MERCOSUR SUMMIT: LONG ON RHETORIC, SHORT ON

UNCLAS SECTION 01 OF 05 ASUNCION 000841

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STATE FOR WHA/BSC AND EB/IFD/OIA
STATE PASS TO USAID FOR LAC/AA
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TREASURY FOR OSIA MAUREEN WAFER
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E.O. 12958: N/A
TAGS: PGOV PREL PHUM ECIN EFIN EPET ETRD KIPR CU PA KICC VZ
SUBJECT: MERCOSUR SUMMIT: LONG ON RHETORIC, SHORT ON
SUBSTANCE

REF: A. MONTEVIDEO 731


B. BRASILIA 1685

C. ASUNCION 807

1.(SBU) Summary. Leaders attending the June 20 MERCOSUR
Summit lauded creation of a Development Fund to address
structural asymmetries and provide assistance to the group's
less developed members -- i.e. Paraguay -- as one of Summit's
most important achievements, but left largely unaddressed
concerns about limits on market access. With his three hour
speech to Paraguay's Congress lambasting the U.S. and
offering an alternative "vision" of integration and
development for South America, Venezuelan President Chavez
stole the headlines of an otherwise dull show. The
declaration the four MERCOSUR Presidents adopted prohibiting
members from entering agreements that affect the ICC's
jurisdiction could pose an obstacle to our already tenuous
prospects for an agreement with Paraguay. The Presidents
also signed a human rights protocol prescribing consultations
and possible suspension in the event of grave violations.
This protocol had no bearing on a separate decision to
initiate commercial negotiations with Cuba in the context of
its membership in ALADI. The Summit's Declaration affirmed
commitment to expand commercial ties with a wide host of
individual States and organizations, including the EU.
Notably absent was any specific mention of NAFTA or China.
End Summary.

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Fraternal Spirit Found Lacking in Summit Optics
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2. (U) On June 18-20, Paraguay hosted MERCOSUR's
twenty-eighth Summit in Asuncion. The Presidents of Member
States Argentina, Brazil, Paraguay, and Uruguay attended.
The Associate Members were represented by the Presidents of
Chile, Colombia, Ecuador, and Venezuela and the Foreign
Ministers of Boliva and Peru. Paraguay's President Duarte
took pains to foster a fraternal spirit among the four
MERCOSUR presidents and, in particular, between Argentina's
Kirchner and Brazil's Lula. For the family photo of all the
Delegation Heads from Member and Associate Member States,
Duarte insisted that Kirchner and Lula stand next to each
other after they had both made pointed efforts to position
themselves on opposite sides of the group. Nevertheless,
photographers captured Lula with a grimace on his face in a
separate photo of the four huddled in a circle with their
hands on top of each other. Both presidents made a point of
leaving shortly after meeting their responsibilities to
protocol.

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Duarte Calls For Greater Commercial Access
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3. (U) As host to the Summit, Paraguay's Duarte called on
Member States to dismantle mechanisms that inhibit the free
flow of goods and services. Paraguay,s business community
is frustrated by hindrances put on raw materials and other
goods bound for Brazil and Argentina. He also noted that
Paraguay's exports are disadvantaged by non-tariff barriers
imposed by the other members of MERCOSUR as well as by the
continued existence of unfair subsidies. Brazil's President
Lula de Silva conceded that there are difficulties, but did
not offer concrete measures to improve Paraguay's commercial
access to Brazilian markets.

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New Structural Fund Created
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4. (U) One of the more publicized outcomes of the summit was
the creation of the Fund for Structural Convergence and the
Strengthening of Institutions (FOCEM),envisioned to provide
USD 100 million per year in economic assistance to be shared
among member states. Brazil agreed to provide 70 percent of
the funding for FOCEM, with 27 percent to come from
Argentina, two percent from Uruguay, and one percent from
Paraguay. Ultimately, funding FOCEM will depend on concrete
action by member legislatures. The goal of the fund is to
create jobs, combat poverty, and to encourage structural
development in the less developed member countries, namely
Uruguay and Paraguay. Paraguay could receive up to USD 48
million per year.


5. (U) Vice Minister of Foreign Affairs Jose Lezcano remarked
to Charge about the importance of MERCOSUR uniting to help
its less developed member states -- i.e. Paraguay, arguing
that the principle was more significant than the amount of
funds. Once funds are approved, the organization must also
devise a method of administering the funds, a step which
could delay implementation. A separate anti-poverty program
was agreed in principle as well, but future summits will need
to decide on funding.

