SMOOTH SAILING AS DUSTR SHINER LEADS THIRD ROUND

C O N F I D E N T I A L SECTION 01 OF 04 COLOMBO 001836

SIPDIS

DEPT PLEASE PASS TO E, EB, SA/INS, SA/RA, DRL, USAID FOR
BERNADETTE BUNDY - ANE/SA, USTR FOR AUSTR WILLS; TREASURY
FOR ROY ADKINS; DOL FOR SUDHA HALEY; NSC FOR ELIZABETH
MILLARD; COMMERCE FOR ARIADNE BENAISSA

E.O. 12958: DECL: ONE YEAR AFTER CONCLUSION OF US-SL FTA
TAGS: ETRD EAID ECON EFIN KIPR ELAB PREL CE
SUBJECT: SMOOTH SAILING AS DUSTR SHINER LEADS THIRD ROUND
OF SRI LANKA TIFA TALKS



1. (U) Classified by Amb. Jeffrey J. Lunstead. Reasons 1.5
(b,d).


2. (C) Summary: The GSL's assertive international trade
policy to generate growth and become a leader in the South
Asia region and broader developing world earned kudos from
the USTR delegation during the third round of TIFA talks.
The country's supportive stance in Cancun was praised, and
only minor issues were identified for further bilateral
action. On a potential FTA, the GSL learned more about the
USG process and persistently pressed its case. The USG
side emphasized no decision had been made yet and much
preparatory work would be needed before any decision. End
Summary.


3. (U) DUSTR Josette Shiner, AUSTR Ashley Wills, USTR
Special Negotiator David Spooner, USTR Special Advisor
Christopher Moore, DoS Desk Office Jim Waller, EB Trade
Affairs Officer Jeff Beller, accompanied by Ambassador
Lunstead, DCM and Econoffs, attended the third round of
Trade and Investment Framework Agreement (TIFA) talks at
Temple Trees, the Prime Minister's residence/office on Oct.

14.


4. (C) Prime Minister Wickremesinghe opened the talks by
noting his government's priorities: an environment for
people to prosper and grow, peace through negotiations,
jobs and overall development. Growth would be accomplished
through a transformation of the economy though
liberalization, restructuring, and open markets. Sri Lanka
would become a leader in South Asia. DUSTR Shiner noted
the importance of the bilateral trade relationship, and
expressed appreciation for Sri Lanka's positive actions in
Cancun.

Peace Process
--------------

5. (C) The primary accomplishment in the peace process,
Minister and Chief Negotiator GL Peiris noted, was the
paradigm shift in the LTTE's view that it was no longer
necessary to fight or secede, that a political solution
could be found and that it would accept devolution under a
federal power sharing structure. Ceasefire violations
continue, however, and critics charge that the government
is giving legitimacy to a terrorist organization. The
LTTE's counterproposal on an Interim Administration is
expected by the end of the month and another round of talks
may take place before the end of the year. Investors
should not wait until a final settlement he said, as the
process may take up to 1 1/2 or 2 years and the environment
is conducive to business now.

Economic Reforms
--------------

6. (C) The Prime Minister shared his vision of Sri Lanka as
a platform for value addition, a logistics hub, a services
base, a business center and as a gateway to India and the
region. Immediate plans include a new exchange control
law, revenue collection adjustments, structural and
institutional reform, tax reductions, skills training and
financial sector reform. Sri Lanka should strengthen the
services sector, he said, and match capital intensive
manufacturing and technology with skilled workers to
compete in the future. Two bilateral agreements are key to
the GSL strategy - the Economic Cooperation Agreement with
India and an FTA with the US. He noted that Sri Lanka's
liberalization and restructuring may force India (and the
region) to liberalize faster, and the consequent income
rise and market opening there would benefit Sri Lanka. The
PM added that an FTA with Singapore should be concluded by
mid year.


7. (C) Implementation of reforms was the key now, continued
the PM, and he had created public/private steering
committees to address barriers. Areas he identified for
continuing reforms and development include privatization,
labor, productivity, ports, English language and IT
training, and tourism. He mentioned the sectors Sri Lanka
has identified to diversify the economy, i.e., rubber, gems
and jewelry, ceramics, confectioneries, high value
agriculture, printing and machinery components. We are
moving into a world, he said, where nations don't compete,
firms do. Amb. Shiner noted that, around the world,
transparency is essential, especially in government
procurement. The PM said his priority the first two years
of his Administration was to get the economy going, and now
the government is working on transparency issues with new
legislation and efforts to reduce delays.

