PRESIDENT PORTILLO DISCUSSES CAFTA, PEACE ACCORDS,

C O N F I D E N T I A L SECTION 01 OF 03 GUATEMALA 001299

SIPDIS

HARRARE FOR BRUCE WHARTON

E.O. 12958: DECL: 05/16/2013
TAGS: PREL PGOV ETRD SNAR PHUM KDEM EAID ELAB GT
SUBJECT: PRESIDENT PORTILLO DISCUSSES CAFTA, PEACE ACCORDS,
COUNTER-NARCOTICS COOPERATION AND LABOR RIGHTS


Classified By: PolCouns David Lindwall for reason 1.5 (b) and (d).


1. (C) Summary: In a May 14 breakfast at the Ambassador's
residence with visiting senior USG officials, President
Portillo expressed hope for the prompt conclusion of a free
trade agreement with the U.S. which, he said, "will transform
Guatemala;" said that in his remaining months in office he
would seek Congressional passage of laws implementing the
peace accords in order to "ensure the accords remain a
priority for the next government" and prevent a new
administration from rolling back reforms; and noted that he
hoped Guatemala's increased counter-narcotics cooperation
would lead to an early USG decision to "re-certify" to reduce
the chances that this issue would influence the upcoming
national elections. Portillo and Minister of Finance Weymann
spoke of the need for constitutional reform in order to
modernize tax laws and implement many elements of the peace
accords. The Ambassador and senior Washington visitors told
Portillo that, through trade capacity building programs, we
will help the GOG prepare their most disadvantaged economic
sectors to participate effectively in CAFTA; stressed the
importance of making concrete advances in implementation of
the peace accords in the next eight months; and expressed
hope that the GOG would initial a maritime counter-narcotics
cooperation agreement in the next few days, increasing the
likelihood of an early inter-agency review of Guatemala's
decertification as a cooperating partner in the war on drugs.
The meeting was cordial and reaffirmed President Portillo's
desire to advance issues of interest to us in the remaining
months of his presidency. End summary.


2. (SBU) On May 14, the Ambassador hosted a breakfast at the
Residence for visiting USG officials to discuss CAFTA, Peace
Accord implementation, counter-narcotics cooperation and
labor rights with President Alfonso Portillo. Portillo was
accompanied by Minister of Foreign Affairs Edgar Gutierrez
and Minister of Finance Eduardo Weymann. The Ambassador was
accompanied by Assistant USTR Regina Vargo, USAID Assistant
Administrator for LAC Adolfo Franco, Deputy Assistant
Secretary of State for INL Deborah McCarthy, Acting Deputy

SIPDIS
Undersecretary of Labor Jorge Perez-Lopez, WHA/CEN Guatemala
Desk Officer Brian Wilson, Acting USAID Guatemala Director
Deborah Kennedy-Iraheta, EconCouns Steve Olson, and PolCouns
David Lindwall (notetaker).

Bullish on Free Trade
--------------

3. (C) President Portillo opened the meeting by saying his
government believes a free trade agreement with the United
States will transform Guatemala, not only by creating jobs
and generating economic growth, but also by modernizing and
opening up the economy. Portillo said he expects Guatemala's
Congress to overwhelmingly approve the final agreement,
noting that "only a handful of legislators from the left"
will oppose it. He noted that some in the private sector and
civil society will oppose CAFTA based on their own parochial
interests and fundamental misunderstandings of how it will
work, but said that opposition will not be significant.
Portillo noted that it will be important to work with sectors
of the economy that will be disadvantaged by CAFTA --
specifically mentioning small farmers -- to prepare them to
better compete. He acknowledged that CAFTA will not
transform Guatemala overnight, but heralded it as the best
hope for bringing Guatemala's economy into the 21st century.
Foreign Minister Gutierrez added that CAFTA will break the
monopolies that have long dominated Guatemala's economy.


4. (C) USAID Franco said that the USG is prepared to help
disadvantaged sectors of the Central American economies
prepare for CAFTA, and has established a fund for trade
capacity building focused largely on small enterprise and the
rural sector. He added that USAID is currently working in
Guatemala on agricultural diversification in response to the
coffee crisis. He noted that the success of CAFTA would
depend to a large extent on GOG actions to increase
transparency and to improve the administration of justice.
USTR Vargo commented that customs rules in Central America
need to be uniform and transparent in order for Central
American economic integration to also benefit from CAFTA.
Finance Minister Weymann acknowledged that Guatemala's
customs procedures are in great need of reform, and blamed
the zeal of the tax authority (SAT) for much of the current
lack of transparency in customs operations (Comment: Weymann
has recently been trying to distance himself from the SAT,
which reports to him. He appears to be signalling that Vice
President Reyes, not he, is the one who condones some of the
SAT's heavy handed tactics. End comment). President Portillo
interjected that despite major reforms in customs, tax
evasion at the port of entry is still on the order of 45%.
Minister Weymann said that, in terms of USG trade capacity
building programs, he believes reforming the way Central
Americans market their products is just as important as
modernizing production.

