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DE RUEHMN #0216/01 0642102
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R 052102Z MAR 07
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 6893
INFO RUCNMER/MERCOSUR COLLECTIVE
RUMIAAA/CDR USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L MONTEVIDEO 000216 
 
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: 03/05/2017 
TAGS: PREL ECON ETRD UY
SUBJECT: LULA ATTEMPTS TO REKINDLE RELATIONSHIP WITH 
VAZQUEZ DURING SHORT VISIT TO URUGUAY 
 
 
Classified By: Ambassador Frank E. Baxter, for reasons 1.4 (b) 
and (d). 
 
 ¶1. (U) Summary:  Brazil's President Lula, accompanied by a 
high-level delegation, came to Uruguay on February 26 for a 
6-hour visit to repair a strained relationship with President 
Vazquez.  The two presidents met in a cordial atmosphere at 
the presidential retreat in Anchorena, the same venue where 
Vazquez will receive POTUS in a few days.  They signed 
several agreements, notably on trade and investment and on 
biofuels. Lula is said to have reassured Vazquez that Brazil 
was reasserting its leadership of Mercosur.  He pledged to 
work towards an "equilibrium" in the trade relationship and 
to "respect the sovereignty" of all member states. 
 
¶2. (C) A Brazilian Embassy contact told us that Lula had 
mentioned to Vazquez the possibility of renewed Mercosur-U.S. 
trade talks and, in a call to the DCM, the Brazilian 
Ambassador intimated that "it may be time to revive the 
Mercosur-U.S. trade talks" (a prospect touched upon by 
Brazilian ForMin Amorim in an earlier interview.)  The 
Uruguayan press described the meeting as Uruguay returning 
under Brazil's umbrella.  Several editorials questioned 
whether Vazquez had given up its trade rapprochement with the 
U.S. in exchange for vague Brazilian promises, but there were 
no indications that he may have done so.  Indeed, GOU EconMin 
Astori stressed that Uruguay,s demands for greater 
"flexibility" to develop its trade outside of Mercosur 
remained on the table.  End Summary. 
 
¶3. (U) While Lula's visit was well overdue, its timing, just 
10 days prior to POTUS's trip to the region, is probably no 
accident.  Lula had missed the Ibero-American Summit in 
Montevideo in early November and twice postponed a make-up 
trip to Uruguay.  The POTUS trip and each country's 
relationship with the U.S. were high on the agenda.  Lula 
said he knew that "Vazquez will discuss the interests of 
Uruguay with the U.S. and, as for me, I will discuss biofuels 
with Bush."  Lula added that "each country should look after 
its own interests, taking into account that we have rules 
that oblige us, as Mercosur, to certain procedures, but 
without impeding each country's freedom to do business 
according to its own sovereign interests."  Both Lula and 
Vazquez are reported to have deplored the timing of Chavez's 
visit to Argentina, to coincide with POTUS's stay in Uruguay. 
 
 
¶4. (C) In a press interview prior to the trip, Brazilian 
ForMin Amorim had noted that Brazil's "relationship with the 
U.S. is, nowadays, intimate.  They never valued us so much." 
Amorim obliquely called for a resumption of Mercosur trade 
negotiations with the U.S.:  "Brazil has an interest in 
reaching agreements with the EU, with the U.S., but I believe 
we would all benefit more if these agreements were with 
Mercosur."  A contact at the Brazilian Embassy told EconCouns 
that Lula had mentioned to Vazquez a possible resumption of 
Mercosur-U.S. trade talks.  Also, as this cable went to 
press, the Brazilian Ambassador called the DCM to give him a 
read-out of the Lula visit.  He said that "it may be time to 
revive the Mercosur-U.S. trade talks."  The Ambassador said 
he had spoken to celso Amorim about this.  The Ambassador 
said that, while there "was some hesitation, because now we 
are five (referring to Venezuela), I think I convinced him." 
The Ambassador added that "if we are going to do this we 
should do it fast.  I think we are ready to go for something." 
 
