Identifier
Created
Classification
Origin
06MONTEVIDEO567
2006-06-21 20:52:00
CONFIDENTIAL
Embassy Montevideo
Cable title:  

MERCOSUR: THE ARGENTINE PRO TEMP PRESIDENCY AND

Tags:  ETRD ECON PREL PINR AORC UY 
pdf how-to read a cable
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ZNY CCCCC ZZH
R 212052Z JUN 06
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 5931
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 0421
RUEHLP/AMEMBASSY LA PAZ JUN SANTIAGO 2869
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 000567 

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: 06/21/2016
TAGS: ETRD ECON PREL PINR AORC UY
SUBJECT: MERCOSUR: THE ARGENTINE PRO TEMP PRESIDENCY AND
THE UPCOMING BRAZILIAN PRESIDENCY - THE VIEW FROM URUGUAY

REF: A. MONTEVIDEO 465


B. MONTEVIDEO 448

C. MONTEVIDEO 254

Classified By: James D. Nealon, Charge d'Affaires a.i.,
for reasons 1.4 (b) and (d).

C O N F I D E N T I A L MONTEVIDEO 000567

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: 06/21/2016
TAGS: ETRD ECON PREL PINR AORC UY
SUBJECT: MERCOSUR: THE ARGENTINE PRO TEMP PRESIDENCY AND
THE UPCOMING BRAZILIAN PRESIDENCY - THE VIEW FROM URUGUAY

REF: A. MONTEVIDEO 465


B. MONTEVIDEO 448

C. MONTEVIDEO 254

Classified By: James D. Nealon, Charge d'Affaires a.i.,
for reasons 1.4 (b) and (d).


1. (C) Summary: Argentina's pro temp presidency of
Mercosur is seen in Uruguay as a resounding failure
that weakened the trading bloc's institutions. The
conflict over the paper pulp mills overshadowed the
entire presidency, as the dispute spun out of control
and Argentina blocked the GOU's attempts to resort to
Mercosur for a resolution. There was little if no
progress on perfecting the customs union. Uruguay and
to a lesser extent Paraguay became increasingly vocal
in their criticism of the bilateral axis of Argentina
and Brazil. They also publicly questioned Mercosur's
overall usefulness for its smaller members. The only
movement under Mercosur's Argentine presidency was a
definite acceleration of the process to integrate
Venezuela.


2. (C) The change of presidency will be celebrated at
the next Mercosur Summit in Cordoba on July 20-21, when
Brazil takes over. This Summit is likely to be
dominated by Venezuela's formal induction. As for
Brazil's pro temp presidency, expectations are that it
may be distracted by general elections. Chavez may be
tempted to take center stage within Mercosur, and this
may accentuate the shift of Mercosur from a trade-
oriented bloc to a more political entity. GOU
officials generally expect Brazil to produce another
lackluster presidency of Mercosur. End Summary.

The conflict over the pulp mills spun out of control
-------------- --------------

3. (SBU) The conflict over the pulp mills spun out of
control during the Argentine presidency. No one could
have expected such a harsh conflict, not only because
of the traditionally good neighborly relations between

the two countries, but also given the initially
perceived ideological affinity between Vazquez and
Kirchner. President Vazquez was reportedly deeply
offended that Argentine President Kirchner did not even
answer his personal letter requesting a special meeting
of Mercosur to deal with the pulp mill issue.


4. (U) The GOU eventually sued the GOA before the
Mercosur Court of Arbitration for not complying with
the requirement to grant "free transit of goods" within
the bloc (under the first article of the Treaty of
Asuncion). The Tribunal has not been able to meet,
however, as Argentina has contested the designated
President of the Court, Spanish jurist Luis Marti. At
the meeting of Mercosur foreign ministers in Buenos
Aires on June 16, the GOU finally presented its case on
the bridges blockade but failed to align Brazil and
Paraguay to its side, as both countries' foreign
ministers refused to get involved and called for a
bilateral negotiated solution to the conflict.

Little progress on perfecting the customs union
-------------- --

5. (U) There was little progress in harmonizing the
Common External Tariff (CET),integrating the four
customs and agreeing on ways to distribute customs
revenues. While it was agreed that some goods would be
traded duty free, these are the goods that currently
pay zero CET. The CET is still replete with exceptions
too numerous to list (100 for Argentina and Brazil, 225
for Uruguay and 650 for Paraguay, plus the exceptions
made by special import systems such as the giant Manaus
Free Trade Zone (FTZ),the Tierra del Fuego FTZ, and
all of the other FTZs). About half of Mercosur's
imports are not covered by the CET. If Mercosur does
not perfect its CET, it is unlikely that any progress
will be made in negotiations with the EU.


Uruguay increasingly disappointed and critical
-------------- -

6. (C) The GOU is extremely disappointed with
Mercosur. President Vazquez and EconMin Astori have
repeatedly sent strong signals of discontent with the
direction in which Mercosur is heading. Vazquez was
clearly disappointed at the way Kirchner used his pro
temp presidency to prevent any attempts by the GOU to
resort to Mercosur mediation in the paper mills
dispute. The increased bilateral handling of trade
issues between Argentina and Brazil (ref C) has been
perceived here as a clear snub to Mercosur's smaller
members. Tri-lateral meetings with Venezuela, again
excluding Uruguay and Paraguay, have tended to
exacerbate this perception. As a result, Uruguay,
Paraguay and Bolivia held their own summit in Asuncion
a couple of months ago to discuss a gas pipeline whose
layout would purposely skirt Argentina.


