REGIONAL ISSUES AND COMPLAINTS MARK MERCOSUR SUMMIT

UNCLAS ASUNCION 000474 SIPDIS SENSITIVE WHA/FO CMCMULLEN, WHA/BSC MDRUCKER, BFRIEDMAN, MDASCHBACH E.O. 12958: N/A TAGS: ECON PREL PGOV PA SUBJECT: REGIONAL ISSUES AND COMPLAINTS MARK MERCOSUR SUMMIT ¶1. (U) Paraguay hosted the MERCOSUR Summit July 24-25 in Asuncion with the presidents of Argentina, Brazil, Uruguay, Chile, and Bolivia attending, as well as representatives from Ecuador, Venezuela, Peru and Colombia. (NOTE: Venezuelan President Hugo Chavez declined to attend the Summit at the last minute, citing security concerns and a busy agenda with the ongoing developments in Honduras. Paraguay's press, however, reported that Chavez allegedly was annoyed with MERCOSUR members because they refused his request to have Honduras' deposed President Manuel Zelaya at the Summit. END NOTE.) ¶2. (U) President Lugo opened the Summit by listing Paraguay's achievements in its pro-tempore presidency of MERCOSUR, including commercial relationships established with South Africa, South Korea, Japan, Cuba, Chile, Colombia and the E.U. The general tone of the Summit, however, was marked by criticisms and complaints from Uruguay and Paraguay about Brazilian and Argentine protectionist measures. On July 24, Paraguay's Foreign Minister Hector Lacognata characterized Argentina's and Brazil's response to the ongoing financial crisis as "unilateral protectionist measures without regional coordination." Paraguay's largest industrial chambers protested outside the Summit demanding that Paraguay make an official complaint about the recurrent trade barriers and market access limitations imposed by Argentina and Brazil. Paraguay lodged an official complaint at the Summit. ¶3. (U) MERCOSUR members (Paraguay, Uruguay, Brazil, and Argentina) were unable to reach an agreement about the elimination of the double Common External Tariff (CET),and were unable to agree on a common customs code. (NOTE: Both items were scheduled for completion in late 2008 under Brazil's pro-tempore presidency. END NOTE.) Participants discussed the use of local currencies for commercial and trade transactions instead of the U.S. dollar, but no agreement was reached. Uruguay, which assumed MERCOSUR's pro-tempore presidency for the next six months, opposed Paraguay's proposal to create a MERCOSUR Justice Court on the grounds that it violates Uruguay's constitution. Argentina's President Cristina Fernandez demanded that member countries work to "break the influenza vaccine patent monopoly." Regarding Venezuela's inclusion as a full-fledged member in MERCOSUR, Uruguay and Paraguay both stated that Venezuela could provide a "new favorable balance of relationships and integration." (NOTE: Paraguay's Congress has not approved Venezuela's membership in MERCOSUR and the issue remains highly controversial. END NOTE.). The starting date for the Bank of the South was officially announced for January 2010; the bank will begin operations through its headquarters in Caracas. Participants also issued a joint statement demanding the immediate restoration of public order and democracy in Honduras. ¶4. (SBU) COMMENT: The 37th MERCOSUR Summit was dominated by rhetoric about economic integration, with little concrete measures to address trade and commercial issues that divide the bloc. As expected, protectionist measures from Brazil and Argentina took center stage, pitting the smaller countries against the larger two. Though accompanied by high initial expectations, Paraguay ended its six-month pro-tempore presidency of MERCOSUR without any meaningful accomplishments. Nor does it not come as a surprise that after 15 years Paraguay continues to feel that MERCOSUR has failed to advance its main objective of regional economic integration. END COMMENT. Shaker