DOMINICAN REPUBLIC: USTR ZOELLICK LAUNCHES FTA

UNCLAS SECTION 01 OF 06 SANTO DOMINGO 000483

SIPDIS

SENSITIVE

STATE FOR WHA AND EB
STATE PASS USTR FOR ZOELLICK AND VARGO
STATE PASS AID FOR LAC
NSC FOR SHANNON, MADISON, AND CRUZ
LABOR FOR ILAB
TREASURY FOR OASIA-LAMONICA
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION
USDOC FOR 3134/ITA/USFCS/RD/WH

E.O. 12958: N/A
TAGS: DR ETRD EAID EFIN PGOV PREL OVIP OREP
SUBJECT: DOMINICAN REPUBLIC: USTR ZOELLICK LAUNCHES FTA
NEGOTIATIONS



1. (U) Summary. U.S. Trade Representative Amb. Robert
Zoellick told Dominicans on January 15 that bilateral free
trade agreement (FTA) negotiations offer an opportunity for
new engagement, economic growth and strengthened
institutions. He stressed that an FTA, free and fair
presidential elections and a renewed IMF agreement are the
three essential elements for overcoming the "difficult year"
just past. Amb. Zoellick met President Mejia and his
cabinet, the congressional leadership, civil society
organizations, leading press and media commentators, and
opposition presidential candidates. Congressman Jerry Weller
(R-IL) accompanied the USTR during much of the visit,
providing a perspective on legislative requirements and
prospects. Dominicans generally held the same view as
leading opposition candidate Leonel Fernandez: that no one
was against free trade but the public needed to be better
informed about the negotiations. The first round of
bilateral talks moved forward, with both sides publicly
expressing satisfaction on the technical content and the
cordial relations at the bargaining table. Amb. Zoellick
noted in private meetings that economic growth in the
Dominican Republic would also provide indirect help to the
population of Haiti. End summary.


2. (U) U.S. Trade Representative Robert Zoellick carried out
a full program in Santo Domingo on January 15 to launch the
negotiations between the Dominican Republic and the United
States on a free trade agreement. The Ambassador, DCM, and
chief negotiator Assistant USTR Regina Vargo accompanied him
throughout the program. At the presidential palace, after
conferring briefly with lead Dominican negotiator Secretary
of Industry and Commerce Sonia Guzman, he participated in a
full discussion with President Mejia and his economic
cabinet. Following a press opportunity there, he called on
congressional leaders at the Senate president's office and
spoke with business leaders at a luncheon offered by the
Ambassador. The USTR party visited the new, modern container
port at nearby Caucedo (an investment in cooperation with
U.S. firm CSX) and then went to the Catholic University
(PUCMM) for exchanges with non-governmental organizations
representing civil society and small and medium enterprises.
Amb. Zoellick concluded the day with an hour-long press
roundtable with editorialists from leading newspapers and
media outlets. On January 16 he met separately with
opposition presidential candidates Eduardo Estrella (PRSC)
and Leonel Fernandez (PLD) before an early morning departure.


3. (U) USTR Zoellick,s message to all interlocutors
revolved around the same core elements:

- - The U.S. government understands that Dominican Republic
has had a difficult year. The government, Congress and civil
society have had to take hard decisions.

- - There are "three legs" to support the country,s
recovery: free, fair and transparent elections to reinforce
legitimate institutions and to provide a stable base for
relations; a renewed agreement with the IMF to set the
conditions for financial stability; and a free trade
agreement to permit the country to benefit from new
opportunities in international trade.

- - Trade talks are part of a larger bilateral relationship;
the USG wishes to work closely with the GODR on each of the
three elements, including support with the international
financial institutions.

- - As for timing, the Dominican authorities have been
working for almost two years to prepare for these talks. The
U.S. is pleased to offer a partner -- the Dominican Republic
-- a priority place in the U.S. trade agenda.

- - The world is changing and countries that wait will be
disadvantaged. China and India, for example, will not wait.
The expiration of quotas on textiles at the end of 2004 will
directly affect trading opportunities and require innovation
and adjustment.

- - Zoellick and U.S. negotiators want to understand
Dominican needs and sensitivities, so that the sides can
mutually decide how to move ahead. Tools are available,
including safeguard measures and gradual phase-ins. An FTA
should provide benefits for both sides -- beyond those of the
Caribbean Basin Initiative -- and will assure a better
climate for investment and job creation.

