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DE RUEHBU #1707/01 2411908
ZNR UUUUU ZZH
R 291908Z AUG 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 9065
INFO RUCPDOC/USDOC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
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RUEHSO/AMCONSUL SAO PAULO 3496
RUEHRI/AMCONSUL RIO DE JANEIRO 2329

UNCLAS BUENOS AIRES 001707 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
WHA/EPSC FOR LKUBISKE, FCORNEILLE 
OES FOR LAWRENCE SPERLING 
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER 
NSC FOR ROD HUNTER 
TREASURY FOR TRAN 
 
E.O. 12958: N/A 
TAGS: SENV ECON EINV PREL SOCI UY AR
SUBJECT: ARGENTINA-URUGUAY PULP MILL DISPUTE: NO END IN SIGHT 
 
REF: Buenos Aires 57, Buenos Aires 126, Montevideo 376 and others 
 
This cable contains sensitive information.  Not for internet 
distribution. 
 
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Summary 
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¶1. (SBU) SUMMARY.  Relations between Argentina and Uruguay have 
deteriorated since early 2006 over the construction of the $1.2 
billion Finnish-built "Botnia" pulp mill, now nearing completion on 
the Uruguayan side of the Uruguay River.  Some Argentine residents 
across the river from the pulp mill have strongly objected to the 
project, alleging it will cause environmental, olfactory, and visual 
pollution in what they contend is a sensitive ecological and tourist 
area.  Residents and activists have conducted intermittent blockades 
for the past year-and-a-half of the three bridges along this river 
that connect the two nations, restricting the flow of people and 
goods, and reducing Uruguayan trade and tourism.  One bridge, 
connecting Gualeguaychu to Fray Bentos, Uruguay, has been completely 
closed since November 2006.  Initially caught off-guard by the 
protests, the GoA tacitly encouraged them, seeing apparent political 
gain, but has since seen what was initially a local community 
protest balloon into an international conflict. 
 
¶2. (SBU) Argentina resisted Uruguay's initial efforts at mediation 
via Mercosur, and subsequent mediation through the good offices of 
the King of Spain have to date been unsuccessful.  Both governments 
have filed cases with the International Court of Justice, and the 
two governments seem to be at an impasse.  The GOU has offered the 
GOA joint Argentine-Uruguayan monitoring over the plant4s 
construction and operations, but refuses to negotiate any such terms 
while bridge blockades remain in place.  Although the possibility of 
serious violence is low, there could be trouble in October, when the 
Botnia mill is scheduled to begin operations, and Argentina holds 
presidential elections.  The USG supported the World 
Bank/International Finance Corporation (IFC) loan for the project, 
but otherwise has avoided becoming entwined in what has been 
described as a family feud.  End Summary. 
 
--------------------------------------------- --- 
Deteriorating Bilateral Relations Over Pulp Mill 
--------------------------------------------- --- 
 
¶3. (SBU) This report provides a status report (from the Argentine 
side of the river) on the Argentine-Uruguay dispute over the 
construction of two pulp mills being constructed on the Uruguayan 
side of the River Uruguay, which divides the two countries.  The 
paper mill being constructed in Fray Bentos, Uruguay by Finland's 
Botnia company is now nearing completion, and is set to begin 
production in October 2007, at roughly the same time as Argentine 
national elections.  The $1.2 billion mill represents the largest 
foreign investment in Uruguay's history and will help the country 
move up the value chain beyond the export of raw materials, while 
reportedly generating some 2,500 local jobs (of which 300 will be at 
the mill and about 2,200 in forestry and local transport). 
According to local press, the plant is projected to generate value 
added equivalent to 2.5% of Uruguay's entire GDP (based on 2006 
figures) and slightly more than eight percent of the country's 
exports for each year of full-capacity production.  Argentine 
protests were successful in moving another plant, to be constructed 
by Spanish ENCE, to a new location (albeit still on the River 
Uruguay).  The Sweden-Finnish Stora-Enso company has also bought 
significant amounts of land to set another plant in inner Uruguay. 
 
