This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 05 ASUNCION 000841 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/BSC AND EB/IFD/OIA 
STATE PASS TO USAID FOR LAC/AA 
STATE PASS TO USTR FOR SCRONIN AND LYANG 
NSC FOR KIM BREIER 
TREASURY FOR OSIA MAUREEN WAFER 
TREASURY FOR OTA WARFIELD, VAN KOCH, MILLAR 
COMMERCE FOR ITA SARAH COOK 
SOUTHCOM FOR POLAD DAN JOHNSON 
 
E.O. 12958: N/A 
TAGS: PGOV PREL PHUM ECIN EFIN EPET ETRD KIPR CU PA KICC VZ
SUBJECT: MERCOSUR SUMMIT: LONG ON RHETORIC, SHORT ON 
SUBSTANCE 
 
REF: A. MONTEVIDEO 731 
 
     ¶B. BRASILIA 1685 
     ¶C. ASUNCION 807 
 
1.(SBU) Summary. Leaders attending the June 20 MERCOSUR 
Summit lauded creation of a Development Fund to address 
structural asymmetries and provide assistance to the group's 
less developed members -- i.e. Paraguay -- as one of Summit's 
most important achievements, but left largely unaddressed 
concerns about limits on market access.  With his three hour 
speech to Paraguay's Congress lambasting the U.S. and 
offering an alternative "vision" of integration and 
development for South America, Venezuelan President Chavez 
stole the headlines of an otherwise dull show.  The 
declaration the four MERCOSUR Presidents adopted prohibiting 
members from entering agreements that affect the ICC's 
jurisdiction could pose an obstacle to our already tenuous 
prospects for an agreement with Paraguay.  The Presidents 
also signed a human rights protocol prescribing consultations 
and possible suspension in the event of grave violations. 
This protocol had no bearing on a separate decision to 
initiate commercial negotiations with Cuba in the context of 
its membership in ALADI.  The Summit's Declaration affirmed 
commitment to expand commercial ties with a wide host of 
individual States and organizations, including the EU. 
Notably absent was any specific mention of NAFTA or China. 
End Summary. 
 
--------------------------------------------- -- 
Fraternal Spirit Found Lacking in Summit Optics 
--------------------------------------------- -- 
 
¶2. (U) On June 18-20, Paraguay hosted MERCOSUR's 
twenty-eighth Summit in Asuncion.  The Presidents of Member 
States Argentina, Brazil, Paraguay, and Uruguay attended. 
The Associate Members were represented by the Presidents of 
Chile, Colombia, Ecuador, and Venezuela and the Foreign 
Ministers of Boliva and Peru.  Paraguay's President Duarte 
took pains to foster a fraternal spirit among the four 
MERCOSUR presidents and, in particular, between Argentina's 
Kirchner and Brazil's Lula.  For the family photo of all the 
Delegation Heads from Member and Associate Member States, 
Duarte insisted that Kirchner and Lula stand next to each 
other after they had both made pointed efforts to position 
themselves on opposite sides of the group.  Nevertheless, 
photographers captured Lula with a grimace on his face in a 
separate photo of the four huddled in a circle with their 
hands on top of each other.  Both presidents made a point of 
leaving shortly after meeting their responsibilities to 
protocol. 
 
------------------------------------------ 
Duarte Calls For Greater Commercial Access 
------------------------------------------ 
 
¶3. (U) As host to the Summit, Paraguay's Duarte called on 
Member States to dismantle mechanisms that inhibit the free 
flow of goods and services.  Paraguay,s business community 
is frustrated by hindrances put on raw materials and other 
goods bound for Brazil and Argentina.  He also noted that 
Paraguay's exports are disadvantaged by non-tariff barriers 
imposed by the other members of MERCOSUR as well as by the 
continued existence of unfair subsidies.  Brazil's President 
Lula de Silva conceded that there are difficulties, but did 
not offer concrete measures to improve Paraguay's commercial 
access to Brazilian markets. 
 
--------------------------- 
New Structural Fund Created 
--------------------------- 
 
¶4. (U) One of the more publicized outcomes of the summit was 
the creation of the Fund for Structural Convergence and the 
Strengthening of Institutions (FOCEM), envisioned to provide 
USD 100 million per year in economic assistance to be shared 
among member states.  Brazil agreed to provide 70 percent of 
the funding for FOCEM, with 27 percent to come from 
Argentina, two percent from Uruguay, and one percent from 
Paraguay.  Ultimately, funding FOCEM will depend on concrete 
action by member legislatures.  The goal of the fund is to 
create jobs, combat poverty, and to encourage structural 
development in the less developed member countries, namely 
Uruguay and Paraguay.  Paraguay could receive up to USD 48 
million per year. 
 
¶5. (U) Vice Minister of Foreign Affairs Jose Lezcano remarked 
to Charge about the importance of MERCOSUR uniting to help 
its less developed member states -- i.e. Paraguay, arguing 
that the principle was more significant than the amount of 
funds.  Once funds are approved, the organization must also 
devise a method of administering the funds, a step which 
could delay implementation.  A separate anti-poverty program 
was agreed in principle as well, but future summits will need 
to decide on funding. 
 
