US, Brazil woo Uruguay; US efforts fall shortBy Peter A. Buxbaum, AJOTPresident George W. Bush embarked on his recent excursion to Latin America with a minimum of expectations. Nonetheless, the trip was notable for its failure to achieve progress where progress might have been made: on a free-trade agreement with Uruguay. Uruguay and the United States signed a Trade and Investment Framework Agreement in January of this year, an accord thought to be a precursor to an FTA. Both sides had expressed inclinations favoring bilateral free trade. But when Bush visited Uruguay earlier the month, he didn’t close the deal. Contributing to this lack of movement: the president of Brazil, the leading member of Mercosur, the South American customs union, beat Bush to the punch by visiting Uruguay a week earlier, laden with investment and trade deals. Little Uruguay, with a population of 3.4 million, and a gross domestic product of $13 billion, would provide little in the way of economic benefits to the United States as a free-trade partner. But it is well regarded economically and politically, according to Stephen Johnson, an expert on South America with the Heritage Foundation, a Washington think tank, leading him to advocate closer trade ties. “Uruguay has the fourth highest gross domestic product per capita in Latin America and rivals Chile in effective rule of law,” Johnson said. Uruguay’s importance emerges more clearly when it is viewed as a possible pivot point within Mercosur. The southern trade organization comprises Argentina, Brazil, Venezuela, Uruguay, and Paraguay as full members, and Colombia, Bolivia, Chile, Ecuador, and Peru as associate members. The Bush administration, not without reason, views Mercosur as a barrier to hemispheric free trade. The organization’s opposition to the US-sponsored Free Trade Agreement of the America’s last year thwarted progress on that pet administration project. Mercosur’s charter forbids its members from having bilateral free trade agreements outside the bloc. Many complain that Mercosur is dominated by its giants Brazil and Argentina. And the addition of Venezuela, headed by the America- and Bush-bashing Hugo Chavez, to Mercosur least year, did not enhance the organization’s image in the administration’s eyes. “Mercosur is no longer about trade,” said Riordan Roett, director of Western Hemispheric Studies at Johns Hopkins University. “The new joiners don’t have much to trade. They are opposed to free trade it seems. The organization is more and more political.” What does all this have to do with US-Uruguay trade relations? The Mercosur provision prohibiting members to free-trade outside the bloc provides the answer. “If Uruguay decided to sign an FTA with Washington, Mercosur ultimately will be faced with two choices,” Roett explained. “It could either kick Uruguay out of the union, or it could allow current members to enter into bilateral trade agreements with third parties. Either one could effectively weaken the bloc.” In pursuing an FTA with Uruguay the administration may also have been trying to capitalize on Uruguay’s disaffection with Mercosur. “Mercosur’s formation in the early 1990s precipitated an impressive initial expansion of internal trade,” said Johnson. “But this turned around from 1998 to 2004, when trade declined by nearly 15%. During this period, Brazil shifted 30% of its purchases to non-member states, forcing partners like Uruguay to look for other markets.” After taking office in 2005, President Tabare Vazquez publicly stated that Mercosur “as it is” is “of no use to Uruguay,” according to an article published in Uruguay’s leading daily newspaper, El Pais. In January 2006, Economy Minister Danilo Astori publicly endorsed embarking on free trade negotiations with the United States. Other cabinet members opposed this at first, but later Agriculture Minister Jose Mujica, a former guerrilla with the left-wing Tupamaro movement, reportedly favored the idea of signing free trade agreements “with the Unit