Identifier
Created
Classification
Origin
06MONTEVIDEO448
2006-05-19 14:00:00
CONFIDENTIAL
Embassy Montevideo
Cable title:  

GOU CRITICAL OF MERCOSUR BUT STILL INTENDS TO

Tags:  ETRD ECON PREL UY 
pdf how-to read a cable
VZCZCXYZ0002
PP RUEHWEB

DE RUEHMN #0448/01 1391400
ZNY CCCCC ZZH
P 191400Z MAY 06
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC PRIORITY 5785
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 0405
RUEHSG/AMEMBASSY SANTIAGO 2851
RUEHLP/AMEMBASSY LA PAZ MAY OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
,C O N F I D E N T I A L MONTEVIDEO 000448 

SIPDIS

SIPDIS

STATE FOR WHA/BSC AND EB/TPP
DEPT PASS USTR
NSC FOR CRONIN
TREASURY FOR OASIA FOR DOUGLASS
USDOC FOR ITA/MAC/WBASTIAN
SOUTHCOM FOR POLAD

E.O. 12958: DECL: 05/19/2016
TAGS: ETRD ECON PREL UY
SUBJECT: GOU CRITICAL OF MERCOSUR BUT STILL INTENDS TO
REMAIN MEMBER AND NEGOTIATE WAIVER FOR FTA WITH U.S.


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

,C O N F I D E N T I A L MONTEVIDEO 000448

SIPDIS

SIPDIS

STATE FOR WHA/BSC AND EB/TPP
DEPT PASS USTR
NSC FOR CRONIN
TREASURY FOR OASIA FOR DOUGLASS
USDOC FOR ITA/MAC/WBASTIAN
SOUTHCOM FOR POLAD

E.O. 12958: DECL: 05/19/2016
TAGS: ETRD ECON PREL UY
SUBJECT: GOU CRITICAL OF MERCOSUR BUT STILL INTENDS TO
REMAIN MEMBER AND NEGOTIATE WAIVER FOR FTA WITH U.S.


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


1. (C) Summary: Harsh criticism of Mercosur continues
unabated in Uruguay, fueled by a worsening dispute with
Argentina, Brazil's distraction with regional events, and
an increased marginalization of Mercosur's smaller members
in the decision-making. The trade bloc could tilt towards
a more political entity if Mercosur accepts Venezuela's
proposal to become a full member without having to adhere
to the Common External Tariff (CET) and implement intra-
zone free trade as pre-conditions. For its part, the GOU
is pushing Mexico's long-standing request for associate
membership to balance out Brazil's influence.

2.(C) Meanwhile, public discussion of a possible Free
Trade Agreement (FTA) with the U.S. continues to be widely
debated and support for the initiative is gathering strong
momentum. There is broad consensus that the best option
is for Uruguay to negotiate a waiver with its Mercosur
partners. The Paraguayan and Argentine presidents have
publicly stated they would agree to this waiver. An
unusual mea culpa from the Brazilian Foreign Minister
about his country's lack of attention to Mercosur's
smaller members may be a prelude to a similar gesture from
Brazil. President Vazquez recently stated that he wants
Uruguay to open up to the world the way Chile has. He
plans over the next couple of years to start FTA
negotiations with other major markets, such as the EU,
China and India. The following assessment is based on
recent discussions with Mercosur Secretariat and
GOU officials dealing with Mercosur issues. End Summary.

Continued criticism of Mercosur
--------------


3. (U) Politicians, editorialists and business leaders
continue to vent steady criticism about Mercosur's
failures and to question its relevance for Uruguay.
The widening debate was exacerbated lately by a
worsening of the dispute with Argentina over pulp

mills, Argentina's refusal to call a special meeting of
Mercosur Common Council to address the issue, and
Brazil's hands-off posture in the conflict. Economy
Minister Astori commented that Mercosur is undergoing
its most severe crisis and is working ""against
Uruguay's economic interests"". Among the bloc's
shortcomings, he highlighted the passage of the
Argentine/Brazilian safeguard mechanism and Mercosur's
failure to conclude trade agreements with any
significant partners. In an unusual move for Uruguay's
traditionally quiet private sector, the four largest
and most influential business chambers issued a joint
statement very critical of the trade bloc.


4. (C) The increasing marginalization of Uruguay by
Mercosur's larger countries is taking a toll even within
sectors traditionally favorable to regional integration,
such as the Uruguayan Ministry of Foreign Affairs. MFA
officials told us they are incensed by a proposal floated
by Venezuela and allegedly supported by Brazil, which
would grant it special treatment to facilitate its entry
into Mercosur. According to this proposal, to be outlined
next week at a Mercosur meeting, Venezuela would not have
to adhere to the Common External Tariff nor implement
intra-zone free trade prior to admission, but would
utilize an ALADI agreement (ACE #59) instead. Venezuela
would gain full membership by subscribing to the
Declaration of Asuncion and a series of Mercosur norms.
In the view of these officials, what they perceived as a
blatant double-standard confirmed once more that
Mercosur's obligations apply only to smaller members,
while larger countries bend the rules at will for their
own benefit (Note: President Vazquez has repeatedly
complained about a Mercosur with ""first-class"" and
second-class"" members. End Note.)