-------------------------------------------- 
Proposed Energy Network Would Link Countries 
-------------------------------------------- 
 
¶6. (U) During the Summit, participants discussed a proposal 
to create a regional "Energy Ring."  The plan is intended to 
link Peruvian gas supplies to existing pipelines in 
Argentina, Brazil, Uruguay and Chile at a cost of USD 2.5 
billion.  The original intention of the plan, proposed by the 
recipient countries, was to connect gas fields in 
Southeastern Peru with Chile via a 1,200-kilometer pipeline 
from the port city of Pisco to the city of Tocopilla, where 
gas could then join existing pipelines to Argentina, Brazil 
and Uruguay.  During the course of the summit, the plan was 
expanded to include Paraguay and Bolivia.  However, Peru's 
Foreign Minister noted that in order to participate in the 
energy network, Paraguay would need to construct its own 
pipeline.  Media reports indicate that funding for such a 
pipeline could come from the Inter-American Development Bank 
(IDB).  Peruvian Finance Minister Kuczynski noted that the 
plan would not be feasible unless and until Peru 
significantly bolsters production. 
 
¶7. (U) Venezuela's President Chavez introduced his own 
proposal for a continent-wide energy network, proposing a 
6,000-kilometer pipeline from Venezuela to Argentina. 
Discussion of possible sources of funding for both proposals 
included the Inter-American Development Bank and the 
Corporation for Andean Promotion, although reports 
acknowledged the need for private capital. 
 
---------------------- 
Regional Bank Proposed 
---------------------- 
 
¶8. (U) During the course of the summit, Chavez also proposed 
the creation of a single South American central bank 
(Bancosur) to which the region's countries could move their 
international reserves, rather than have them concentrated in 
the "north" and Europe.  Paraguay's Finance Minister, Ernst 
Bergen, told the press that he thought it was an idea worth 
considering, especially given the current environment of 
macroeconomic stability in the region.  He said that deeper 
integration, including the possibility of a regional 
currency, was a laudable goal, although one that would take 
time. 
 
-------------------------------------------- 
Regional Foot-and-Mouth Eradication Proposed 
-------------------------------------------- 
 
¶9. (U) MERCOSUR announced a plan to eradicate foot-and-mouth 
disease by 2009.  In cooperation with the UN Food and 
Agricultural Organization (FAO) and the World Health 
Organization (WHO), MERCOSUR plans to vaccinate 100 percent 
of cattle within member states.  With approximately 280 
million cows that must receive at least two vaccinations 
annually, the estimated annual cost of the program stands at 
USD 168 million, an estimated total cost of USD 672 million 
through 2009.  Paraguay, with a population of 9.5 million 
head of cattle, is currently free of foot and mouth disease, 
but the disease is found in parts of neighboring Bolivia and 
Brazil. 
 
---------------------------------- 
Brazil/Paraguay Sign IPR Agreement 
---------------------------------- 
 
¶10. (U) In the course of the summit, Paraguayan FM Leila 
Rachid and her Brazilian counterpart FM Celso Amorim signed a 
memorandum of understanding to increase bilateral 
coordination in combating copyright and trademark 
infringement.  The agreement establishes a bilateral working 
group for the coordination of intelligence and for increased 
bilateral cooperation in the prevention, investigation and 
prosecution of IPR-related crimes.  For Paraguay, the 
Specialized Investigative Unit of the Ministry of Industry 
and Commerce, which the USG supports with INL funds, will be 
the principal Paraguayan point of contact.  Paraguay 
initially proposed an MOU to Brazil in a letter from 
President Duarte to President Lula in July 2004, but did not 
get a response until May of this year. 
 
--------------------------------------------- -- 
Presidents Strengthen Commitment to Rome Treaty 
--------------------------------------------- -- 
 
¶11. (U) Paraguay's Senate took some heat in the press 
recently for extending diplomatic immunities to Amcit 
participants in U.S.-Paraguayan military exercises.  In 2003, 
the MERCOSUR States affirmed their commitment to meeting 
their obligations under the Rome Treaty.  This year's Summit 
went considerably further with Member States commiting 
themselves not to sign bilateral or multilateral agreements 
that would affect the jurisdictional basis of the ICC, 
particularly in connection to Article 98.  Paraguay's lawyer 
for Article 98 negotiations with the U.S. conveyed concern 
that this declaration could pose an obstacle to concluding an 
agreement. 
 
----------------------------------------- 
Human Rights Protocol no Obstacle to Cuba 
----------------------------------------- 
 
¶12. (SBU) MERCOSUR Presidents approved a Protocol on the 
Protection and Promotion of Human Rights introduced by 
Paraguay that calls for consultations in the event of serious 
concerns regarding respect for human rights or democratic 
order in a Member State.  Member States can decide by 
consensus (minus the State that is the object of concern) to 
suspend the State from participating in the organization 
should consultations not produce a resolution.  This document 
was negotiated through two MERCOSUR fora with the 
participation of the six associate members before its 
adoption by MERCOSUR Member States.  At the Summit, the four 
members signed; Associate Members are invited to sign and 
ratify this protocol. A Colombian Emboff who participated in 
negotiations conveyed Colombia's reservations about one of 
the protocol's articles leaving undefined the democracy/human 
standards being applied.  He thought this concern would 
preclude Colombia from signing the protocol and indicated 
Chile had the same concern. 
 
