PULP MILL DISPUTE GOES TO COURT

UNCLAS MONTEVIDEO 000529

SIPDIS

SIPDIS

DEPT FOR WHA/BSC AND EB
DEPT ALSO FOR EUR/ERA, EUR/WE (MHILL),EUR/NB (MEVANS)

E.O. 12958: N/A
TAGS: PREL SOCI KLIG EINV EWWT AORC SENV AR UY
SUBJECT: PULP MILL DISPUTE GOES TO COURT

REF: MONTEVIDEO 0435 AND PREVIOUS


1. (SBU) Summary: Uruguay's dispute with Argentina over the
construction of two pulp mills on a shared river (reftels)
has reached the International Court of Justice (ICJ). On June
8, both sides, backed by expensive international law firms,
presented their opening arguments to the ICJ's 15 magistrates
in The Hague. An ICJ ruling on Argentina's petition for an
injunction to halt the plants' construction reportedly will
be made within the next six to eight weeks. The June 8-9
court hearings were broadcast live on Uruguayan television
amid much local interest. Thus far, the Uruguayans appear
optimistic that the Court will not issue an injunction to
halt the plants' construction in Fray Bentos. However, GOU
officials have privately told us that they remain concerned
that the issue will not be resolved even if Uruguay prevails
in the ICJ. They fear that Argentine environmental activists
might once again resume blockades of international bridges
and/or that Argentina might somehow interfere with the needed
dredging of the Uruguay river, with negative consequences for
ships servicing the plants. End Summary.


2. (U) On June 8, the daily "El Pais" reported from sources
close to the President that bilateral discussions with
Argentina over the pulp mills would be on hold until the
court case in The Hague was decided. Vazquez expressed
optimism about Uruguay's prospects at the ICJ, but also
indicated that the final resolution to the thorny issue lay
in future bilateral negotiations with Argentina, once they
resumed. The same sources indicated that Vazquez favors a
"joint commission" to monitor pollution on the Uruguay river.
Other press articles speculated that a better Mercosur
protocol for governing environmental issues will be required
to resolve the dispute and avoid such conflicts in the
future. (Note: Uruguay is also lodging a complaint against
Argentina in Mercosur's arbitration tribunal in an attempt to
prevent future bridge blockades and perhaps pave the way for
a suit against the GOA. End Note.)


3. (U) The Spanish company ENCE ended speculation that it
might abandon its plans to build its pulp mill in Fray
Bentos. Rumors of this circulated in recent weeks because of
ENCE's bid to acquire large paper plant in Portugal. ENCE
executives reportedly told the GOU on June 7 that the company
is firm in its plans to build its plant in Fray Bentos.
However, it appears ENCE is keeping its construction
activities at the plant site to a minimum pending the outcome
of the ICJ case, and in respect of a 90-day suspension of
construction requested by Argentina. In April, the GOA had
requested the suspension to facilitate bilateral talks.
Meanwhile, the Finnish-owned Botnia plant's construction in
Fray Bentos continued unabated, except for a one-day strike
by unionized workers last week.


4. (SBU) Last week, MFA officials involved in the court case
privately told us that, while Uruguay's chances of avoiding a
court injunction are good, they are concerned that Argentine
nationalist passions will become inflamed if it loses the
court case in The Hague. They worried that Argentine
activists might resume blocking international bridges and/or
that the GOA might somehow interfere with plans to further
dredge the Uruguay river. The dredging is needed to make way
for large ocean going vessels to reach the pulp plants in
Fray Bentos. The GOU has also tightened its security measures
around the Botnia plant and at some public events. It fears
disruptive incidents such as the one that took place at the
EU/LA Summit in Vienna, when a bikini clad woman carrying a
placard protesting against the plants appeared in front of
world leaders.

5.(SBU) Comment: Despite coinciding with the start of the
World Cup, the ICJ proceedings have received widespread
public attention in Uruguay. This is because Uruguay
considers the pulp mills to be of vital national interest.
Thus far, Uruguay is not pursuing a counter case against
Argentina for economic damages caused by the bridge
blockades. We understand,however, that it is looking at all
its options (in Mercosur and elsewhere) to ready its
arguments in case they are needed. End Comment.
Nealon