5. (C) If Venezuela were to be admitted as a full member
under these conditions, it could signal a trend towards a
more political entity and a shift from an imperfect
customs union to more of a political bloc. Still, high-
level officials at the Mercosur Secretariat doubted that
the Venezuelan proposal would go very far and be approved
by all members. They saw it as a sign of the GOV's
inexperience in international trade negotiations and were
quite dismissive of the technical capacity of the
Venezuelan delegations to Mercosur meetings: "They love to
talk but are totally useless."


6. (C) Mercosur did not put up a good show at the recent
Latin American-European Summit in Vienna, as little or no
progress on trade issues emerged from the Mercosur/EU
talks. The meeting was plagued by conflicts and tensions
among several South American leaders. The local press
relayed the image of a deeply divided continent, split
between ""serious"" governments and populists, in an
encounter with EU governments more concerned about
safeguarding their respective investments in Latin America
than building up relationships. As with other Mercosur
trade negotiations, talks with the EU have historically
been led and managed by the GOB. According to GOU
officials, part of the failure of these latest talks lay
squarely with Brazil's current state of distraction with
regional events (the nationalization of gas in Bolivia and
Chavez's push for regional leadership) and its resulting
lack of focus on Mercosur's trade issues.

A Brazilian mea culpa
--------------


7. (U) On May 9, Brazil's Foreign Affairs Minister Celso
Amorim reportedly admitted before his Senate's Foreign
Affairs Commission that the GOB "has not done enough for
Paraguay and Uruguay" and "especially for Uruguay that is
now uncomfortable with Mercosur". Calling for a more
generous" policy towards its neighbors --one that
includes credit and increased purchases of goods-- Amorim
concluded that the GOB "has talked a lot but delivered
little." In an interview with the respected Uruguayan
weekly Busqueda, President Lula's Special Advisor Marco
Aurelio Garcia said that the possibility of Uruguay
leaving Mercosur is a "fundamental concern" for President
Lula. It would be a "large loss" for the bloc and would
signify a "resounding failure of Mercosur" in dealing with
smaller partners.

A growing lobby for bilateral trade agreements...
-------------- --------------


8. (U) The discontent in Uruguay with Mercosur has led to
renewed calls for an opening to outside trade partners
through bilateral trade agreements. Astori, one of the
most active proponents of an FTA with the U.S., stated
that the GOU needs "more than ever, to improve its
international position outside the region". This vision
is shared by the four major Uruguayan business chambers,
which recently published a study entitled "Joint Position
on the Convenience of Negotiating Trade Agreements with
Extra-Zone Countries". Vazquez has stated repeatedly that
he wants Uruguay to open up to the outside world in the
same way as Chile has done. He has outlined plans to open
negotiations over the next couple of years on an ambitious
series of FTAs with other major markets besides the U.S.,
such as the EU (if Mercosur-EU talks continue to show no
progress),China and India. On May 19, Astori confirmed
that initial contacts with the governments of China and
India had been positive.

...but a commitment to remain within Mercosur
--------------


9. (U) Still, despite strong repeated criticism of
Mercosur, broad consensus remains that the GOU's first-
best alternative for bilateral free trade talks is to
negotiate a waiver from its Mercosur partners. Astori
openly rejected the idea of leaving Mercosur or turning
into an associate partner, which he considered would be an
extremely grave mistake". As for Vazquez, he has
maintained pressure through a barrage of criticism of
Mercosur's weaknesses and failures, but has made clear
that Uruguay's future remains within the trading bloc.
We want a stronger and better Mercosur"", is his mantra.
Following his trip to Mexico, Vazquez said that Uruguay
would advocate for Mexico's long-standing request for
associate membership into Mercosur as a counterweight to
Brazil.

Comment: Good prospects of Mercosur waiver for FTAs
-------------- --------------


10. (C) Vazquez's vision is that of an opening to the
outside world, and Chile is clearly his model: "Uruguay is
seen as a very serious and responsible country, as is
Chile." The GOU appears confident it will obtain the
necessary waiver from its Mercosur partners to move
forward with bilateral trade talks. Initial signals are
positive. On May 10, Paraguayan President Duarte
supported the GOU's initiative to negotiate a waiver and
less than a week later, Argentine President Kirchner
declared upon returning from Vienna that "one must be
flexible (with Uruguay) and let them sign a free trade
agreement with the U.S." While Brazil's Lula has not yet
opined on the matter, the signals from the Brazilian MFA
about the importance of maintaining Uruguay within
Mercosur may point the way to a positive reply. End
Comment.
Nealon