PRESIDENT KIRCHNER SUPPORTS URUGUAY'S RIGHT TO

UNCLAS SECTION 01 OF 02 BUENOS AIRES 000161

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SENSITIVE
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E.O. 12958: N/A
TAGS: ETRD ECON EINV PREL AR BL VE CI
SUBJECT: PRESIDENT KIRCHNER SUPPORTS URUGUAY'S RIGHT TO
NEGOTIATE AN FTA WITH THE U.S.

REF: MONTEVIDEO 66


1. (U) This cable is sensitive but unclassified, not for
Internet distribution.


2. (U) President Nestor Kirchner made a statement to the
press on January 19 during his state visit to Brasilia that
he would not oppose Uruguay's negotiation of a free trade
agreement with the U.S. "If Argentina and Brazil cannot
provide Uruguay with what Uruguay needs, it is not bad for
them to sign a treaty with the United States," he said, "We
do not want police states (that control other states). I
told Lula that we had to be flexible and he responded that he
was in agreement." "We are going to try to help Uruguay, but
it may happen that we are not able to give it what it
deserves," he continued, "We are not like Germany is for
Europe, despite the differences. We believe in MERCOSUR, but
Argentina and Brazil are struggling to come out of a very
deep economic crisis, and it may happen that we cannot give
Uruguay the tools that its people need, so neither can we
impede them from making a good deal." Kirchner made the
statement in a brief interview that he granted to the
Argentine press in the lobby of the Hotel Kubitschek in
Brasilia. The journalists pointedly asked if MERCOSUR would
prevent a member nation from negotiating outside the bloc.
He responded that, "We have to be flexible. MERCOSUR has to
adopt to the needs. We must understand, in addition, that
balance is difficult. This can be seen in the European
Union, with the years of experience that they have with
integration."


3. (U) Kirchner also spoke about the advances in the
MERCOSUR negotiations, the controversy with Uruguay over the
construction of two European paper plants in Uruguay on the
Uruguay River, the likely Brazilian concession regarding the
application of safeguards within MERCOSUR, the future
incorporation of Bolivia and Venezuela into MERCOSUR, and
Chile's relationship with the same. Regarding Chile,
Kirchner said that Chilean President Elect Michelle Bachelet
wanted to deepen relations with MERCOSUR. Asked if that was
possible even though Chile had an FTA with the U.S., Kirchner
said, "Yes, we have to be flexible. MERCOSUR has to be
flexible." Kirchner also stated that Lula had mentioned that
Brazil and Argentina had coordinated the recent payment of
their IMF debt.

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Comment
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4. (SBU) This is the first time that Kirchner has said that
MERCOSUR member countries should have the right to pursue
separate free trade agreements with other countries. It is
not clear why Kirchner said this, but there are several
possible explanations. First, Kirchner is a nationalist and
he will do what he thinks is best for Argentina, such as
imposing trade barriers on the import of Brazilian shoes,
textiles, and household appliances, applying a zero tariff on
the import of capital goods coming from outside of MERCOSUR,
or demanding the introduction of legal safeguards into
MERCOSUR rules to protect Argentine industries. In this
context, it is not surprising that he would sympathize with
Uruguayan President Tabare Vasquez' efforts to pursue what is
best for Uruguay. Second, Kirchner has never allowed anyone
to keep him from doing what he thought was best for
Argentina, so he would be sympathetic to Tabare Vanquez doing
what he thinks is best for Uruguay. This sympathy is made

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easier by the fact that Argentina has relatively little trade
with Uruguay and has even less to lose as a result of an
Uruguayan FTA with the U.S. Third, Kirchner has argued that
the benefits of MERCOSUR are not shared evenly among its
members, i.e. that Brazil has received most of the benefits
and needs to be more generous with its smaller partners. If
MERCOSUR has not been fair to a mid-sized country like
Argentina, it stands to reason that it would be even less
fair to a small country like Uruguay. Fourth, Kirchner has
been unable to respond to Uruguay's request for assistance in
ending the paper plant-related blockade of bridges leading
from Entre Rios Province to Uruguay. Supporting Uruguay's
negotiation of an FTA with the U.S. is a politically feasible
way of supporting Tabare Vasquez without having to pay a
domestic political price for telling Argentines that they
cannot block the bridges to Uruguay. End Comment.


5. (U) To see more Buenos Aires reporting, visit our
classified
website at: http://www.state.sgov.gov/p/wha/buenosaires.< /a>
GUTIERREZ