¶4. (SBU).  Relations between Argentina and Uruguay, nations with 
close cultural, linguistic, and ethnic ties, have deteriorated 
considerably as a result of the dispute.  A protest movement, 
centered in the Argentine town of Gualeguaychu, Entre Rios Province, 
10 miles away from its Uruguay River border, which itself faces the 
pulp mill, has strongly objected to the project, alleging it will 
cause environmental, olfactory, and visual pollution in what they 
contend is a sensitive ecological and tourist area.  Argentine 
protestors since November 2006 have completely blocked road and 
bridge access to Uruguay near the town of Gualeguaychu.  For the 
past year, Argentine protestors have also occasionally blocked two 
other bridges farther north on the River Uruguay, usually during 
holidays and vacation periods.  These actions have significantly 
limited land access between Argentina and Uruguay.  In early 2007, 
te GOU estimated total economic losses of over US$500 million in 
reduced trade and tourism due to the restricted flow of people and 
goods. 
 
------------------------------ 
Why the GOA Does Not Intercede 
------------------------------ 
 
¶5. (SBU) The GOA has repeatedly insisted that it will not use force 
to stop the blockades and continues to insist that Uruguay and the 
Finnish company move the Botnia plant to a different location - 
despite the fact that the enormous plant is nearly finished. 
Argentine President Kirchner has complained of Uruguayan President 
Vazquez's "stubbornness," and often linked the Finnish company to 
"international interests" that want the region to be a "global waste 
dump." 
 
¶6. (SBU) The GOA's disinclination to take action against the 
protestors for what seems to be clear violations of law reflects 
Argentina's particular attitude towards authority.  In fact, 
blocking roads and staging illegal strikes are common practice in 
Argentina, and the GOA almost never intervenes.  In a country where, 
according to polls, only one out of four people seeks police or 
judicial recourse in the case of a dispute, these blockages and 
strikes are accepted as an outlet for public anger.  The Kirchner 
administration has also shown itself reluctant to use force to 
control or break up social protests.  The previous president, 
Eduardo Duhalde, was forced to call early elections as a result of 
massive protests following the deaths of two demonstrators in an 
incident with security forces.  Thus, even though local media 
confirms that a vast majority of Argentines do not have a strong 
opinion on the pulp mill, and even many local businesspeople and 
citizens oppose the blockades, they too have been largely powerless 
against these protestors. 
 
----------------------------------------- 
The Environmental Question, On the Merits 
----------------------------------------- 
 
¶7. (SBU) Many Argentines and media commentators recognize that the 
Botnia plant will not seriously harm the environment.  Most analysts 
agree with the IFC's comprehensive cumulative impact study, reviewed 
by independent experts, which concludes that the mills "compare 
favorably with best available technology and best environmental 
practice for mills in Europe and North America" and that "there 
should be no significant deterioration in the air and water quality 
in the area."  In late 2006, IFC and Multilateral Investment 
Guarantee Agency (MIGA) approved a $170 million investment and a 
guarantee of up to $350 million for Botnia.  In fact, many observers 
predict that the Botnia plant will have a net positive effect on the 
cleanliness of the River Uruguay -- in addition to scrubbing its own 
wastewater, the Botnia operator has reportedly offered to treat the 
wastewater of the town of Fray Bentos, as well as waste products 
emanating from an existing pulp plant located in the nearby town of 
Mercedes. 
 
--------------------------------------------- --------- 
Argentine Media Generally Balanced, But Also Fueling Conflict 
--------------------------------------------- --------- 
 
¶8. (SBU) Argentine media has generally pointed out inconsistencies 
in the GOA and protesters' positions, Argentina's own spotty 
environmental record, and highlighted the modern standards of 
Botnia's technology.  Media have also criticized Kirchner for what 
they describe as his mishandling of diplomacy in this dispute, and a 
major example of Kirchner's focus on domestic issues at the expense 
of foreign policy.  But it has also fueled the conflict by putting 
protestors at the center of the story.  There was one notorious 
exception to the media's otherwise generally fair coverage: the 
well-respected daily, La Nacion, published photos in October 2006 
said to be from the Argentine side of the Uruguay River, showing 
what appeared to be an enormous and ugly Botnia factory protruding 
on the other side of the river, with beach-goers in the foreground. 
Only later was it learned that the photo of the mill was taken with 
a telescopic lens, and superimposed over a normal shot of the nearby 
beach.  This doctored photo likely contributed to the general 
Argentine willingness to support the protestors, and many Argentines 
are convinced that Botnia will dominate the beach's view.  In fact, 
Botnia is only barely visible on the horizon from the Argentine 
beach. 
 
