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DE RUEHMN #0977/01 2861658
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P 131658Z OCT 06
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SUBJECT: ONCE AGAIN, THE PULP MILLS PLAGUE URUGUAY 
 
REF: MONTEVIDEO 0907 AND PREVIOUS 
 
¶1. (SBU) Summary. The long-running dispute between Argentina 
and Uruguay over the construction of pulp mills on a shared 
river shows no signs of letting up.  For the second time this 
tourist season, Argentine environmental protesters will block 
international bridges linking the two countries.  Work has 
resumed at the Finnish Botnia plant following a three-week 
labor strike but practically everyone here believes that the 
$500 million Spanish ENCE plant "is now history" and will 
never be built (reftel).  As if to rub salt in the wound, the 
GOA recently sent a letter to the GOU's Ministry of 
Environment questioning an Uruguayan company's plans to build 
a chemical factory well inside Uruguayan territory, far from 
any river.  The company already provides chemicals to 
Argentine pulp mills.  The GOU appears fed up and furious 
over Argentine lobbying abroad and meddling in Uruguayan 
internal affairs, but powerless to do much about it beyond 
sending diplomatic notes.  According to many local analysts, 
the GOU may have naively thought that by not signing a Free 
Trade Agreement (FTA) with the US it would curry favor with 
Argentina. If so,it did not have the desired effect, however. 
 Meanwhile, on October 12 the World Bank released the final 
(generally favorable to Uruguay) Cummulative Impact Study 
(CIS) for the pulp mills.  End Summary. 
 
¶2. (U) October 11, press reports from Gualeguaychu in 
Argentina stated that environmental activists had voted to 
block highways leading to two of the three international 
bridges (Libertador San Martin and General Jose Artigas) 
during October 13-15.  The remaining bridge to the north at 
the Salto Grande dam will remain open.  Business and property 
owners at Uruguay's beach resort towns to the east are 
fearful that the roadblocks and other anti-economic measures 
mounted by the Argentine protesters will adversely affect 
their local tourist industry. (Note: This is the time of year 
when many ordinary Uruguayans on the coast rent their homes 
to Argentine tourists for the summer. The GOU estimated that 
last year an estimated $400 million in revenues were lost 
because of bridge closures.  End Note.) 
 
¶3. (U) On October 11, the GOU sent a diplomatic note to the 
Argentine government expressing its concern over the 
impending bridge blockades and requesting that the GOA "take 
appropriate action" to counter them.  In Fray Bentos, where 
the pulp mills are to be built, the governor of Rio Negro 
department Omar Lafluf blasted the GOA for the "chaos and 
nervousness" generated by its usual inaction against the 
protesters.  Meanwhile, the local press reported that 
Argentine Secretary for the Environment Romina Piccolotti 
blamed the World Bank for the bridge blockades and protests. 
We note from the October 12 edition of Argentina's "La 
Nacion" newspaper that the GOA expressed its official 
disapproval of the blockades, but Uruguayans doubt the GOA 
will take any action to prevent them. Most Uruguayans also 
believe that Brazil, which holds Mercosur's pro-temp 
presidency, is unlikely to intervene in the matter. 
 
¶4. (U) Bilateral relations between the two countries took 
another hit last week when the Argentine Government bypassed 
the GOU's Foreign Ministry and sent a letter directly to the 
GOU Ministry that handles environmental issues.  The letter 
puportedly demanded an environmental impact study and 
information about the Uruguayan company ISUSA's plans to 
build a factory well inside Uruguayan territory, in Soriano 
department, far from any river.  ISUSA already provides 
chemicals such as sulphuric acid to Argentine pulp mills. 
The GOU returned the letter to the GOA citing both breach of 
protocol and interference ("inappropriateness") in Uruguayan 
internal affairs. Nevertheless, ISUSA officials reportdly are 
suspending the $200 million investment until further notice. 
 
¶5. (SBU) Comment: With the likely departure of the Spanish 
pulp mill and persistent threats against the Finnish plant, 
Uruguay has good reason to worry about its vital national 
interests and negative impacts on its investment climate. 
President Vazquez is reportedly very concerned about the 
recent developments.  After all, he held high hopes that the 
pulp mills and an FTA would revitalize stagnant sectors of 
the economy. Now, both projects are in serious doubt.  MFA 
officials told us privately that it was Argentina's lobbying 
of international organizations and threats to Spanish 
investments in Argentina that killed the ENCE plant.  The 
favorable decisions (for Uruguay) by the International Court 
of Justice on July 16 and the ad hoc Mercosur Arbitration 
Tribunal's decision on September 6 do not seem to have helped 
Uruguay's cause very much.  Citing Uruguay's probity and its 
respect for the rule of law, a retired UYAR military officer 
recently remarked to us that many Uruguayans are resigned to 
what they see as the bullying tactics of its larger neighbor, 
because "nice guys finish last in this (Mercosur) 
neighborhood."  End Comment. 
Nealon