Identifier
Created
Classification
Origin
06MONTEVIDEO1194
2006-12-19 20:31:00
CONFIDENTIAL
Embassy Montevideo
Cable title:  

URUGUAY VOICES DEEP DISSATISFACTION AT MERCOSUR

Tags:  ECON ETRD EINV PREL UY 
pdf how-to read a cable
VZCZCXYZ0009
RR RUEHWEB

DE RUEHMN #1194/01 3532031
ZNY CCCCC ZZH
R 192031Z DEC 06
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 6647
INFO RUCNMER/MERCOSUR COLLECTIVE
RUMIAAA/CDR USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
C O N F I D E N T I A L MONTEVIDEO 001194 

SIPDIS

SIPDIS

STATE FOR WHA/BSC AND EB/TPP
TREASURY FOR OASIA FOR JASPER HOEK
COMMERCE FOR ITA/BASTIAN
DEPT PLEASE PASS USTR
NSC FOR CARDENAS

E.O. 12958: DECL: 12/19/2016
TAGS: ECON ETRD EINV PREL UY
SUBJECT: URUGUAY VOICES DEEP DISSATISFACTION AT MERCOSUR
MINISTERIAL IN BRASILIA

REF: MONTEVIDEO 1097 AND PREVIOUS

Classified By: Ambassador Frank Baxter for reasons 1.4(b)
and (d).

C O N F I D E N T I A L MONTEVIDEO 001194

SIPDIS

SIPDIS

STATE FOR WHA/BSC AND EB/TPP
TREASURY FOR OASIA FOR JASPER HOEK
COMMERCE FOR ITA/BASTIAN
DEPT PLEASE PASS USTR
NSC FOR CARDENAS

E.O. 12958: DECL: 12/19/2016
TAGS: ECON ETRD EINV PREL UY
SUBJECT: URUGUAY VOICES DEEP DISSATISFACTION AT MERCOSUR
MINISTERIAL IN BRASILIA

REF: MONTEVIDEO 1097 AND PREVIOUS

Classified By: Ambassador Frank Baxter for reasons 1.4(b)
and (d).


1. (C) Summary: At the Brasilia Mercosur ministerial,
Economy Minister Astori publicly expressed some of the
strongest criticism of Mercosur to date by a GOU official.
Referring to Mercosur's situation as "dreadful," Astori
called on partner states to take action on two issues: 1) the
Argentine blockade of bridges to Uruguay, now entering its
second summer, and 2) allowing the smaller members to
negotiate bilateral FTAs. Without setting a fixed deadline
to get these issues resolved, Astori hoped that Paraguay's
upcoming pro temp presidency would herald a "re-direction."
The GOU would "take measures" if this was not the case, he
added (Note: This is the closest a GOU official has come to
threatening withdrawal from the bloc. End Note.) Astori's
comments mirrored President Vazquez's earlier comments when,
calling on his experience as a physician, he had said that
"sometimes, it is better to cut a limb to save the body."
Two days after Astori's declarations, Argentina's Economy
Minister Miceli fired back, saying that the Uruguayans "want
special treatment (from Mercosur) and an agreement with the
U.S. (...) We will not give them anything, but we will not
throw them out either." All is not well in Mercosur.
Meanwhile, President Chief of Staff Fernandez told the
Ambassador the GOU looks forward to signing a TIFA in January
and begin FTA negotiations by mid-year. End Summary.


2. (U) The GOU took the offensive at the Brasilia Common
Market Group Ministerial Summit meeting (ministerial level),
represented by ForMin Gargano and EconMin Astori. Both
ministers strongly complained about the blockade of bridges
leading into Uruguay by Argentine protestors, and about the
lack of action by the GOA. They lamented Brazil's reluctance
to get involved. Astori also pushed hard for a definition by

Mercosur's larger members on Uruguay's demand that the
smaller partners be allowed to undertake extra-zone bilateral
trade negotiations independently.


3. (U) In a press interview after the Summit, Astori
described the situation as extremely tense and Mercosur "in a
dreadful state." He said the GOU had raised its concerns
very strongly and would not tolerate an endless continuation
of these ongoing problems. "Apart from making a very strong
case," Astori said, "we came to Brasilia to make proposals."
He outlined the GOU's proposal as "the possibility for member
countries to negotiate tariff preferences." "We are not
stepping down from this proposal," Astori stressed, "so we
call for everyone to look for ways to deal with it."


4. (U) For the first time, Astori set a timeframe for a
Mercosur reply to Uruguay's concerns. While not specifying
an exact date, he talked about a maximum of six months for
Mercosur to allow individual extra-regional trade agreements.
"I am not announcing a future step, but we cannot continue
like this. We have to see significant changes in a
relatively short term," he said. Astori mentioned that
Paraguay would soon start its pro-tempore presidency, and
noted that the GOU and the GOP worked well together. "I am
not asking Paraguay for an exact date, but during the first
half of 2007 we should be seeing a re-direction (of
Mercosur)," he warned.


