China-Mercosur trade deal

A proposed free trade deal between China and Mercosur would significantly boost trade with the Asian giant but regional analysts see little chance that it will emerge soon. Chinese Premier Wen Jiabao proposed the tie-up with the regional trade bloc during a visit to Argentina that followed his earlier stops in Brazil and Uruguay. "China is prepared to enter into ministerial-level talks with Mercosur nations," he said in the videoconference Monday with Presidents Cristina Kirchner of Argentina, Dilma Rousseff of Brazil and Jose Mujica of Uruguay. Paraguay, which was suspended from this week's Mercosur summit following the impeachment of president Fernado Lugo, did not take part in the videoconference with Wen. "China is already Brazil's main economic partner and therefore the (free trade) idea will not make much difference for (Brazil)," said a Brazilian government official who spoke on condition of anonymity. The official said any easing of trade barriers requires "a lot of caution, particularly in the case of China." He noted that Brazil, the world's sixth largest economy and the dominant power in Latin America, does not have any free trade agreements with major economies. "China is a very important ally, but I am not optimistic about the chances of a (free trade) deal. The most important accord being negotiated by Mercosur is with the European Union, and if that agreement is bogged down, I don't see how one with China would make headway now," economist Gilmar Masiero of Sao Paulo University told AFP. An expert on ties between Latin America and Asia, Masiero added however that any such agreement would boost trade and strengthen areas in which Mercosur is more competitive than China such as the agribusiness sector. "It would increase trade, which is something positive, because China is not competitive in sectors where we are such as commodities and the agribusiness," Masiero said. But he quickly added that "with or without such a deal, Brazil will continue to sell its soybean or iron ore to China." In 2011, China's exports to Mercosur, South America's largest trading bloc, totaled $48.45 billion, up 34 percent from the previous year, while imports from Mercosur reached $51.03 billion, according to Argentine government figures. Beijing wishes to double this trade by 2016, said Wen. "The call for a free trade accord is a little unexpected," said Lia Valls, coordinator of the Foreign Trade Center of the prestigious Getulio Vargas foundation. "There are regional countries such as Peru, Chile or Colombia which have more open economies and which are preparing for these Trans-Pacific operations, but here in Mercosur we have more problems," he stressed. Mercosur has for years been trying to clinch a trade accord with the EU. But negotiations have foundered so far over differences on agriculture, notably Europe's subsidies of its farmers which undermine South American efforts to sell its own products. "Industrial policies in Mercosur are more protectionist and China is viewed more as a threat than as an ally," Valls said. "For the bloc, this (free trade accord) would mark a radical change as China is present in many sectors which create jobs." The experts say manufacturing sectors such as textiles and the automobile could be hurt by a free trade deal because China is more competitive in those sectors. And therefore, according to Valls, a deal would be benefit a small country like Uruguay but not so much Brazil. "It's a good opportunity that carries risks, to open oneself to imports, high technology and lower costs. But I think in the end Mercosur will reject it," said Marcelo Elizondo, of the Buenos Aires International Business Development consulting firm. Meanwhile Kirchner announced in the videoconference that the Mercosur summit scheduled for Thursday and Friday would mull a joint statement "which would spell out the interests of China and Mercosur and would be significant in the context of the global (economic) crisis." Complicating matters further is the ouster of Paraguayan president Fernando Lugo. Paraguay has no diplomatic ties with China because it recognizes Taiwan, which Beijing considers a rebel province. Lugo said Monday he would take his case to the Mercosur summit this week as the country's Supreme Court rejected an appeal of his dismissal. Mercosur groups Argentina, Brazil, Uruguay and Paraguay as full members while Chile, Bolivia, Colombia, Ecuador and Peru are associate members. Venezuela's membership was approved by the leaders Argentina, Brazil, Uruguay and Paraguay, but the addition has not been ratified by Paraguay's legislature.