I.                   macroeconomic environment and economic policy

A.                Introduction

1.                   In the course of 2004, the Uruguayan economy consolidated its recovery which had begun in early 2003, when it found a way out of the crisis in its financial system and came up with a solution to the concentration of public debt maturity dates. Thus, overall production of goods and services grew sharply in 2004 – 12.3 per cent – recovering much of the ground it lost between 1999 and 2002.  In this context, tax revenue rose considerably, and coupled with the control of public spending, this led to a significant increase in the primary fiscal surplus, which far exceeded the targets agreed with the International Monetary Fund (IMF).  Meanwhile, the Central Bank of Uruguay continued to pursue a set of monetary policy objectives in a floating exchange regime, enabling it to bring the retail inflation rate down to below 10 per cent.

2.                   In 2005, the Uruguayan economy maintained its growth trend (6.6 per cent from January to September 2005) thanks to a relatively favourable external environment and a climate of increasingly positive expectations.  In particular, the agreement reached between the new Government and the IMF and the commitment shown by the authorities to the process of fiscal consolidation contributed to dispelling any uncertainties and strengthening the confidence of international investors in the Uruguayan economy.  Meanwhile, the production sector was marked by the continued buoyancy of fixed investment, a key element in ensuring sustained growth.  As regards prices, the continued decline in the inflation rate enhanced the climate of macroeconomic stability.

3.                   Against this background the process of strengthening of the financial system that had begun in 2003 was further consolidated, and there was a significant improvement in the soundness and liquidity indicators of the financial intermediation institutions.

B.                Macroeconomic Outlook 2006-2009

4.                   The macroeconomic outlook for the next few years continues to be favourable.  In terms of activity, the economy is expected to continue growing at a good pace between 2006 and 2009.  Gross domestic product (GDP) in particular is expected to increase by 4 to 5 per cent in 2006, and by 3 to 3.5 per cent in the years that follow.  In terms of demand, growth in production is expected to be sustained by an expansion in consumer spending and exports.  A significant recovery is also expected in fixed investment, which is essential to ensuring continued medium-term economic growth.

5.                   The predicted expansion in consumer spending would be based on the recovery of real wages and employment, assuming exports continue growing in a favourable regional and international context.  Although the recovery of investment in machinery and equipment and in building would essentially be driven by the private sector, the public sector has also made the improvement of the current low level of investment one of its priorities.

6.                   As regards prices, it is assumed that the monetary authority will succeed in its objective of bringing inflation down.  This being the case, in an economic growth context, as from 2006 and for the foreseeable future average prices in dollars are expected to continue increasing at a rate that is more in line with international inflation.

C.                Economic Policy Framework

7.                   Stimulation of investment is one of the cornerstones of the development strategy drawn up by the Government, which will encourage the coordination of efforts with actors in the private sector in order to generate a climate conducive to the development of business.  In order to achieve this objective the Government has set the following priorities:  (i) to preserve property rights, protecting the rights of debtors and creditors through the fulfilment of contracts;  (ii) to develop the capital market;  (iii) to strengthen the framework for restructuring companies, revising the law on bankruptcy;  (iv) to improve the management of State enterprises;  (v) to revise the investment promotion schemes.

8.                   Although not in itself sufficient, economic stability is a prerequisite to equitable growth.  The consolidation of the economic growth process calls for the implementation of macroeconomic policies that are coherent and sustainable over time, and the adoption of long-term reforms aimed at stimulating investment and reducing the structural vulnerabilities of the Uruguayan economy.

9.                   Stability in the broad sense of the term is also fundamental to reducing poverty and improving the distribution of income.  The recurring crises have been the main factor in spreading poverty and social exclusion.  History has shown that it takes many years to repair the deep cracks that a crisis will tend to produce in the social structures.  In addition to building up a social protection network that attends to the most vulnerable segments of the population, there is a need for economic policies that reduce critical situations to a minimum.  Without economic stability and sustained growth in production, and without a more equitable distribution of the fruits of growth, we cannot achieve any sustained improvement in the standard of living of our population, and our country's economic and social stability could be threatened.

10.               In the light of the above considerations, the Government's economic policy will aim to create the conditions required for sustained growth in the level of activity, to consolidate fiscal and financial stability, to reduce the structural fragility of the economy and to contribute to restoring the country's social welfare.