¶5. (U) For his part, Uruguayan EconMin Astori declared after 
Lula,s visit that Uruguay would continue to explore the 
possibilities to expand its trade with the U.S., in a form 
that is "compatible" with the rules of the trade bloc.  "This 
is why we are asking for more flexibility when it comes to 
these rules," Astori added.  Asked if Uruguay had managed to 
get more flexibility from Brazil in this respect, Astori 
replied that "we all need to keep working; there is still 
much to do." 
 
¶6. (U) The two governments signed several agreements, notably 
on trade and investment, and on biofuels cooperation. 
Uruguay's trade deficit with Brazil is now averaging over 
$300 million a year, with Uruguayan exports to Brazil 
dropping from about $1 billion in 1998 to less than $600 
million in 2006.  Lula pledged to work to better integrate 
 
the two economies and to spur Brazilian investment.  Major 
recent Brazilian investments include the purchase by 
Petrobras of the Shell network of service stations and of two 
gas companies (Conecta and Gaseba), a barley factory to 
supply serve Ambev's breweries and a number of large 
slaughterhouses.  On the financial side, Banco Itau recently 
bought Bank Boston, BNDES has a framework agreement with 
Uruguay's state-owned Banco de la Republica, and Banco do 
Brasil has announced it will re-start operations shortly. 
 
¶7. (C) The more important meaning of Lula,s visit was 
political.  Editorials characterized its outcome as Uruguay 
"coming under Brazil,s wing."  The GOU,s ongoing troubles 
with Argentina may have helped in this rapprochement with the 
GOB.  Because of its small size, nestled between two giants, 
Uruguay has historically played a pendulum policy between its 
two neighbors.  The GOU is quite frightened by the extent of 
Argentina's aggressive actions and is looking for support 
where it can find it. 
 
¶8. (U) Vazquez called it "a historical time in which a deep 
turning point takes place in the relationship between our two 
countries".  His speech was quite gentle towards Lula, 
considering the strain of the past few months.  Vazquez 
expressed his "deep joy and gratefulness for the visit", 
which he considered a reflection of Brazil's "acknowledgement 
and amplest echo" of the issues the GOU had tabled in several 
Mercosur meetings (more flexibility for trade negotiations 
outside of Mercosur, and addressing asymmetries and the trade 
deficit).  A few days after the visit, in a March 1 press 
interview, Vazquez )who had been extremely critical of 
Mercosur- stated that "Uruguay is not IN Mercosur, Uruguay IS 
Mercosur." 
 
¶9. (U) The joint communique also highlighted the need to 
achieve swift progress in Doha's negotiations )with 
agricultural liberalization as a pre-requisite-, a commitment 
to continue working jointly in the G20 and the Cairns Group, 
and a reference to the South American Community of Nations. 
It also noted the need to strengthen multilateralism and UN 
reform, and a continuation of peacekeeping operations, 
especially in Haiti. 
 
Comment:  No apparent backtracking by Vazquez 
--------------------------------------------- 
¶10. (C) Comment:  As usual, there was lots of rhetoric about 
the need to address Mercosur's problems, but the agreements 
signed were minimal.  Regarding Uruguay,s longstanding 
demands, the Joint Statement acknowledges "the importance 
that Mercosur%s external negotiations consider in a 
differentiated manner the particular traits of smaller 
economies."  Still, much of the official statement is broad 
enough to be interpreted in many ways.  There is widespread 
speculation that Lula's goal was to ensure Vazquez's 
commitment to Mercosur prior to POTUS visit.  While Vazquez's 
friendly reception and words of support for Mercosur signaled 
a continued commitment to the trade bloc, he did not 
backtrack from his stated goal to explore bilateral trade 
negotiations outside of Mercosur.  If Lula did mention the 
possibility of renewed Mercosur-U.S. trade talks, there was 
no indication that Vazquez took the bait.  Astori was clear 
that the GOU's demands for greater flexibility remain on the 
table.  End Comment. 
Baxter