Staffdel Meacham visit to Uruguay

UNCLAS MONTEVIDEO 000312

SIPDIS
SENSITIVE


E.O. 12958: N/A
TAGS: PREL ETRD UY

SUBJECT: Staffdel Meacham visit to Uruguay

--------------
SUMMARY
--------------


1. (SBU) SUMMARY: Staffdel Meacham visited Uruguay May
26-28 to explore ways to expand trade and political ties
with Uruguay. GOU officials expressed their interested
in continuing and strengthening ongoing Trade and
Investment Framework Agreement (TIFA) discussions. GOU
officials emphasized their hope that the U.S. will clear
away sanitary-phytosanitary barriers for Uruguay lamb and
citrus in the U.S. market. If the U.S. Congress looks
into inclusion of Uruguay in a trade preference program
in the medium term, the GOU believes this would help
Uruguayan exporters of wool textiles and wool apparel,
sectors that have been hit severely by the worldwide
economic slowdown.
END SUMMARY.


2. (SBU) Carl Meacham, Senior Advisor for Senator
Richard Lugar, and WHA/BSC Deputy Director Bruce
Friedman met with the Ministries of Foreign Affairs;
Economy and Finance; and Industry as well as trade
officials, legislators, and representatives from the
private sector during their three-day stay in Montevideo.

--------------
Foreign Minister Gonzalo Fernandez
--------------


3. (SBU) Foreign Minister Gonzalo Fernandez emphasized
that during his participation in the June 4-5 Trade and
Investment Committee meeting in Washington, he wanted to
make as much progress under the Trade and Investment
Framework Agreement as possible, as his time in office
was drawing to a close. That meeting will include
discussion of sanitary-phytosanitary issues (Uruguayan
boneless lamb and citrus, and U.S. beef and poultry).
On possible future inclusion in a U.S. trade preference
program, Minister Fernandez explained that U.S. trade
preferences for textiles and apparel would have a
dramatic positive economic impact on Uruguay but very
small effect on U.S. producers.


4. (SBU) Uruguay needs to diversify its markets and
commercial ties, the Foreign Minister noted that the
benefits Uruguay gained as a member of Mercosur were
consolidated 8-10 years ago. Today Mercosur is not
progressing, but regressing. He cited ArgentinaQs
refusal to approve the use of three years of FOSEM funds
(Structural Convergence Funds from Mercosur) to finance
the electrical grid interconnection project between
Brazil and Uruguay. Fernandez pointed out that this was
the first time FOSEM funds were blocked by a Mercosur
member for political motives (ArgentinaQs dispute with
Uruguay over the Botnia pulp mill).

--------------
Ministers Garcia and Martinez
--------------


5. (SBU) Minister of Economy Alvaro Garcia and Minister
of Industry Daniel Martinez each underscored the
importance to Uruguay of helping the textile and apparel
sectors. Garcia described these sectors in Uruguay as
traditional, focused on a high quality product with China
competing from below and Italy firmly installed at the
top of the market. Garcia stressed that the GOU sought
to maintain the greatest amount of space possible for the
textile and apparel industries, which provided much
needed employment. Garcia said Mercosur is troubled. It
would not be an impediment to future trade agreements or
U.S trade preferences.

-------------- --------------
GOU OFFICIALS LAMBAST MERCOSUR AND SAY FTA IS POSSIBLE
-------------- --------------


6. (SBU) Other senior officials (past and present) were
also critical of Mercosur and the limitations it imposes
on Uruguay. UruguayQs Senior Trade Negotiator Alvaro Ons
described Uruguay as the only disciplined member of
Mercosur, and that ArgentinaQs economic policy posed real
challenges. He stated that the textile and apparel
sectors represented the greatest potential for immediate
economic impact.

7. (SBU) Former head of Macroeconomic Planning Division
at the Ministry of Finance (and currently campaign
Manager for Danilo AstoriQs campaign to be the Frente
Amplio partyQs candidate for President) Fernando Lorenzo
said Uruguay was at the most frustrating point in what
has been a frustrating period with Mercosur. He said
U.S. market access for the textile and apparel sectors
would be an important signal to Uruguayans that there are
opportunities outside of Mercosur. UruguayQs ongoing
disputes with Argentina were affecting bilateral
relations in other areas as well, he said.


