URUGUAY: MERCOSUR SUMMIT MATCHES LOW EXPECTATIONS;

C O N F I D E N T I A L MONTEVIDEO 000685 SIPDIS SIPDIS NSC FOR DAN FISK DEPT FOR WHA/BSC AND EB DEPT PLEASE PASS TO USTR E.O. 12958: DECL: 07/30/2016 TAGS: PREL ECON ETRD UY SUBJECT: URUGUAY: MERCOSUR SUMMIT MATCHES LOW EXPECTATIONS; TRADE WITH U.S. IS THE GOAL REF: BUENOS AIRES 01665 Classified By: Charge de Affaires a.i. James D. Nealon for reasons 1.4 (b) and (d) ¶1. (C) Summary. According to the media and a cross-section of Uruguay's political leadership, the results of the Mercosur Summit held in Cordoba July 20-21 met Uruguay's low expectations. The media dutifully reported the event but focused more on issues of importance to Uruguay, especially the dispute with Argentina over construction of two paper mills on a shared river, rather than the summit itself. Similarly, most political figures expressed little excitement over Mercosur and instead wanted to talk to us about the prospects for trade conversations with the U.S. Many Uruguayans are convinced that Mercosur is not currently an effective means to achieve Uruguay's national interests. End Summary. THE SOUND OF SILENCE -------------- ¶2. (U) While dutifully reporting the proceedings of the summit, the Uruguayan media gave little weight to its official acts. Fidel Castro's attendance and the acceptance of Venezuela's membership received moderate coverage, with much of it focusing on the Kirchner-Castro disagreement over Hilda Molina. FM Gargano's declaration that "the summit was a large step toward integration" was virtually ignored by Uruguay's media. Gargano's public statement that he had largely engineered Venezuela's fast-track entry into Mercosur was the subject of derision from most of the media and political class. The leading daily newspaper, El Pais, finished its coverage of the summit with an editorial entitled "Quo Vadis Mercosur?," which reflected an extreme ambiguity toward the organization and is an accurate reflection of current thinking here about Mercosur. Instead, news outlets focused on the few issues of great importance to Uruguay. President Vazquez' conciliatory speech about the paper mill dispute with Argentina received wide coverage, criticism and some support, with many feeling that Vazquez had been too conciliatory and appeared weak. Argentina's aggressive response to Vazquez' conciliatory gesture--rejecting dialogue and threatening continued blockages--only heightened Uruguay's impatience with Mercosur and recognition of the need to broaden its base of trade partners. The media reported without comment an agreement in principle between the state oil company, ANCAP, and Venezuela's PdVSA to help finance the exploration of the Orinco region in exchange for future oil. Reports stated that Uruguay could invest an initial 100 million USD in return for 24 percent of the yield of the Orinco region or "up to 50,000 barrels of oil a day" after four years of investment. Details of the agreement remain vague, as is the case with many of Uruguay's deals with Venezuela, as ANCAP is unlikely to have 100 million USD to invest, and Venezuela has still not provided its promised upgrade of ANCAP's single refinery to handle Venezuelan crude. President Vazquez took a very low-key approach to the summit, keeping mostly to himself, making his conciliatory speech, choosing to talk to Bachelet rather than Kirchner at dinner, and departing the summit in the midst of Castro's speech. ¶3. (C) There was no public discussion in the media or elsewhere of Mercosur's decision to support Venezuela's UNSC candidacy. Uruguayans, including Vazquez on two occasions, have told us that Uruguay will almost certainly support a Mercosur consensus. TRADE: URUGUAY'S REAL PRIORITY -------------- ¶4. (C) After the summit, and following a July 27 video conference between USTR and Uruguay's trade team, The Charge met Uruguay's Ambassador to the U.S. Carlos Gianelli. Gianelli confirmed what the press had reported, that Minister of Economy Danilo Astori had made a formal request at the Ministerial level of the summit that small countries be permitted to negotiate trade agreements outside of Mercosur. Gianelli said they had not received an answer, did not expect one, and do not need Mercosur permission in order to negotiate with third countries. Gianelli stated, and this was later confirmed by Minister of Industry Lepra and an MFA legal advisor, that Uruguay can negotiate agreements with third parties as long as such agreements don't prejudice Mercosur's common tariff. Gianelli saw little potential conflict between a possible FTA and Mercosur. When the Charge asked if President Vazquez was aware of developments, Gianelli said that they had spoken the night before, following the video conference, and that the President was "pleased with the progress." What Gianelli did not know is if Vazquez had spoken directly to Lula at the summit about the issue. Vazquez and Gianelli will meet August 2, and Gianelli promised to find out. Both Gianelli and Lepra made clear their view that possible future FTA negotiations would not "break up Mercosur" as some have speculated, and Gianelli believes that Uruguay is on firm legal ground. Gianelli told the Charge that he was preparing a report on trade options with the U.S. which could be discussed as early as July 31 at a Council of Ministers meeting. Finally, when asked about obstacles to a possible trade agreement, Gianelli saw few--mainly "the telecom monopoly and pharmaceuticals." ¶5. (C) COMMENT: The local press has seized on the visit of AUSTR Eissenstat August 7 - 9 as the next and possible crucial step in trade conversations. While Minister Gargano continues to try to torpedo our conversations, he is more and more isolated. The media, the business community, the opposition political parties, and the moderate elements of the governing coalition are all in favor of some kind of trade dialogue with the United States. Vazquez has proven (the BIT, UNITAS) that he can bring his coalition with him in his policy of engaging the United States. Mercosur's continuing inability to deliver, our position as Uruguay's largest export market, and the sinking feeling that other countries in the hemisphere will have an important advantage through their own FTAs, have convinced many Uruguayans that now is the time to reach out to the United States. End Comment. Nealon