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TRADE POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT AND GOVERNMENT SUMMARIES
Uruguay: November 1998

Uruguay's participation in MERCOSUR has helped to promote significant restructuring and modernization of its economy, but as its economic performance is increasingly linked to that of its neighbours, a slowdown in the region could easily have spillover effects in Uruguay.

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See also:

> Second press release
Chairperson’s concluding remarks


PRESS RELEASE
PRESS/TPRB/91
20 November 1998

Uruguay's trade ties help promote economic performance - efforts to develop new products and markets should continue - Back to top

Uruguay's participation in MERCOSUR has helped to promote significant restructuring and modernization of its economy, but as its economic performance is increasingly linked to that of its neighbours, a slowdown in the region could easily have spillover effects in Uruguay. A new WTO report states that Uruguay needs to continue efforts to diversify its trading structure, to develop new products and services, and to find new export markets.

The WTO's report on Uruguay's trade policies and practices notes that since its first review in 1992, Uruguay's trade has significantly shifted towards MERCOSUR (Mercado Comun del Sur). The report explains that this shift results mainly from liberalization efforts within MERCOSUR but also from the real appreciation of the Uruguayan peso, which undermined Uruguay's competitiveness, particularly in relation to third markets.

The new WTO report on Uruguay and the policy statement prepared by the Government of Uruguay will provide the basis for a review of Uruguay's trade policies and practices on 23 and 25 November 1998.

Uruguay has deepened its trade policy reforms through multilateral, regional and bilateral trade negotiations, and through autonomous measures. Since 1992, the Uruguayan economy has grown at an average of 4.2% with inflation decreasing from 68.4% in 1992 to 15.2% in 1997. This performance has been achieved through the strengthening of public finances, monetary discipline and a reduction in the rate of currency depreciation. These macroeconomic measures were supported by a series of structural reforms, including trade liberalization, changes in the social security system, and state reform.

The report points out, however, that the opening of the economy to regional competition has already meant some difficult adjustments for Uruguay, especially in the import-competing manufacturing sector. This process is expected to continue as integration is deepened. Since 1992, both imports and exports have increased, especially within MERCOSUR, but imports have grown more rapidly than exports. This has resulted in a rising current account deficit, despite Uruguay's growing surplus in services trade.

Uruguay's major trade policy is the tariff, whose structure and level have been determined by the programme of convergence towards the MERCOSUR Common External Tariff (CET), which came into effect in 1995. The CET ranges from 0% to 20%. In December 1997, MERCOSUR members agreed to increase the CET temporarily (until 31 December 2000), by a 3 percentage points. As a result, Uruguay has exceeded its WTO bound rates on nine tariff lines at the 10-digit level. On average, the CET provides for lower nominal protection for inputs than for final goods, therefore providing higher effective protection for final goods than is obvious from its nominal rates. Uruguay is expected to maintain its tariff peaks and escalation, albeit at lower levels, as it converges towards the CET. Full adoption of the CET will also lead to increased protection for some items.

The report states that fiscal incentives in Uruguay reinforce the effects of its tariff escalation. These incentives include tax and duty exemptions to selected activities, temporary admission, duty drawback and free-trade zones. Apart from increasing the potential effective protection - which itself affects resource allocation and productivity - such incentives have a negative effect on the Government's fiscal position.

Uruguay has no explicit legislation to regulate competition conditions in its market, and no competition authority. However, the report notes, Uruguay would need a competition policy as the liberalization process continues and the role of the private sector increases. Uruguay is currently updating its legislation on intellectual property to achieve full consistency with the TRIPS Agreement by year 2000.

Since the last GATT/WTO review, the contribution of the manufacturing sector to GDP has declined, as some industries have found it difficult to compete in the wider market of MERCOSUR. Tourism has become the largest single component of exports of goods and services, exceeding the share of traditional exports of agro-industrial products.

Uruguay's manufacturing production and exports are largely based on the processing of natural resources. Uruguay has notified its automotive regime to the WTO as a subsidy and a trade-related investment measure (TRIM). This will be replaced by a common MERCOSUR automotive regime when negotiations are finalized. The only items still affected by minimum export prices are textiles and clothing, and sugar. The report states that, besides diminishing the transparency of the trade regime, this policy has isolated textiles and clothing from competition from abroad.

