HAGUE RULING ON PULP MILLS FAVORABLE TO URUGUAY

UNCLAS MONTEVIDEO 000640 SIPDIS SENSITIVE SIPDIS STATE FOR WHA/BSC AND EB DEPT ALSO FOR EUR/ERA, EUR/WE (MHILL),EUR/NB (MEVANS) TREASURY FOR OASIA FOR DOUGLASS USDOC FOR ITA/MAC/WBASTIAN SOUTHCOM FOR POLAD E.O. 12958: N/A TAGS: PREL PGOV SENV SOCI KLIG EINV AR UY SUBJECT: HAGUE RULING ON PULP MILLS FAVORABLE TO URUGUAY REF: MONTEVIDEO 00529 AND PREVIOUS 1.(SBU) Summary: The International Court of Justice (ICJ) issued a ruling today rejecting Argentina's petition for an injunction to halt construction of two pulp mills on the Uruguayan side of a shared river. The Court's decision was broadcast live on Uruguayan television in the early morning hours amid high local interest. A few days earlier, Mercosur's Review Tribunal rejected Argentina's claim that the Tribunal was not competent to rule in a Uruguayan lawsuit demanding compensation for economic losses incurred by Argentine protesters' blocking of international bridges. Uruguay is obviously pleased with the two rulings, but GOU officials remain concerned that environmental activists and/or the GOA will continue to harass the plants' construction. The local media reported that Argentine First Lady Cristina Kirchner and Presidential Chief of Staff Alberto Fernandez canceled their planned attendance at a July 13 Mercosur seminar in Montevideo. We understand that their participation was aimed at seeking a political solution to the long-running pulp mill dispute (reftels). End Summary. ¶2. (SBU) On July 13, the ICJ turned down Argentina's petition for an injunction to halt construction of two large cellulose plants in Uruguay's city of Fray Bentos, citing in its Order that, "the circumstances, as they now present themselves to the Court, are not such as to require the exercise of its power under Article 14 of the Statute to indicate provisional measures." The Court also indicated that it will continue to review Argentina's claim filed on May 4, 2006. The Court's decision was made by 15 magistrates in a vote of 14 to 1. The sole dissenting vote was cast by the Argentine-appointed judge, casting some doubt on his impartiality by observers here. ¶3. (SBU) GOU officials have told us that they remain concerned that despite the positive ICJ decision, the pulp mills controversy is far from over. They fear that Argentine environmental activists might once again resume blockades of international bridges and have already promised protests at the July 20-21 Mercosur Summit in Cordoba. The officials worried that the GOA might somehow impede needed dredging of the Uruguay river, with adverse consequences for ships servicing the plants in Fray Bentos. They also fretted that the GOA will try to influence the projects' financing either in Europe or through the International Finance Corporation (IFC). MFA officials lamented that the pulp mill dispute has already had a negative impact on Argentine/Uruguayan bilateral relations and to foreign investment in the region. ¶4. (SBU) Meanwhile, the construction of the Finnish-owned Botnia plant continued at a rapid pace with about fifty percent of the work completed. Construction on the Spanish-owned ENCE cellulose plant has not yet begun. (Note: Some GOU interlocutors expressed worry that ENCE investors could be vulnerable to pressure from Argentina and might be having second thoughts about the project. Meanwhile, news reports indicated that President Vazquez has authorized construction of another Stora Enso pulp mill plant on the Rio Negro. End Note.) Comment: -------------- ¶5. (SBU) As Senator (and former Foreign Minister) Sergio Abreu indicated in a press interview today, international law is Uruguay's only "shield" and that it must carefully manage its "win" in order to avoid inflaming Argentine nationalist passions. This will probably entail resumption of bilateral talks, appeals for calm, offers of joint monitoring of pollution, proposing regional environmental standards and pressuring Brazil to adopt a more constructive role once it assumes Mercosur's pro-tempore Presidency. End Comment. Gonzalez