11.               The policy of international integration will take account of the fact that the chief objective of external negotiations is to achieve stable and predictable market access conditions at all levels, regional, bilateral, and multilateral.  A small economy can only hope to achieve scale through export integration, and hence, access to foreign markets.  External negotiations constitute a single whole, and the different negotiating processes currently under way will be regarded as complementary rather than mutually exclusive.  Uruguay has insisted on consolidating the customs union within MERCOSUR while remaining fully aware of the importance of negotiations with the other countries and blocs in achieving the primary objective of open regionalism, set forth in the Treaty of Asunción of 1991.

12.               The objective of Uruguay's monetary and exchange policy will be to provide a stable and consistent framework for the development of business and for operators to make decisions.  Inflation is a tax that is ultimately paid by workers and the weaker segments of the population with fixed incomes, or those that receive no direct monetary income.  Consequently, it is important to maintain the stability that has been achieved, and indeed, to work towards reducing inflation even further in the future.  The floating exchange regime provides greater flexibility to a small and open economy like Uruguay's when it comes to facing external shocks, and at the same time, it helps to curtail speculative capital movements.

13.               Reforming the financial system is essential to ensuring sustained economic growth.  Bank loans and capital markets are called upon to play a fundamental role in financing new institutions which will be crucial to generating employment and growth.  In December 2005, the Government handed Parliament a proposal to reform the charter of the Central Bank and create the Corporation for the Protection of Bank Savings (COPAB) as an agency independent of the Central Bank.  The law provides for greater autonomy for the Central Bank, the strengthening of financial supervision and the creation of a deposit insurance administration entity (independent of the Central Bank of Uruguay).

14.               In spite of the progress achieved over the past two years in the supervision and operation of the financial system, there are still a number of pending issues which need to be addressed in order to reduce its vulnerability:  (i) completion of the restructuring of the Banco de la República (Bank of the Republic - BROU) and the Banco Hipotecario (Mortgage Bank - BHU);  (ii) establishment of a clear distinction between the commercial and promotional functions of the BROU;  (iii) moving forward on the restructuring of the domestic debt on a case-by-case basis, distinguishing between good debtors and bad debtors;  (iv) promotion of the development of instruments in indexed units;  (v) improved regulation and supervision of the financial sector;  (vi) implementation of deposit insurance.

15.               Fiscal policy will seek to progressively reduce the ratio between the public debt and GDP to sustainable levels.  Fiscal consolidation is currently the main instrument for reducing macroeconomic uncertainty, and is a key to improving Uruguay's long-term economic growth prospects.  A reduced public debt in GDP terms would alleviate the burden of interests, guarantee continued access to capital markets and reduce the sovereign risk while at the same time paving the way for an increase in social expenditure and in the rate of investment in physical and human capital.

16.               The Government is currently in the process of preparing a tax reform. Uruguay has a fairly high tax burden in comparison to countries with a similar level of per capita income so that any increase in taxes would appear to be unwise.  The planned changes in the tax system will be geared towards expanding the tax base and reducing the high level of tax evasion.

17.               The Government is also involved in revising the investment promotion schemes and sectoral incentives in order, if possible, to achieve greater transparency, to simplify the system, and to ensure compliance with international commitments.  At the same time, and in the same context, the indirect export tax refund system is being evaluated.

18.               Public spending priorities will be geared towards the achievement of greater social equity.  For the Government to implement its plan in the current context of fiscal restraint, it must reallocate public spending and give priority to certain objectives.  With the ongoing deterioration of social conditions, fiscal efforts must focus on responding specifically and immediately to emergency situations facing a significant portion of the population without losing sight of the continuing social policies that form part of an overall economic development strategy. 

19.               It is in this context that the Plan de Atención Nacional de la Emergencia Social – PANES (National Attention Plan for the Social Emergency) was developed with a view to organizing assistance and promotion activities to satisfy the basic needs of the weakest and most vulnerable sectors of society and improving their potential for economic and social integration.

20.               Wage policy in the public sector must be consistent with the above-mentioned priorities.  Increases in the remuneration of State employees must be contingent on the evolution of government revenue and must take account of the need to concentrate on PANES, social expenditures (particularly on education), the lowest central government salaries, and essential infrastructural investments.

21.               It is also important, in the medium term, to reform the social welfare system, since demographic trends point to an increase in the demand for benefits that is likely to put pressure on public finances.  The social security deficit must be kept under control in order to ensure the sustainability of public finances and to free up resources for objectives that have been defined as social priorities. 