8. (SBU) Lorenzo said that Uruguay must conserve trade
preferences it receives through Mercosur that represent
25% of exports, while opening markets abroad. He
advocates that Uruguay work during its turn as Mercosur
President for an agreement for members work on key issues
at variable speeds. A first step would be to reduce
common external tariffs, to give Paraguay some fiscal
breathing room.

--------------
A VOICE OF OPPOSITION
--------------


9. (SBU) Frente Amplio Senator Alberto Couriel, a member
of Presidential hopeful Jose MujicaQs MPP bloc, was more
skeptical of the possibility of strengthening commercial
ties with the U.S., noting that negotiations could harm
relations with Brazil and Argentina, UruguayQs two main
trading partners and a key source of tourism revenues.
He cautioned though, that despite a general global
economic opening in the 1990Qs, the U.S., Europe and
Japan continued to employ tariffs and quotas, especially
on agricultural goods UruguayQs major export products.

--------------
FORMER TRADE NEGOTIATOR WEIGHS IN
--------------


10. (SBU) Isidoro Hodara was skeptical about the TIFA
and viewed it as an Qside showQ. He was also skeptical
about the USQs chances to grant a special treatment to
UruguayQs producers of textiles and apparel. An adamant
advocate of an FTA between Uruguay and the United States,
Isidoro Hodara highlighted the need to Qkeep the sacred
fireQ of a bilateral FTA QaliveQ and be ready for any
window of opportunity that may arise. Hodara --who is
the Vice President of UruguayQs leading business park --
was the coordinator of the US-Uruguay Joint Commission on
Trade and Investment (JCTI) during the Jorge Battle
administration (2000-2005). 11. (SBU) Hodara was
particularly grateful to Senator Lugar, who in 2002
sponsored a bill (supported by nine other senators) to
start the negotiation of a free trade agreement with
Uruguay.

--------------
TEXTILE INDUSTRY MEETINGS
--------------


11. (SBU) In a meeting with the Apparel Chamber and the
Uruguayan Textile Association, textile industry
representatives emphasized that although their products
do not compete with U.S. products, Uruguay cannot enter
the U.S. market because it cannot compete with countries
who have trade preferences with the U.S. Visits to
apparel manufacturer, Welcolan S.A., and textile factory,
Hisud S.A., produced similar stories of a declining
industry primarily based on inability to compete with
countries that have U.S. trade preferences and lower
labor costs. Neighboring ArgentinaQs recent moves to
close off its economy, MercosurQs inaction on lowering
tariffs, and the global economic crisis has also
negatively impacted the industry. The Uruguayan textiles
sector currently employs 5,000 workers and it is based on
the production of wool-based fabrics.


--------------
MEACHAM VISITS BINATIONAL CENTER
--------------


11. (SBU) Maria Blanco Pate, the Director of
MontevideoQs Binational Center (known locally as the
Alianza),gave Meacham a half-hour tour of her
classrooms, offices, and library, and hosted a luncheon
in his honor. Guests included members of the AlianzaQs
staff and board of directors, whose ranks include local
businessmen, educators, and cultural figures. Blanco was
eager to build on the good will and dialogue she began in
early May, when she traveled to Washington and met Senate
Foreign Relations staffer Paul Foldi. At the time, Foldi
and Blanco discussed an article Senator Lugar wrote about
American binational centers and she was eager to
reciprocate his hospitality and interest with a luncheon
and tour for Meacham. She liked the STAFFDELQs ideas for
expanding AlianzaQs attractiveness to non-traditional
audiences by popularizing American sports events, like
the Superbowl, and is looking into ways of making them
happen (by purchasing a cable television subscription,
for example). Blanco also told Meacham about the
collaboration she receives from the U.S. Embassy, such as
funding for English language microscholarships directed
towards poor Uruguayan students, and discussed how an
infusion of resources would allow her to expand language
instruction throughout Uruguay.


MATTHEWMAN