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Proposed Energy Network Would Link Countries
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6. (U) During the Summit, participants discussed a proposal
to create a regional "Energy Ring." The plan is intended to
link Peruvian gas supplies to existing pipelines in
Argentina, Brazil, Uruguay and Chile at a cost of USD 2.5
billion. The original intention of the plan, proposed by the
recipient countries, was to connect gas fields in
Southeastern Peru with Chile via a 1,200-kilometer pipeline
from the port city of Pisco to the city of Tocopilla, where
gas could then join existing pipelines to Argentina, Brazil
and Uruguay. During the course of the summit, the plan was
expanded to include Paraguay and Bolivia. However, Peru's
Foreign Minister noted that in order to participate in the
energy network, Paraguay would need to construct its own
pipeline. Media reports indicate that funding for such a
pipeline could come from the Inter-American Development Bank
(IDB). Peruvian Finance Minister Kuczynski noted that the
plan would not be feasible unless and until Peru
significantly bolsters production.


7. (U) Venezuela's President Chavez introduced his own
proposal for a continent-wide energy network, proposing a
6,000-kilometer pipeline from Venezuela to Argentina.
Discussion of possible sources of funding for both proposals
included the Inter-American Development Bank and the
Corporation for Andean Promotion, although reports
acknowledged the need for private capital.

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Regional Bank Proposed
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8. (U) During the course of the summit, Chavez also proposed
the creation of a single South American central bank
(Bancosur) to which the region's countries could move their
international reserves, rather than have them concentrated in
the "north" and Europe. Paraguay's Finance Minister, Ernst
Bergen, told the press that he thought it was an idea worth
considering, especially given the current environment of
macroeconomic stability in the region. He said that deeper
integration, including the possibility of a regional
currency, was a laudable goal, although one that would take
time.

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Regional Foot-and-Mouth Eradication Proposed
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9. (U) MERCOSUR announced a plan to eradicate foot-and-mouth
disease by 2009. In cooperation with the UN Food and
Agricultural Organization (FAO) and the World Health
Organization (WHO),MERCOSUR plans to vaccinate 100 percent
of cattle within member states. With approximately 280
million cows that must receive at least two vaccinations
annually, the estimated annual cost of the program stands at
USD 168 million, an estimated total cost of USD 672 million
through 2009. Paraguay, with a population of 9.5 million
head of cattle, is currently free of foot and mouth disease,
but the disease is found in parts of neighboring Bolivia and
Brazil.

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Brazil/Paraguay Sign IPR Agreement
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10. (U) In the course of the summit, Paraguayan FM Leila
Rachid and her Brazilian counterpart FM Celso Amorim signed a
memorandum of understanding to increase bilateral
coordination in combating copyright and trademark
infringement. The agreement establishes a bilateral working
group for the coordination of intelligence and for increased
bilateral cooperation in the prevention, investigation and
prosecution of IPR-related crimes. For Paraguay, the
Specialized Investigative Unit of the Ministry of Industry
and Commerce, which the USG supports with INL funds, will be
the principal Paraguayan point of contact. Paraguay
initially proposed an MOU to Brazil in a letter from
President Duarte to President Lula in July 2004, but did not
get a response until May of this year.

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Presidents Strengthen Commitment to Rome Treaty
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11. (U) Paraguay's Senate took some heat in the press
recently for extending diplomatic immunities to Amcit
participants in U.S.-Paraguayan military exercises. In 2003,
the MERCOSUR States affirmed their commitment to meeting
their obligations under the Rome Treaty. This year's Summit
went considerably further with Member States commiting
themselves not to sign bilateral or multilateral agreements
that would affect the jurisdictional basis of the ICC,
particularly in connection to Article 98. Paraguay's lawyer
for Article 98 negotiations with the U.S. conveyed concern
that this declaration could pose an obstacle to concluding an
agreement.

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Human Rights Protocol no Obstacle to Cuba
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12. (SBU) MERCOSUR Presidents approved a Protocol on the
Protection and Promotion of Human Rights introduced by
Paraguay that calls for consultations in the event of serious
concerns regarding respect for human rights or democratic
order in a Member State. Member States can decide by
consensus (minus the State that is the object of concern) to
suspend the State from participating in the organization
should consultations not produce a resolution. This document
was negotiated through two MERCOSUR fora with the
participation of the six associate members before its
adoption by MERCOSUR Member States. At the Summit, the four
members signed; Associate Members are invited to sign and
ratify this protocol. A Colombian Emboff who participated in
negotiations conveyed Colombia's reservations about one of
the protocol's articles leaving undefined the democracy/human
standards being applied. He thought this concern would
preclude Colombia from signing the protocol and indicated
Chile had the same concern.


