Brazil & Southern Cone - June 2006 (ISSN 1741-4431)

The Argentine and Uruguayan dispute over the construction of two cellulose plants near the Uruguayan town of Fray Bentos and on the banks of the River Uruguay has now reached its first anniversary.

For Uruguay, the project represents the biggest foreign investment in the country to date. Two European firms, Finnish Botnia and Spanish ENCE, are constructing the paper mills with a combined budget of some US$1,800m.

Protestors on the Argentine side of the river, in the province of Entre Rí­os, argue that the paper mills will irreversibly pollute the river, causing extensive ecological damage and affect their own tourism-dependent economy.

The dispute has now been taken to two separate international bodies in an attempt to break the deadlock.

At The Hague

Argentina presented its case at the International Court of Justice at The Hague on 8 June. Their lawyers argue the environmental case and accuse Uruguay of breaking the 1975 Uruguay River statute which included a pollution clause. Under the terms of this agreement, the two nations pledged to consult each other on matters affecting their river border.  

A definitive ruling from this body could take as long as five years, although Argentina is looking for a temporary halt to construction while further, independent environmental studies can be carried out.  

The NGO Centro de Derechos Humanos y Medioambiente (CEDHA) has also been presenting the Argentine case at various departments of the European Commission and even to representatives of the European banks financing the investment, including Spanish BBVA. CEDHA argues, furthermore, that Europe maintains "double standards" and that no such mills would be approved within the EU.

Uruguay, on the other hand, attempted to take the case to Mercosur for a direct resolution, but Argentina blocked its neighbour's access to the dispute-settlement body. Mercosur is currently involved in the settlement claim, but on a side issue, rather than on the central question of the paper mills themselves.  

Uruguay maintains that protestors in Entre Rí­os province illegally blocked the international bridges across the waterway for 40 days and thus contravened the terms of the customs union. The Argentine government did not take measures to prevent the road blocks and damage to Uruguayan trade and tourism has been estimated as high as US$500m.  

On 5 June Gustavo Fernández Saavedra, an ex-Bolivian foreign minister, joined Argentine Héctor Masnatta and Uruguayan José Marí­a Gamio to form the panel that will be responsible for Mercosur's mediation from Asunción . They have yet to announce their verdict, but their decision will not be subject to appeal.  

From Uruguayan opinion polls, it has become clear that the country perceives the dispute as an encroachment on its internal affairs by a domineering larger neighbour. National pride, as well as profit, is at stake. A mid June survey reveals 80% of Uruguayans to be in favour of the project, with a mere 8% opposing it. The figures from December 2005 were 62% and 11% respectively. Uruguayan President Tabaré Vázquez asserted on 21 June that Uruguay was "not a province or state of any other country; it is a free, independent and sovereign country".  

The dispute has raised fundamental questions about Mercosur's ability to resolve disputes between its members. Vázquez expressed his dissatisfaction with the organisation by allegedly threatening on 1 May to downgrade Uruguay's status to that of associate member. He also rejected further dialogue with Argentina as fruitless.  

Mercosur's failure

Part of Mercosur's difficulty lies with the current president of the committee of permanent Mercosur representatives, Carlos 'Chacho' Álvarez. An ex-Argentine president close to Kirchner, he has kept his distance from the conflict. As a result, Mercosur has not played the central role that it might have done in resolving the two members' clash.  

On 17 June Álvarez denied that Mercosur was suffering from a "terminal crisis" although he did admit that it was "facing problems". However, he pointed to the impending admission of Venezuela as a full member as a sign of Mercosur's continued viability. Venezuela is not only South America's third-largest economy, but it is also an oil producer, Álvarez added.  

Paraguay, the other small nation of the Mercosur bloc, was quick to defend the organisation. The foreign minister, Leila Rachid, said on 20 June that Paraguay would not leave Mercosur "under any circumstances".

For the time being, both Argentina and Uruguay remain at loggerheads and await a response from Mercosur and from The Hague. At the Botnia mill, construction continues apace, with the company preparing to almost double its workforce, from 2,500 to 4,500, between July and August. Construction on the ENCE plant has yet to begin.  

However, it is unclear whether a ruling will silence protest, and activists in Gualeguaychú, a city in Entre Rí­os across the river from Fray Bentos, have already threatened to continue their campaign if building continues past July.