US-URUGUAY TRADE AGENDA: VAZQUEZ CONTINUES TO SHAPE THE

C O N F I D E N T I A L MONTEVIDEO 000811

SIPDIS

SIPDIS

STATE FOR WHA/BSC AND EB
DEPT PASS USTR FOR EISSENSTAT AND CRONIN
NSC FOR FISK AND CARDENAS
TREASURY FOR OASIA FOR DOUGLASS
USDOC FOR ITA/MAC/WBASTIAN
SOUTHCOM FOR POLAD

E.O. 12958: DECL: 09/01/16
TAGS: PREL ETRD ECON UY
SUBJECT: US-URUGUAY TRADE AGENDA: VAZQUEZ CONTINUES TO SHAPE THE
DEBATE AND BUILD CONSENSUS

REF: A) MONTEVIDEO 774; B) MONTEVIDEO 746

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


1. (C) Summary: President Vazquez has now expanded the debate
beyond a trade agreement with the U.S. by seeking similar
accords with India and China. In a meeting with the Charge,
Industry Minister Lepra confirmed that Vazquez is very much in
charge and determined to succeed. Lepra said he understood that
the Peru TPA was likely to form the basis of an FTA with the
U.S., but asked for some flexibility on the text, "as was done
with the BIT", in order to provide Vazquez with political cover.
As for Mercosur's attitude regarding an FTA, Lepra said that
Vazquez had talked with Lula, with whom he would meet later on
this month. Vazquez continues to shape the debate and build a
broad national consensus for a trade policy focused on
agreements with the world's major markets. End Summary.


2. (U) On August 28, Vazquez met with the Indian Ambassador to
discuss the possibility of negotiating a trade agreement, and
the next day met with the Chinese Ambassador for the same
purpose. Uruguay is committed to free trade, Vazquez said to
the press, and India and China are, along with the United
States, the major markets of interest outside of Mercosur. "We
are aiming at a trade policy based on two basic concepts: a
focus on the region and the opening of new extra-regional
markets," he noted. On August 31, Vazquez met with the five
ministers leading the technical groups on trade (Economy,
Industry, Agriculture, Tourism and Foreign Affairs) to chart the
way forward.


3. (C) Industry Minister Jorge Lepra called the Charge for a
meeting on September 1 to share what had happened in the
ministerial meeting and to discuss the way forward. President
Vazquez uses Lepra as his de facto Foreign Minister in dealing
with the U.S. Lepra said Vazquez had reminded his ministers of
his May 4 meeting with President Bush and had recalled the U.S.
President's offer to discuss an FTA. Lepra said Vazquez had
appeared very much in charge and on track on the FTA issue.
Asked about news from Uruguay's Mercosur partners, Lepra said
that Vazquez had talked to Lula and would be meeting with him
sometime in September in the south of Brazil. "I don't know
about Itamaraty," he said, "but Lula will support Vazquez."
Lepra also believed that Vazquez had talked to Chavez, whom
AgMin Mujica would soon visit in Caracas.


4. (C) Lepra planned to travel to Washington, possibly on
September 14-15, to prepare the October 2-3 JCTI in Montevideo.
Lepra said he understood that the basic text of an agreement
would most likely be the Peru FTA, and he implied that Vazquez
was aware of that as well. He asked several times for
flexibility to alter minor elements of the text ("like we did
with the BIT") so as to provide Vazquez with political cover
(i.e. putting Uruguay's imprint on the text to counter the
perception that the GOU is accepting a document without
negotiation). Charge replied that this was something Lepra
should raise with USTR when in Washington.


5. (U) A couple of days earlier, the new Brazilian Ambassador to
Uruguay, Jose Felicio, was asked in a press interview about his
country's position on an Uruguay-U.S. FTA. Felicio was very
cautious in his reply, as Brazilian ForMin Celso Amorin's
shoe-pounding in June had been perceived here as a blatant
interference in internal affairs. "We prefer to maintain
Resolution 32/00 (the resolution whereby Mercosur members agree
to negotiate as a bloc) in terms of commercial negotiations",
Felicio said, "but this does not impede countries from making
requests in a sovereign manner and coming to Mercosur to discuss
things." While Felicio pointed out that Brazil's preference was
to negotiate as a bloc, "if there are countries that want to do
otherwise, we will study specific cases."


6. (U) Referring to Amorin's statements here in June, Felicio
cautioned that they "were based on the known formats for free
trade. But we don't know what is being negotiated (between
Uruguay and the U.S.)." Asked specifically if an FTA with the

U.S. is compatible with Mercosur, he said, carefully, that "it's
not compatible, but that's my opinion." Felicio acknowledged
that President Vazquez "will know how to preserve Mercosur" and
"has the obligation to defend the interests of Uruguayans."


7. (U) At a conference held in Montevideo this week, former
Argentine Economy and Finance Minister Roberto Lavagna opined
that it was important for Argentina and Brazil to make an effort
to facilitate Uruguay's negotiation of an FTA with the U.S., if
that is what Uruguay desired. Legally, it can be done, Lavagna
said, as the existing FTA between Uruguay and Mexico clearly
shows. He noted that what is needed now is political will from
Argentina and Brazil.


8. (C) On August 30, Charge met with former Economy Minister and
influential Colorado Senator Isaac Alfie, who confirmed that the
GOU could count on the three Colorado senators, should an FTA
come up to a vote. Looking at the Frente Amplio senators, Alfie
saw only five votes against (one Communist, two Socialists and
two MPP). Assuming that the opposition Blancos vote in favor
-and Blanco Leader Laranaga told USTR's Eissenstat that they
favor a trade deal-, Alfie predicted support by 26 out of 31
votes in the Senate.


9. (U) The radical PIT-CNT labor union is gearing up to oppose a
trade agreement with the U.S. The PIT-CNT's President Juan
Castillo said the union would foster discussion, promote debates
and invite Mexican and Peruvian speakers to outline the negative
effects that FTAs will have on the Uruguayan economy. Castillo
said that President Vazquez had written to the union to explain
his decision to keep the major political parties informed of the
government's progress, but to keep the PIT-CNT out of the loop.
When there are concrete results and the JCTI reaches a
conclusion on the path to follow, Vazquez is said to have
written, "social actors" would be informed.


10. (C) Comment: Vazquez has firmly taken the reins of the
trade agenda and appears determined to succeed. He has now
expanded the debate, until now limited to discussion of a trade
agreement with the U.S., to include talks of agreements with
India and China. He has informed the major political parties
(ref B) of his progress and ministerial technical groups have
consulted with the business community. Vazquez is shaping the
debate and building consensus. As this consensus evolves -and
momentum appears to be mostly positive-, it may become
increasingly difficult for the domestic opposition to an FTA,
all of it within Vazquez's own Frente Amplio, to gain traction
and for Uruguay's Mercosur partners to oppose what is starting
to emerge as a consensus national trade policy of opening to
world markets. End Comment.

NEALON