5. (U) Just a few days earlier, in a full-page interview with
the leading Uruguayan business weekly, President Vazquez had
threatened not to participate in the upcoming Mercosur
Presidential Summit in January. Vazquez complained about the
bloc's growing difficulties and said he was ready to take the
"necessary steps in foreign policy to allow the country to
grow." Using an analogy from his medical background, Vazquez
stated that "while not agreeable, sometimes amputating a limb
is best for the body." He insisted that Uruguay will have to
decide upon its next steps in the short term, because "one
cannot just die with eyes open." Vazquez called for an "open
regionalism," a formula he has used repeatedly to refer to
the freedom for each member to negotiate bilateral trade
agreements.


6. (U) On December 18, in a tit-for-tat with Astori,
Argentina's Economy Minister Miceli took a hard shot at the

GOU's position. Miceli was reported in the Uruguayan press
as saying that Uruguay's problem is that "it does not know
what to do, it wants special treatment on the one side, but
wants an FTA with the U.S. on the other." She added that "we
will not give them anything (in Mercosur),but we are not
going to throw them out either."


7. (U) Meanwhile, aside from its vocal opposition to
perceived inequities within Mercosur, the GOU is taking
concrete steps. The GOU announced it will raise tariffs on
Argentine imports produced in four provinces that enjoy
preferential tax treatment and subsidies. The GOA reacted
harshly against the measure at the recent ministerial summit
and defended its mechanism on the grounds that it complies
with WTO rules. After the summit, Astori admitted that the
GOU's measures may be controversial, but that they were a
reaction to Argentina's. "This is how Mercosur is nowadays,"
Astori said, "we cannot move forward like this, with a
partner that violates the rules and another partner that
responds to that violation in a way that maybe also violates
the rules."


8. (U) The relationship between the presidents is also tense.
Argentine President Kirchner and Vazquez have not spoken in
months, and Kirchner did not meet with Vazquez when he flew
in for a few hours in November to attend the Ibero-American
Summit in Uruguay. Brazil's President Lula shunned the
Montevideo Summit altogether, allegedly due to election
fatigue, but had announced he would come for a special visit
in early December. A last-minute cancellation of this visit
has angered Vazquez to the point that it is rumored he will
shun the January Mercosur Presidential in Brazil (Note:
Press reports indicate that Bolivia will formally request
full Mercosur membership at this Summit. End Note). The GOU
complains that Brazil is not performing its leadership role
in Mercosur and strongly criticizes the GOB for refusing to
endorse a Mercosur solution to the dispute over the paper
mills and the bridges blockade. While Brazil voted for the
concession of the World Bank's loan to the Finnish paper mill
Botnia, its refusal to get involved in the dispute favors
Argentina, the stronger of the two countries in the conflict.


9. (U) It has been a full year since the first blocking of
the bridges by Argentine "environmentalists," and rough
estimates indicate that Uruguay has already lost about $400
million in revenues and 120,000 tourists. While several
rulings over the past year have favored Uruguay's position,
the GOA has not moved to prevent the blockade of the bridges.
The International Court in The Hague denied Argentina's
request to suspend construction of the pulp mills, and a
Mercosur panel ruled that Argentina's lack of action on the
blockades was incompatible with Mercosur's guarantees of free
transit of goods and services. Finally, the World Bank
recently approved a loan for the construction of the Botnia
paper mill. In late November, the GOU filed a case against
Argentina in The Hague, requesting a ruling to force the GOA
to enforce free transit through the bridges. That hearing
began in The Hague on December 18.


10. (U) The paper mill dispute is symptomatic of the
incapacity of Mercosur to solve its own problems, and of the
imbalance between large and small countries in the bloc.
While another paper mill, Spanish Ence, announced it would
relocate its plant within Uruguay, the announcement was made
from the Casa Rosada (President Kirchner's presidential
office). This played quite badly in Uruguay, where it was
perceived as a signal to foreign investors that one has to
obtain Argentina's permission in order to invest in Uruguay.



11. (C) On December 18, the Ambassador called on Presidential
Chief of Staff Gonzalo Fernandez. Fernandez told the
Ambassador that, amidst all of the turmoil in Mercosur,
Uruguay remains committed to moving ahead on an FTA with the
U.S. Fernandez looked forward to signing the TIFA in
January, and to "FTA negotiations by the middle of next
year." This date tracks with Astori's demand for permission
to negotiate within six months.


12. (SBU) Comment: In late October, a GOU inter-ministerial
group prepared a document quite critical of Mercosur. The
report called for more flexibility by Argentina and Brazil to

allow Mercosur's smaller partners to negotiate with third
parties, and called for a correction of existing asymmetries.

The document added that, while it tries to give signals of
dynamism, Mercosur is increasingly plagued with uncertainty,
which undermines the construction of an integrated market and
its opening to other blocs and countries. The report also
noted that "there is a reversal of previously achieved
commercial progress" and suggests that "lack of enforcement
of arbitral resolutions has gravely eroded judicial security
and contributed to the generalized disbelief in the
integration process." All is not well in Mercosur. End
Comment.
Baxter