22.               It is important to push forward the State reform needed to enhance the return on existing fiscal resources, as this would help to satisfy social needs and overcome infrastructural deficiencies.  Shortcomings in these areas are aggravated by the considerable inefficiency and the seepages that go hand in hand with a weak institutional framework that is vulnerable to individual interests.  Any society that wishes to grow and become more equitable must reform the State to improve the performance of its institutions.

23.               Another important issue is employment policy, particularly since unemployment is the main factor behind the spread of poverty and social exclusion.  The high level of unemployment contributes to the development of informal labour relations which threaten social cohesion.  In order to achieve steady growth in employment and gradually improve job quality, it is essential to develop a sustained growth strategy based on productive investment, higher levels of education, training, and the promotion of technological innovation.

24.               As a means of promoting the development of labour relations, wage councils were set up in early May 2005 to help create an environment conducive to collective bargaining and participation.  At the same time, there was a call for proposals to conclude a national agreement that would supplement and extend this tripartite negotiating forum.  It is essential that the parties should agree on fair criteria for the remuneration of the factors of production, capital and labour.

25.               In the short term, the government will be implementing programmes for the promotion of micro enterprises in an effort to achieve three objectives:  (i) improved social integration;  (ii) extended formalization of economic activities;  (iii) increased SME exports.  In the long term, the Government will seek to develop a strategy of innovation, research and technological development aimed at creating more stable and higher value added jobs, while at the same time working to improve the functioning of the labour market, a task which is closely linked to the strengthening of the educational system at every level.

II.                trade environment and trade policy

A.                 Trends in External Trade and Investment

26.               The severe economic crisis that struck the country in 1999 had a sharp impact on the figures for Uruguay's external trade in goods and services and on investment from the rest of the world.

27.               From that year onwards, with a slight rebound in 2000, both exports and imports of goods and services began to fall with the result that in 2002 exports were 33.7 per cent lower in current dollars than in 1998 while imports, again in current dollars, were also down by some 44.3 per cent.

28.               In 2003, the economy began to recover, and by the end of 2005 goods exports had reached US$3.4 billion, an increase of 20 per cent on the historical maximum of 1998.

29.               With the intensification of the crisis in 2002 and the rapid economic recovery that began in the following year the balance of trade in goods and services, which had been negative during the Nineties, went into surplus thanks, in particular, to the considerable increase in goods exports.  As far as the composition and destination of the exports are concerned, the most notable trends between 1998 and 2005 were the decline in terms of volume and relative importance of MERCOSUR as an export destination (from 55.3 per cent to 22.9 per cent, i.e. 751 million current dollars less) and the growth in sales to the United States market, especially after it was opened up to sales of Uruguayan beef, which rose from 5.8 per cent of goods exports in 1998 to 22.4 per cent in 2005 (an increase of 603 million current dollars).

30.               Foreign direct investment flows also suffered the consequences of the growing recession recorded between 1999 and 2002 and only began to recover in 2003.

B.                 Trade Policy and Integration

31.               Trade policy, that is to say, the system of instruments and measures that determine the external integration of an economy, is subordinate to national economic development objectives and strategies.  A fair and sustainable growth strategy calls for the creation of the right conditions for the expansion of productive investment, which in the case of an economy such as that of Uruguay, presupposes an export drive to achieve the scale that makes efficient production possible.  In this respect, the priority objective in terms of external integration is, at the external level, improved market access for Uruguayan products and, at the internal level, the production of a range of exports that satisfy the nature and requirements of the foreign demand.

32.               Consequently, Uruguay has fixed as a basic objective of its external negotiations the achievement of stable and predictable market access conditions at all levels:  regional, multilateral and bilateral.  In this respect, the economic-commercial dimension of the integration process is critical from the standpoint of its growth strategy, and the various negotiations in progress (WTO, MERCOSUR, EU, FTAA, etc.) are not mutually exclusive but complementary.  External strategy should seek to achieve competitive integration into both regional and world economies at the same time, by promoting the marketing of both products with static comparative advantages and products with a greater technological content that exploit Uruguay's dynamic comparative advantages.

33.               The new Government, in keeping with the basic objective of external integration, has defined as one of its priorities the expansion of MERCOSUR, which should improve access to both regional and extra-regional markets, in the latter instance through the process of joint negotiations with third countries.  The fact is that the construction of the customs union has two components, one internal and the other external, which need to be developed simultaneously.

