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Cablegate: Andean Fta: Lima Round Scenesetter for a/Ustr Vargo

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

UNCLAS SECTION 01 OF 03 LIMA 001728

SIPDIS

SENSITIVE

FOR A/USTR REGINA VARGO FROM AMBASSADOR STRUBLE

E.O. 12958: N/A
TAGS: ETRD ECON PGOV PE
SUBJECT: ANDEAN FTA: LIMA ROUND SCENESETTER FOR A/USTR VARGO


1. (SBU) We very much look forward to your April 17-22 visit
to Lima for the ninth round of the U.S.-Andean Free Trade
Agreement (FTA) negotiations. Peruvian public support for
the FTA, at 68 percent, continues to be the highest in the
region and the government remains committed to concluding
negotiations by July 2005. In addition to your busy
negotiations schedule, we have arranged opportunities for you
to engage in key outreach activities through a site visit to
a local apparel exporter, a meeting with Members of Peru's
Congress, breakfast at the Ambassador's residence with
English speaking media leaders, and a lunch with Peruvian
Ministers (also at the residence). We have also requested
meetings with President Alejandro Toledo and Trade Minster
Ferrero. The persistence of several commercial disputes
between U.S. companies and the Peruvian Government remains a
top concern. You will have ample opportunities to push for
progress during your bilateral meetings with the Peruvians.

Political Scene
---------------

2. (SBU) President Alejandro Toledo is approaching the last
year of his term as a lame duck, with his popularity mired in
the low-teens. Peru's strong economic growth is beginning to
trickle down to the poorest classes, but President is getting
little credit for this from the population. The GOP's
strength is visibly declining, as the governing coalition
composed of his Peru Posible party and the Independent
Moralizing Front is fraying and fringe Peru Posible
legislators are quitting the party to further their
reelection prospects. A minor Cabinet reshuffle in February
did not generate enthusiasm, and major changes are expected
by July, including the possible replacement of Prime Minister
Carlos Ferrero, who survived two censure motions over the
past six months. Rural unrest continues to bedevil the
regime, including violent anti-mining protests,
demonstrations by small agricultural producers seeking
subsidies, and cocalero blockades. Toledo is further
distracted by ongoing congressional and judicial
investigations into allegations that his party engaged in the
massive falsification of signatures in order to register for
the 2000 elections.

3. (SBU) Despite its weaknesses and challenges, the Toledo
Government is not facing a serious threat to its survival.
With presidential and congressional elections a year away,
the major opposition parties are interested in maintaining
institutional stability to ensure a free and fair election
and a smooth transition to the next administration, which
they hope to lead. Consequently, they no longer show an
interest in terminating Toledo's presidency, and, in fact,
have tempered investigation into alleged party registration
involving the President and his party. Instead, political
leaders and their parties are focused on reaching out to
economic and social sectors for support, while warily
exploring alliance options with each other.

4. (SBU) President Toledo has two goals for the remainder of
his term. First, he wants to cement his legacy by finalizing
international agreements and projects that will serve as the
foundation for Peru's future development, such as the Free
Trade Agreement with the U.S., the southern highway
connection to Brazil, and the Camisea liquefied natural gas
plant. The opposition political parties, who stand to
benefit from these accomplishments if they win office in
2006, support these objectives in principle though they may
differ on certain details. Second, he wants to ensure that
Peru Posible retains a sizable block of legislators in the
next Congress to maintain his political influence, block
retaliation against his government, and provide a base for a
possible 2011 candidacy. The GOP's chief initiative this
year, a conditional cash transfer program that would
distribute $30/month to Peru's poorest families, is widely
criticized as an election-year popularity ploy aimed at
boosting Peru Posible's chances, and opposition parties are
considering ways in which to block that proposal.

Strong Macroeconomics, but Challenges Remain
--------------------------------------------

6. (U) Peru's economy is one of the most dynamic in Latin
America. 2004 GDP reached $67 billion, an increase of 5.1
percent. Growth was driven by exports, construction, mining,
investment, and domestic demand. Peruvian exports, propelled
by high mineral prices, ATPDEA benefits and the completion of
the Camisea gas project, swelled to over $12 billion in 2004,
up 39 percent in dollar terms from 2003. U.S. exports to
Peru increased 27 percent during the same period, to reach
$1.8 billion. The resulting trade surplus of $2.6 billion
drove up reserves to a record $12.6 billion, and caused the
currency to appreciate 5.5 percent against the dollar by the
end of the year.

