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Cablegate: Sri Lanka Tifa Talks Take Incremental Steps Toward

VZCZCXRO7824
OO RUEHBI RUEHCI RUEHPW
DE RUEHLM #0985/01 2960542
ZNR UUUUU ZZH
O 230542Z OCT 09
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0679
INFO RUEHNE/AMEMBASSY NEW DELHI 3407
RUEHIL/AMEMBASSY ISLAMABAD 9022
RUEHKA/AMEMBASSY DHAKA 1986
RUEHKT/AMEMBASSY KATHMANDU 7260
RUEHBI/AMCONSUL MUMBAI 6879
RUEHCI/AMCONSUL KOLKATA 0441
RUEHPW/AMCONSUL PESHAWAR 0369
RUEHKP/AMCONSUL KARACHI 2551
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 03 COLOMBO 000985

SENSITIVE

SIPDIS

STATE PASS TO USTR

AGRICULTURE PASS TO FAS

COMMERCE PASS TO USPTO

E.O. 12958: DECL: 10/23/2019
TAGS: ECON ETRD EAGR EINV ELAB KIPR KTEX CE
SUBJECT: Sri Lanka TIFA Talks Take Incremental Steps Toward
Resolving Issues

SUMMARY

1. (SBU) The United States and Sri Lanka held their seventh annual
Trade and Investment Framework Agreement (TIFA) talks in Colombo on
October 15, which resulted in incremental advances but no
breakthroughs. The TIFA talks covered agricultural and government
procurement issues, progress in the Doha round trade negotiations,
Sri Lankan proposals for textile preferences, IPR, Sri Lanka's
investment climate, and requests for technical assistance. The TIFA
talks were held in conjunction with a trade mission to Sri Lanka and
a training program on the Generalized System of Preferences (GSP).
Sri Lankan Minister of Export Development and International Trade
G.L. Peiris led the Sri Lankan delegation, and their primary
requests were for trade preferences for the country's war-affected
northern and eastern provinces and for USG technical assistance.

2. (SBU) The Government of Sri Lanka offered updates on outstanding
trade issues, including efforts to bring import tariffs and taxes
into international compliance, a public awareness campaign on
intellectual property rights, government procurement, and actions
taken in certain labor rights cases. The U.S. delegation, headed by
Assistant U.S. Trade Representative (AUSTR) for South and Central
Asia Michael Delaney, noted that any new trade preference
considerations would need to be a part of the upcoming broader USG
trade preference review. The U.S. side raised concerns over several
agricultural issues and pressed for the GSL to follow WTO
notification procedures when making changes to trade-related
regulations. Both parties agreed there is significant room for
expansion in overall bilateral trade, currently at $2 billion
annually.

SRI LANKA REQUESTS TRADE PREFERENCE AND TECHNICAL ASSISTANCE

3. (SBU) Inspired by the proposed Reconstruction Opportunity Zones
(ROZ) for Afghanistan and Pakistan, the Government of Sri Lanka
(GSL) requested trade preference consideration for its war-damaged
northern and eastern provinces to spur economic development now that
the 26-year civil war has ended. The proposed preference program
would focus on the garment sector, which the GSL argues would
contribute to employment for internally displaced persons (IDPs)
after they are resettled. Sri Lanka's Joint Apparel Association
Forum also made a pitch for ROZ's, noting that several apparel
factories have moved to the East but there is the potential for much
more. The GSL also expressed concern over trade preference erosion
and a hope that the WTO's Doha round, from which Sri Lanka expects
significant benefits, will conclude soon.

4. (SBU) AUSTR Delaney explained that the United States would like
to help foster economic development for the northern and eastern
parts of the island, but that any new preference programs were
unlikely to be established outside of the expected USG trade
preference review or the Doha round. In meetings on the margins
with the GSL and private industry, econoff explained the difficulty
of approval for ROZs, which they understood.

5. (U) In the 2008 TIFA talks, the GSL requested training on the
GSP program. Marideth Sandler, USTR's executive director of the GSP
program, fulfilled the USG commitment: she came to Colombo, holding
a seminar and numerous meetings with private industry to provide a
detailed roadmap how to receive GSP tariff benefits. The GSL
expressed extensive appreciation for the GSP training.

6. (SBU) The GSL also requested USG technical assistance on
agricultural packaging and Food and Drug Administration labeling
requirements. The GSL is interested in designating "Ceylon" tea as
an exclusive geographic indication, and further intellectual
property training would assist police and customs officials.

LABOR ACTIONS AND PLANS

7. (SBU) The GSL has made some advances on labor issues. The GSL
handed over to USTR a report of actions taken in several of the
labor rights cases outlined in the AFL-CIO's petition to revoke Sri
Lanka's GSP benefits. A representative from the Ministry of Labor

COLOMBO 00000985 002 OF 003


Relations and Manpower said that the GSL, in conjunction with local
trade and labor unions, is developing an action plan for compliance
with International Labor Organization (ILO) standards. The GSL
expects formal approval of the action plan by the end of October.
Post will meet further with the ILO, unions and the government to
assess Sri Lanka's progress on labor rights.

INVESTMENT CLIMATE: TARIFFS, TAXES, AND GOVERNMENT PROCUREMENT

8. (SBU) In response to U.S. business concerns that combined
tariffs, levies and taxes greatly exceed Sri Lanka's bound rates for
many imports, the GSL explained that it had established a
Presidential Tariff Commission to simplify its tax and tariff
structure and to bring it into compliance with international
agreements. The Presidential Tax Commission, which is scheduled to
issue its report in several months, also seeks to meet the IMF
target of raising tax collection by 2% of GDP by 2011. The GSL
outlined improvements in the transparency of its government
procurement process, including an appeal process and expanded use of
the court system. The USG noted its concern that the GSL had
eliminated its government procurement agency. Finally, the GSL has
no plans to join the WTO Government Procurement Agreement beyond its
current observer status.

