FM TAIANA AND PLANNING MINISTER DEVIDO ON MERCOSUR

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E.O. 12958: DECL: 01/16/2016
TAGS: ETRD ECON EINV PREL AR
SUBJECT: FM TAIANA AND PLANNING MINISTER DEVIDO ON MERCOSUR
AND CASA

REF: BUENOS AIRES 55

Classified By: AMBASSADOR E. ANTHONY WAYNE FOR REASONS 1.4 (B) AND (D)


1. (C) Summary. Planning Minister and influential
presidential advisor Julio De Vido told Ambassador January 15
that Bolivia's membership application is the most important
item for the January 19 Mercosur Summit in Rio, but that
Brazil-Argentine relations will dominate substantive economic
dialogue in Rio. On January 16, Foreign Minister Taiana
agreed that Bolivia's application for Mercosur membership
will be the most important agenda item for the Mercosur
Summit and explained that Brazil's proposal to address
intra-bloc investment asymmetries will be the most
controversial item. Taiana also discussed the January 18
meeting of leaders from the South American Community of
Nations (CASA) arguing that Brazilian President Lula and
Venezuelan President Chavez are the most enthusiastic about
CASA's potential. Argentina is less sanguine about the
grouping, as the GOA believes it will be difficult for the
10-member body to reach consensus on issues. End Summary.

Mercosur and Broader Hemispheric Relations
--------------


2. (C) The single most important theme to be addressed at
the Rio Summit will be Bolivia's application for membership,
De Vido said in a January 15 meeting with the Ambassador.
(Other items will be reported septel.) He argued that
Ecuador's newly-elected Correa would likely follow Bolivia's
lead and also apply for Mercosur membership, effectively
spelling the end of the Andean Pact as a viable trade bloc,
further isolating Peru and Colombia and diminishing Chile's
regional influence. In a separate meeting on January 16,
Foreign Minister Jorge Taiana offered the Ambassador his
perspective on Bolivia's request for Mercosur membership. He
noted that Bolivia wants to join the group without leaving
the Andean Community (CAN),which will make Bolivia's
accession technically more complex, as the common external
tariff of the CAN differs significantly from Mercosur's.
Nevertheless, he asserted that accession is still possible,
since Bolivia has a 0 percent import tariff on many of
Mercosur's products. Another potential difficulty with
Bolivia's accession is the issue of preferential treatment,
which it currently receives from the CAN. Mercosur can offer
preferential treatment to Bolivia, but it must do so in the
context of privileges Mercosur currently offers its smaller
members, Uruguay and Paraguay. Mercosur will likely form a
working group to explore the issues associated with Bolivia's
potential membership.


3. (C) On Ecuador, Taiana stated that Quito has not
formally requested Mercosur membership, but it wants to do
so. He noted, however, that Quito does not want to further
weaken CAN. (Taiana's other comments on Ecuador and other
issues will be reported septel.) De Vido compared Ecuadorian
President Correa's current political position to that of a
newly-elected Chavez in 1999, arguing that Correa would spend
much of his initial political capital on a similar
constitutional reform exercise to limit the power of
entrenched oligarchs. For its part, Venezuela will attempt
to use the Rio Summit platform to gain "greater space" to
highlight Chavez's social program priorities, including
promoting a Mercosur anti-cyclical social fund, DeVido
predicted.


4. (C) Within Mercosur, De Vido said that Presidents Lula
and Kirchner would continue to act as a "moderating force,"
helping an expanding trade bloc maintain its economic and
political equilibrium. In this context, the question of
Brazil/Argentine relations will dominate substantive economic
dialogue in Rio. In particular, both ministers noted that
how members handle Brazil's proposal -- opposed by Argentina
-- to address intra-bloc investment asymmetries by granting
smaller members Uruguay and Paraguay increased flexibility on
local content requirements (Reftel) will set the tone for
broader Rio economic integration discussions. Taiana stated
that Argentina understands the need to address asymmetries
among the Mercosur's smaller members, but argued that in the
area of investment, Argentina also faces asymmetries viz.
Brazil.


5. (C) Taiana also noted that Argentina and Brazil's recent
decision to conduct export transactions in local currency
will be implemented soon and will result in cheaper export

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transactions, particularly for small producers. Argentina
hopes all of Mercosur will agree to this practice. He
explained that since the crisis of 2001-02, the number of
businesses in Argentina has increased from 8,000 to 13,000,
with many of these being small businesses. The GOA hopes
that this measure will help facilitate increased regional
trade by small producers.

Taiana: Regional integration projects and FTAs with Third
Parties
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6. (C) Mercosur will also consider proposals for projects
to be financed by FOCEM, Mercosur's structural integration
fund. Taiana expressed disappointment with Uruguay's and
Paraguay's proposals, characterizing the projects as too
focused on their own national interests as opposed to
advancing regional integration. Nevertheless, the GOA will
vote in favor of the projects, but seek stricter standards
for the next round of project proposals. With respect to
Mercosur FTA negotiations with third parties, Taiana stated
that progress has been made on an FTA with the Gulf
Cooperation Council, but that negotiations are not yet
finished (Reftel). On a Mercosur FTA with Israel, he
explained that the GOI has not yet sent a response on
Mercosur's latest proposal.

Taiana: Brazil and Venezuela Look to Extend Regional
Influence in CASA
-------------- --------------


7. (C) Taiana also stated that all of the leaders from the
South American Community of Nations (CASA),minus Columbian
President Uribe, will meet in Rio on the eve of the Mercosur
Summit to discuss the Community's organizational structure.
(Note: According to Uruguayan press, however, Tabare Vasquez
will not attend the CASA meeting, but will attend the
Mercosur Summit.) The current debate centers around whether
CASA will adopt: a) a CAN-like structure, with a strong
Executive Secretariat and a regional development bank like
the Andean Development Corporation (CAF); or b) a Mercosur
structure that has a weak institutional Secretariat, but has
succeeded in achieving concrete regional cooperation on a
variety of issues through its Ministerial meetings. Taiana
stated that the GOA prefers the Mercosur structure, as it is
less bureaucratic with regional policy determined at the
Ministerial meetings. He observed that the group should
avoid expanding its membership too quickly so that it will
not end up working on broad issues only at a superficial
level.


8. (C) Taiana opined that Brazilian President Lula and
Venezuelan President Chavez are the most enthusiastic about
CASA's potential as it will be a larger forum in which each
country can attempt to extend its regional influence. The
initiative makes sense for Brazil's regional foreign policy,
which borders every country in the group except Chile and
Ecuador. Taiana appeared to be less sanguine about the
group's potential, stating that Argentina's and other
countries' foreign policy priorities are focused mainly on
the sub-region in which they are located. Consequently, the
benefits are less obvious. He added that if it is difficult
for Mercosur to reach consensus among its members, it will be
even more difficult to reach consensus on issues among the
members of CASA.

De Vido: U.S. Relations with Argentina and Brazil on an
Up-swing
-------------- --------------

9. (C) Minister De Vido concluded his meeting with the
Ambassador by noting that U.S. relations with Argentina and
Brazil were transiting through one of their best moments in
recent history, and that both countries' moderating influence
in the region is of strategic importance.
WAYNE