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Cablegate: Peru Response: U.S. International Trade Commission Andean

VZCZCXYZ0003
RR RUEHWEB

DE RUEHPE #1128/01 1841551
ZNR UUUUU ZZH (CCY PARA NUMBERS AD00AEF3EA/MSI7560 510)
R 021551Z JUL 08
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 8928
INFO RUEHLP/AMEMBASSY LA PAZ JUL BOGOTA 5844
RUEHQT/AMEMBASSY QUITO 1971
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHDC

UNCLAS LIMA 001128

C O R R E C T E D C O P Y (PARA NUMBERS)

SIPDIS

COMMERCE FOR 4331/MAC/WH/MCAMERON
TREASURY FOR MEWANS
USTR FOR BHARMAN
USITC for LMSCHLITT
USDA/FAS/OCRA

E.O. 12958: N/A
TAGS: ETRD SNAR PE

SUBJECT: PERU RESPONSE: U.S. INTERNATIONAL TRADE COMMISSION ANDEAN
INVESTMENT AND DRUG CROP SURVEY FOR REPORT ON ATPA

REF: STATE 00059051


1. (U) This cable provides a response to the request for information
from the U.S. International Trade Commission Andean Investment and
Drug Crop Survey for a report on the ATPA.

2. (U) The United States is Peru's top trading partner for both
exports and imports. The growing importance to the Peruvian economy
of exports to the U.S. market is reflected by their nearly eightfold
increase from ATPA's enactment in 1991 through 2007. Peru's exports
to the U.S. have more than tripled since ATPDEA was implemented in
2002. Exports under ATPA/ATPDEA have assumed an increasingly
important role in Peru's economy, as exporters have discovered that
the ATPA/ATPDEA offers greater advantages than those offered under
the GSP. Of the $5.3 billion of goods exported to the United States
in 2007 and $5.9 billion of goods that Peru exported to the United
States in 2006, just over half entered the United States under
ATPA/ATPDEA.

FOREIGN DIRECT INVESTMENT ACTIVITY IN 2006 AND 2007
--------------------------------------------- ------
3. (U) The stock of foreign direct investment (FDI) in Peru
according to Peruvian government number is approximately $24.7
billion at the end of 2007. The United States represents the number
two top investor in Peru, after Spain, at nearly $3 billion. The
top sectors receiving FDI are telecomm (23%), mining (20%),
manufacturing industry (18%), financial (16%), and electricity
(10%).

Uncertainty of ATPA/ATPDEA Extension Resulted in Losses
--------------------------------------------- ----------
4. (U) Overall U.S. investment in Peru during 2006 and 2007 does not
appear to have been significantly affected by possible expiration of
the ATPDEA. Most current American investment in Peru is in areas,
such as extractive industries (mining, oil and gas) or production
for the local consumer market, is not significantly impacted by the
ATPDEA. Likewise, the interim between Congressional approval and
entry into force of the PTPA appears not to have had a discernible
impact on corporate thinking with regard to the Peruvian market, the
period having evidenced continued strong U.S. company interest in
Peru.

5. (U) In the textile industry, uncertainty regarding the extension
of the ATPDEA in 2006 and 2007 resulted in some loss of US business
for Peruvian textile companies and hesitancy by the Peruvian banking
industry to issue investment loans. In 2006, the Minister of Trade
and Tourism mentioned that the growth rate of textile exports to the
U.S. had been cut in half in the last quarter and that potential
investments were on hold or had gone elsewhere due to the
uncertainty.

Impact of the end of global textile and apparel quotas
--------------------------------------------- ---------
6. (U) Peruvian textile and apparel firms have voiced concern
regarding the possible impact of the expiration, at the end of 2008,
of the November 2005 U.S.-China agreement on textile imports into
the United States. Some Peruvian industry representatives have
suggested that unrestricted imports from China could present a major
challenge to the Peruvian industry's ability to maintain its share
of the United States market. These concerns are not universal, with
other Peruvian apparel makers confident that they can compete
against Chinese firms.

Domestic Programs that Support Investment and Exports
--------------------------------------------- --------
7. (U) Proinversion is the national entity devoted to foreign
investment in Peru. It is in charge of proposing and executing
national policy on foreign investment, centralizing promotion
activities carried out by public entities, providing advisory
services to investors, and registering foreign direct investment
flows.

8. (U) Sierra Exportadora Program, a Peruvian presidential
initiative, encourages production of exported commodities by small
scale producers in the mountains. In 2006, the Peruvian legislature
approved President Alan Garca's Sierra Exportadora initiative to
cultivate an additional two thousand hectares of niche market crops
in the Andean highlands. The plan is to allocate $102 million over
the next five years for infrastructural investments in the Andean
provinces. An additional $4.5 million, under the "Integral Plan of
Repairs," promises to improve the quality of public health in some
of Peru's poorest regions. The expansion of roads and construction
of airports, in conjunction with improvements to be made in the
public health sector, should boost the area's productivity.