INTELLECTUAL PROPERTY: SEVERAL STEPS FORWARD

9. (SBU) As agreed in the 2008 TIFA talks, the USG has sponsored
several training programs on IPR, including with judges and customs
officials. The GSL described its public awareness campaign to
promote intellectual property rights, including programs for
prosecutors and magistrates and TV shows for the general public.
The GSL is also drafting laws for the protection of plant varieties
and traditional knowledge. The GSL is currently accepting comments
on the traditional knowledge law, which the U.S. Patent and
Trademark Office has provided. The GSL's Customs recordation system
has been completed but technical difficulties prevent Customs and
the National Intellectual Property Office (NIPO, under the Ministry
of Commerce) from sharing data. They hope to have a workaround
within months. The NIPO Director General has offered to follow-up
with specific dates. On software piracy, which is rampant even in
government offices, NIPO has sent letters to other government
agencies explaining the need to use properly licensed software. The
U.S. side noted industry's stated interest in negotiating
concessional pricing for government agencies that convert to
legitimate software. The GOSL described a three-step software
piracy program (education, warning, and arrest) that its police
officers had started in two large cities. Post will investigate and
report on whether real progress is being made on these IPR issues.


AGRICULTURE - AGREE TO DISAGREE AND KEEP TALKING

10. (SBU) The TIFA talks offered little progress on several
agricultural concerns, though the two sides agreed to continue
technical-level discussions. USDA representative Thom Wright
explained that there was no justification for Sri Lanka to continue
its ban against U.S. beef exports now that the mad cow problem is
under control. Minister Peiris pushed his technical experts to make
some movement to open the market. Both sides realized that there is
an extremely limited commercial market for U.S. beef, but the USG
would like to see movement from Sri Lanka as a gesture that it was
taking its commitments to the WTO and the World Organization for
Animal Health seriously.

11. (SBU) On chicken, the GSL admitted that it intends to protect
local chicken farmers by limiting import licenses, but felt these
measures are justified through a WTO safeguard mechanism. AUSTR
Delaney responded that if this is the case, then Sri Lanka must
actually notify the WTO of this position and register the safeguard
through formal channels. Additionally, Director General for Animal
Production and Health Herath pointed out that on a commercial level,
the chicken issue is insignificant because an exception is made for
hotels, restaurants and airlines. When pushed to explain how an
importer could go about obtaining an import license to service these

COLOMBO 00000985 003 OF 003


markets, Dr. Herath was unclear.

12. (SBU) The GSL showed little flexibility in its bias against
genetically modified (GM) food products. USDA asserted that their
technical committee for approving imports of GM products lacked the
technical capacity to carry out risk assessments, resulting in Sri
Lanka's de facto denial of permission for GM grain imports. GSL
replied that in the example incident cited (a cancelled GM corn
shipment), the shipment was refused on the basis of an incomplete
application. On the issue of mandatory GM labeling, the Ministry of
Health cited the precautionary principle and stated that consumers
have a right to know. The Ministry of Health further pointed out
that they would follow CODEX guidelines on GM food labeling, and
noted that CODEX had not yet ruled on this matter. Both Minister
Peiris and Director General of Commerce Senadhira were concerned by
the fact that, if fully implemented, 50%-80% of agricultural imports
from the United States would stop. Sri Lankan GM regulatory
officials did not appear concerned by this.

13. (SBU) The GSL promised to provide its regulations and
procedures for meat imports, including microbiological testing, in
writing. The GSL also promised to collaborate with USDA to look
further into the new prohibition on artificial beverage flavorings.
The U.S. delegation emphasized that all agricultural import
procedures and protection of local industries by a developing
country must be undertaken in line with international agreements
which require notification of trading partners.

PROGRESS ON SEVERAL BUSINESS DISPUTES

14. (SBU) USTR officials raised two U.S. corporate business issues
with the GSL. In one case, USTR requested Minister Peiris to ask
the Ceylon Electricity Board to bring payments to AES current and to
issue the remaining balance on the lines of credit. A CEB official
disagreed with the status of the AES accounts, including the lines
of credit, and indicated that they were both current. USTR said
that there is a difference of opinion between CEB and AES officials
with regard to accounting issues and asked that the two sides
reconcile the differences and resolve the matter. Minister Peiris
asked the CEB official to look into the matter and resolve it.
Regarding the second issue, AUSTR Delaney relayed Coca Cola's
concerns regarding the ban on coloring ingredients used in drinks,
particularly coloring in orange drinks. This ban has dampened Coca
Cola's interest in expanding its investment in Sri Lanka. Delaney
said that the ingredient is allowed in over 100 countries but not in
Sri Lanka. The U.S. contingent asked the GSL to comply with
international standards when making decisions on such matters. GSL
indicated that they would look into this matter and get back with
us.

COMMENT

15. (SBU) While the TIFA talks did not lead to any dramatic
breakthroughs, the U.S. delegation made clear that a number of areas
hinder U.S. investment and bilateral trade between the two
countries. During the post-conflict period, and amid ongoing
tensions on critical political issues, the TIFA talks (and other
TIFA-related opportunities throughout the week) provided an
opportunity to demonstrate interest in enhanced bilateral relations.
Post will follow up with the GSL to encourage adherence to the IPR
regime, liberalize agricultural imports, and improve transparency in
government procurement. End Comment.

BUTENIS

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