---------------------------------- 
Argentine Hypocrisy on Environment 
---------------------------------- 
 
¶9. (SBU) Argentina itself unsuccessfully competed for the same 
investment, primarily at the Entre Rios Province level, but lost, 
reportedly due to its problematic investment climate.  There are 
currently ten Argentine paper mills operating with older and more 
polluting technology than that to be employed by Botnia.  When 
confronted with this fact, the GOA response has been to point out 
that it has gone after Botnia and Uruguay for violating various 
provisions of the Statute of the River Uruguay, the 1975 agreement 
meant to govern the actions of Argentina and Uruguay on their shared 
river.  Nine of Argentina's paper mills are within the country's 
borders, while one, in Misiones Province, shares water with Paraguay 
but has not been the subject of controversy.  Another issue is that 
Argentina is home to perhaps the most polluted river in the 
hemisphere, the Riachuelo River, which spills out toxic chemicals 
into Buenos Aires, and later goes downstream by the Uruguayan 
coastline.  While the GOA has improved its record in regulating 
mining and water pollution in recent years, its spotty environmental 
record puts it in a weak position to criticize Uruguay. 
 
------------------------------------------ 
Attempts at Resolution Unsuccessful So Far 
------------------------------------------ 
 
¶10. (SBU) Uruguay first attempted to bring this case before a 
Mercosur tribunal in June 2006, seeking damages from Argentina for 
the blockades and noting that the founding Mercosur Treaty of 
Asuncion guarantees the free circulation of goods and services 
between members.  The GOU calculated then that the blockades had 
caused $400 million in losses, and that the GOA had failed to act to 
prevent or lift them.  The GOA countered that it did act to soften 
the effects, and was able to demonstrate that bilateral trade during 
this time had in fact increased.  The tribunal, an ad hoc assembly 
of three arbiters (one each from Argentina, Uruguay and Spain), 
issued a non-committal ruling in September 2006 that was interpreted 
as a victory by each side.  The judges ruled that the GOA had acted 
"in good faith" to dissuade road blocks, but its failure to remove 
them was not compatible with its obligations under Mercosur, that 
the GOA was not liable for reparations, the tribunal would not take 
special measures to oblige the GOA to dissuade future roadblocks, 
but that the blockades had caused "undeniable inconveniences to both 
Uruguayan and Argentine trade."  Both governments claimed victory - 
but the conflict continued. 
 
¶11. (SBU) During the late 2006 Ibero-American Summit in Montevideo, 
Kirchner reportedly requested the assistance of King Juan Carlos of 
Spain to facilitate negotiations.  President Vazquez agreed, while 
repeating the GOU's condition that it would not agree to substantive 
negotiations while the blockades were in place.  Argentine 
protesters' response was that a sine qua non for them was that the 
plant be moved.  The King of Spain is currently mediating the 
dispute, via his emissary, Spanish Ambassador Juan Yanez-Barnuevo, 
who has conducted several negotiations in Uruguay, Argentina, 
Madrid, and New York since late 2006, but as yet with no success. 
 
¶12. (SBU) Different aspects of the case have already been through 
two rounds of review by the International Court of Justice (ICJ) in 
The Hague.  Uruguay prevailed in the first round in July 2006 when 
the ICJ rejected the GOA's request for an injunction to halt 
construction while an environmental impact study was conducted. 
Uruguay argued that the alleged peril to Argentina was not imminent 
or immediate, and the Court concluded - by fourteen votes to one - 
that "the circumstances are not such as to require the exercise of 
its power to indicate provisional measures."  This judgment did not 
settle the question of whether Uruguay was ultimately breaching its 
Treaty obligations to Argentina, a decision not expected until late 
2007 at the very earliest.  Argentina argues that Uruguay had 
violated the Argentine-Uruguay bilateral 1975 River Uruguay treaty 
by allegedly failing to consult the GOA before acting on any project 
that might affect the river.  The GOU said that it had held 
discussions over the plants, with no GOA objections, and also argued 
that the plants were to use the "best available technology," in this 
case a chlorine-free bleaching method.  The GOU also argued that an 
independent World Bank study had supported their position.  Uruguay 
may still be liable to Argentina if it is later found to be in 
breach of Treaty obligations.  Argentina won round two in January 
2007 when the ICJ denied Uruguay's request to hear its case for 
forcing an end to the Argentine road and bridge blockages. 
 