Investments in Non-Traditional Export-Oriented Pr
oducts
--------------------------------------------- ----------
9. (U) Under original ATPA benefits, four products (copper,
asparagus, jewelry and zinc) of the roughly 5,500 covered items
represented more than 90 percent of the value of ATPA exports from
Peru. In 2007, the United States imported copper valued at $1,012
million and asparagus valued at $198 million (Peruvian government
figures). In 2006, the United States imported copper valued at $965
million and asparagus valued at $149 million (Peruvian government
figures). Under the ATPA/ATPDEA, large increases have taken place
in a wide range of non-traditional exports such as apparel, jewelry
and various agricultural products. The stimulation of Peruvian
exports to the United States under ATPA/ATPDEA has brought more and
more companies and workers into the export sector, and improved the
ability of all industries to export to more and more markets. The
value of the goods Peru exported worldwide in 2007 reached $27
billion, an 18% increase from 2006, and in 2006 reached $23.4
billion, 36% higher than in 2005, and represented over a quarter of
Peru's total GDP.

Government Efforts to Reduce Drug Crop Production
--------------------------------------------- ----
10. (U) By early November 2007, the Peruvian National Police (PNP)
Narcotics Directorate (DIRANDRO) mounted successful operations in
the Upper Huallaga Valley and the VRAE (the Valley of the Apurimac
and Ene Rivers), destroying over 650 cocaine-production laboratories
and 1,824 metric tons (MT) of coca leaf.

11. (U) The PNP continued operating Basic Training Academies at
Santa Lucia, Mazamari and Ayacucho Police Bases located in the two
main coca source zones. In total, 1,547 CN male and female police
officers graduated from PNP training academies, including 727 in
March and 900 in December. The increase of DIRANDRO personnel in
the source zones has contributed to sustained eradication and
interdiction operations. An Advanced PNP Officers Tactical
Operations Training School has been established in Santa Lucia to
enhance leadership and tactical operation skills of officers who
will command newly graduated police from the NAS/PNP Basic Training
Academies. Additionally, NAS/PNP Pre-Academies have been
established adjacent to the Mazamari, Santa Lucia and Ayacucho bases
to improve the academic preparation of local applicants for the
police entrance exam.

Alternative Development
-----------------------
12. (SBU) The GOP has been a strong advocate for post-eradication
alternative development, taking a very public leadership role both
in Peru and on the international scene. DEVIDA presented the
post-eradication alternative development model at the Inter-American
Drug Abuse Control Convention (CICAD) meeting in early 2008, and
Peru has since been named President of the CICAD Experts Group on
Alternative Development. This new role for Peru will facilitate the
sharing of post-eradication alternative development experiences with
other countries in the region and the world that struggle with
making eradication efforts sustainable.

13. (SBU) For the first time in history, the GOP has dedicated
significant budgetary resources specifically to counter-narcotics
efforts through the Rapid Impact Plan. The Rapid Impact Plan effort
is led by DEVIDA, and has resulted in increased funding for
activities and infrastructure in coca-growing areas, which will be
implemented by more than 15 government entities under DEVIDA's
coordination. Funding in 2008's plan amounted to S/35,000,000
(12,411,348 USD), a significant portion of which is for economic
infrastructure, which will directly impact market access for
alternative development products.

14. (U) The Alternative Development program in Peru has achieved
sustainable reductions in coca cultivation through an integrated
approach that increases the economic competitiveness of coca-growing
areas while improving local governance. The program works to change
perceptions and the behaviors of coca farmers for the long term. The
core of the Alternative Development program - technical assistance
to farmers so that they can grow alternative crops - ensured that in
FY 2007 over 30,000 family farmers received technical assistance on
48,700 hectares of licit crops, including cacao, coffee and African
oil palm. In FY 2007, Alternative Development assistance to the
licit economy in Alternative Development areas resulted in
approximately $5 million of additional licit sales for those
organizations in districts where voluntary eradication is taking
place. From 2002 to 2007, over 15,000 hectares of coca were
peacefully eradicated in these communities.

15. (U) The post-programmed eradication alternative development
program, launched in the final months of FY 2006, has made solid
gains and is changing the hard-core coca-based mindset of the
Tocache community in the region of San Martin. Post-programmed
eradication looks to keep eradicated communities from replanting,
making the programmed eradication sustainable. In FY 2007 in
Tocache, 2,899 families in 48 communities signed non-replanting
agreements bringing the total to 5,868 families and 87 communities
in post-eradication Alternative Development. As USAID and CORAH
identify future areas for expanded post-eradication alternative
development, Tocache serves as an example to other communities that
a viable alternative to coca cultivation does exist.
MCKINLEY

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