¶13. (U) At Uruguay's behest, MERCOSUR has decided to 
undertake negotiations to forge a commercial agreement with 
Cuba in the context of its membership in ALADI.  Since Cuba 
is not seeking to become an Associate Member of MERCOSUR, it 
is not required to subscribe to the MERCOSUR Protocol on 
Human Rights, the Ushuaia Protocol on Democratic Commitments, 
nor the 1996 Presidential Declaration on Democracy 
Commitments. 
 
-------------------- 
The Chavez Road Show 
-------------------- 
 
¶14. (U) As reported in reftel C, Venezuelan President Chavez 
stole headlines and received wide coverage during his entire 
visit.  Chavez reportedly forced an invitation to address the 
Paraguayan Congress, where he gave a three hour speech 
describing capitalism as the "road to hell," blaming 
underdevelopment on "imperialist countries," referring to 
President Bush as "Mr. Danger" because of the threat he poses 
to the world, and stressing the need for a "revolution" based 
on socialist values.  He downplayed the emphasis on economic 
integration in the context of MERCOSUR calling for broader 
economic and political integration across broader stretches 
of South America.  He offered proposals for regional 
petroleum (Petrosur), banking (Bancosur), and communication 
(Telesur) enterprises as ways to build on Bolivar's vision of 
a united South America. 
 
¶15. (U) Chavez took great pains to bolster his populist image 
as a man of the poor posing for pictures with taxi cab 
drivers and hotel employees, talking up people on the street, 
and buying up all of the candy sold by a young child in front 
of his hotel.  He was scheduled to depart at 11 AM on 6/21 
prompting the police to stop traffic on the street in front 
of his hotel.  Five hours later, Chavez emerged from his 
hotel with the street still blocked by the police and with 
dozens of "admirers" and curiosity seekers milling around 
hoping to meet him. 
 
¶16. (U) Chavez, who came with two airplanes, was protected by 
a large security detail.  A waiter at the hotel where Chavez 
stayed said that he had counted no fewer than 20 security 
officials circulating around him when he moved in or out of 
the hotel.  A Spanish Embassy employee who visited the hotel 
where Chavez stayed was insistent that each floor of the 
five-story hotel was protected by at least another 10 
security guards.  The security detail drew fire from the 
press when a Venezuelan security official and a Paraguayan 
military official assaulted and temporarily detained a 
photographer who tried to take a picture of Chavez in front 
of the hotel. 
 
--------------------------------------------- ---------- 
Expansion of Cooperation with Others Minus NAFTA, China 
--------------------------------------------- ---------- 
 
¶17. (U) As noted, the MERCOSUR declaration announced a 
decision to commence negotiations with Cuba.  Separately, it 
conveyed its interest in strengthening economic ties with a 
vast array of countries including Canada, South Korea, 
Israel, Pakistan, Panama, Mexico, India, and Russia. 
Argentina and Brazil strongly endorse forging a MERCOSUR 
agreement with the People's Republic of China.  Paraguay 
recognizes Taiwan and continues to resist pressure to 
establish relations with China.  Mention of China was 
ostensibly absent from the document. 
 
¶18. (U) The declaration also conveyed an interest in 
deepening ties with regional organizations and groupings 
including the Arab countries, SACU of Africa, SICA of Central 
America, CAN of the Andean countries, and CARICOM from the 
Caribbean countries.  It reconfirmed MERCOSUR's commitment to 
negotiate an Interregional Association Agreement with the EU 
and its interest in a ministerial with the EU.  The 
declaration made no mention of NAFTA.  Instead, it conveyed 
MERCOSUR readiness to begin negotiations to expand access to 
markets on fair terms with countries in the Hemisphere with 
which MERCOSUR had not yet signed commercial agreements. 
 
¶19. (SBU) Comment:  Progress on creation of a Structural Fund 
and establishment of an energy ring will depend on 
significant concrete follow-up which may prove problematic. 
In principle, MERCOSUR's embrace of a human rights protocol 
is welcome.  However, the protocol itself is short on 
specifics both in terms of standards and procedures, raising 
a question regarding its utility.  MERCOSUR's Declaration on 
the Rome Treaty is unwelcome as it will reinforce Paraguayan 
reluctance to provide Article 98 protections.  The MERCOSUR 
Summit proved a platform for Chavez to tout his vision of 
South American unity which included a variety of proposals 
but no effective roadmap.  At the end, the Summit may have 
been most noteworthy for what it did not do -- namely produce 
concrete agreement on the reduction of trade barriers that 
contribute to an expansion of market access.  End Comment. 
KEANE