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Cablegate: Colombian Private and Public Sector Preparations

This record is a partial extract of the original cable. The full text of the original cable is not available.

id: 13815
date: 2/9/2004 14:17
refid: 04BOGOTA1280
origin: Embassy Bogota
classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
destination:
header:
This record is a partial extract of the original cable. The full text of the original cable is not available.


----------------- header ends ----------------

UNCLAS SECTION 01 OF 04 BOGOTA 001280

SIPDIS

SENSITIVE

DEPT PLEASE PASS USTR

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EAGR CO FTA
SUBJECT: COLOMBIAN PRIVATE AND PUBLIC SECTOR PREPARATIONS
FOR FTA NEGOTIATIONS: ON THE RIGHT TRACK, BUT STILL A WAYS
TO GO

1. (SBU) Summary: During A/S Wayne's January 28-29 trip to
Bogota, Colombian government and business leaders expressed
strong support for an FTA. They recognized, however, that
they have a great deal of homework to do before they are
ready to negotiate. Moreover, they expressed concern that
nascent outreach campaigns aimed at educating the public and
Congress on the benefits of an FTA and building grassroots
support are weak and need to be reinforced. There are also
many, mostly in the business sector, who believe that
Colombia merits special concessions. The more sophisticated
attempted to link these calls with the need to develop strong
legal alternatives for illicit narcotics production, but even
this appears anchored in the concerns of agricultural groups
worried about U.S. imports. A/S Wayne made clear at every
meeting that this would be a serious negotiation; that the
more the negotiators understand their own country, the
better; and that building a pro-FTA coalition at home is
important. He also stressed that an FTA is not a panacea,
but an opportunity to help deepen reforms and increase growth
as part of a sound economic development strategy. Colombian
leaders understood his message, which was also carried in a
full-page interview in Colombia's leading economic daily.
End Summary.

The Perspective of U.S. Companies
---------------------------------

2. (SBU) U.S. company representatives were bullish on doing
business in Colombia and offered suggestions on how to
improve local preparations for FTA negotiations. Energy
sector executives praised improvements in security, noting
that these improvements had made larger investments possible.
They agreed that an FTA would improve the business climate
and benefit the extractive industry, but expressed a need for
a more thorough public education campaign to dispel negative
stereotypes surrounding free trade. Representatives of the
pharmaceutical and banking sectors stated that the GOC has
not touted the successes of programs such as ATPA and ATPDEA
enough, noting that the only people speaking up are critics
-- namely, Agriculture Minister Cano (reflecting fear of
large grain, rice, and sugar producers) and several members
of Congress. They added that the GOC also needed to be more
aggressive in selling an FTA, noting that President Uribe has
been silent on the issue over the past several months after
mentioning it often, and underscored the need for the
President to take up the FTA banner once more. All agreed
that the private sector could play a role in lobbying the
legislative bodies of both countries and explaining the
benefits of free trade.

3. (SBU) Ambassador Wood highlighted the benefits of an FTA
and urged the businessmen to look beyond job creation and
increasing the value of established exports and to focus on
creating new industries. He also stressed the importance of
understanding the linkages and constituencies in both
economies, calling on the companies to become actively
involved in supporting an FTA. The businessmen agreed,
noting Colombia's excellent entrepreneurial potential,
earnestness in resolving investment disputes, and readiness
to proceed in an FTA, with or without Peru. A/S Wayne
stressed that Colombians must recognize the gains and new
opportunities from freer trade and emphasized the need to
continue judicial and financial structural reforms, even
after an FTA.

Trading FTA Points with Trade Minister Botero
---------------------------------------------

4. (SBU) A/S Wayne highlighted to Minister Botero and FTA
Negotiator Ambassador Hernando Jose Gomez that a Colombia FTA
is a priority and that negotiations would start in the second
quarter. He added that unlike ATPDEA, the free trade
agreement would require commitments from both sides. A/S
Wayne urged Minister Botero to make this clear to the public,
adding that the "toughest negotiation will likely be the
internal one." Trade benefits would be limited without
continuing structural reforms, the A/S said; framing an FTA
as one part of an overall economic plan, he added, places it
in the context of other social and economic improvements,
blunting criticism. The A/S stated that the United States
plans to begin negotiations with Colombia and Peru, and will
then broaden them to include Ecuador and Bolivia. Botero
expressed concern the negotiations might be delayed if Peru
was not ready to begin. He added that the GOC had convened
the negotiators from the other countries to begin
consolidating their positions, and that Colombia would
continue to take the lead.

