PRESIDENT KIRCHNER SUPPORTS URUGUAY'S RIGHT TO

UNCLAS SECTION 01 OF 02 BUENOS AIRES 000161 SIPDIS SENSITIVE SIPDIS WHA FOR DAS PATRICK DUFFY, WHA/BSC AND WHA/EPSC, EB FOR TPP NSC FOR DAN FISK AND SUE CRONIN SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA USDOC FOR 4322/MAC/OLAC/BASTIAN/PEACHER USTR FOR MARY SULLIVAN AND KAREN LEZNY OPIC FOR RUTH ANN NICASTRI 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. -------------- Comment -------------- ¶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 BUENOS AIR 00000161 002 OF 002 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