Uruguay has liberalized its exports of agro-industrial products and eliminated minimum exports prices - expect for sugar. It has striven to enhance the productivity and the quality of its agriculture in order to create new market niches and gain access to new markets. The improvement in animal health conditions has opened new markets to Uruguayan beef. To promote diversification, the Uruguayan Government grants a production subsidy for forestry plantation. This has increased the production of wood.

As a result of public sector reforms, private participation in the services sector has increased, while the State has adopted more of a regulatory role. The report notes, however, that state intervention in telecommunications and banking remains important. The banking sector is open to foreign investment, but one state-owned bank retains a dominant position. Moreover, the lack of modernization has reduced the competitiveness of the Uruguayan banking sector. Under a new framework agreement, MERCOSUR countries have begun negotiations to liberalize trade in services. Uruguay's WTO commitments on services include business services, financial services, and tourism.

Uruguay welcomes foreign investment, which is especially strong in the banking and tourism sectors. A new investment law puts domestic and national investment on the same footing, allowing equal access to all sectors and to available incentives. Thus, there are no special benefits for foreign investors.

The WTO report concludes that Uruguay's rapprochement to its MERCOSUR partners has promoted significant restructuring and modernization of the economy, as well as increasing trade within the region, especially with Brazil. Increasingly, Uruguay's economic performance is linked to that of Brazil and Argentina and any slowdown in these two countries is likely to have spillover effects in Uruguay.

Notes to Editors

The WTO's Secretariat report, together with a policy statement prepared by the Uruguay Government, will be discussed by the WTO Trade Policy Review Body (TPRB) on 23 and 25 November 1998. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular intervals and monitors significant trends and developments which may have an impact on the global trading system. The Secretariat report covers the development of all aspects of each of Uruguay's trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the new "areas" of services and trade-related aspects of intellectual property rights are also covered.

To this press release are attached the summary observations from the Secretariat report and a summary of the government policy statement. The full Secretariat and government reports are available for journalists from the WTO Secretariat on request (call 41 22 739 5019). They are also available for the press in the newsroom of the WTO internet site (www.wto.org). The Secretariat report, together with the government policy statement, a report of the TPRB's discussion and the Chairman's summing up, will be published in hardback in due course and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989, 1994 & 1998), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Botswana (1998), Brazil (1992 & 1996), Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), C˘te d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991 & 1998), Iceland (1994), India (1993 & 1998), Indonesia (1991 and 1994), Israel (1994), Jamaica (1998), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 & 1997), Mali (1998), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Namibia (1998), Nigeria (1991 & 1998), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 & 1998), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

The Secretariat’s report: summary Back to top

TRADE POLICY REVIEW BODY: URUGUAY
Report by the Secretariat – Summary Observations

Since the previous Trade Policy Review in 1992, Uruguay has deepened its trade policy reforms through multilateral, regional, and bilateral trade negotiations as well as through autonomous measures. Today, Uruguay's trade policy is determined to a great extent by common policies decided at the regional level in MERCOSUR, although autonomy remains in a few areas where common policies have not been agreed. Uruguay also maintains some special regimes, which provide fiscal incentives and duty exemptions, conferring some flexibility on the country's trade and related policies. Uruguay's rapprochement to its MERCOSUR partners has promoted significant restructuring and modernization of the economy, as well as increasing trade within the region, especially with Brazil.

The Economic Environment

The Uruguayan economy has grown at an average of 4.2% since 1992. This has translated into a substantial increase in per capita GDP. There has also been a substantial reduction of inflation from an annual rate of 68.4% in 1992 to 15.2% in 1997. This performance has been achieved through the strengthening of public finances, the progressive de-indexation of the economy, monetary discipline and a reduction in the rate of currency depreciation. These macro-economic measures were supported by a series of structural reforms, including trade liberalization, changes in the social security system and the reform of the state. The aim is to attain single-digit inflation in 1998 and GDP growth of some 3%.

International trade has become increasingly important for Uruguay. This has been a result of the opening up of the economy on a unilateral basis, in the context of MERCOSUR and through the implementation of WTO commitments. Trade facilitation initiatives, such as the privatization of port services and the simplification of both import and export procedures, have resulted in cost reductions and an increase in efficiency. Since 1992, both imports and export have increased, especially within MERCOSUR, but imports growing more rapidly than exports, partly due to the policy of permitting a real appreciation of the Uruguayan peso (Ur$) as an anti-inflationary measure. Despite Uruguay's growing surplus in services trade, with increasing revenues from tourism and international freight, this has resulted in a rising current account deficit.

