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