Cablegate: Post's Active Trade Agreement Compliance Efforts

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ZNR UUUUU ZZH
R 261233Z SEP 06
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 2443
INFO RUEHGV/USMISSION GENEVA 0471
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEHRC/USDA FAS WASHDC 1538
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC

UNCLAS LIMA 003804

SIPDIS

SIPDIS

DEPT FOR WHA/AND, WHA/EPSC, EB/CBA, EB/TPP
COMMERCE FOR 4331/MAC/WH/MCAMERON AND TCC/4110
PASS USTR FOR HIRSH, BHARMAN AND MCARRILLO
GENEVA FOR USTR
USDA FOR ITP/FAS/BERTSCH

E.O. 12958: N/A
TAGS: ETRD ECON EINV PE
SUBJECT: POST'S ACTIVE TRADE AGREEMENT COMPLIANCE EFFORTS

REF: STATE 152063

1. (U) Trade agreement compliance and monitoring continue to be a
central priority for Embassy Lima. In April 2006, the U.S. and Peru
signed a comprehensive free trade agreement (U.S.-Peru Trade
Promotion Agreement, or PTPA), which is currently pending approval
by the U.S. Congress. In the meantime, the Andean Trade Preference
Act remains in force until December 31, 2006. The Ambassador and
the Embassy played a key role in facilitating the PTPA, promoting
the agreement to Peruvian audiences, and securing its passage by the
Peruvian Congress on June 28, 2006.

2. (U) Once implemented, the PTPA will improve the treatment of U.S.
exports and investors in Peru as follows:

- Levels the playing field for U.S. companies which will enjoy
tariff-free access into Peru;
- Reduces sanitary and phytosanitary (SPS) barriers to agricultural
trade;
- Provides new market access for U.S. consumer and industrial
products such as machinery and agriculture goods;
- Liberalizes the services sectors;
- Provides unprecedented, non-discriminatory access to government
procurement and the telecom market;
- Opens the Peruvian market to remanufactured goods;
- Protects U.S. investments through a more secure and predictable
legal framework that provides equal footing with locals;
- Creates new, transparent dispute settlement mechanisms;
- Strengthens protections for U.S. patents, trademarks, and trade
secrets, and e-commerce;

SIPDIS
- Improves customs facilitation;

- Addresses government transparency and corruption, worker rights,
and protection of the environment; and
- Includes express shipment provisions that benefit courier and
express delivery companies (unique to PTPA).

Post will closely monitor the implementation of the agreement in
Peru, and will continue to inform U.S. businesses of the
opportunities and protections it creates.

3. (U) Following are post's responses to reftel questions:

A) Embassy Peru has Economic, Foreign Commercial Service (FCS) and
USDA (both FAS and APHIS) sections, as well as a USAID mission that
manages key trade-related programs. Our Public Affairs efforts have
also focused on trade and investment disputes, and on explaining the
provisions of the trade agreements. The Ambassador chairs weekly
meetings of these sections to share information and to coordinate
action.

B) Contact at Post: Economic Counselor Adam Shub,
011-51-1-618-2413, shubam@state.gov. The FCS Counselor is Margaret
Hanson-Muse, 011-51-1-618-2442, mhansonm@mail.doc.gov. The FAS
Counselor is Eugene Philhower, 011-51-1-6180-2650,
eugene.philhower@usda.gov.

C) The Commercial Service files reports via the Advocacy Center and
Trade Compliance databases and convenes Compliance working groups
that include USTR, MAC, PTO, and DHS representatives. The Economic
Section reports by cable and through the State Department's Bureaus
of Western Hemisphere Affairs (WHA) and Economic and Business
Affairs (EB). USDA reports to both FAS and APHIS/IS.

Here are a few of the success stories recently reported to EB and
FCS:

Date Resolved: July 2006 (LIMA 2942)
Company: Le Tourneau Company
Issue: GOP paid Le Tourneau for road construction services rendered
between 1954 and 1968 by granting the company land. The military
government subsequently expropriated the land, so Le Tourneau filed
suit in 1970. After 35 years of haggling over value, GOP paid Le
Tourneau a $10 million settlement on July 26, 2006, plus committed
to pay $400k interest in August 2006.
Specific Actions Taken: Embassy and USTR advocacy, September 2002
ATPDEA commitment, FTA pressure. Ray Le Tourneau wrote that outcome
would have been impossible without Embassy and USTR.