Trade Policy Developments

As a result of the Uruguay Round negotiations, Uruguay bound all tariff lines in Chapter 1 to 97 of the Harmonized System, mainly at ceiling rates of 55% for agricultural goods and 35% for manufactured goods. These bound rates are substantially in excess of the unweighted average applied rate of 12.2% in 1998 (compared to 21.5% at the time of the previous review).

MERCOSUR's Common External Tariff (CET) came into effect for Uruguay on 1 January 1995. Since then, Uruguay's applied tariff structure has largely been determined by the programme of convergence towards the CET. The CET ranges from 0% - 20%, with an additional temporary 3 percentage points increase recently agreed among MERCOSUR members. This increase does not, however, apply across the board; Uruguay thus was able to avoid increasing rates on inputs and basic goods. In a few cases, (nine tariff lines) applied rates were raised beyond bound rates; goods affected include prunes, articles of plastic, and hydraulic windscreens and accumulators for aircraft.

A pattern of protection similar to that under the import substitution strategy still prevails, although it is less pronounced than in the past. On average, the tariff structure provides for low nominal protection for inputs, providing higher effective protection for final goods than is obvious from nominal rates. Thus, escalation has become more pronounced with the temporary increase mentioned. Tariff peaks and escalation are expected to be maintained, albeit at lower levels, as Uruguay converges toward the CET; full adoption of the CET will also lead to increased protection for some items.

The effects of tariff escalation are reinforced by fiscal incentives; including tax and duty exemptions for selective activities, duty-free temporary admission and duty drawback for goods used in export production, and free trade zones. Apart from increasing the potential effective protection and any consequent effects on resource allocation and productivity, such incentives have a negative effect on the Government's fiscal position. Moreover, reimbursement of indirect taxes and drawback for exports are tied to national content.

Reference prices were eliminated in 1994; but "minimum export prices" are still applied on a few items, namely textiles and clothing, and sugar. In the past, these systems were used as contingency trade measures. However, hand-in-hand with a reduction in the coverage of goods affected by "minimum export prices", Uruguay has started to use anti-dumping procedures; as yet, no final measures have been applied.

There is no explicit legislation to regulate competition conditions in the Uruguayan market, and no competition authority; however, a competition policy and regulatory apparatus appears to be needed as the process of liberalization continues and the role of the private sector increases. Legislation on intellectual property is being updated to achieve full consistency with the WTO Agreements. Uruguay has until the year 2000 to bring such legislation into conformity with the TRIPS Agreement.

Sectoral Development

Since 1992, the contribution of the manufacturing sector to GDP has declined, as some industries have found it difficult to compete in the wider market of MERCOSUR. Primary goods, mainly beef, wool and dairy products, continue to be the major merchandise exports. However, tourism has become the largest single component of exports of goods and services, exceeding the share of traditional exports of agro-industrial products.

Exports of agro-industrial products have been liberalized; export restrictions on live cattle, sheep and horses, as well as on raw hides, have been abolished; minimum export prices except for sugar, have been eliminated; and today only exports of raw hides are subject to taxes. In addition to these policies, Uruguayan agriculture has striven to enhance productivity and improve quality in order to create new market niches and gain access to new markets: the improvement in animal health conditions has opened new markets to Uruguayan beef. To promote diversification, a production subsidy for forestry plantations is granted; this has increased production of wood.

Uruguay's manufacturing production and exports are largely based on the processing of natural resources. The automotive and the clothing and textiles industries are subject to special regimes. The existing automotive regime, notified to the WTO as a subsidy and a TRIM, will be replaced by a common MERCOSUR automotive regime when negotiations are finalized. Textiles and clothing are the only items, other than sugar, still affected by minimum export prices. Besides diminishing the transparency of the trade regime, this policy has isolated the sector from competition from abroad, and even export items seem to have become less competitive in recent years.

Under public sector reforms, private participation has increased in the services sector, either as a substitute for, or in competition with, state-owned firms, while the State has adopted more of a regulatory role. State intervention in telecommunications and banking remains important: popular opposition through a referendum has prevented the privatization of the telecommunications state monopoly, but competition has been allowed in certain areas such as cellular telephony. The banking sector is open to foreign investment, but one state-owned bank retains a dominant position. A lack of modernization has reduced the competitiveness of the Uruguayan banking sector, reflected in high interest rates and wide spreads between borrowing and lending rates.

