Introduction

This chapter focuses on the recent dispute between Argentina and Uruguay over the installation of two pulp mills near the Uruguayan city of Fray Bentos, on the bank of the Uruguay River (a resource shared by the two countries). At present, only one of the pulp mills (involving investment by the Finnish firm Oy Metsä-Botnia Ab) is under construction at the originally planned location, since the other project (involving the Spanish company ENCE) has been relocated to another Uruguayan region. The Argentinean government claims that the Fray Bentos pulp mill will have severe environmental consequences, in particular for the nearby Argentinean city of Gualeguaychú, while the Uruguayan government argues that it will have no noticeable environmental effects.

This case has garnered increasing regional and international attention, as the dialogues, technical analyses, and legal disputes of the past two years have failed to arrive at a solution to the bilateral crisis.

In fact, the conflict has been intensifying over time. Bilateral relations have been deteriorating even within the framework of MERCOSUR, the regional trade agreement into which Argentina, Brazil, Paraguay and Uruguay entered (with Bolivia and Chile as associate members) in 1991.

In an attempt to move the analysis beyond the details of the conflict and the opposing views of the two countries, this chapter adopts a regional perspective.