Using the Consultative Group to Move Peace Process Forward
-------------- --------------

5. (C) The Ambassador told President Portillo that we have
firm expectations that the Consultative Group Meeting (which
met in Guatemala on May 13-14) would lead to a GOG plan of
concrete actions which would implement many remaining Peace
Accord commitments during the last eight months of the
Portillo Administration. The Ambassador praised the IDB's
leadership of the meetings, and said we would consider the CG
a success if it produced a package of specific areas for
short-term compliance. He expressed disappointment that the
political parties had used their fifteen minutes at the CG to
attack the government, but did not offer a vision on how they
would implement the accords, leaving the impression that the
political parties are not making peace accord implementation
an important component of their electoral platforms.


6. (C) Foreign Minister Gutierrez blamed civil society and
the opposition for "self-fulfilling prophecies of failure" of
the accords, noting that both played an important role in
implementing the accords. He said that the Portillo
Government's big challenge in its remaining months was
ensuring that peace accord implementation "survives the
transition to a new government." President Portillo said
that he had implemented many of the accords through
presidential decrees, which could easily be undone by a new
government. He intends to consolidate much of the
implementation to date by having Congress pass laws
implementing the reforms, making it more difficult for a new
government to change them. Minister of Finance Weymann
commented that it is particularly important to resume
implementation of the fiscal pact, noting that several of the
candidates in the upcoming election are already talking about
dropping taxes in possible violation of the peace accord
commitment to raise tax revenue to 12% of GDP.


7. (C) President Portillo launched into an impassioned
defense of the need for constitutional reform, saying that
the current constitution had been "made to order" by the
different interest groups that held sway at the time of its
drafting (1985). He said constitutional provisions affecting
financial and fiscal laws stand in the way of genuine
economic reform and create a drag on implementing the peace
accords. In response to questions regarding what mechanism
he would use to reform the constitution (i.e. through a vote
in Congress, ratified by a national referendum or by a
constituent assembly),Portillo said that previous attempts
to reform the constitution by Congress had been voted down
when submitted to a national referendum. Therefore, he
believes the only way to achieve constitutional reform is
through a constituent assembly. He acknowledged that opening
up the whole constitution for reform, as would happen if a
constituent assembly were convoked, had its perils, but said
he is considering calling for a constituent assembly to meet
after the first round of elections (November 9, 2003) to
minimize potential politicization (Note: Guatemala's
constitution requires that Congress convoke constituent
assemblies by a two-thirds majority vote, a virtual
impossibility without significant consensus among all
parties. End note).

The Path Ahead on Counter-Narcotics Cooperation
-------------- --

8. (C) INL DAS McCarthy said that recent improvements in GOG
counter-narcotics cooperation were encouraging, and said that
the U.S. would look to Guatemala to initial a maritime
counter-narcotics cooperation agreement before we would
consider proposing an early decision on "re-certifying"
Guatemala. Foreign Minister Gutierrez acknowledged the
importance of a maritime agreement, and said his Ministry had
provided a counter-proposal to us "in record time." He
welcomes our comments on their counterproposal and said the
GOG hopes to initial an agreement with us "very soon."
Gutierrez said that re-certifying Guatemala early (before the
normal September review) would reduce the impact of the
decision on the November presidential elections, and would be
healthy for all sides. DAS McCarthy noted that the interests
of the different USG agencies that weigh-in on certification
decisions are very diverse, and urged the Guatemalans to
sustain counter-narcotics performance in all areas if they
want an early review of their certification status.


9. (C) The Ambassador said that we were pleased with the
Castillo extradition, but that other extradition requests are
pending that could be moved forward by the GOG. He noted
that the Attorney General's office is cooperating with an
extensive request by DOJ for evidence in a recent money
laundering case in which cash was seized in Guatemala, and
that completing that request is very important to us. He
added that we remain interested in seeing the Attorney
General's office assign greater personnel resources to their
money laundering unit, and said that cooperation between that
unit and bank supervisors is still inadequate. The
Ambassador noted, however, that we have been pleased with the
passage of asset forfeiture legislation, the increase in
cocaine seizures, the burning of stored drugs used for
evidence in old cases and other progress in counter-narcotics
cooperation. President Portillo said "you will see new
progress in the next week!"

New Steps on Labor Reform
--------------

10. (C) DOL Jorge Perez-Lopez told President Portillo that he
had met at length with Minister of Labor Victor Moreira on
May 13 and was pleased with the recent establishment of a
bilateral working group on labor rights, formed at the
Ambassador's suggestion in the context of a GSP labor rights
review. He said the USG views this as an important mechanism
for continuing dialogue on this critical issue that has
implications for human rights and free trade. President
Portillo recounted his government's actions in promoting
labor rights, and the opposition these had generated on the
part of the private sector. He said that he intends to
promote further reforms in his remaining months in office,
including one aimed specifically at reducing the time labor
courts can consider a case from the current two years down to
six months.

Comment
--------------

11. (C) President Portillo clearly appreciated the chance to
meet with visiting senior USG officials, and to articulate
his vision for progress on the bilateral agenda in the
remaining months of his presidency. He has made conclusion
of a free trade agreement with us and regaining certification
as a cooperating partner in the war on drugs a high priority,
but provided little indication that peace accord
implementation would see much concrete progress in coming
months. We will continue to press Portillo to not let the
election campaign distract him from the full range of issues
on our bilateral agenda.


12. (C) The cable was not cleared by visiting USTR, USAID,
DOS and DOL officials prior to their departure from post.
HAMILTON