Uruguay welcomes foreign investment, which is especially strong in the banking and tourism sectors. A new investment law puts domestic and national investment on the same footing, allowing equal access to all sectors and to available incentives. Thus, there are no special benefits for foreign investors. This new law aims at increasing national as well as foreign investment. In addition, under a new framework agreement, the MERCOSUR countries have begun negotiations to liberalize trade in services. Sector-specific commitments negotiated in the Uruguay Round and in subsequent sectoral negotiations cover business services, communication services, financial services, tourism and travel related services, recreational, cultural and sporting services and transport services.

Trade Policies and Foreign Trading Partners

Since 1992, there has been a significant shift in the direction of Uruguay's trade towards the region. This results mainly from liberalization under MERCOSUR, but also, to a degree, from the real appreciation of the Uruguayan peso, which has led to a loss of competitiveness, particularly in relation with third markets. The opening of the economy to regional competition has already meant some difficult adjustments, especially in the import-competing manufacturing sector, and this process will continue as integration is deepened.

Increasingly Uruguay's economic performance is being linked to that of Brazil and Argentina. Any slowdown in these two countries is likely to have spillover effects in Uruguay. For this reason, Uruguay needs to continue its efforts to diversify its trading structure, in particular by eliminating structural impediments to growth in existing sectors with export potential to new markets as well as by developing new products and services.

Government report Back to top

TRADE POLICY REVIEW BODY: URUGUAY
Report by the Government

Introduction

In 1974, Uruguay began a unilateral process of trade liberalization and economic reforms, after several decades of import-substitution policies. In this process of economic liberalization, quantitative restrictions and other barriers to trade were removed, trade regulations were simplified and a gradual but steady process of reducing import duties was begun.

Uruguay has continued and deepened its economic reform process. The structural reforms to the social security system and the tax system and reform of the State and the educational system have been among the most important. The Government has reduced its involvement in economic activities by eliminating monopolies, privatizing and outsourcing certain activities and allowing private investment. In a stable macroeconomic context that is favourable to investment and is based on responsible fiscal policy, inflation has gradually been reduced, dropping from 60 per cent in 1992 to 15 per cent in 1997, with projections for 1998 running between 7 per cent and 9 per cent. GDP has grown steadily over the last five years at a cumulative rate of 3.5 per cent per annum.

Uruguay is a founding member of MERCOSUR. When it was created in 1991, the process of liberalization continued but changed in nature from a unilateral programme to a programme negotiated within the framework of MERCOSUR, with the objective of forming a common market with the main trading partners, Argentina, Brazil and Paraguay. In 1991, the members of MERCOSUR began a tariff reduction programme, which was completed in 1994 with the removal of tariffs on intraregional trade, with some temporary exceptions. In parallel, the four countries defined a common external tariff which Uruguay adopted on 1 January 1995, and which allows periods for tariff convergence in some cases. The systematic process of entrenching the openness and liberalization of the Uruguayan economy is continuing in an international context that is not favourable to the country in terms of access to international markets for its main export products.

Economic and investment environment

Macroeconomic policy

Current economic policy objectives are to improve conditions for sustained economic growth, raise the standard of living and bring inflation down to levels comparable with those observed internationally.

The medium-term policy includes strengthening of public finances, curbs on spending and tight money, in order to achieve a gradual and sustainable reduction in inflation. The stabilization programme is complemented with a series of structural reforms and coverage of sensitive social areas.

The structural reforms to the social security system, the tax system, the State and education are particularly important. The country has been moving toward deregulation of the economy and privatization or concession of activities previously run by the State. There has also been considerable improvement in the legal regulatory framework governing the capital market. In the field of trade policy, openness of the economy has been deepened, favouring sound allocation of productive resources and efficient investment, which has substantially improved the productivity of the economy. This growing liberalization of trade has also contributed to the stabilization process.

Inflation has declined gradually and steadily over the period under review. In 1992, it was about 60 per cent, but had fallen to 15 per cent at the close of 1997. Projections for 1998 are between 7 per cent and 9 per cent. Gradual stabilization of the economy has gone hand-in-hand with a reduction in the fiscal deficit and a foreign debt policy that seeks to bring the level down even further as a percentage of GDP (today in net terms it is 13 per cent). Although the benefits of stability are not felt instantaneously, low levels of inflation have been achieved in just a few years without prompting large transfers of resources between sectors or sudden changes in the rules of the game.

