By Pedro G. Cavallero (for Safe Democracy)

Pedro G. Cavallero analyzes the current escalating dispute with Uruguay and Argentina in opposition (or in confrontation). As explained, the dispute has come as a result of two European companies’ decision to build an ambitious cellulose-pressing company in Uruguay. Cavallero illustrates the fact that Argentina‘s concern is the would-be environmental impact, stemming from the plant’s operation, in one of its provinces. On the other hand, the Uruguay‘s response has to push forward with expanding foreign trade policy. Cavallero thinks that this dispute has revealed a subtler discontent: the lack of an effective institutional venue to adjudicate transnational matter, in other words, a trusted, impartial mediator.

Pedro German Cavallero is a policy analyst based in Washington DC. He holds a master degree in comparative law and comments regularly on U.S. foreign policy and inter-American affairs.

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THE DECISION BY TWO EUROPEAN COMPANIES to disembark in Uruguay should have been cause for celebration in this investment-hungry South American nation. And it was. The decision to build an ambitious cellulose-processing complex (requiring an investment of approximately $1.7 billion), has been championed as nothing less than a turning point in the country’s export profile. Historically, the bulk of this small nation’s foreign trade has been channeled to the provision of raw materials for international markets’ consumption. Understandably, the Uruguayan government (a broad coalition of parties under the banner of the Frente Amplio) has consistently highlighted this development.

However, no one was expecting that the Europeans’ arrival would trigger such a contentious argument with close neighbor Argentina. In Entre Ríos (the Argentine province situated across the Uruguay River where the project will be developed), the general population mobilized and protested the would-be environmental impact stemming from the plant’s operation. Protesters repeatedly blocked the access to international roads connecting with Uruguay, which also links Brazil with the Pacific Ocean. As a result, effective transnational communication flows were distorted and regional integration hampered. Ultimately, what started as a limited, regionally-focused difference has grown exponentially dragging both countries into the fight.

Curiously, this conflict crystallized at a time when Argentina and Uruguay are governed by left-of-center coalitions and parties who came to power sharing a world view and even the “political grievances” of the 1970s. Frente Amplio’s ascendance has been long anticipated and welcomed by Argentine President Nestor Kirchner. In fact, Kirchner allegedly told his then-counterpart Uruguayan Jorge Battle, that he would wait to solve another divisive issue until Uruguayans elected then-leading Frente Amplio presidential contender Tabaré Vazquez.

Things have changed since then. Reinaldo Gargano, Uruguay’s Foreign Minister stated that “the dialogue with Argentina was broken”. To make matters even worse, Argentina considered bringing the issue to the International Court of Justice in The Hague. This threat constituted an admission by the Kirchner administration of its inability or unwillingness to tackle the controversy in its most immediate setting, either the bilateral or regional context. By considering instead a costly, time-consuming, and unpredictable international forum, Argentina allowed the conflict to further escalate. In a race to the bottom, Uruguay responded in kind and threatened also with additional international litigation.

To a great extent, the Uruguay River dispute resulted from the lack of political expediency and overconfidence on both sides. It also revealed a subtler discontent that has been lying dormant in the region over the lack of an effective institutional venue to adjudicate transnational matters. A trusted, impartial umpire is missing in the Southern Cone. Why else would these two countries consider going to The Hague, when they have invested almost two decades establishing an integrated area? Though Mercosur has generated front-page news with abrupt accessions (such as Venezuela’s), it has been extremely lagging in deepening the bonds linking its founding members. It continues to operate following the whimsical mood changes of Brazil and Argentina.

Neither of which is ready or willing to apportion binding decision-making authority into a supranational entity. Instead, they squabble on key issues until the need for political compromise becomes too evident or urgent. Meanwhile, Uruguay and Paraguay are unable to counterbalance the influence of the block’s heavyweights. For genuine integration efforts to succeed, such a critical institutional player is imperative. Otherwise, relying on the goodwill or negotiating capacity of individual members turns the entire process into an uncertain endeavor.

In this context, Uruguay has been silently searching for ways to regain a dose of dynamism in its foreign policy. Montevideo aspires to escape the neighborhood’s asymmetries and Mercosur’s own limitations. President Tabaré Vazquez has even sent signals indicating his willingness to discuss a prospective free trade agreement with Washington. Though such an opening to the U.S. may not sit well with his entire coalition, Vazquez’s stocks have increased significantly as a result of the toughness shown when dealing with the Argentines.

Almost the entire Uruguayan political spectrum has gathered around him and supported his standings. And as everyone knows, firmness, and even a dose of intransigence, pays-off handsomely. In the meantime, regional partners will be well advised to read between the lines. Montevideo is not only frustrated with the perceived evenhandedness of Argentina. In the background, lays a larger discontent, and it reflects a deeper frustration with its loyal, long-term membership to the regional block.

As Presidents Kirchner and Lula celebrated loudly the coming of Venezuela to Mercosur (or speculate about Bolivia’s prospective accession), they should be very wary of old members’ new fantasies and dreams.