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UPDATE 3-World court rules Uruguay can operate paper mill

* Argentina’s request for damages denied

* Court rules no conclusive evidence mill polluting

* Officials applaud ruling, protesters decry it (Adds quotes from Argentine president, Uruguayan minister)

THE HAGUE/MONTEVIDEO, April 20 (Reuters) - A controversial pulp mill in Uruguay can keep operating, the world court ruled on Tuesday, rejecting Argentine claims the plant pollutes a river between the two countries.

The $1.2 billion Finnish-owned pulp mill has soured relations between the South American neighbors since before it opened in 2007, but both sides claimed victory after the ruling and said they would put the dispute behind them and move on.

Protesters have blocked a border bridge for three years trying to get the plant shut down, even though studies showed it was not polluting the river. [ID:nN2099204]

The International Court of Justice in The Hague ruled Uruguay breached a 1975 treaty by failing to negotiate with Argentina over the plant, but said it would not be an appropriate remedy to make Uruguay pay damages or dismantle the operation.

The court was called on to decide whether Uruguay breached the treaty, which says both countries must consult and agree on all issues regarding the waters of the Uruguay River.

Environmentalists and community activists near the plant decried the ruling.

But officials on both sides of the river said the ruling vindicated their arguments and that the decision would heal relations between the two countries after years of bitter exchanges.

“I’m sure that there will be a lot less conflict now. What has just happened shows that we were right,” Argentine President Cristina Fernandez said in Venezuela, where she was on an official visit.

Fernandez and other Argentine officials emphasized the court had found Uruguay engaged in “wrongful conduct” for failing to inform and negotiate with Argentina.

In Uruguay, Foreign Minister Luis Almagro said, “Now is the time to plan joint projects looking forward, using this as an important reference point and deepening other aspects of our bilateral relations.”


But in Gualeguaychu, the Argentine town across the river from the plant where residents have been fearful of it for years, protesters were angry.

“The court doesn’t do anything even if it means death for us,” one woman shouted to television cameras after seeing the verdict.

Other protesters vowed to continue years of roadblocks that have significantly hurt businesses on both sides of the river. The bridge was a popular tourist crossing between the two countries, as well as a commercial trucking route.

Argentina had refused to send police or the military to break up the years-long roadblock, angering Uruguay.

The plant, located at a spot used for fishing, leisure and tourism, pulps eucalyptus trees for paper and was owned by Finnish pulp producer Metsa-Botnia MRLBV.HE before being sold to Finland's UPM-Kymmene UPM1V.HE in December.

The court ruled there was no conclusive evidence that Uruguay had not shown due diligence in its environmental obligations or that effluent discharges from the mill had caused harm to water, flora and fauna or the ecosystem.

“The court is likewise unable ... to uphold Argentina’s claim in respect for alleged injuries in various economic sectors, specifically tourism and agriculture,” ICJ Vice President Peter Tomka said in reading the ruling.

In hearings at the ICJ last September, Argentina argued the mill was polluting and threatening the river, and that it had not been properly consulted over the mill’s approval and construction. Uruguay denied the claims. (Additional reporting by Karina Grazina and Juliana Castilla in Buenos Aires; Writing by Fiona Ortiz; Editing by Kevin Liffey and Peter Cooney)