FTA COMMENTS IGNITE INTERNAL/EXTERNAL DEBATES

,C O N F I D E N T I A L MONTEVIDEO 000038

SIPDIS

SIPDIS

DEPT FOR WHA A/S SHANNON AND WHA/BSC
DEPT FOR EB A/S WAYNE AND EB/TPP
DEPT PLEASE PASS USTR
NSC FOR DFISK AND SCRONIN
USDOC FOR WHA/DAS WBASTIAN

E.O. 12958: DECL: 01/10/2016
TAGS: PREL PGOV ETRD EINV UY
SUBJECT: FTA COMMENTS IGNITE INTERNAL/EXTERNAL DEBATES

REF: A. MONTEVIDEO 0011


B. MONTEVIDEO 004

C. 05 MONTEVIDEO 1428

Classified By: Charge D'Affaires James D. Nealon
for reasons 1.4 (B) and (D)


1. (C) Summary: Economy Minister Astori's open advocacy of a
Free Trade Agreement (FTA) with the US (ref A) last week has
drawn sharp reactions at home and abroad because a ""leftist""
Mercosur government has publicly said it wants to talk with
us about free trade. Domestically, there's been the
predictable negative reactions from the far-left, but also a
surprising amount of public support for the idea (one poll
shows 91 pct public approval for an FTA.) Other Mercosur
partner countries seem to have been caught off balance by
Astori's proposal and in a quandary over how to react. (At
least this is how it is perceived in the press.) While we
are convinced that President Vazquez backs Astori out of
conviction, the dramatic FTA trial balloon was probably
triggered by the soured relations with Argentina over the
construction of pulp mills on a shared river (ref B) and
frustration with the way Mercosur treats its junior partners.
At a minimum, the GOU has drawn attention to the FTA issue,
but it may also have added to a fight over the ""soul"" of the
Latin American Left by openly extolling the virtues of the
Chilean model."" It is a high stakes game, however, since
the danger for little Uruguay lies in a two-front war of
independence against hardened lefties in the Frente Amplio
and regional partners who opposed the Free Trade of the
Americas (FTAA) at the Summit of the America's (SOA). We see
the FTA flap as another opportunity for us to meaningfully
engage the GOU and help it achieve what it wants most --
economic growth and jobs. End Summary.

Reactions
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2. (SBU) It's the summer doldrums here and many folks are
vacationing on the beach, including Minister Astori who
sparked the whole flap. Nevertheless, the local media has
succeeded in finding a hot story over whether Uruguay should
negotiate an FTA with the US. Folksy AgMinister Mujica
contributed to the chorus of opinions by saying in an
interview that, ""Mercosur is not worth a damn"" because of
the undeclared war"" launched by Argentina over paper mill
construction in Fray Bentos. Mujica also reminded listeners
that the 2002 bank run (""corralito"") that began in Buenos
Aires, dragged Uruguay into its worst financial crisis in
recent years. (Note: Mujica avoided mention of Argentina's
role a few year's back in allowing hoof and mouth infected
cattle to contaminate Uruguay's livestock, but it seemed
clear in his interview that Mujica connected the paper mill
dispute to Uruguay's need for diversified trading partners.
End Note.)


3. (SBU) The weekly ""Busqueda"" also reported an excerpt from
a December 29 meeting in which President Vazquez told former
(Blanco) President Luis Alberto Lacalle that he was
disappointed"" with Nestor Kirchner over the pulp mill
affair. (Note: We understand that Vazquez will be in La Paz
for two days attending Evo Morales' January 22 inauguration,
but will not meet with Kirchner on this issue. End Note.)
The same article highlighted previous quotes from Vazquez in
which he said, ""The US buys the most and the best. Last year
it bought $447 million. I hope it buys $800 million.."" (Note:
The US is a bigger client for Uruguay than Argentina and
Brazil combined. End Note.)

4. (SBU) ForMin Gargano was the first Uruguayan to dash cold
water on Astori's pro-FTA remarks. As president of the
Socialist Party, he has called a party meeting for January
13 to debate the issue. Local pundits said Gargano's
opposition was to be expected (though Industry Minister
Lepra, Tourism Minister Lescano and others sided with
Astori.) But they considered statements by GOA Undersecretary
for Latin American Integration Eduardo Sigal and other
foreign officials to be more serious because they called into
question the ""legality"" of such a move within Mercosur by
citing the Ouro Preto Protocol and 2000 Decision No. 32
purportedly banning ""bilateral commercial treaties with third
countries."" However, an editorial in the daily ""El Pais""
entitled, ""the Ultimate Impertinence"", pointed out the
hypocrisy"" of this argument by highlighting that Argentina
and Brazil have signed 20 commercial bilateral accords with
other countries (as well as a ""market accord"" with China)
without prior Mercosur consultation. The same author
maintained that Argentina's paper mills on the Parana river
are its major source of pollution.


5. (SBU) There has been plenty of incoherence as well. MPP
Senator Jorge Sarvia was quoted as saying, ""I'm not in favor
of the FTA, even though it benefits Uruguay but because I'm
for Mercosur and against FTAA."" (!?)


6. (SBU) Brazilian Foreign Minister Celso Amorin was also
quoted in the media as saying on January 11 that ""It would be
impossible for a member of Mercosur to individually negotiate
commercial agreements, unless it intended to leave the
trading bloc, a decision we haven't been informed about.""
Amorin's reported comments appeared to soften when he added,
If Uruguay feels that Mercosur hasn't produced enough
benefits...maybe it is because we haven't done enough.""

Comment:
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7. (C) The GOU has gotten a lot of attention focused on the
FTA issue and has rightly succeeded in exposing Mercosur's
canard about its treatment of junior partners. But this is a
high-stakes game for Vazquez because of the size and strength
of his opposition and worries that Argentina could affect the
pulp mills financing. Still, Vazquez probably calculates
that it is better to air Uruguay's gripes over Mercosur
publicly by using the FTA debate. From our vantage point,
the FTA flap represents another opportunity for the USG to
engage Uruguay at a high level. We expect that 2006 will be a
critical year for Vazquez in which he needs to show economic
results. As an Evo Morales-led Bolivia prepares to join
Mercosur as a full member, it is also probably in our
interest to lend a helping hand to GOU that is struggling to
emulate a moderate Chile rather than a Bolivarian Venezuela.
End Comment.
Nealon