ONCE AGAIN, THE PULP MILLS PLAGUE URUGUAY

UNCLAS MONTEVIDEO 000977

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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