5. (SBU) Botero said FTA opponents exist in congress, the
private sector, and the media. He is especially concerned
about the opinion of the Catholic Church, as the power of the
pulpit is still very strong in Colombia. The government
needs a concerted outreach effort, Botero said. He added
that Colombia is not competitive with U.S. grains and
cereals, but would be very competitive in fruit and
vegetables. Adjustments in phytosanitary rules would also
make them very competitive in poultry, dairy, and beef. A/S
Wayne pointed out that although the science of the rules
cannot be negotiated, the goals are to streamline processes
and foster greater transparency on both sides. Botero
underscored the social and political sensitivity of Colombian
agriculture, saying farm workers who lose their jobs growing
corn and rice are most likely to turn to illicit crops. He
stated that his government works well with USTR and looks
forward to the negotiations, but hopes that other USG
agencies might help USTR to develop positions that would take
into account the political realities of Colombia. A/S Wayne
added that it is important to be very clear about such issues
up front and to present a thorough analysis of these problems
early in the process in order to assure the negotiators that
they are legitimate and deserve attention. Minister Botero
ended by reiterating that Colombia is ready to proceed on an
FTA, with or without the other countries.

We will stay the course -- Finance Minister Carrasquilla
--------------------------------------------- -----------

6. (SBU) A/S Wayne met with Finance Minister Alberto
Carrasquilla, Vice-Minister Juan Ricardo Ortega (soon to be
Vice-Minister of Trade), and Director of Macroeconomic Policy
Andres Arias (subsequently named Vice Minister of
Agriculture). A/S Wayne congratulated the financial team on
Colombia,s economic growth and progress in resolving
commercial disputes, and noted that free trade should be a
win-win situation. However, he stressed that an FTA must be
part of a broader economic plan and will not bear fruit
without serious structural reforms. A/S Wayne also stressed
the need to settle investment disputes and urged the Minister
to promptly pay Nortel once that dispute has been settled.
Carrasquilla responded that he understood and that the
necessary funds would be available.

7. (SBU) Carrasquilla provided a comprehensive overview of
the fiscal situation and acknowledged that liabilities
outweigh assets on Colombia,s balance sheet. Last year
pensions and servicing interest on the debt alone cost
Colombia roughly USD 9 billion of the USD 14 billion
collected in taxes. He explained that the Uribe
administration remains committed to improving efficiency this
year by increasing the tax base, eliminating special pension
regimes and loopholes in the tax code, and decreasing the
size of government. Ortega added that with the loss of the
referendum, the Uribe administration faces a tough battle to
push cost-cutting and reform measures through a reluctant
Congress. He added that Colombia needs to repair local
finances, but acknowledged that cutting transfers to regions
would be politically difficult. Carrasquilla expressed hope
in the paramilitary demobilization and re-integration, noting
that the GOC has budgeted sufficient funds to cover the
process. He added that demobilization may increase revenues
as people move away from petroleum and gasoline smuggling --
a problem costing Colombia USD 300 million a year.

Lunch with GOC Economic Officials
---------------------------------

8. (SBU) The Ambassador hosted a lunch on trade issues with
the Minister the Environment, Sandra Suarez, Presidential
Economic Advisor Dr. Rudolf Hommes, Finance Vice Minister
Juan Ricardo Ortega, and trade negotiator Hernando Jose
Gomez.

9. (SBU) A/S Wayne and the Ambassador noted the importance
of including environmental and labor considerations in an
FTA. Minister Suarez acknowledged this and spoke of the
importance of sustainable development and of working with
business. Minister Suarez and Hommes also expressed doubts
about the GOC's ability to change existing environmental
legislation to meet the levels required in an FTA. A/S Wayne
and Mr. Manogue explained that the Chile and CAFTA FTA's
primarily focused on enforcing existing laws. Presidential
Advisor Hommes then noted that there must be greater public
education and discourse about the benefits of free trade to
all sectors of society. He added that there is great fear of
an FTA in the agricultural sector in Colombia and agreed that
the GOC must begin to talk to Congress and the media. Ortega
added that in order to gain widespread support, the GOC also
needs to focus its educational efforts on the sub-federal
level. He added that support from local officials will be
critical in winning Congressional backing. In an op-ed
published Feb. 2, Hommes focused on these issues.

10. (SBU) A/S Wayne stressed to the GOC that an FTA has to
be part of a national strategy if it is to succeed, noting,
for example, that it must be easier to start a business and
be an entrepreneur in Colombia. The GOC representatives
strongly agreed, but expressed concern about getting the
public to buy into changes. Ortega stressed that an FTA
could be a catalyst for change, but agreed with the A/S
Wayne's assertion that an FTA is not an economic cure-all.
Gomez and Hommes agreed the GOC needs to work with the
private sector to prepare for the negotiations and will need
even more support from businessmen to get an agreement
approved by Congress.