7. (U) This disappointment with Mercosur has not been
limited to the GOU but has extended to the private
sector as well. In an unusual move, the five largest
business chambers in Uruguay recently issued a joint

open letter extremely critical of Mercosur, in which
they urged the GOU to embark on free trade agreements
with the U.S. and other markets. Meanwhile, Uruguay
continues to diversify exports away from Mercosur, as
exports to the trade bloc grew by 6.5 percent on a
year-to-year basis, well below the 18 percent growth to
non-Mercosur markets. Still, no one, whether within
the GOU, the opposition or the private sector, calls
for a withdrawal from the trade bloc. The stated goal
for all is "more and better Mercosur" (Ref B).

Progress on Venezuela's integration into Mercosur
-------------- --------------

8. (U) The most important and most trumpeted
achievement of Argentina's pro temp presidency has been
Venezuela's accelerated incorporation into Mercosur.
On June 16, Mercosur's foreign ministers met in Buenos
Aires to pin down the conditions for entry which had
been arranged at the May 23 technical meeting, also in
Buenos Aires (ref A). These conditions are that
Venezuela will: 1) have 4 years to adopt the CET; 2)
have 4 years to pass and implement Mercosur's
legislation; 3) have 6 years to grant full duty-free
treatment on sensitive goods from Mercosur countries
(under a non-linear schedule); 4) have a still
indeterminate transition period to implement the
customs union (i.e. trading the rest of the goods duty
free). In addition, Venezuela will be able to
participate in Mercosur's foreign negotiations upon
signing the accession protocol in Cordoba. This
protocol will then have to be ratified by the five
legislatures. Venezuela will become a full member 30
days after ratification of the protocol.


9. (C) We had been told by Uruguayan negotiators at
the May 23 technical meeting that there had been
considerable pressure from Brazil and Argentina to
reach an agreement on Venezuela's accession. In return
for Uruguay and Paraguay's acceptance, Venezuela
pledged to grant immediate preferential access on a
list of products.


10. (C) From what our contacts tell us, Venezuela's
accession is bound to give the bloc a more political
flavor than its original trade-oriented intent. Chavez
will undoubtedly use his newly-found bully pulpit to
rail against the U.S. and promote his "Bolivarian
Alternative", unfortunately with the seal of Mercosur.
Venezuela's integration may also make it much more
difficult for Uruguay to obtain a waiver to negotiate a
Free Trade Agreement (FTA) outside of Mercosur, whether
with the U.S. or with other partners. As far as we
know, the GOU has not officially submitted the request
for the waiver, but contacts have been made and MFA

officials told us the GOU will raise the issue with
Brazilian ForMin Celso Amorim during his visit to
Montevideo on June 23.

What will happen at the Mercosur Summit in Cordoba?
-------------- --------------

11. (C) The centerpiece of the Cordoba Summit will
most likely be the signing by Venezuela of its protocol
of accession to Mercosur. There have been rumors that
Cuban leader Fidel Castro will also be present, the
first time he would ever attend a Mercosur Summit.
Given the lack of progress on the trade front, this
will be the opportunity to showcase the new political
dimension of Mercosur. Chavez may also want to show
his accession to Mercosur as one more step down the
road to Latin American integration, towards his
"Bolivarian Alternative for the Americas" (ALBA). As
the Summit will mark the beginning of Brazil's pro temp
presidency, it will provide an interesting insight as
to the new power dynamics within the bloc. Will Brazil
maintain its traditional lead, will Chavez emerge as
the new power to be contended with, or will there be a
kind of "triumvirat" linking Kirchner, Lula and Chavez?


12. (C) As indicated by our GOU contacts (ref A),the
idea of integrating Venezuela into Mercosur was
Brazil's grand scheme to control Chavez. Our contacts
implied that some in Itamaraty were starting to have
second thoughts as to the wisdom of this plan, in
particular after Chavez's heavy hand in the Bolivian
nationalization of gas production. Our contacts told
us, however, that the GOB is still supporting
Venezuela's induction. Chavez has invited the
presidents of the four Mercosur countries to Caracas
for a July 4 celebration of Venezuela's accession. The
date picked for the celebration is undoubtedly no
accident.


13. (U) The Cordoba Summit could also see some
announcement of a new customs code to take effect in

2008. This would certainly be a move in the right
direction, by facilitating trade and eliminating the
double imposition of the CET. However, the press has
referred to it as a "framework agreement", which does
not seem too impressive. Both its scope and schedule
of entry into effect are still undefined.

Low expectations for the Brazilian Pro Temp Presidency
-------------- --------------

14. (C) With the Brazilian presidential elections in
October 2006, our GOU contacts do not expect that the
GOB will concentrate much effort on Mercosur. Still,
there have been statements by both Brazilian ForMin
Celso Amorim and Presidential Foreign Policy Advisor
Marco Aurelio Garcia published in the Uruguayan press,
in which they declare that Brazil intends to focus its
presidency on the "plight" of smaller members. Garcia
is quoted as saying that he would be upset by the way
Mercosur has failed if he were Uruguayan. Reports of
planned major investment initiatives by Brazil's public
banking entity BANDES have been taken with a grain of
salt here, as people recall the many unfulfilled promises
of investment flows of the past.

Comment: A failed presidency leads to a distracted one
-------------- --------------

15. (C) The perceived failure of Argentina's pro temp
presidency has definitely had a negative effect on
Uruguay's perception of Mercosur by weakening the
bloc's institutional strength and exposing abuses by
the larger members. Brazil's pro temp presidency may
well be a distracted one, as the GOB concentrates on
internal politics, elections and its problems with
Bolivia. Chavez may take advantage of a perceived
power vacuum to attempt to shape Mercosur, but the
trading bloc's inherent sluggishness may prevent
radical moves. While we may hear more bombastic
statements coming out of an increasingly political

Mercosur, major policy shifts are unlikely. Uruguay
will probably continue to loudly criticize Mercosur's
failures but attempt to influence internal reform from
within. End Comment.
Nealon