--------------------------------------------- --------- 
Tensions likely to endure, but serious violence unlikely 
--------------------------------------------- --------- 
 
¶13. (SBU) Popular Argentine support for the Gualeguaychu 
demonstrators has waned from its high point in May 2006, when a 
bikini-clad Miss Gualeguaychu crashed the official photo session of 
the Europe-Latin American summit of 60 European and Latin American 
heads of state in Vienna, holding a sign that read "No Pulp Mill 
Pollution" in English and Spanish, and gave the issue unusual 
international exposure.  Most observers, however, think that these 
roadblocks - and nominal GoA support -- will last at least until the 
October presidential elections, and likely longer.  Although local 
analysts, press and Post contacts largely discount the possibility 
of serious violence, trouble could occur in October, when the mill 
commences operations and Argentina holds presidential elections. 
There is the possibility that some Argentine protestors could 
attempt to take advantage of the heightened political tension to 
escalate the conflict.  There have also been occasional Argentine 
media reports that the Uruguayan military has begun to prepare for 
possible protests near the site after the plant begins operations. 
 
 
¶14. (SBU) Recently, tensions have mounted.  The GOU, responding to 
some Gualeguaychu activists' placards depicting bombs and missiles 
hitting the pulp mill, reportedly sent a strongly worded official 
protest of this "terrorist" threat.  In response, the GOA in turn 
reportedly called in the Uruguayan Ambassador to protest the use of 
the term, and noting that Argentina had twice been a victim of 
terrorism in the 1990s.  On August 14, a small amount of sodium 
sulphide, a material with which Botnia employees routinely work, was 
accidentally released in the air during a period of high wind. 
According to a Botnia press release, two workers downwind showed 
skin, eye and upper respiratory symptoms, but according to medical 
professionals, there were no major clinical symptoms.  Nonetheless, 
this incident prompted more GOA and activists' complaints. 
 
¶15. (SBU) Also recently, and for the first time, protestors have 
extended their road blocks to territory completely within Argentine 
territory, blocking Route 14, "Mercosur Highway," connecting 
Argentina and Brazil, through which 7,000 vehicles pass daily.  In 
another first, a federal judge, reportedly responding to local 
business formal complaints, recently ordered federal police to 
prevent a regularly scheduled blockade of the northernmost of the 
three bridges, in Concordia.  On August 29, GOU President Vazquez 
inaugurated a new port in Nueva Palmira, near the new Botnia plant, 
that will handle all the wood and pulp shipments for the new pulp 
mill.  The GOA MFA sent a strongly worded protest note, noting its 
"worry and despair" that Vazquez's appearance would "aggravate" this 
dispute.  At this port opening ceremony, a group of Argentine 
protestors were also nearby, having approached in several boats, 
remaining at the Argentine-Uruguay maritime border, several hundred 
yards away.  The GOU Coast Guard kept a watchful eye, and the 
protest was reportedly peaceful. 
 
------------ 
USG Position 
------------ 
 
¶16. (SBU) The United States voted in favor of a November 2006 US$ 
170 million IFC loan and US$ 350 million MIGA risk insurance package 
for the Botnia plant.  The World Bank believes that this plant will 
have a significant, positive effect on the Uruguayan and regional 
economy. 
 
------- 
Comment 
------- 
 
¶17. (SBU) The Kirchner administration appears to have painted itself 
into a corner by allowing the Gualeguaychu protests to become a 
national cause celebre and by providing rhetorical and likely 
financial support for the protesters.  Given the positions staked 
out by the two governments, any Argentine conciliation would be 
viewed as treason by the Gualeguaychu hardcore and as an 
embarrassing defeat for a GOA policy initiative by Kirchner 
administration supporters.  Uruguay has adapted to this situation, 
as has Argentina: the occupancy rate of the existing ferry that 
services connecting the two nations has reportedly grown sharply 
since the dispute, and a new ferry line has opened business as well. 
 
 
¶18. (SBU) Increasingly, it appears that the initial strong support 
for this cause has faded.  The Argentine press and motorists appear 
to have less and less sympathy for these roadblocks.  Even 
Kirchner's decision to promote Romina Picolotti, the leading 
Gualeguaychu protestor to the federal post of Secretary of 
Environment - has now soured on him, as she now faces charges of 
misappropriation of funds and nepotism.  Some analysts believe that 
the GoA, after the elections, will look for some face saving way to 
de-escalate the situation, accept conditions Uruguay has offered, 
and try to put this bilateral debacle behind it.  End Comment. 
 
KELLY