China's Prime Minister wants to create a free trade zone with the Mercosur countries. Mercosur thinks it is a good idea. But for such a project, the group of South American countries would have to make a few changes.
After dinner in the Casa Rosada, as the Argentine presidential palace is known, the guest of honor was optimistic. Future trade relations, China's Premier Wen Jiabao told Argentine President Cristina Fernández de Kirchner, would not fail due to lack of knowing each other. Wen subtly ignored the fact that the real problems were really within view of the Casa Rosada.
Docked in the Port of Buenos Aires are Chinese freighters that can't get rid of their cargo due to tough Argentine import restrictions. Shortly before Wen's trip to South America, a high-ranking Chinese government official of the Chinese chamber of commerce voiced her displeasure over the new restrictions recently implemented.
"They will create an instable business climate and will harm Chinese companies that have been complaining to us. We believe the restrictions infringe upon the World Trade Organization guidelines," she told the Argentine newspaper Clarín.
Nonetheless, Premier Wen Jiabao can afford to relax. South American countries have been scrambling to close deals with the Chinese. China has already become Brazil's and Chile's number-one trade partner.
For Argentina, China is the number two trade partner. Exchange of goods and capital is growing rapidly - a trend that is expected to continue. Wen wishes to double the trade volume of the Mercosur states - Brazil, Argentina, Paraguay and Uruguay - by the year 2016.
In 2011 alone, China bought 51 billion US dollars worth of goods from the Mercosur countries and exported goods with a total of 48 billion dollars to them. Compared with the previous year, that is an increase of one third.
Fending off a crisis
The Mercosur heads of state were euphoric about Wen's suggestion to create a collective free trade zone. For Argentina's president, such an alliance would be a "historic opportunity." She is of the opinion that the troubled economies of the US and the European Union have no stable solutions to offer. China, on the other hand, offers new possibilities for cooperation.
Brazilian head of state Dilma Rousseff sees it similarly. "Considering the international crisis, which will last a good while, it is important that Mercosur and China strengthen their relations to avoid the risk of a crisis," she said.
The director of the Argentine Chamber of Commerce for Asia also noted pragmatically that it was easier for China to do business with a group that represented 200 million people rather than with individual countries.
But behind the enthusiasm, there is of course calculation. Up until now, China has mostly bought raw materials from Brazil and Argentina, food and soy. A free trade zone could promote a wave of Chinese investment, bring badly needed technologies into the countries and thus boost their industries.
The Mercosur states could become more than just providers of raw materials. Argentina sees China as a strong partner for its crude oil business. The energy concern YPF, which not long ago was brought under state control under scandalous circumstances, is in desperate need of money and technology so it can produce more oil.
And the smaller country Uruguay is inviting the Chinese to invest in its largest construction project in history. President José Mujica wants the East Asians to participate in the billion-dollar construction of a deep sea port in the Atlantic and is offering oil and gas located off of its coast as an incentive.
Despite the progress, the door to a free trade zone has not yet been unlocked. And the Mercosur states are the ones holding the key.
In order to open up a free trade zone, Argentina and Brazil would have to liberalize their protectionist policies. Not long ago, both countries enacted measures to reduce the barrage of Chinese imports. At the same time, Mercosur forbade Uruguay from signing free trade agreements with third parties. The fact that Paraguay recognizes Taiwan and not China diplomatically is sure to make the situation all the more complicated.
The Mercosur, scoffs the Argentine newspaper La Nación, has not even been able to successfully carry out such a project with the European Union, which is geographically, historically, and culturally much closer to South America. But at least Mercosur members are slowly starting to get to know the Chinese. The next step will be discussed at the Mercosur summit on Friday. Paraguay, however, will not attend due to its national crisis.
Author: Marc Koch / sb
Editor: John Blau