GDP has grown uninterruptedly since 1988, with the sole exception of 1995 when it shrank by 1.8 per cent as a consequence of the regional crisis. In the last five years, GDP has risen steadily (at a cumulative 3.5 per cent a year), based chiefly on growth in exports and private investment. The annual cumulative growth rate for exports of goods and services was 8.9 per cent, while the figure for private investment in machinery and equipment was 12.4 per cent.

Investment policy

Unilateral liberalization, on the one hand, and the open regional integration process, on the other, pose a challenge for investment policy, since redeployment requires a flexible response by the private sector, particularly by capital and skilled labour. To tap the advantages of trade policy, which are reinforced by a privileged geographical location in the region, a programme has been launched to support private investment.

Since investment requires a stable and predictable macroeconomic environment, an overall objective of the programme was simultaneously to introduce a macroeconomic policy that would be compatible with the other specific objectives. For private sector investment, the better the capacity to predict the macroeconomic scenario, the fewer the risks that investors have to run, apart from the investment risk. In turn, the better the capacity to predict the context in which a company will develop and the longer the planning horizons that can be covered, the larger the number of investment projects that will be competitive. In both instances, the rate of return demanded for the projected investment is lower and therefore more projects can be undertaken. Accordingly, a gradual price stabilization process has been followed, without prompting large transfers of wealth, while assuring that future changes in prices will be more predictable. The strategy was to use a moving band for the floating of the exchange rate, with pre-announcements by the monetary authority of the monthly growth rate within which the band would move. The Central Bank will intervene if the levels fall outside these limits. The roots or foundation of this gradual reduction in inflation lies in the public sector's responsible financial management, aimed at rapidly establishing orthodox behaviour with the goal of fiscal balance.

With respect to the mobilization of savings and investments by specialized agents to improve the allocation of domestic financial resources, a number of measures were adopted particularly in the social security reform, which established Pension Fund Administrators as professional managers of retirement investment portfolios. The presence of these institutional investors, coupled with the investment funds which are growing as a result of the legal framework approved under a specific law, creates drive on the demand side for private securities. In order to provide private business with more opportunities to accede to these savings, conditions were improved for the issue of negotiable securities, which grew strongly in 1996, moving from a total of US$56 million in December 1994 to US$545 million by the end of 1997. Once the demand and supply of securities had been improved, it was felt that the market would function better by making certain changes to the stock market regulations. The changes were made and an electronic stock exchange was created.

To offer new opportunities for private investment, many joint ventures were proposed with the public sector in activities that had traditionally been carried out exclusively by the latter. Examples that have had an impact on private sector productivity include: highway construction and operation, expansion and operation of international airports, operation of a large number of services at the port of Montevideo, construction and operation of gas pipelines to carry natural gas from Argentina and the distribution of piped gas.

As part of the legal framework for investment, an investment act (Law 16906) was passed in order to attract and promote new investments and reinvestment in existing companies. This legislation codifies foreign investment guarantees and investment tax incentives in a single legal text in order to provide investors with a clear and unified regulatory framework. The law reaffirms some of the country's traditional measures relating to foreign investment, such as equal and non-discriminatory treatment in comparison with national investors, the removal of requirements for authorization or registration as a foreign investor and freedom of currency exchange, which assures that capital and profits in domestic currency can be converted to another currency at the market exchange rate. In the law, the Government assures investors that the conditions that prevailed at the time they made their investments will remain stable, otherwise it assumes liability for damages.

Investment has behaved very positively in recent years, although as a percentage of GDP it is still low in comparison with other Latin American countries. Total investment was slightly more than 10 per cent of GDP in 1989 and 1990, having fluctuated between 10 per cent and 12 per cent of GDP in the second half of that decade. There was a sharp increase in investment at the start of the 1990s, which peaked at 16 per cent of GDP in 1995 and has remained at over 15 per cent during the whole period. Investment in the period 1993-1997 was 72 per cent higher than in the period 1986-1990, for cumulative annual growth of 8 per cent in the seven years separating these two five-year comparator periods.

Trade environment

The external sector

The gradual liberalization of trade that has been taking place in the country since the 1970s, which has speeded up in the present decade, has translated into significant growth in imports leading to higher levels of consumption and productive investment in the economy. Imports of goods measured in current dollars grew at a cumulative annual rate of 12.4 per cent in the period between 1992 and 1997.