34.               Uruguay has not been able to create the conditions for attracting investment in manufacturing, where efficiency depends on scale.  This would help to diversify and add value to Uruguay's competitive exports which traditionally consist of natural-resource-intensive products.

35.               In these circumstances, it is also essential to explore the individual possibilities of improving access to other markets through the conclusion of bilateral agreements with a trade content, capable of creating opportunities for attracting investment and hence for promoting growth, creating jobs and reducing poverty.  By these means Uruguay is also trying to ensure that domestic industry has a competitive supply of inputs, which will help it to find outlets in the rest of the world.

36.               A good example of a recent bilateral agreement is the Free Trade Agreement with Mexico, signed on 15 November 2003, since it marked a qualitative change in bilateral relations by improving access to the respective markets for goods and services.

37.               It should also be noted that Uruguay is holding trade talks with the United States within the framework of the Joint Commission on Trade and Investment established in 2002 with a view to strengthening the economic and trade links between the two countries.

38.               In the multilateral context, Uruguay is seeking to promote its offensive trade interests in pursuit of the gains to be made from commitments on subsidy policies and, in particular, the lowering of barriers to market access.

39.               In areas not strictly belonging to the sphere of trade negotiations, work is in progress on agreements to protect and promote investment and on double taxation agreements, on the understanding that they could help to expand the opportunities for production by facilitating the incorporation of technology and improving access to foreign markets.

C.                 Related Policies

(i)       Investment regime

40.               The investment regime is based on Investment Law No. 16.906 of 7 January 1998.  The main objective is to promote and protect investment, both domestic and foreign, with a commitment to non‑discriminatory treatment on the part of the State.  The legal provisions clearly define the freedom to invest, without any need for registration, and the freedom to transfer capital and profits abroad.

41.               The promotion of investment by agricultural and industrial enterprises is based on two laws:  the Investment Law and the Industrial Promotion Law, Decree Law No. 14.178 of 28 March 1974.  The regime applies to those agricultural and industrial enterprises that pay industrial and commercial income tax (IRIC), agricultural income tax (IRA) and tax on transactions involving agricultural goods (IMEBA).

42.               This general objective is supplemented by more specific goals such as greater efficiency, export expansion and diversification, the establishment of new enterprises and the strengthening of existing ones, encouragement for technological development and support services for industry, increased productive employment,  integration of activities, promotion of small and medium-sized enterprises, and geographical decentralization.

43.               The regime itself and other legal provisions define a system of automatic and general tax and tariff concessions for commercial enterprises.  Moreover, within this regime, the Executive is empowered to grant other benefits.  Finally, the investment promotion regime authorizes the Executive to grant promotional concessions additional to those mentioned above to enterprises that submit investment projects which the Executive declares to be worthy of promotion, provided that their activities contribute to the specified objectives of the regime.

44.               Businesses interested in being promoted must submit an investment project, which must be technically evaluated in order to be declared worthy of promotion and eligible for the additional concessions.  The evaluation may be public or private, at the discretion of the enterprise.

Table 1:  Projects declared worthy of promotion

Source:                Investment Law Application Commission.

45.     Two cellulose plants are currently in the development stage and are expected to come into operation in 2007.  Together they represent an investment of US$1.5 billion.

46.     Further evidence of the degree of openness and the non-discriminatory treatment that characterize national foreign investment policy is the fact that since the last review Uruguay has ratified three agreements granting pre-establishment to investments and investors from the countries concerned, namely, the Investment Promotion and Protection Agreements (IPPAs) with Canada and the United States and the Investment Chapter of the Free Trade Agreement with Mexico.

(ii)       Competition policy and bankruptcy legislation

(1)            Competition policy

47.     The Executive has submitted a draft competition law which seeks to promote competition and repress anti-competitive practices in Uruguay.  The name of the bill itself, namely, "Draft Law on the Promotion and Protection of Competition", is already suggestive of what is planned.

48.     It is intended to achieve these objectives by improving the definition of prohibited practices prosecuted under the rule of reason and directly incorporating elements of economic efficiency into the investigation of these practices.  In addition, the implementing body is being relocated and removed from the orbit of the Ministry of the Economy and Finance to become a decentralized agency of that ministry, which should give it greater independence from the political sector.  Although the regulatory bodies will retain their particular powers, their respective spheres of activity are being more clearly defined.  Finally, a decision-making tribunal is being created.

