VZCZCXYZ0000
PP RUEHWEB

DE RUEHMN #0149/01 0441908
ZNY CCCCC ZZH
P 131908Z FEB 06
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC PRIORITY 5375
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEHBO/AMEMBASSY BOGOTA 2462
RUEHCV/AMEMBASSY CARACAS 0367
RUEHLP/AMEMBASSY LA PAZ FEB SANTIAGO 2781
RUMIAAA/CDR USSOUTHCOM MIAMI FL//J-5//
RUEHC/DEPT OF AGRICULTURE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHNSC/NSC WASHDC
RUEHMN/ODC MONTEVIDEO UY
RUEKJCS/SECDEF WASHDC
RUEHMN/USDAO MONTEVIDEO UY
RUEHGV/USMISSION GENEVA 0464
RUEHUB/USINT HAVANA 0044

C O N F I D E N T I A L MONTEVIDEO 000149 
 
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 
BRASILIA FOR JSTORY 
USDOC FOR WHA/DAS WBASTIAN 
USSOUTHCOM FOR POLAD 
 
E.O. 12958: DECL: 02/09/2016 
TAGS: PREL PGOV SENV SOCI EAGR AR UY
SUBJECT: DISPUTE OVER PULP MILLS DEEPENS 
 
REF: MONTEVIDEO 00004 
 
Classified By: Charge D'Affaires James D. Nealon 
for reasons 1.4 (B) and (D) 
 
¶1. (C) Summary: The pulp mill dispute between Argentina and 
Uruguay (reftel) has only intensified in the past month, and 
the dispute, which until recently had been a provincial issue 
for Argentina, has become a national cause in Uruguay for 
which vital interests are at stake.  Uruguay contends that 
the protesters' blockades on the border have already 
inflicted considerable economic damage and fear worse to 
come.  Bilateral relations continue to deteriorate between 
the two nations and several of our official contacts have 
speculated that the dispute may cause permanent damage.  The 
dispute may already be having an impact on Mercosur's unity 
and investment climate.  We can see no easy way for either 
country to back down or for a resolution to this dispute any 
time soon. End Summary. 
 
------------- 
RECENT EVENTS 
------------- 
 
¶2. (SBU) Argentine protesters have sporatically blocked 
tourist traffic since late December, and in early February, 
they began to block trucks laden with construction materials 
for the wood pulp (cellulose) mills in Fray Bentos.  The 
resulting backlog of traffic has hurt tourism and commerce in 
Uruguay.   According to Uruguay's most influential newspaper, 
El Pais, President Kirchner sanctioned the blockade on 
February 9 as a "national cause."  Newspapers reported as 
many as 400 trucks backlogged at the main bridge to Uruguay 
with waits as long as three days.  One account stated that a 
truck full Chilean fish rotted during the stand still, and 
other reports stated that multiple trucks returned to their 
points of origin. The stoppage has also ensnared Argentine 
tourists traveling to and from the popular Uruguayan beaches. 
 
 
------- 
EMOTION 
------- 
 
¶3. (SBU) Public resentment against the GOA is running deep. 
Uruguayans have threatened retaliation for the bridge 
blockages with some of their own measures, including a 
boycott of Argentine resorts such as Bariloche. The media has 
been fond of referring to Argentina's Governor of Entre Rios 
Jorge Busti as "Busti-Laden."  During his cabinet meeting 
last week, President Vazquez recalled the lyrics of an old 
tango as a way of criticizing the Argentines by saying that 
that they "were like a man who beats his wife because she may 
cheat on him four or five years from now." (Note: Vazquez has 
promised a regional tour next month to drum up support for 
Uruguay's position on the pulp mills, but has been unable to 
meet with President Kirchner on the issue. End Note.) 
 