7. (U) Peru's major trading partners are the U.S., EU,
China, Chile and Japan. In 2004, 29 percent of exports went
to the U.S. and 20 percent of imports came from the United
States. Leading exports include gold, copper, fishmeal,
petroleum, zinc, textiles, apparel, asparagus and coffee.
Imports include machinery, vehicles, processed food,
petroleum and steel. The registered stock of foreign direct
investment (FDI) is $12.9 billion, with the U.S., Spain and
Britain the leading investors. FDI is concentrated in
mining, electricity, telecom and finance.
8. (U) Despite Peru's macroeconomic success, major
challenges remain. The GOP must reduce poverty of 52 percent
(under $58/month) and extreme poverty of 24 percent (under
$32/month). Wealth and economic activity are overly
concentrated in Lima and other major cities. Unemployment
and underemployment levels total 56 percent nationwide and
over 60 percent of the economy is informal. Growth is barely
strong enough to generate employment faster than new entrants
come into the labor force. The government lacks revenues for
adequate social investment. Boosting long-term growth and
reducing poverty will require strengthening the judiciary and
other institutions, reducing corruption and completing other
reforms to improve the investment climate.

Positive Local View on the FTA
------------------------------

9. (SBU) You will find during your outreach activities that
most Peruvians, including Congressmen, have a favorable view
of an FTA with the United States; this perspective is
reflected in editorial coverage by the print and media
broadcast. Questions as to the ability of Peruvian
agriculture to compete effectively continue to be voiced,
however, by some commentators and industry representatives,
while press concerns expressed early in the negotiations
regarding the local impact of proposed IPR protections have
abated. Minister Ferrero's comments after the Washington
mini-round that the time had arrived to play the "coca" card
did resonate with some editorialists, though little has been
said or written on the subject in the last few weeks.

10. (SBU) A January 2005 study of the general population
commissioned by USAID found that 68 percent of those
interviewed felt that Peru would benefit from the FTA.
Increased employment and economic stability were the mostly
commonly cited benefits. However, lack of information and
disinformation is common. Nearly 52 percent claim that they
are not informed at all regarding the FTA negotiations. In
addition, 55 percent felt that the U.S. would benefit more
from an FTA than would Peru; 31 percent aid the latter would
be favored. The study also showed that 84 percent could not
name members of the Peruvian negotiating team. Only 23
percent of those polled indicated that they have confidence
in the Peruvian delegation, with 44 percent lacking
confidence. During your visit, you should take the
opportunity to publicly praise the professionalism of the
Peruvian FTA team.

Outreach Opportunities
----------------------

11. (SBU) Your outreach activities begin with a visit to a
textile and apparel producer on Monday, April 18. You will
be taken on a tour of the factory, accompanied by Trade
Minister Alfredo Ferrero and Agricultural Minister Manuel
Manrique. The press will observe and you should expect to
take some questions with the Trade Minister.

12. (SBU) On Tuesday, April 19, you will be attending a
breakfast at the Ambassador's residence with English-speaking
media directors. This meeting will be helpful to put into
perspective controversial topics such as agriculture and IPR
and to reiterate how Peru has benefited from ATPA and ATPDEA.

13. (SBU) Later that day, you will be participating in an
AmCham lunch at the Marriott Hotel, along with other chief
negotiators: Hernando Jose Gomez, Christian Espinoza
Canizales and Pablo de la Flor.

14. (SBU) In the evening of April 19, you will hold a private
meeting with members of the Peruvian Congress at the Sheraton
Hotel. No press will be allowed inside the meeting, but you
might be asked questions by the media upon your departure.
We expect the questions and comments to focus on agriculture,
IPR, and used clothing.

15. (SBU) On April 20, you will be having lunch at the
Ambassador's residence with several key Peruvian Ministers,
including the Ministers of Trade, Finance, Agriculture,
Labor, Health, and Production. You will have an opportunity
to discuss openly Peru's expectations for the FTA and the
realities behind a U.S. Congressional approval of said
agreement. This is also an important opportunity to
underline the need for Peru to develop now a political
strategy to sell the FTA. In that connection, it would be
useful to observe that public infighting about FTA positions
by cabinet members damages the GOP's own position with its
public.

16. (SBU) We have requested a meeting for you with President
Alejandro Toledo, as well as a separate meeting with Trade
Minister Alfredo Ferrero. We are awaiting confirmation.

ADVANCING THE TRADE AGENDA
--------------------------

17. (SBU) Your presence and outreach activities should
bolster further understanding of the U.S.-Andean FTA and the
remaining processes. The meeting with key ministers will be
instrumental in establishing realistic expectations among the
new cabinet ministers, as well as in explaining how we reach
closure on the difficult issues, such as agriculture and IPR.
We expect the session with President Toledo should help
focus him on GOP plans to move the trade deal through his
Congress as well as reiterate the need to resolve the pending
commercial disputes.


STRUBLE

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