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The Rise of Yuan: Uruguay’s Strategic Move to Strengthen Trade with China

ChinaThe Rise of Yuan: Uruguay's Strategic Move to Strengthen Trade with China

In a bid to strengthen trade ties with China, businesses in Uruguay are increasingly turning to the yuan as a preferred currency for settling transactions, according to the acting consul general of Uruguay in Guangzhou. Facundo Fernandez Guerra, speaking at a China-Latin America private sector forum in Dongguan City, emphasized the convenience of using the yuan, particularly as China’s influence in global trade grows. With approximately one-third of Uruguay’s overall exports reaching the Chinese market, adopting the yuan as a trade currency appears to be a logical choice.

Fernandez Guerra affirmed the Uruguayan government’s willingness to explore various currency exchanges and facilitate business between the two countries. He acknowledged that using a specific currency ultimately rests with businesses. However, he emphasized that the government is actively working to simplify trade processes and make them more efficient.

Highlighting Uruguay’s commitment to openness and free currency trade, Fernandez Guerra pointed out that the country does not impose any restrictions on currency and trade exchanges, making it an ideal destination for business ventures. This aligns with Uruguay’s approach towards major currencies such as the US dollar, peso, and euro.

Uruguay’s neighboring countries, Brazil and Argentina, have also taken steps towards embracing the yuan in trade settlements. Brazil agreed with China’s central bank in February to accept trade settlements and investments in yuan. In April, Argentina announced its intention to pay for Chinese imports worth US$1.04 billion in yuan, followed by monthly payments of US$790 million in yuan from May onwards. These developments reflect the growing recognition of the yuan as a viable currency for conducting international trade.

According to data from China Customs, bilateral trade between China and Uruguay reached a value of US$7.44 billion in 2022, marking a 14.9% increase compared to the previous year. China emerged as Uruguay’s top trading partner, mainly driven by imports of Uruguayan beef, soybeans, and wool. Uruguay, known as the third-largest beef producer and the fourth-largest soybean provider for China, has experienced significant trade growth with China over the past decade, with an average of 33% of its total exports directed towards the Chinese market annually.

Fernandez Guerra emphasized the complementary nature of the Uruguayan and Chinese economies, underscoring the need to maintain the current trade level and build upon it. He highlighted the importance of seizing opportunities to diversify the range of high-quality goods exported to China, especially in areas such as chicken, wine, and olive oil. While these products have been successfully exported to other parts of the world, they have yet to penetrate the Chinese market fully.

Uruguay’s efforts to expand its trade offerings align with China’s increasing focus on food security and safety concerns. Uruguay aims to capitalize on China’s growing demand for safe and diverse food products by promoting its quality goods. The potential for a free trade agreement between Uruguay and China is also on the table, signaling the commitment of both nations to enhance bilateral trade relations further.

As China’s influence continues to rise globally, businesses in Uruguay recognize the need to adapt and leverage the yuan as a trade currency. By embracing this trend, Uruguay stands to benefit from increased trade opportunities and deeper economic integration with one of the world’s largest markets.

According to Fernandez Guerra, Uruguay is seeking to expand its export portfolio beyond its current focus on beef, soy, and rice by diversifying into different sectors. While these products have been the mainstay of Uruguayan exports to China, there is a recognition that broadening the range of offerings is crucial to sustaining long-term trade growth. Fernandez Guerra highlighted that Uruguay is now at a pivotal stage where it can take significant strides in diversifying its exports to the Chinese market.

In April, Uruguay’s foreign minister, Francisco Bustillo, embarked on a five-day visit to China, expecting to expedite negotiations for a bilateral free-trade agreement that has been under formal discussion since the previous year. The visit signaled mutual interest in strengthening trade ties and fostering a more favorable trade environment between the two countries. A free-trade agreement would eliminate trade barriers and provide Uruguayan businesses with a competitive edge by reducing the burden of heavy taxes currently associated with bilateral trade.

The absence of a free-trade agreement between Uruguay and China poses a challenge for Uruguayan businesses, as the prevailing trade conditions are not conducive to optimal growth. Fernandez Guerra emphasized that the current trade arrangement involves significant taxes, hindering the potential for fully realizing the benefits of free trade. Overcoming this challenge and establishing a formal free-trade agreement is a key objective for Uruguay, as it would create a level playing field and unlock new opportunities for both countries.