Greater efficiency in allocating productive resources in the economy and the investment process mentioned earlier have led to an increase in exports which, when quantified in the same way as imports, show cumulative annual growth of 10.3 per cent.

The economic openness coefficient estimated on the basis of the variables reported in the national accounts, measured in constant currency, shows an increase from 65.2 per cent in 1992 to 90 per cent in 1997. Although the figures overestimate the coefficient in question owing to the way that exports are posted in the national accounts, this growth is still remarkable.

Faster growth in imports of goods and services than in exports led to negative results in the balance-of-payments current account. In 1992, the deficit was 1 per cent of GDP, rising to 2.5 per cent in 1993/94. The improvement in the fiscal accounts has freed up domestic savings to finance private investment, permitting less reliance on external savings. As a consequence, the deficit in the balance-of-payments current account dropped to 1.6 per cent in 1997. It is expected to rise slightly in 1998 to about 2 per cent, as a result of the deterioration in the international situation.

The surpluses in the balance of payments during the period under consideration increased the net international reserves of the monetary authority from US$946.8 million in 1992 to US$2,262.7 million in June 1998. This amount covers about seven months of imports.

Trends in foreign trade, 1992-1997

Since Uruguay is a small economy, international trade is particularly important for the country. The process of economic and trade liberalization that it has carried out both unilaterally and in the context of regional agreements and the multilateral sphere has been mirrored in steady and continuing growth in foreign trade flows.

Uruguay's foreign trade in goods has increased significantly in recent years, from a total of US$3,747 million in 1992 to US$6,441 million in 1997, for a rise of 72 per cent in current dollars. Exports have grown by 60 per cent since 1992, from US$1,702 million in that year to US$2,725 million in 1997. For their part, imports grew continuously over the period, from US$2,045 million in 1992 to US$3,716 million in 1997 for an increase of 81.7 per cent in current dollars. The figures for foreign trade in goods continued to rise during the first half of 1998, chiefly on account of larger imports. The trade balance has posted increasingly negative balances since 1991 as a consequence of higher growth in imports, with a deficit of US$990 million in 1997.

Uruguay's main exports are agricultural, with a small number of products accounting for a substantial share of its external sales. The main exports in 1997 included beef (13.9 per cent of the total), rice (9.3 per cent), wool (9.7 per cent), hides and skins (7.1 per cent), dairy products (5.2 per cent) and fish (3.7 per cent).

Development of the trade policy, 1992-1997

Since the last Review in 1992, the thrust of Uruguay's economic and trade policy has moved steadily along the following general lines:

- Economic stability;

- trade liberalization and economic openness;

- deepening of the MERCOSUR regional integration process.

In order to improve the efficiency with which productive resources are allocated internally and advance the country's integration into the world economy, Uruguay has maintained a policy of opening up its economy, removing different barriers and restrictions and rationalizing and reducing import duties, through unilateral, bilateral, regional and multilateral measures. This has been mirrored in a substantial improvement in the degree of openness to the world and the region, with major growth in Uruguay's foreign trade in imports and exports alike. Tariffs are the key instrument of import trade policy. In the Uruguay Round of Trade Negotiations, the country bound all its tariff lines at 35 per cent, with some exceptions below that level, and a few above, for certain agricultural products.

The tariff structure in effect in 1992, which included three levels (24 per cent, 17 per cent and 10 per cent), was subsequently reduced to 20 per cent, 15 per cent and 6 per cent, and maintained until 1994. The tariff-cutting programme launched in 1991 by the members of MERCOSUR culminated at the end of 1994. All tariffs on trade among the MERCOSUR countries were eliminated in 1995, except for a small list of products from each country on which they were to be removed in 1998 for Argentina and Brazil and in 1999 for Uruguay and Paraguay. In 1995, Uruguay adopted the Common External Tariff agreed upon in MERCOSUR to improve the competitiveness of the member countries. Periods are allowed, which in some cases extend to the year 2006, to make certain products converge with the Common External Tariff. The Agreement on Tariffs reached by the MERCOSUR countries in Ouro Preto in 1994 required Uruguay to reduce its average tariff and the levels and dispersal of effective protection on goods produced in the economy.

At the same time, Uruguay has continued its process of economic reforms and liberalization unilaterally, stressing the streamlining of procedures and the removal of unnecessary barriers to trade in goods and services. It has simplified and facilitated export and import procedures, through the use of a single import document and a single export document. This gradual and systematic reduction and elimination of different barriers and obstacles to trade, such as bureaucratic formalities, advance authorizations, administrative controls and supervision, has made a significant contribution to facilitating foreign trade by improving the country's allocation of resources.

