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,C O N F I D E N T I A L MONTEVIDEO 000038 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA A/S SHANNON AND WHA/BSC 
DEPT FOR EB A/S WAYNE AND EB/TPP 
DEPT PLEASE PASS USTR 
NSC FOR DFISK AND SCRONIN 
USDOC FOR WHA/DAS WBASTIAN 
 
E.O. 12958: DECL: 01/10/2016 
TAGS: PREL PGOV ETRD EINV UY
SUBJECT: FTA COMMENTS IGNITE INTERNAL/EXTERNAL DEBATES 
 
REF: A. MONTEVIDEO 0011 
 
     ¶B. MONTEVIDEO 004 
     ¶C. 05 MONTEVIDEO 1428 
 
Classified By: Charge D'Affaires James D. Nealon 
for reasons 1.4 (B) and (D) 
 
¶1. (C) Summary: Economy Minister Astori's open advocacy of a 
Free Trade Agreement (FTA) with the US (ref A) last week has 
drawn sharp reactions at home and abroad because a ""leftist"" 
Mercosur government has publicly said it wants to talk with 
us about free trade.  Domestically, there's been the 
predictable negative reactions from the far-left, but also a 
surprising amount of public support for the idea (one poll 
shows 91 pct public approval for an FTA.)  Other Mercosur 
partner countries seem to have been caught off balance by 
Astori's proposal and in a quandary over how to react.  (At 
least this is how it is perceived in the press.)  While we 
are convinced that President Vazquez backs Astori out of 
conviction, the dramatic FTA trial balloon was probably 
triggered by the soured relations with Argentina over the 
construction of pulp mills on a shared river (ref B) and 
frustration with the way Mercosur treats its junior partners. 
 At a minimum, the GOU has drawn attention to the FTA issue, 
but it may also have added to a fight over the ""soul"" of the 
Latin American Left by openly extolling the virtues of the 
Chilean model.""  It is a high stakes game, however, since 
the danger for little Uruguay lies in a two-front war of 
independence against hardened lefties in the Frente Amplio 
and regional partners who opposed the Free Trade of the 
Americas (FTAA) at the Summit of the America's (SOA).  We see 
the FTA flap as another opportunity for us to meaningfully 
engage the GOU and help it achieve what it wants most -- 
economic growth and jobs.  End Summary. 
 
Reactions 
--------- 
 
¶2. (SBU) It's the summer doldrums here and many folks are 
vacationing on the beach, including Minister Astori who 
sparked the whole flap.  Nevertheless, the local media has 
succeeded in finding a hot story over whether Uruguay should 
negotiate an FTA with the US.  Folksy AgMinister Mujica 
contributed to the chorus of opinions by saying in an 
interview that, ""Mercosur is not worth a damn"" because of 
the undeclared war"" launched by Argentina over paper mill 
construction in Fray Bentos.  Mujica also reminded listeners 
that the 2002 bank run (""corralito"") that began in Buenos 
Aires, dragged Uruguay into its worst financial crisis in 
recent years.  (Note: Mujica avoided mention of Argentina's 
role a few year's back in allowing hoof and mouth infected 
cattle to contaminate Uruguay's livestock, but it seemed 
clear in his interview that Mujica connected the paper mill 
dispute to Uruguay's need for diversified trading partners. 
End Note.) 
 
¶3. (SBU) The weekly ""Busqueda"" also reported an excerpt from 
a December 29 meeting in which President Vazquez told former 
(Blanco) President Luis Alberto Lacalle that he was 
disappointed"" with Nestor Kirchner over the pulp mill 
affair.  (Note: We understand that Vazquez will be in La Paz 
for two days attending Evo Morales' January 22 inauguration, 
but will not meet with Kirchner on this issue. End Note.) 
The same article highlighted previous quotes from Vazquez in 
which he said, ""The US buys the most and the best. Last year 
it bought $447 million. I hope it buys $800 million.."" (Note: 
The US is a bigger client for Uruguay than Argentina and 
Brazil combined. End Note.) 
¶4. (SBU) ForMin Gargano was the first Uruguayan to dash cold 
water on Astori's pro-FTA remarks.  As president of the 
Socialist Party, he has called a  party meeting for January 
13 to debate the issue.  Local pundits said Gargano's 
opposition was to be expected (though Industry Minister 
Lepra, Tourism Minister Lescano and others sided with 
Astori.) But they considered statements by GOA Undersecretary 
for Latin American Integration Eduardo Sigal and other 
foreign officials to be more serious because they called into 
question the ""legality"" of such a move within Mercosur by 
citing the Ouro Preto Protocol and 2000 Decision No. 32 
purportedly banning ""bilateral commercial treaties with third 
countries.""  However, an editorial in the daily ""El Pais"" 
entitled, ""the Ultimate Impertinence"", pointed out the 
hypocrisy"" of this argument by highlighting that Argentina 
and Brazil have signed 20 commercial bilateral accords with 
other countries (as well as a ""market accord"" with China) 
without prior Mercosur consultation. The same author 
maintained that Argentina's paper mills on the Parana river 
are its major source of pollution. 
 
¶5. (SBU) There has been plenty of incoherence as well. MPP 
Senator Jorge Sarvia was quoted as saying, ""I'm not in favor 
of the FTA, even though it benefits Uruguay but because I'm 
for Mercosur and against FTAA."" (!?) 
 
¶6. (SBU) Brazilian Foreign Minister Celso Amorin was also 
quoted in the media as saying on January 11 that ""It would be 
impossible for a member of Mercosur to individually negotiate 
commercial agreements, unless it intended to leave the 
trading bloc, a decision we haven't been informed about."" 
Amorin's reported comments appeared to soften when he added, 
If Uruguay feels that Mercosur hasn't produced enough 
benefits...maybe it is because we haven't done enough."" 
 
Comment: 
-------- 
¶7. (C) The GOU has gotten a lot of attention focused on the 
FTA issue and has rightly succeeded in exposing Mercosur's 
canard about its treatment of junior partners.  But this is a 
high-stakes game for Vazquez because of the size and strength 
of his opposition and worries that Argentina could affect the 
pulp mills financing.  Still, Vazquez probably calculates 
that it is better to air Uruguay's gripes over Mercosur 
publicly by using the FTA debate.  From our vantage point, 
the FTA flap represents another opportunity for the USG to 
engage Uruguay at a high level. We expect that 2006 will be a 
critical year for Vazquez in which he needs to show economic 
results.  As an Evo Morales-led Bolivia prepares to join 
Mercosur as a full member, it is also probably in our 
interest to lend a helping hand to GOU that is struggling to 
emulate a moderate Chile rather than a Bolivarian Venezuela. 
End Comment. 
Nealon