Uruguayan President Luis Lacalle Pou is expected to visit China in the second half of the year. The visit holds great significance as it aims to advance the most pertinent issues on the bilateral agenda, including the free-trade agreement. It underscores the commitment of both Uruguay and China to deepen their economic ties and explore avenues for greater cooperation. The visit presents an opportunity for high-level discussions, negotiations, and strategic planning to bolster trade relations and enhance economic collaboration.

The bilateral free-trade agreement would benefit Uruguay’s export sector and create a conducive environment for Chinese businesses to invest in Uruguay. By establishing a formal agreement, both countries can tap into each other’s strengths and expertise, paving the way for increased trade volumes and mutually beneficial partnerships. With its abundant agricultural resources and reputation for high-quality products, Uruguay can offer China a diverse range of goods that cater to its evolving needs and preferences.

Furthermore, the free-trade agreement would contribute to Uruguay’s broader economic development goals. It would stimulate investment, foster innovation and technology transfer, and create job opportunities in various sectors. The agreement would solidify Uruguay’s position as a reliable trade partner and provide a gateway for other Latin American countries to access the Chinese market, strengthening regional economic integration.

Uruguay is eager to expand its exports beyond its current agricultural focus and diversify into different sectors. Due to the heavy taxes involved in bilateral trade, the absence of a free-trade agreement between Uruguay and China poses challenges for Uruguayan businesses. With the upcoming visit of President Luis Lacalle Pou to China, there is renewed optimism about advancing the bilateral agenda, including negotiations for a free-trade agreement. Such an agreement would benefit both countries’ economies, enhance bilateral relations, and open up new avenues for cooperation.

In addition to bilateral efforts, there have been wider regional discussions regarding a free-trade agreement between China and the Southern Common Market (Mercosur), comprising Argentina, Brazil, Uruguay, and Paraguay. Brazilian President Luiz Inacio Lula da Silva has propounded this proposal. Fernandez Guerra acknowledged that Uruguay has also proposed a free-trade agreement between Mercosur and China on multiple occasions.

While affirming Uruguay’s commitment to the Mercosur trade bloc, Fernandez Guerra emphasized that Uruguay would support negotiations for such an agreement if the opportunity arises. Simultaneously, Uruguay remains dedicated to pursuing a separate free-trade agreement directly with China, recognizing the potential benefits for its own economy.

Regarding the ongoing trade tensions between the United States and China, Fernandez Guerra highlighted Uruguay’s pragmatic approach, primarily focusing on numerical data rather than taking sides in the geopolitical discourse. This strategy allows Uruguay to maintain a balanced position while maximizing trade opportunities with both countries. He expressed optimism about the future, foreseeing increased exchanges in education and technical areas between Uruguay and China. These exchanges would deepen bilateral relations and facilitate knowledge transfer and capacity building, further enhancing the economic partnership.

Uruguay’s emphasis on numbers reflects its objective to foster data-driven dialogue and evidence-based decision-making in trade relations. Uruguay seeks to strengthen its economic ties with China by focusing on concrete figures while avoiding unnecessary entanglements in broader geopolitical issues. This pragmatic approach ensures that both countries can continue to benefit from the growing trade relationship without being adversely affected by external factors.

In addition to trade, Fernandez Guerra emphasized the potential for increased cooperation between Uruguay and China in education and technical fields. Such collaborations can drive innovation, promote knowledge sharing, and contribute to human capital development in Uruguay. By leveraging China’s expertise and resources in these areas, Uruguay can enhance its own capabilities and competitiveness. This mutually beneficial exchange of knowledge and skills would contribute to the long-term sustainability of the bilateral relationship and foster a broader understanding between the two nations.

Uruguay’s pragmatic strategy and focus on numerical data highlight its commitment to building a strong and mutually beneficial relationship with China. Uruguay aims to solidify its position as a reliable and valuable trade partner for China by prioritizing concrete economic indicators and pursuing opportunities for cooperation in education and technical areas. This approach allows Uruguay to navigate the complexities of global trade dynamics while maximizing the benefits of its engagement with the Chinese market.

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