------------------ 
ECONOMIC NECESSITY 
------------------ 
 
¶3. (SBU) Local analysts have estimated that the Uruguayan 
tourist industry may have lost as much as $20 million in 
tourist income from Argentina.  While some of this shortfall 
has been replaced by an increase in Brazilian tourists, 
officials predict a significant net loss to the tourism 
industry this austral summer.  In addition, Uruguay's 
Minister of Foreign Affairs Reinaldo Gargano stated that 90 
million tons of goods normally cross the blocked bridge each 
year.  In addition to Uruguay, shipments destined for 
Paraguay and Bolivia have also been affected.  Press reports 
indicated that several Chilean, Brazilian and Paraguayan 
companies were initiating lawsuits against the Government of 
Argentina for failing to guarantee the free circulation of 
road traffic. 
 
¶4. (SBU) The economic stakes for Uruguay are high.  The $1.9 
billion foreign investments for the paper mill projects 
equate to more than 10% of GDP.  According to the Cumulative 
Impact Study (CIS), commissioned by the World Bank, 
construction and operation of the mills would directly or 
indirectly employ between 7 and 15 thousand persons.  Uruguay 
also hopes to diversify its export base which currently 
relies heavily on the beef industry and sees the growing 
international market for pulp and wood products as a way to 
do this. 
 
----------------------- 
DETERIORATING RELATIONS 
----------------------- 
 
¶5. (SBU) The MFA's America's Desk Director and other 
officials told us that the dispute with Argentina is 
Uruguay's "number one foreign policy headache."  On February 
8, the MFA sent an official letter of protest to Buenos Aires 
about the blockade and demanded that the GOA take action 
against the protesters.  Argentina declared its intent to 
take Uruguay before the World Court in The Hague, and Uruguay 
promised to take Argentina to Mercosur's tribunal. (Comment: 
We expect none of these measures will have much effect. End 
Comment.) The Hague process is long, and local commentators 
expect that Argentina would ignore a ruling in Uruguay's 
favor.  Uruguay has twice previously complained to Mercosur's 
tribunal about Argentina, but in the one case where Uruguay 
prevailed, Argentina has not yet made restitution.  One 
commentator worried that the dispute "hurts the world's 
confidence in Latin America and Latin America's confidence in 
itself." 
 
¶6. (SBU) Recent attempts at reconciliation have failed. 
Vazquez and Kirchner have spoken by telephone, there has been 
talk of Vatican intervention, and members of an international 
leftist coalition from Argentina have visited their 
counterparts in Uruguay, but none of these efforts has 
produced a reliable forum, let alone results.  Uruguay, for 
its part, feels confident of the mills' low environmental 
impact, betrayed by Argentina, and unwilling to compromise an 
industry which will bring thousands of jobs annually and 
start Uruguayan exports down a new, lucrative path.  The 
perception is also one of a double-standard by the 
environmentalists and by Argentina, where 11 aging paper 
mills are located on rivers bordering Paraguay and Uruguay, 
most of them --according to the Uruguayans-- with outdated 
and polluting technology. 
 
------- 
COMMENT 
------- 
 
¶7. (C) Uruguay's economic recovery heavily depends on wood 
and meat exports. From its perspective, both vital 
commodities are currently being threatened by Argentina.  MFA 
officials told us that bilateral relations with Argentina are 
at their lowest point in decades because of the dispute over 
the pulp mills. In addition, the recent outbreak of 
hoof-and-mouth disease in Argentina's Corrientes province has 
further tensed relations and fueled public fears that Uruguay 
could once more wind up as an economic victim of its larger 
neighbor.  Uruguayans assert that Argentina was responsible 
for the last outbreak of hoof-and-mouth here in 2001 and 
recall that the financial crisis of 2002 was the result of 
the financial meltdown in Argentina.  President Vazquez, 
bolstered by widespread public support and the backing of the 
entire political spectrum, has vowed that nothing will stop 
the construction of the pulp mills in Fray Bentos.  The 
soured bilateral relationship bears watching in case it 
produces further, unforeseen negative consequences.  End 
Comment. 
Nealon