WTO
---

8. (C) While acknowledging the importance of bilateral
agreements, PM Wickremesinghe said that multilateral
agreements are important to gain access to other markets.
He noted the GSL's willingness to consult on trade
facilitation, investment, agriculture, and competition, and
thought the U.S. and Sri Lanka were on the same frequency.
Sri Lanka took the supportive stand in Cancun in its own
interest, but many other nations will be watching to see
what happens after the GSL decided not to join with the G-

22. We made some tough decisions, said the PM, and don't
want to be isolated.


9. (C) Regarding international trade, the PM said Sri Lanka
intends to be the "gold standard" in South Asia. Through
bilateral and multilateral agreements, trading partners
could gain access not only to the Sri Lankan market of 19
million people, but also to the billion-plus in India. The
PM added that it is easier and cheaper to do business in
Sri Lanka than in India. He also highlighted Sri Lanka's
commitment for Colombo to become the first US Customs
Container Security Initiative port in South Asia.


10. (C) Amb. Shiner described US desire to get WTO back on
track but conditions are not right to move ahead now. The
opportunity was lost in Cancun, she said, by those not
ready to negotiate. She praised Sri Lanka's courageous
stand at WTO and relayed that many in the US had taken
note. The PM said the GSL is already lobbying other
countries to take a similar stand. Amb. Lunstead asked
about a backlash from India following Cancun, and the PM
replied that the Prime Ministers and Commerce Ministers had
spoken, and the Indian side understood that the two
economies are different, and it didn't mean that Sri Lanka
was against any regional agreement. The PM said that Sri
Lanka would open two or three agricultural sectors to show
it is possible for developing countries to open
controversial sectors successfully. With rice, it could be
a model for India, since it had the same issues. We need
to modernize and liberalize the small farmer, he said, to
become competitive, create jobs and get people off the
land.

India
--------------

11. (C) A discussion about India followed with the PM
noting that upcoming elections would cause problems moving
ahead. Amb. Shiner said the US would like to see India as
a counterweight to China's aggressive trading approach.
The PM mentioned plans for cooperation with Tamil Nadu, and
said the Indian government would not mind. He said if the
BJP had the same or more numbers in the upcoming elections,
they may open up in certain sectors -- a lot depends on the
rural areas. India's main fear, according to the PM is
that, if they open up, there would be no reciprocity, and
what then would happen to their farmers? Amb. Shiner
reiterated USTR Zoellick's stance that finding solutions to
each country's political concerns is necessary for
negotiations to be successful.

Potential FTA
--------------

12. (C) Amb. Shiner said the GSL's interest in an FTA was
noted, as were its constructive actions. The TIFA process
has been successful in identifying and resolving trade and
investment questions, and should continue, she said. She
recognized the government's extensive work pushing reform
and addressing outstanding issues. She said that work
would have to be done before any decision could be made.
As next steps, she suggested government-to-government
dialogue on some important issues, such as IPR, labor,
government procurement and IT tariffs. Amb. Shiner noted
that any steps taken by the GSL in pursuing reforms would
benefit the nation as well as make it a stronger, more
attractive trading partner for the US.


13. (C) The PM reiterated that an FTA with the U.S. was a
pillar of the country's economic strategy and it would
support the peace efforts through economic opportunities
and growth. Sri Lanka's Ambassador to the US, Davinda
Subasinghe, noted that the GSL had reviewed the Chile and
Singapore FTAs and were comfortable with what would be
required. That exercise had helped to map out next steps
and bolster the ambitious reform agenda. He said that work
had already begun to address issues such as transparency,
investor support and business facilitation. The GSL
planned to continue its cooperation with the U.S. on
multilateral issues, he added.


14. (C) Describing the decision making process and steps
necessary for a country to be considered as an FTA
candidate, Amb. Shiner said it was important that key
players in the U.S., including Congress, labor and others,
were consulted and supportive of an FTA with Sri Lanka
before a decision could be made. This visit provided the
opportunity for USTR to learn more about Sri Lanka and
consult on further cooperation. She promised to brief the
Administration, Congress and industry on her return and
discuss her favorable assessment of Sri Lanka's potential.
She suggested Sri Lanka could send a delegation to the U.S.
to show big U.S. sectors, such as the yarn/textile
industry, that there could be benefits for them from an
FTA.


15. (C) Comment: The PM's vow to leave no stone unturned in
pursuing an FTA with the US was evident in this TIFA round.
The meeting was extremely helpful in clarifying for the GSL
that a decision to negotiate an FTA is still some way off,
that the U.S. would need to see some potential benefits,
and that the GSL could take steps to define potential
opposition to an FTA. The PM hosted the meeting, taking
over from Commerce Minister Karunanayake, and committed to
continue GSL cooperation with the US.


16. (C) Criticized by developing countries for breaking
ranks, the PM said, "We were never in the ranks." He seems
to have a clear vision of what is necessary to generate the
8-10% growth necessary to move the country into prosperity
and out of the shadow of war, and has moved in determined
fashion to get there. Aligning with the U.S. is a keystone
of that strategy. End comment.


17. This cable has not been cleared by DUSTR Shiner.

Minimize considered.

Lunstead