49.     Where the promotion of competition is concerned, the implementing body will incorporate the committees previously set up by the Planning and Budget Office for advising the Executive on the possible anti-competitive consequences of various pieces of legislation.  One of the objectives on which the draft lays particular emphasis is that of penalizing behaviour that impedes or restricts access or entry to markets, which, along with the formation of cartels, is a tactic sometimes employed, as a last resort, by established enterprises to stifle effective competition.

50.     Moreover, the legislation would incorporate a system of prior notification of mergers and acquisitions.  Considerations of efficiency in an economy which is already concentrated and where the State is a producer in markets with the characteristics of a natural monopoly suggest a prudent approach to the application of structural policies and an intensified effort to repress and discourage both concerted practices and the abuse of dominant market position.

51.     The legislation is being examined by the Legislature which is expected to approve it next year.

 (2)            Legislation on bankruptcy

52.     Competition policy needs to be supplemented by rules and regulations on commercial bankruptcy.  A strong competitive system depends on the existence of efficient legal mechanisms that enterprises can employ if they get into financial difficulty.  In Uruguay, this system has remained substantially the same since 1926 and is clearly obsolete:  enterprises facing problems of liquidity or solvency resort to it only at a late stage and for the purpose of delaying their inevitable exit from the market.

53.     Although this is not a problem directly linked with the protection of competition, there can be no denying that the situation of enterprises in financial difficulty has an impact on the level of competition in the markets and on the competitiveness of their constituent enterprises.  Moreover, legislation that prevents economically non-viable companies from going out of business makes it more difficult for new and more efficient undertakings to gain access to the market, insofar as these regimes tend to offer specific concessions with respect to creditors which translate into a certain degree of unfair competition.

54.     Thus, efforts are being made to enable enterprises to achieve a rapid legal resolution of their problems and at the same time to distinguish those enterprises that are economically viable from those that are not, while ensuring that the latter are promptly liquidated.  The present system allows some enterprises to die a slow death, which creates difficulties of access for others in various sectors of the economy.

55.     The draft would incorporate elements that separate the ownership of the enterprise from the production unit and, in the last resort, allow the enterprise to survive despite the intentions of its owners, subject to certain requirements being met.  At the same time, the aim is to incorporate market mechanisms that enable the viability of an enterprise to be quickly determined and, if it is found not to be viable, allow for its rapid liquidation.

(iii)  Customs reform

56.     The reform of the National Customs Directorate forms part of the strategy of international integration and improved conditions for greater competitiveness in the production of goods.  In its turn, this presupposes adaptation to the trends in international trade, in the areas of trade agreements, security, cargo risks, sanitary and environmental conditions, and the trade supply chain.

57.     Customs will move beyond its traditional role of controlling imports and collecting duty to play a significant part in trade facilitation, both in exploiting the advantages for more competitive suppliers and in reducing the access risks resulting from trade negotiations.  Given the possibility of Uruguay's acting as a distribution and transit centre for the region, Customs should facilitate smooth and secure trade flows, in total compliance with customs and fiscal regulations and sanitary and security requirements, thereby making it possible to generate new activities and sources of income and employment. 

(iv)  Tax reform

58.     The tax reform programme being undertaken by the new administration is based on justice, with the emphasis on a fairer distribution of the tax burden and a greater role for direct taxes; a more efficient tax system; and consistency with the creation of appropriate incentives for productive investment.

59.     Thus, the present tax system will be simplified by reducing the number of taxes and eliminating distortionary taxes that produce little revenue, the existing exceptions and exemptions will be reviewed, and personal income tax will be gradually introduced.  Personal income tax is in keeping with precisely the idea of fairness, that is to say, those who have more should pay more.

60.     Moreover, these reforms are being supplemented by an ongoing process of modernization of the Tax Administration.  This will provide for closer coordination between the tax-collecting agencies, particularly between the Directorate General of Taxation (DGI), the Social Security Bank (BPS) and the National Customs Directorate (DNA).  The simplicity of most of the instruments facilitates joint controls and cross training between officials of the different agencies.

61.     The proposed tax schedule, with lower rates of taxation, greater simplicity, greater sectoral fairness, and improved audit facilities, will promote the formalization of the economy and discourage evasion, which will further the process of reducing the individual tax burden on the honest taxpayer.  The greater fairness with respect to sectors and sources of income will improve the transparency of the system.