13. (U) At Uruguay's behest, MERCOSUR has decided to
undertake negotiations to forge a commercial agreement with
Cuba in the context of its membership in ALADI. Since Cuba
is not seeking to become an Associate Member of MERCOSUR, it
is not required to subscribe to the MERCOSUR Protocol on
Human Rights, the Ushuaia Protocol on Democratic Commitments,
nor the 1996 Presidential Declaration on Democracy
Commitments.

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The Chavez Road Show
--------------


14. (U) As reported in reftel C, Venezuelan President Chavez
stole headlines and received wide coverage during his entire
visit. Chavez reportedly forced an invitation to address the
Paraguayan Congress, where he gave a three hour speech
describing capitalism as the "road to hell," blaming
underdevelopment on "imperialist countries," referring to
President Bush as "Mr. Danger" because of the threat he poses
to the world, and stressing the need for a "revolution" based
on socialist values. He downplayed the emphasis on economic
integration in the context of MERCOSUR calling for broader
economic and political integration across broader stretches
of South America. He offered proposals for regional
petroleum (Petrosur),banking (Bancosur),and communication
(Telesur) enterprises as ways to build on Bolivar's vision of
a united South America.


15. (U) Chavez took great pains to bolster his populist image
as a man of the poor posing for pictures with taxi cab
drivers and hotel employees, talking up people on the street,
and buying up all of the candy sold by a young child in front
of his hotel. He was scheduled to depart at 11 AM on 6/21
prompting the police to stop traffic on the street in front
of his hotel. Five hours later, Chavez emerged from his
hotel with the street still blocked by the police and with
dozens of "admirers" and curiosity seekers milling around
hoping to meet him.


16. (U) Chavez, who came with two airplanes, was protected by
a large security detail. A waiter at the hotel where Chavez
stayed said that he had counted no fewer than 20 security
officials circulating around him when he moved in or out of
the hotel. A Spanish Embassy employee who visited the hotel
where Chavez stayed was insistent that each floor of the
five-story hotel was protected by at least another 10
security guards. The security detail drew fire from the
press when a Venezuelan security official and a Paraguayan
military official assaulted and temporarily detained a
photographer who tried to take a picture of Chavez in front
of the hotel.

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Expansion of Cooperation with Others Minus NAFTA, China
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17. (U) As noted, the MERCOSUR declaration announced a
decision to commence negotiations with Cuba. Separately, it
conveyed its interest in strengthening economic ties with a
vast array of countries including Canada, South Korea,
Israel, Pakistan, Panama, Mexico, India, and Russia.
Argentina and Brazil strongly endorse forging a MERCOSUR
agreement with the People's Republic of China. Paraguay
recognizes Taiwan and continues to resist pressure to
establish relations with China. Mention of China was
ostensibly absent from the document.


18. (U) The declaration also conveyed an interest in
deepening ties with regional organizations and groupings
including the Arab countries, SACU of Africa, SICA of Central
America, CAN of the Andean countries, and CARICOM from the
Caribbean countries. It reconfirmed MERCOSUR's commitment to
negotiate an Interregional Association Agreement with the EU
and its interest in a ministerial with the EU. The
declaration made no mention of NAFTA. Instead, it conveyed
MERCOSUR readiness to begin negotiations to expand access to
markets on fair terms with countries in the Hemisphere with
which MERCOSUR had not yet signed commercial agreements.


19. (SBU) Comment: Progress on creation of a Structural Fund
and establishment of an energy ring will depend on
significant concrete follow-up which may prove problematic.
In principle, MERCOSUR's embrace of a human rights protocol
is welcome. However, the protocol itself is short on
specifics both in terms of standards and procedures, raising
a question regarding its utility. MERCOSUR's Declaration on
the Rome Treaty is unwelcome as it will reinforce Paraguayan
reluctance to provide Article 98 protections. The MERCOSUR
Summit proved a platform for Chavez to tout his vision of
South American unity which included a variety of proposals
but no effective roadmap. At the end, the Summit may have
been most noteworthy for what it did not do -- namely produce
concrete agreement on the reduction of trade barriers that
contribute to an expansion of market access. End Comment.
KEANE