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FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 6647
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RUMIAAA/CDR USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
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C O N F I D E N T I A L MONTEVIDEO 001194 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/BSC AND EB/TPP 
TREASURY FOR OASIA FOR JASPER HOEK 
COMMERCE FOR ITA/BASTIAN 
DEPT PLEASE PASS USTR 
NSC FOR CARDENAS 
 
E.O. 12958: DECL: 12/19/2016 
TAGS: ECON ETRD EINV PREL UY
SUBJECT: URUGUAY VOICES DEEP DISSATISFACTION AT MERCOSUR 
MINISTERIAL IN BRASILIA 
 
REF: MONTEVIDEO 1097 AND PREVIOUS 
 
Classified By: Ambassador Frank Baxter for reasons 1.4(b) 
and (d). 
 
¶1. (C) Summary:  At the Brasilia Mercosur ministerial, 
Economy Minister Astori publicly expressed some of the 
strongest criticism of Mercosur to date by a GOU official. 
Referring to Mercosur's situation as "dreadful," Astori 
called on partner states to take action on two issues: 1) the 
Argentine blockade of bridges to Uruguay, now entering its 
second summer, and 2) allowing the smaller members to 
negotiate bilateral FTAs.  Without setting a fixed deadline 
to get these issues resolved, Astori hoped that Paraguay's 
upcoming pro temp presidency would herald a "re-direction." 
The GOU would "take measures" if this was not the case, he 
added (Note: This is the closest a GOU official has come to 
threatening withdrawal from the bloc.  End Note.)  Astori's 
comments mirrored President Vazquez's earlier comments when, 
calling on his experience as a physician, he had said that 
"sometimes, it is better to cut a limb to save the body." 
Two days after Astori's declarations, Argentina's Economy 
Minister Miceli fired back, saying that the Uruguayans "want 
special treatment (from Mercosur) and an agreement with the 
U.S. (...) We will not give them anything, but we will not 
throw them out either."  All is not well in Mercosur. 
Meanwhile, President Chief of Staff Fernandez told the 
Ambassador the GOU looks forward to signing a TIFA in January 
and begin FTA negotiations by mid-year.  End Summary. 
 
¶2. (U) The GOU took the offensive at the Brasilia Common 
Market Group Ministerial Summit meeting (ministerial level), 
represented by ForMin Gargano and EconMin Astori.  Both 
ministers strongly complained about the blockade of bridges 
leading into Uruguay by Argentine protestors, and about the 
lack of action by the GOA.  They lamented Brazil's reluctance 
to get involved.  Astori also pushed hard for a definition by 
Mercosur's larger members on Uruguay's demand that the 
smaller partners be allowed to undertake extra-zone bilateral 
trade negotiations independently. 
 
¶3. (U) In a press interview after the Summit, Astori 
described the situation as extremely tense and Mercosur "in a 
dreadful state."  He said the GOU had raised its concerns 
very strongly and would not tolerate an endless continuation 
of these ongoing problems.  "Apart from making a very strong 
case," Astori said, "we came to Brasilia to make proposals." 
He outlined the GOU's proposal as "the possibility for member 
countries to negotiate tariff preferences."  "We are not 
stepping down from this proposal," Astori stressed, "so we 
call for everyone to look for ways to deal with it." 
 
¶4. (U) For the first time, Astori set a timeframe for a 
Mercosur reply to Uruguay's concerns.  While not specifying 
an exact date, he talked about a maximum of six months for 
Mercosur to allow individual extra-regional trade agreements. 
 "I am not announcing a future step, but we cannot continue 
like this.  We have to see significant changes in a 
relatively short term," he said.  Astori mentioned that 
Paraguay would soon start its pro-tempore presidency, and 
noted that the GOU and the GOP worked well together.  "I am 
not asking Paraguay for an exact date, but during the first 
half of 2007 we should be seeing a re-direction (of 
Mercosur)," he warned. 
 
¶5. (U) Just a few days earlier, in a full-page interview with 
the leading Uruguayan business weekly, President Vazquez had 
threatened not to participate in the upcoming Mercosur 
Presidential Summit in January.  Vazquez complained about the 
bloc's growing difficulties and said he was ready to take the 
"necessary steps in foreign policy to allow the country to 
grow."  Using an analogy from his medical background, Vazquez 
stated that "while not agreeable, sometimes amputating a limb 
is best for the body."  He insisted that Uruguay will have to 
decide upon its next steps in the short term, because "one 
cannot just die with eyes open."  Vazquez called for an "open 
regionalism," a formula he has used repeatedly to refer to 
the freedom for each member to negotiate bilateral trade 
agreements. 
 