62.     A choice has been made in favour of a dynamic approach to fiscal responsibility, so as to avoid undesirable interruptions in the public accounting process and the functioning of the State, while at the same time making it possible to reduce the tax burden as receipts permit.

63.     In particular, effective implementation of the proposed reforms will ensure that the State continues to meet its obligations and, in accordance with the trend in Government income, lead to taxes and rates being adapted to a structure suitable for the long term.  The idea is to initiate a gradual process that will include the following aspects:

(a)               Elimination of distortionary taxes that produce little revenue;

(b)               elimination of specific public sector taxes that give rise to inefficiencies in the functioning of the State;

(c)               reduction of transfers from state-owned enterprises until they are consistent with an equivalent distribution of reasonable dividends in the private sector, thereby encouraging investment planning and lower public service prices;

(d)               reduction of the rate of value added tax.

64.     In short, the main features of tax reform can be grouped on the basis of the following criteria:

(a)               Simplification of the tax structure by thinning out the numerous taxes resulting from partial changes prompted by a short-term and piecemeal vision of the system;

(b)               rationalization, to achieve greater consistency between the characteristics of the various taxes, starting with a review of the tax bases and the exemptions available;

(c)               gradual introduction of the Personal Income Tax, as a means of making the overall system more equitable, while taking into account the ability of citizens to pay and extending the net to include income on which no tax is currently being paid;

(d)               a dynamic approach to fiscal responsibility that takes a strategic view of the need to ensure the provision of public goods by the State while, at the same time, making it possible to establish a virtuous circle based on reducing the tax burden as receipts permit.

D.                 Uruguay and the WTO

(i)    Uruguay and the multilateral trading system

65.               Uruguay has made a strong commitment to multilateralism in general and to multilateralism in the area of trade in particular.  In fact, Uruguay was one of the first signatories to the San Francisco Charter, as well as a signatory to the Havana Charter, and joined the GATT at an early stage, in 1953.  Moreover, it has participated actively in all the negotiating rounds, occupying important posts on various committees. 

66.               Uruguay has defended multilateralism as a way of upholding the rights of the less developed nations against those of the more powerful and, where trade liberalization is concerned, it has supported the view that it contributes to the development and well-being of the world's peoples.

67.               Thus, Uruguay has always strongly advocated the inclusion of agriculture in the multilateral negotiating agenda.  In this connection, it should be noted that agricultural negotiations were in fact included in the agenda of the Round that bears its name, the Uruguay Round, which concluded, for the first time, with the approval of disciplines in this highly sensitive sector.  It should be recalled that Uruguay is a founding member of the Cairns Group of agricultural exporting countries which played a decisive part in bringing the Uruguay Round to a conclusion.  More recently, Uruguay took the decision to join the G20, a Group which aspires to give agriculture the role it undoubtedly deserves, with special account for the needs of the developing countries.

68.               For Uruguay, the agreements concluded during the Uruguay Round, although they have been described as insufficient to achieve the effective opening up of the world to agricultural trade, constituted definite progress towards the goal of endowing agricultural trade with rules subject to worldwide acceptance and multilateral supervision.

69.               In the area of dispute settlement, Uruguay regards the WTO mechanism as one of the cornerstones of the multilateral trading system, providing it with security and predictability, postulates which Uruguay has traditionally upheld and promoted.

70.               At the same time, we believe that the practice of reviewing national trade policies and regional trade agreements contributes to the predictability and transparency which are fundamental to multilateral understanding.  Uruguay's Delegation in Geneva closely follows the meetings of the Trade Policy Review Body.  This monitoring body is a vital means of providing transparency and improving the flow of information on the multilateral trading system.  The Enabling Clause establishing the rights and obligations of the developing countries should be left exactly as it is.

71.               Uruguay supports the accession of new members to the WTO, in the belief that it will strengthen the multilateral trading system at the same time as providing the applicant countries with new opportunities for economic and commercial development.  With regard to the WTO accession processes currently in progress, Uruguay has concluded accession negotiations with Russia, Algeria, and Vietnam, among others.

(ii)   Uruguay's position on the Doha Development Round

72.               Agriculture is Uruguay's main focus of interest in the current round of trade negotiations.  Indeed, the agricultural negotiations are the area in which Uruguay hopes to gain the most benefit in terms of market access and the elimination of export subsidies and trade-distorting domestic support.