Although progress must still be made in some fields, substantial headway has been made in the treatment of products imported with distorted prices, through a reduction in the universe of products included and the sphere of application. The recent introduction of anti-dumping regulations, which are fully compatible with WTO rules, is an indicator of the Government's intent in this regard.

Since MERCOSUR was created, Uruguay has negotiated and reached agreement with the other member countries on different aspects of trade policy which led to the creation in 1995 of a customs union, with different periods set for its full implementation, as an intermediate step to the establishment of a common market. In Uruguay's view, as progress continues in the consolidation and entrenchment of MERCOSUR and common trade policy mechanisms and instruments are perfected in keeping with multilateral trade rules, the process of integration will make it possible to continue with economic modernization and integrate Uruguay more fully into the world economy.

Regional integration

The Southern Common Market (MERCOSUR) was created in 1991, when Uruguay, Argentina, Brazil and Paraguay signed the Treaty of Asunciˇn, with the goal of establishing a common market that would promote the development of its member countries and improve their integration into the international economy. The process of gradual, linear and automatic tariff reduction among the four countries culminated in 1994, with some exceptions limited to a small number of products whose tariffs are to be eliminated over a term of four years for Argentina and Brazil and five years for Paraguay and Uruguay.

In 1995, the MERCOSUR countries adopted a Common Nomenclature and a Common External Tariff, which responds to the objective of opening up their economies. The levels of the Common External Tariff range between 0 per cent and 20 per cent, in steps of two percentage points. To facilitate transition to the new tariff structure, certain temporary exemptions from the Common External Tariff were agreed upon, as were mechanisms for their convergence, which was to be concluded in the year 2001 (in the year 2006 for a small number of products). At the end of 1997, the steps in the Common External Tariff were widened to three percentage points temporarily until the year 2000.

In 1997, MERCOSUR approved a protocol on trade in services, with the goal of liberalizing intraregional trade, and in 1998 it agreed on an initial list of specific commitments in that regard, which is to be expanded in future.

Under its strategy of economic liberalization and greater involvement in the international economy, Uruguay is working with its MERCOSUR partners on a broad agenda of trade negotiations with other countries and regions. With respect to LAIA, MERCOSUR has signed agreements to establish free-trade zones with Chile and with Bolivia, expanding bilateral agreements that were already in effect. The agreement with Chile came into force in October 1996 and the agreement with Bolivia in March 1997. MERCOSUR is also renegotiating different bilateral and regional agreements between its members and other countries in LAIA.

Uruguay attaches particular importance to the negotiations that are under way with the countries of the hemisphere to establish the Free Trade Area of the Americas (FTAA) and to progress under the Interegional Cooperation Agreement between MERCOSUR and the European Union concluded in 1995 with the objective of moving towards reciprocal and gradual liberalization of trade. Negotiations under the FTAA were launched at the Summit of Heads of State and Government held in Chile this year and the negotiating groups held their first meetings in September in Miami. The initial stage of preparatory work with the European Union was completed during 1998 and has helped to identify the main aspects of trade relations between MERCOSUR and the European Union.

With the objective of promoting and strengthening economic ties, trade and investments, Uruguay holds periodic meetings with other countries and regions under the framework of MERCOSUR. Agreements were signed with Canada and the countries of the Central American Common Market during 1998 and meetings were held with different countries and regional groups from all continents.

Uruguay and the WTO

Uruguay and the multilateral trading system

Uruguay was one of the promoters of what came to be known as the Uruguay Round of Trade Negotiations which began in the city of Punta del Este in 1986, signalling the country's commitment to the multilateral system. In that Round, Uruguay chaired the Trade Negotiations Committee at the ministerial level and had the honour of chairing negotiating committees in relevant areas, which led to major agreements that have helped to shape the WTO system. Uruguay's role in the establishment of the Cairns Group - an excellent example of the cooperation and joint work that can exist between industrialized and developing countries when common interests are present - should also be underlined. Uruguay was also active in negotiating the Agreement on Textiles and Clothing and some of the articles of that agreement reflect the country's specific concerns.