Colombian Business Leaders Say They're Getting Set for FTA
--------------------------------------------- -------------

11. (SBU) A/S Wayne met with the Presidents of Colombia's
banking, agricultural producers, and exporters associations.
According to Rafael Mejia, president of the national
agricultural producers' association, the sector supports an
FTA, but he warned that illegal crops and armed groups make
Colombia,s situation distinct from that of Chile and Mexico.
The cultivation of corn, rice, and cotton provides many
rural jobs; as a result, the social and political impacts of
an FTA are as important as the economic aspects. The sector
wants U.S. transition and reconversion funds as well as
outreach to help Colombian farmers. Patricia Cardenas,
president of the national banking association, stated that
her sector sees the FTA as a good opportunity for growth,
employment generation, and the development of integrated
capital markets. Bankers are concerned, however, that U.S.
banks locating branches in Colombia under an FTA would use
their off-shore capital, giving them an unfair advantage over
local banks with less capital. Finally, national exporters
association president Javier Diaz said an FTA provides a
unique opportunity to boost Colombia,s legal economy and to
deal a blow to the problems presented by narcotics and
insurgents. APTDEA has permitted the country to increase
sales in new dynamic industries like textiles and shoes,
lowering unemployment. An FTA not only offers trade in goods
but also more potential investment, which would help further
reduce unemployment.

12. (SBU) The Colombian business associations said they are
working to develop a single voice in the negotiations, and
are planning to meet with their U.S. counterparts. Entire
sectors are not threatened per se, they stressed. Rather,
the threat is to individuals and firms that refuse to adapt.
Part of the problem, the A/S agreed, is that people measure
wins and losses against the economy as it currently exists,
while in reality trade permits new economic actors to enter
on the scene to create many more winners. The business
leaders also said the FTA promises to bring more
sophisticated business practices as well as reforms in tax
structures and investment. A/S Wayne stressed that unlike
ATPDEA, the FTA requires give and take, and should be just
one part of a broad economic approach that includes
structural reforms. A/S Wayne also stressed that the private
sector has a role in explaining the benefits to the public.

Press Interview
---------------

13. (U) A/S Wayne's interview appeared in the February 2
edition of Portafolio, the leading economic daily. In the
interview, A/S Wayne highlighted the same points that he has
raised in his visits. He praised GOC efforts to date to
restructure the economy and pave the way for an FTA. The
interview highlighted the need for the Colombian negotiating
team to work closely with the private sector to identify
important negotiating areas. He also made it clear that the
FTA was a negotiation, not a concession.

Leading Economic Think Tank Positive on Colombia's Prospects
--------------------------------------------- ---------------

14. (U) A/S Wayne met with former Mining Minister and Central
Bank board member Carlos Caballero, now of the leading
economic think-tank, Fedesarollo. After outlining the woes
of the economy after 1998, Caballero painted a very bright
picture of Colombia,s current recovery, with 3.4 percent GDP
growth in 2003 and a projected 3.8 to 4 percent this year.
Caballero noted that while productivity and efficiency have
been increasing, job creation is slow and the average
Colombian does not yet feel the recovery. The government's
top three priorities, he believes, should be to consolidate
security gains, pass an effective structural fiscal reform,
and to sign an FTA.

15. (U) Caballero said private investment grew 20 percent in
2003 fueled by a construction boom, but added that further
growth and new jobs will depend on signing an FTA.
Colombia,s once significant trade with Venezuela dropped by
half last year, only to be replaced by U.S. trade thanks to
the time-limited ATPDEA preferences. He added that it is
critical that Colombia focus outwards, but explained that a
national consensus does not yet exist because the priority
has been on internal reforms. Fedesarollo is now focusing on
reforms in regional revenue sharing and the need to increase
land taxes. They believe military spending should be made
more rational, and that reprogramming funds from other
government agencies, especially the inefficient health and
education budgets, will be necessary to maintain the higher
military commitments under Uribe.

16. (SBU) Comment: The GOC is off to a good start on FTA
preparations inside the government, but still has to do the
hard work of building and cementing a pro-FTA consensus at
home. Uribe's popularity and high public confidence due to
recent security and economic successes will help, but the GOC
will need a careful analysis of sector by sector benefits and
opportunities as well as ways to address potential "losers'"
concerns. End Comment.

17. (U) This cable has been cleared by A/W Wayne.
WOOD

=======================CABLE ENDS============================

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