ONCE AGAIN, THE PULP MILLS PLAGUE URUGUAY

UNCLAS MONTEVIDEO 000977 SIPDIS SENSITIVE SIPDIS DEPT FOR WHA/BSC DBARNES, CCROFT AND KREAD DEPT ALSO FOR EUR/ERA, EUR/WE (MHILL),EUR/NB (MEVANS) DEPT ALSO FOR EB (BLAMPRON) AND WHA/OAS (DCENTO) DEPT PLEASE PASS USTR FOR EEISSENSTAT AND SCRONIN TREASURY FOR OASIA FOR DOUGLAS COMMERCE FOR ITA/MAC WBASTIAN NSC FOR DFISK AND JCARDENAS BRASILIA FOR JSTORY SOUTHCOM FOR POLAD E.O. 12958: N/A TAGS: PREL SOCI KLIG EINV EWWT AORC SENV AR UY SUBJECT: ONCE AGAIN, THE PULP MILLS PLAGUE URUGUAY REF: MONTEVIDEO 0907 AND PREVIOUS ¶1. (SBU) Summary. The long-running dispute between Argentina and Uruguay over the construction of pulp mills on a shared river shows no signs of letting up. For the second time this tourist season, Argentine environmental protesters will block international bridges linking the two countries. Work has resumed at the Finnish Botnia plant following a three-week labor strike but practically everyone here believes that the $500 million Spanish ENCE plant "is now history" and will never be built (reftel). As if to rub salt in the wound, the GOA recently sent a letter to the GOU's Ministry of Environment questioning an Uruguayan company's plans to build a chemical factory well inside Uruguayan territory, far from any river. The company already provides chemicals to Argentine pulp mills. The GOU appears fed up and furious over Argentine lobbying abroad and meddling in Uruguayan internal affairs, but powerless to do much about it beyond sending diplomatic notes. According to many local analysts, the GOU may have naively thought that by not signing a Free Trade Agreement (FTA) with the US it would curry favor with Argentina. If so,it did not have the desired effect, however. Meanwhile, on October 12 the World Bank released the final (generally favorable to Uruguay) Cummulative Impact Study (CIS) for the pulp mills. End Summary. ¶2. (U) October 11, press reports from Gualeguaychu in Argentina stated that environmental activists had voted to block highways leading to two of the three international bridges (Libertador San Martin and General Jose Artigas) during October 13-15. The remaining bridge to the north at the Salto Grande dam will remain open. Business and property owners at Uruguay's beach resort towns to the east are fearful that the roadblocks and other anti-economic measures mounted by the Argentine protesters will adversely affect their local tourist industry. (Note: This is the time of year when many ordinary Uruguayans on the coast rent their homes to Argentine tourists for the summer. The GOU estimated that last year an estimated $400 million in revenues were lost because of bridge closures. End Note.) ¶3. (U) On October 11, the GOU sent a diplomatic note to the Argentine government expressing its concern over the impending bridge blockades and requesting that the GOA "take appropriate action" to counter them. In Fray Bentos, where the pulp mills are to be built, the governor of Rio Negro department Omar Lafluf blasted the GOA for the "chaos and nervousness" generated by its usual inaction against the protesters. Meanwhile, the local press reported that Argentine Secretary for the Environment Romina Piccolotti blamed the World Bank for the bridge blockades and protests. We note from the October 12 edition of Argentina's "La Nacion" newspaper that the GOA expressed its official disapproval of the blockades, but Uruguayans doubt the GOA will take any action to prevent them. Most Uruguayans also believe that Brazil, which holds Mercosur's pro-temp presidency, is unlikely to intervene in the matter. ¶4. (U) Bilateral relations between the two countries took another hit last week when the Argentine Government bypassed the GOU's Foreign Ministry and sent a letter directly to the GOU Ministry that handles environmental issues. The letter puportedly demanded an environmental impact study and information about the Uruguayan company ISUSA's plans to build a factory well inside Uruguayan territory, in Soriano department, far from any river. ISUSA already provides chemicals such as sulphuric acid to Argentine pulp mills. The GOU returned the letter to the GOA citing both breach of protocol and interference ("inappropriateness") in Uruguayan internal affairs. Nevertheless, ISUSA officials reportdly are suspending the $200 million investment until further notice. ¶5. (SBU) Comment: With the likely departure of the Spanish pulp mill and persistent threats against the Finnish plant, Uruguay has good reason to worry about its vital national interests and negative impacts on its investment climate. President Vazquez is reportedly very concerned about the recent developments. After all, he held high hopes that the pulp mills and an FTA would revitalize stagnant sectors of the economy. Now, both projects are in serious doubt. MFA officials told us privately that it was Argentina's lobbying of international organizations and threats to Spanish investments in Argentina that killed the ENCE plant. The favorable decisions (for Uruguay) by the International Court of Justice on July 16 and the ad hoc Mercosur Arbitration Tribunal's decision on September 6 do not seem to have helped Uruguay's cause very much. Citing Uruguay's probity and its respect for the rule of law, a retired UYAR military officer recently remarked to us that many Uruguayans are resigned to what they see as the bullying tactics of its larger neighbor, because "nice guys finish last in this (Mercosur) neighborhood." End Comment. Nealon