¶6. (U) On December 18, in a tit-for-tat with Astori, 
Argentina's Economy Minister Miceli took a hard shot at the 
 
GOU's position.  Miceli was reported in the Uruguayan press 
as saying that Uruguay's problem is that "it does not know 
what to do, it wants special treatment on the one side, but 
wants an FTA with the U.S. on the other."  She added that "we 
will not give them anything (in Mercosur), but we are not 
going to throw them out either." 
 
¶7. (U) Meanwhile, aside from its vocal opposition to 
perceived inequities within Mercosur, the GOU is taking 
concrete steps.  The GOU announced it will raise tariffs on 
Argentine imports produced in four provinces that enjoy 
preferential tax treatment and subsidies.  The GOA reacted 
harshly against the measure at the recent ministerial summit 
and defended its mechanism on the grounds that it complies 
with WTO rules.  After the summit, Astori admitted that the 
GOU's measures may be controversial, but that they were a 
reaction to Argentina's.  "This is how Mercosur is nowadays," 
Astori said, "we cannot move forward like this, with a 
partner that violates the rules and another partner that 
responds to that violation in a way that maybe also violates 
the rules." 
 
¶8. (U) The relationship between the presidents is also tense. 
 Argentine President Kirchner and Vazquez have not spoken in 
months, and Kirchner did not meet with Vazquez when he flew 
in for a few hours in November to attend the Ibero-American 
Summit in Uruguay.  Brazil's President Lula shunned the 
Montevideo Summit altogether, allegedly due to election 
fatigue, but had announced he would come for a special visit 
in early December.  A last-minute cancellation of this visit 
has angered Vazquez to the point that it is rumored he will 
shun the January Mercosur Presidential in Brazil (Note: 
Press reports indicate that Bolivia will formally request 
full Mercosur membership at this Summit.  End Note).  The GOU 
complains that Brazil is not performing its leadership role 
in Mercosur and strongly criticizes the GOB for refusing to 
endorse a Mercosur solution to the dispute over the paper 
mills and the bridges blockade.  While Brazil voted for the 
concession of the World Bank's loan to the Finnish paper mill 
Botnia, its refusal to get involved in the dispute favors 
Argentina, the stronger of the two countries in the conflict. 
 
¶9. (U) It has been a full year since the first blocking of 
the bridges by Argentine "environmentalists," and rough 
estimates indicate that Uruguay has already lost about $400 
million in revenues and 120,000 tourists.  While several 
rulings over the past year have favored Uruguay's position, 
the GOA has not moved to prevent the blockade of the bridges. 
 The International Court in The Hague denied Argentina's 
request to suspend construction of the pulp mills, and a 
Mercosur panel ruled that Argentina's lack of action on the 
blockades was incompatible with Mercosur's guarantees of free 
transit of goods and services.  Finally, the World Bank 
recently approved a loan for the construction of the Botnia 
paper mill.  In late November, the GOU filed a case against 
Argentina in The Hague, requesting a ruling to force the GOA 
to enforce free transit through the bridges.  That hearing 
began in The Hague on December 18. 
 
¶10. (U) The paper mill dispute is symptomatic of the 
incapacity of Mercosur to solve its own problems, and of the 
imbalance between large and small countries in the bloc. 
While another paper mill, Spanish Ence, announced it would 
relocate its plant within Uruguay, the announcement was made 
from the Casa Rosada (President Kirchner's presidential 
office).  This played quite badly in Uruguay, where it was 
perceived as a signal to foreign investors that one has to 
obtain Argentina's permission in order to invest in Uruguay. 
 
 
¶11. (C) On December 18, the Ambassador called on Presidential 
Chief of Staff Gonzalo Fernandez.  Fernandez told the 
Ambassador that, amidst all of the turmoil in Mercosur, 
Uruguay remains committed to moving ahead on an FTA with the 
U.S.  Fernandez looked forward to signing the TIFA in 
January, and to "FTA negotiations by the middle of next 
year."  This date tracks with Astori's demand for permission 
to negotiate within six months. 
 
¶12. (SBU) Comment:  In late October, a GOU inter-ministerial 
group prepared a document quite critical of Mercosur.  The 
report called for more flexibility by Argentina and Brazil to 
 
allow Mercosur's smaller partners to negotiate with third 
parties, and called for a correction of existing asymmetries. 
 
 The document added that, while it tries to give signals of 
dynamism, Mercosur is increasingly plagued with uncertainty, 
which undermines the construction of an integrated market and 
its opening to other blocs and countries.  The report also 
noted that "there is a reversal of previously achieved 
commercial progress" and suggests that "lack of enforcement 
of arbitral resolutions has gravely eroded judicial security 
and contributed to the generalized disbelief in the 
integration process."  All is not well in Mercosur.  End 
Comment. 
Baxter