In Uruguay's opinion, the agreements reached under the Uruguay Round strengthened and expanded the institutional framework of the international trading system and promoted confidence in the multilateral system through the creation of the World Trade Organization and the establishment of a comprehensive system for dispute settlement through the Understanding on Rules and Procedures Governing the Settlement of Disputes, rounding out the set of international economic institutions which, until then, had been composed only of the Bretton Woods organizations. For Uruguay, the existence of clear and stable rules respected by all the members of the multilateral system constitutes the best guarantee of freedom of trade, security of the rights acquired and compliance with obligations, with the ensuing creation of wealth, and international peace and security. For the Uruguayan Government, this is an opportunity to reiterate its firm commitment to the principles of multilateralism and free trade.

Application of the WTO Agreements

Uruguay believes that, in general, the results of the last round of trade negotiations were quite satisfactory in terms of trade rules and disciplines. However, with regard to market access, particularly for agriculture, the results should be viewed simply as the starting point for deepening the process of liberalization and discipline in international trade. Furthermore, Uruguay is following implementation of some of the commitments, particularly in agriculture, closely and with concern, since in its opinion some of them have not been applied in accordance with the spirit of the Uruguay Round Agreement on Agriculture. In view of this and the present world situation, which is marked by globalization, interdependence and market volatility, Uruguay considers full implementation of the results of the Uruguay Round, compliance with the commitments negotiated within the time-limits established and entrenchment of the liberalization process to be vital contributions to the stability and growth of the international economy.

The Uruguayan Government has been making major efforts to comply with the obligations stemming from the agreements, both in terms of notifications and in the establishment of enquiry points as required under various agreements, such as the General Agreement on Trade in Services and the Agreement on Technical Barriers to Trade. It has recently established an inter-ministerial committee with the mandate of ensuring that technical provisions and standards which can have an impact on trade are approved in accordance with the provisions of the latter Agreement.

Uruguay's position regarding future negotiations

Uruguay considers that the Second WTO Ministerial Conference held in May 1998 produced positive results since the Ministerial Declaration has reaffirmed the commitment to respect the timetable for the reviews, negotiations and other tasks already agreed upon and established that the programme of work of the General Council will include the negotiations already covered in the Marrakesh mandate, to ensure that they will begin at the stated time.

The forthcoming negotiations on agriculture, established under Article 20 of the Agreement on Agriculture, are priorities for Uruguay for entrenching the process of reform in international agricultural trade. The core objective of this reform process should consist of subjecting agricultural trade to the same rules and disciplines as are applied to trade in other goods, in view of the fact that agriculture has continually been relegated to the sidelines in multilateral trade negotiations in the last 50 years.

The Uruguayan Government believes that issues such as trade and the environment and the recent initiatives in electronic commerce are both interesting and important for the multilateral system and that they should continue to be examined in greater depth. Uruguay is aware that many interests exist in this globalized system, as was noted in the Declaration of the Second Ministerial Conference, and therefore it is willing to consider and contribute to the discussion of trade issues of interest to all the Member States. However, discussion of these issues and their future negotiation should not be allowed to delay the start of the negotiations that have already been planned and agreed upon.

Future directions of trade policy

After several decades of import substitution policies, in the 1970s Uruguay began a process of reform and liberalization based on private initiative, which has led to gradual but broad and deep structural transformation of the economy. The gradual liberalization of trade in recent decades has been beneficial, since it has contributed to the restructuring of the economy and to greater efficiency in the use of resources. As a small country which is highly dependent on its foreign economic relations, Uruguay attaches special importance to its full integration into the world economy. Uruguay considers that MERCOSUR has contributed and continues to contribute to facilitating and strengthening the international integration of its member countries, promoting their greater and better inclusion in the hemispheric and global economies.

For Uruguay, the priority objective of its economic and trade policies is to continue developing its openness to the world through regional integration, carried out in accordance with the multilateral rules of trade. Uruguay is firmly interested in strengthening the multilateral system and the WTO. The process of opening up and liberalizing the Uruguayan economy has been carried out in an international setting that is not particularly favourable in terms of access by the country's exports to the rest of the world. Uruguay will continue to support initiatives to liberalize and expand international trade on the regional and multilateral levels alike, which will help to eliminate protectionism and practices that distort trade, including trade in agriculture.

The Uruguayan Government will continue systematically to review unnecessary barriers to trade and to the functioning of the economy, with the objective of broader liberalization that will make for better allocation of productive resources and therefore for enhanced economic well-being. Uruguay also expects that its partners in the WTO will make rapid and significant progress in dismantling distortions and limitations on trade in those products in which our country has clear competitive advantages.
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