73.               Traditionally, Uruguay has argued for the long-term reform of the agricultural sector, as emerges from the mandate approved in Doha.  This was precisely the priority objective of the Uruguayan Delegation, led by the Minister of Foreign Relations, that attended the WTO's Sixth Ministerial Conference held from 13 to 18 December 2005 in Hong Kong.

74.               The  national assessment of the Hong Kong Ministerial is positive, in particular, because it renewed the necessary political support for the negotiating process of the Doha Development Round.  At the same time, for Uruguay the most notable result was the fixing of a definite and specific date for the elimination of export subsidies and other measures with equivalent effect. This has been one of the priority objectives of Uruguay's foreign policy in the field of international trade, which has now found concrete expression.  It has also been, from the outset, one of the core principles of the MERCOSUR and Cairns Group countries and was at the origin of the creation of the G20.

75.               The timetable agreed at the Hong Kong Ministerial is another fundamental step in the negotiating process in that it includes time-limits for the various disciplines designed to enable the Round to be concluded by the end of this year.

76.               Moreover, in Uruguay's opinion, the question of development - the cornerstone of the Doha Agenda - should continue to set the standard for the various dimensions of the present round of negotiations, without the subject being exhausted on issues of a horizontal nature.  In this respect, genuine market access in sectors of the economy of direct interest to the developing countries is the primary means of contributing to development.  In Uruguay's view, agriculture is the negotiating area likely to provide the greatest gains for the developing world.

77.               Uruguay is pursuing its activist agricultural policy through its dual membership in the Group of 20, which it joined early in 2005, and the Cairns Group.  In the present negotiations, belonging to these two influential groupings has made it possible to win support for the positions of the developing countries while staying firmly on the offensive in agricultural matters.

78.               Uruguay notes the importance of what was agreed in paragraph 24 of the Hong Kong Ministerial Declaration with regard to maintaining a balance between reduction commitments for agricultural and industrial goods in order to ensure that this Round produces a fair result.

79.               Uruguay has participated actively in the discussions on services as reflected in the  negotiating proposals submitted at multilateral level after the end of the Uruguay Round.  Thus, the country has cosponsored proposals on: the economic needs test; autonomous liberalization; postal services;  distribution services;  mode 4;  tourism;  computer and related services; and the negotiating guidelines and procedures provided for in article XIX of the GATS.  It has also taken a proactive approach within the context of the Doha Round, having lodged requests with twenty-seven countries within the specified time-limit (June 2002).  In its offer, submitted in March 2003, it added substantial commitments to its original schedule, with the inclusion of several sectors.  In May 2005, in compliance with the "July Package", it improved its offer by extending its horizontal commitments in mode 4.

80.               In short, Uruguay believes that it will not be possible to regard the Round as having been satisfactorily concluded unless substantial progress is made with the three main pillars of liberalization of agricultural trade, as set out in Annex A to the Work Programme of August 2004, which also deals with various aspects of special and differential treatment for developing countries in respect of the tolerances for domestic support and applied tariff reduction rates.  A substantial improvement in market access, a substantial reduction in domestic support and the elimination of export subsidies continue to be core objectives of the modalities negotiations in progress.  Nevertheless, the preservation of the multilateral institutional framework is also seen as a principal objective.

III.             conclusions

81.               At the beginning of this century, Uruguay was faced with what may well have been the worst economic and financial crisis in its history.  Thanks to some judicious reforms, it was able to reverse the process within a relatively short period of time, and now national income is almost back to pre‑crisis levels, with the prospect of continued progress along the path of sustained growth.  The new Government which took office in March 2005 has addressed itself to reviewing and assessing every aspect of economic policy in order to be able to lay firm foundations for national economic development.  In carrying out this task, the Government is keeping the country's international commitments clearly in view, at both multilateral and more specific levels.  These objectives are the source of all the reforms in process of implementation cited in the course of this report.  Uruguay's trade policy forms part of this effort to bring about improvements and to adapt to the aforementioned national objectives and international commitments.

82.               Uruguay is committed to multilateralism, as is apparent from its efforts at World Trade Organization level and, above all, in connection with the current Doha Development Round.  At the same time, it is putting its faith in its complex external agenda, by strengthening its commitment to open regionalism and seeking at every possible opportunity to use the trade policy tool for the economic development and well-being of its people.

83.               With respect to the future orientation of trade policy, Uruguay will continue its process of integration into the world economy in accordance with the agreed rules, by intensifying integration at multilateral and regional levels and seeking to speed up progress with preferential relationship agreements.

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