US/URUGUAY:President Bush's visit to Uruguay tomorrow is a reminder to local powers that if they neglect their neighbours, Washington will pounce, writes Tom Henniganin São Paulo
There is an old joke about the economist who was asked what Uruguay could do to help its economy. "Move!" was the blunt reply.
Sandwiched between the South American giants of Brazil and Argentina, the problem is that Uruguay does not produce much that these two neighbours do not make themselves, while its small industrial base leaves it dependent on imports from them.
Its membership of the regional trade bloc Mercosur, along with its two immediate neighbours and Paraguay and Venezuela, was supposed to spur integration and growth in what leaders hoped would become a kind of Latin EU.
But for Uruguay, whose economy was battered by Argentina's economic collapse in 2001, the results have been underwhelming and frustration has grown in recent years at what it sees as the insensitivity of Brazil and Argentina to the concerns of Mercosur's smaller members.
And hoping for anything similar to the EU's huge transfer of funds from richer members to poorer ones has so far proved just wishful thinking.
The current left-wing government in power in Montevideo ran on a platform of closer integration with its Mercosur partners, who also happen to have left-wing governments.
But now Uruguay would like to compensate for its inability to sell more of its agricultural goods to its Mercosur neighbours by selling to the US and the EU, bringing it up against a fundamental Mercosur ban on members negotiating bilateral trade deals outside of the bloc.
But the harsh reality of being a small nation in Mercosur has meant that even the ex-Marxist guerrillas in the government have been flirting with the idea of seeking its own free trade agreement with the US, whatever the consequences for its Mercosur membership.
The US has long proposed an Americas-wide free trade area but leaders such as Argentina's Néstor Kirchner, Venezuela's Hugo Chávez and Brazil's Lula da Silva have killed that idea for the time being, saying they will instead concentrate on Mercosur.
The US in response has sought to sign bilateral deals with South American countries, establishing agreements with Chile, Peru and Colombia, not members of Mercosur.
When President Bush arrives in the Uruguayan capital of Montevideo tomorrow as part of a seven-day swing through Brazil, Uruguay, Colombia, Guatemala and Mexico, he will be celebrating the January signing of a Trade and Investment Framework Agreement (TIFA) with Uruguay.
This agreement was greeted by some regional observers as nothing less than a potential Trojan horse, intended to undermine regional attempts to build a Latin alternative to the long-standing US hegemony over the continent.
Given the anti-Americanism that is rife in much of the region, any move by the yanquis is bound to be viewed by many as an attempt to divide and conquer. But this time such fears might not be far off the mark as the TIFA does pose a threat to Mercosur.
How so? Well, a TIFA is often a prelude to a country signing a full bilateral free trade agreement with the US, a move that would be incompatible with Uruguay's membership of Mercosur.
The signing of the TIFA seems to have served as a wake-up call for Brazil. Hurrying down to Montevideo ahead of Bush, Brazil's president, da Silva, showed up in February full of understanding and inducements, offering a range of investments and infrastructure projects which he said would help iron out some of the trade imbalances between the two countries. Having seen the colour of Brazil's money, Uruguay decided not to leave Mercosur.
But Brazil will have to work hard to stop Uruguayan discontent resurfacing and convince it that Mercosur is a bloc worth belonging to. The fact is that Mercosur is rather underwhelming.
Powerful lobbies in Argentina and Brazil are well versed in blocking attempts at concessions to smaller Mercosur members in the name of internal cohesion. As trade blocs go it has the curious distinction of having recently raised tariffs between members instead of lowering them.
While its leaders talk of a single currency, Mercosur's institutions have failed to resolve a dispute between Argentina and Uruguay over a pulp plant on their border that led to Argentinian protesters blocking all land routes between the countries for weeks, costing the Uruguayan economy hundreds of millions of dollars in damages.
Given that Brazil has long viewed Mercosur as key to its ambitions for a regional leadership role and an eventual permanent seat on the UN Security Council, it will fall to it to do the heavy lifting in resolving these contradictions. Its ability to do so is likely to have been made more difficult by its recent decision to approve Venezuela's entrance into the group.
Venezuelan president Hugo Chávez is trying to carve out his own regional role, which places him in competition as much with Brazil as with the US.
So while Bush might have been beaten to Montevideo this time by Lula, there is every likelihood the US will have further chances to try and drive its horse and cart through the gap between Mercosur's rhetoric and its reality.