Uruguayan Priorities as Mercosur President

UNCLAS MONTEVIDEO 000455

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PREL ETRD ENGY UY
SUBJECT: Uruguayan Priorities as Mercosur President

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SUMMARY
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1. (SBU) SUMMARY: As Uruguay assumes the pro tempore presidency of
the Mercosur trade bloc, President Vazquez signaled a measured
approach to dealing with commercial barriers the GOU claims its two
dominant neighbors have imposed. Uruguay's priorities include
pressing Argentina to allow Mercosur development funds to finance an
electrical interconnection project between Brazil and Uruguay,
pushing Argentina and Brazil to end pre-licensing requirements on
imports, and proposing a reorganization of Mercosur's 256
institutions. In addition, the GOU will seek to address the chronic
Mercosur problems of double taxation within the bloc and stalled
commercial negotiations with other blocs, notably the European
Union. END SUMMARY.

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MEASURED APPROACH WITH NEIGHBORS
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2. (SBU) Uruguay began its six-month term as Mercosur's president
pro tempore following the June 23-24 Mercosur summit in Asuncion.
While the GOU has consistently expressed its dissatisfaction with
Mercosur's failure to fulfill its original objective to create a
common external tariff, President Vazquez signaled he would listen
first and take actions later with regard to addressing tariff
barriers imposed by Uruguay's two larger neighbors. Director of
Economic Affairs Walter Cancela also struck a congenial tone on
working with Argentina and Brazil, saying "Uruguay will not take
reciprocal measures," which he suggested would have a greater
negative impact on Uruguay itself.


3. (SBU) While publically taking a measured approach toward dealing
with Argentina and Brazil, Foreign Minister Gonzalo Fernandez raised
the issue of non-tariff barriers and para-tariff measures at the
Mercosur Summit in Asuncion. He labeled them "protectionist
measures that might be understandable, but could not be accommodated
or justified," and other Foreign Ministry officials stated the GOU
was concerned about delays in obtaining import licenses for products
such as textiles going to Argentina and dairy products for Brazil.
NOTE: the Uruguayan press reported delays in Brazil issuing import
licenses for 10,000 tons of powdered milk and a $400,000 retread
tire transaction in July, causing Uruguayan operations to stop work
due to the backlog. END NOTE. Meanwhile, the weekly business
newspaper Busqueda describes Uruguay's ambassador in Argentina as
"an administrative facilitator" who has been relegated to working
daily to kick-start import license applications that have gotten
stuck.


4. (SBU) GOU officials say that if the free flow of goods continues
to be obstructed in Mercosur, it will push to extend a current
regime for the temporary admission of goods, which is set to expire
in 2013.

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FOCEM - ELECTRICAL GRID INTERCONNECTION WITH BRAZIL
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5. (SBU) A GOU priority is to convince Argentina to withdraw its
veto of a $80M loan from FOCEM, the Mercosur fund set up to
facilitate structural integration. Foreign Minister Gonzalo
Fernandez considers Argentina's veto a strictly political decision,
and will insist its approval should be based solely on technical
considerations. The technical aspects of the projects were approved
earlier this year by a Mercosur committee, pending formal approval
by each of the Mercosur members. Uruguayan diplomats have been
quoted in the local media as describing Argentina's veto as a
"political blockade" by the Fernandez Kirchner administration,
alluding to the longstanding "blockade" by Argentine activists of
the international bridge at Fray Bentos. These same sources say
that - barring a breakthrough -- the GOU will seek external funding,
describing the project as exceptionally economically viable.

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DOUBLE TAXATION AND COMMERCIAL OUTREACH
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6. (SBU) In addition to addressing immediate concerns related to
pre-licensing, the GOU intends to raise long-standing issues such as
eliminating double imposition of the Mercosur's common external
tariff and moving forward on trade agreements with other blocs,
especially the European Union. FM Fernandez said that Uruguay
stands absolutely in favor of eliminating double-tariffs. The GOU
understands that progress will be difficult to achieve with
approaching elections at home and in Brazil.

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MERCOSUR BASHING IN THE CAMPAIGN ARENA
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7. (SBU) Uruguay's two principal candidates for president share the
generalized Uruguayan disappointment with Mercosur. Jose Mujica
called Mercosur "lame and in misery" and told voters that Latin
America suffered difficulties finding the cohesion that other blocs
enjoy. "We face extraordinary problems. I realize that to demand
something from the world that is coming we must integrate, we must
stand together so that we can have certain weight, if not we are
condemned," he said. Meanwhile, also on the campaign trail, Luis
Alberto Lacalle criticized Mercosur's parliament, Parlasur, and
suggested the Bolivian delegation be removed. Lacalle has opposed
inclusion of Venezuela and Bolivia in the bloc in favor of Chile, a
country he considers more aligned with Uruguay's interests.

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COMMENT
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8. (SBU) The Frente Amplio government came into power in 2005 with
a positive feeling toward Mercosur, but time spent dealing with the
organization has given many officials a decidedly less enthusiastic
view. The fact that Frente Amplio candidate Jose Mujica, who
maintains some political affinity with current governments in
Argentina, Venezuela and Bolivia, openly criticizes Mercosur,
underscores the real frustration the GOU and Uruguayans in general
have with the bloc.

SCHANDLBAUER