Date Resolved: June 2006 (LIMA 2529)
Company: Pfizer
Issue: In 2002, Pfizer filed a patent infringement case against an
Indian company illegally copying its Lipitor patent. After a
four-year battle, the GOP IPR agency issued two decisions in June
2006 in favor of Pfizer. The Indian company can no longer sell its
copy and was fined $8,500.
Specific Actions Taken: Embassy and USPTO assisted Pfizer in 2005
when it encountered difficulties with its patent defense.

Date Resolved: June 2006
Company: Exxon Mobil
Issue: SUNAT (tax authority) announced in October 2004 that it was
levying taxes for fuel supplied to outbound international carriers
and would be collecting these taxes on sales (IVG) for the past four
years. For Exxon, these back taxes amounted to $15 million. The
GOP, in an effort to resolve the problem, passed a new tax law in
January 2005 that classified future sales of fuel for international
transport (air and sea) as exports, exempting the sales from IVG.
The law, however, failed to make the tax exemption retroactive. To
rectify the situation, the Ministry of Finance drafted two bills,
which were passed by Congress on October 6, 2005 and published
November 18, 2005, that allowed for retroactive credit of the back
taxes. This allowed Exxon to recoup over three years its previously
paid fuel taxes ($15 million) as a credit for future taxes.
Specific Actions Taken: Continuous advocacy by Embassy since
November 2004 (with SUNAT, USTR, Peruvian Congress, Ministry of
Finance, and Prime Minister).

Date Resolved: January 2006
Company: Parsons Brinckerhoff, Inc. /Parsons Engineering Science
/CESEL
Company Headquarters: Pasadena, CA
Issue: Parsons (CESEL in Peru) did not receive payment for potable
water/waste work done for the state-run Sanitary Sector Reform
Assistance Program (PARSSA). Parsons initiated arbitration in June
2001; in March 2004, the arbitration panel found in favor of Parsons
and ordered PARSSA to pay approximately $1.5 million (plus
interest); PARSSA and the Housing Ministry unsuccessfully appealed
twice. Parsons received a $1.9 million partial payment for its
arbitration award in December 2005, and a second payment of $600,000
in January 2006.
Specific Actions Taken: Embassy counseling began July 2004. Embassy
met with CESEL to develop and pursue advocacy strategy, including
meetings with Vice Minister and letters to Minister from Embassy.
Post and USTR raised case during FTA negotiations.

Date Resolved: December 2005
Company: Scientific Games
Company Headquarters: New York, NY
Issue: Formed consortium in Peru employing 600 handicapped
Peruvians, and providing revenue to handicapped associations and the
GOP. Scientific Games requested post assistance July 1, 2005 in
saving its $30m investment in the Peruvian lottery system, as a
competitor had introduced a law headed for approval that would have
changed the legal framework under which the investment had been made
and forced Scientific Games out of business. The President of Peru
vetoed the bill on July 6, 2005. Competitor again introduced
problematic bill in December 2005; bill died in committee, and a
version introduced by Scientific Games was passed.
Specific Actions Taken: Post delivered letter to and discussed issue
with President of Peru on July 5, who then vetoed the bill. Post
counseled Scientific Games on countering competitor's second attempt
and contacted Ministry of Economy & Finance.

Ongoing compliance issue:

Peru's Customs (SUNAT) doesn't live up to its WTO commitments
because it continues to use reference pricing rather than accepting
invoices for valuation purposes. Customs officials confuse
objectivity with literal interpretation and do not apply "good
faith" principles. Scale and proportionality are not applied when
determining penalties, resulting in severe distortions that
sometimes force companies into total bankruptcy.

D) The Ambassador is very active with the business community in all
sectors and serves as the honorary chair of the large American
Chamber of Commerce in Peru. Economic and Commercial Counselors are
also honorary members of the AmCham. Post has an open door policy
for U.S. businesses, and enjoys excellent working relationships with
in-country representatives. At the working level, we meet regularly
with the relevant ministries and regulatory agencies. The Embassy
has hosted training programs in compliance, monitoring and
standards, and has sent numerous officials from the Peruvian
customs, IPR, judiciary, police, and prosecutor's offices to
training and conferences in the U.S. and elsewhere. FCS supported
TDA grants to GOP telecommunications entities designed to strengthen
the regulatory framework, improve transparency and provide greater
access and lower operating costs for SMEs.
STRUBLE

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