime. Uruguay should be a major pharmaceutical hub and could be a country that the world turns to produce massive amounts of high-quality vaccines to confront a future global pandemic (yes, sadly, there will be another one at some point). This could be an area for public-private partnership.

Uruguay is a politically and financially stable country, creating a safe, and low-risk climate for foreign investment. As such, more than 120 U.S. owned companies operate in Uruguay. Uruguay and the United States also have signed several mutual agreements including the Open Skies Agreement, the Science and Technology Agreement, a Customs Mutual Assistance Agreement, and a Memorandum of Understanding Renewable Energy and Energy Efficiency. The latest TIFA agreement between Uruguay and the United States included discussions on high labor standards and the importance of environmental protections – Uruguay affirmed improving trade facilitation, regulatory practices, anti-corruption, and digital trade.

Uruguay has the stability, marketability, and credibility to be a global value chain contributor in the context of “near shoring” or “allied shoring.”

Given the lack of a free trade agreement with the United States, Uruguay is not in the first tier of countries that is mentioned in discussions about near shoring. Uruguay’s current arrangements with MERCOSUR are getting in the way. Sooner or later, the issues with MERCOSUR will be addressed.

Like Ecuador, Uruguay would like a free trade agreement with the United States; however, the Biden administration has not expressed interest in pursuing such a deal anytime soon. Republicans — in partnership with free-trade Democrats and Democrats who care about the hemisphere — should work together to ensure that Uruguay and Ecuador join the short list of countries that the Biden administration is contemplating for free trade agreements during its first term.

Daniel F. Runde is a senior vice president and William A. Schreyer chair in Global Analysis at CSIS. He previously worked for the U.S. Agency for International Development, the World Bank Group, and in investment banking, with experience in Africa, Asia, Europe, Latin America and the Middle East.

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