- - The text defined for the Central American countries
(CAFTA) builds on those negotiated with Chile and with
Singapore and is comprehensive in scope. U.S. negotiators
anticipated issues of concern to the Dominican Republic and
included them -- one example being the treatment of duty
draw-backs. Special consideration was afforded the Central
American countries in sectors of special sensitivity, with
lengthy phase-in periods -- for dairy, some reached 20 years.

- - The agreement will require governments to adhere to
standards of transparency and procedure that will reinforce a
competitive environment. They will give greater access to
small and medium businesses and will reduce the advantages of
those previously enjoying privileged treatment.

- - Assistance in building trade capacity is essential. It
can be channeled through the USG, through multilateral
development banks, via the sector or through non-governmental
organizations.

- - Regard for labor standards and for environmental
standards is essential and is included in the text. Parties
will undertake to enforce their own laws.

GODR MEETINGS


4. (SBU) President Mejia led the meeting with the GODR
cabinet, breaking protocol to emphasize the importance of the
FTA talks and his personal involvement. Attending along with
Secretary Guzman were Finance Secretary Rafael Calderon,

SIPDIS
Secretary of Foreign Relations Guerrero Prats, Secretary of

SIPDIS
Labor Ray Guevera, Secretary of Environment Moya Pons,
Intellectual Property Commissioner Jorge Mera, Assistant
Governor of the Central Bank Calvo, and Commissioner for
Foreign Investment Galvan. Mejia commented that Dominican
monopolists and oligopolists were pretending that there was
no need to open the economy, a view he found disingenuous.
Mejia said that as the private sector understands the
seriousness of U.S. negotiators, they will understand the
advantages of an agreement.


5. (SBU) President Mejia reaffirmed his "will and iron
position" to complete the IMF agreement and to comply with
what he signs. The President noted that the Fund
preconditions were 90 percent complete. He said that he was
alarmed by the exchange rate, but added that government
policy is for a free market rate, one the government cannot
control. Referring to currency speculation, he commented
that the dollar-earning sectors of the economy do not
understand their social and economic responsibility.


6. (SBU) Central Bank Deputy Governor Calvo said the GODR
needed more time to meet the monetary targets, alleging that
recent developments had hurt the country's ability to comply.
(Note: The Central Bank Governor subsequently sent a letter
to Secretary Snow, which Embassy has forwarded to Treasury,
asking for understanding of the GODR non-compliance with the
reduction in monetary base.) Calvo also raised the topic of
dollarization of the economy (apparently without prior
coordination),stating that studies suggest that this might
be feasible. USTR Zoellick asked whether this topic had been
raised at the OAS special summit in Monterrey on January
12-13.


7. (SBU) Mejia indicated that he had participated in a
20-minute meeting with Secretary of State Powell, during
which President Bush had stopped in to greet presidents.
Mejia told USTR Zoellick that fifteen minutes of that meeting
had focused on Haiti, for which, Mejia commented, "there is
no solution." Mejia added that France and Canada should take
on more responsibility for addressing problems in Haiti.
Zoellick noted that recovery for the Dominican economy would
provide indirect benefits to Haiti. Mejia agreed, noting
that a million Haitians are currently in the Dominican
Republic.

CONGRESS


8. (SBU) Congressman Jerry Weller (R-IL) joined the USTR
party at the office of Senate President Jesus Vasquez. The
Dominican side included House of Representatives President
Alfredo Pacheco and committee chairs for foreign relations,
industry and trade, and finance from both houses. In the
course of discussion, Amb. Zoellick acknowledged the
misgivings of Dominican producers of pork and poultry and
undertook to be sensitive to local needs. He stressed the
importance of labor laws and of enforcement, particularly the
laws against child labor and trafficking in persons. He
commented that reductions in tariffs under an FTA would
require fiscal adjustments over a transition period; lowering
tariffs and increasing competition on basic goods and
consumer commodities would directly benefit the poorest
Dominicans. (Q: WHAT DID THE DOMINICAN SIDE SAY?)


9. (SBU) Congressman Weller commented that legislative
approval of the FTA would be difficult for both countries in
an election year and asked that the legislators help explain
the FTA's benefits to their constituents and to Dominicans
living in the U.S. through the Dominican American Roundtable
and other organizations.


10. (SBU) Senate President Vasquez noted that the Dominican
Congress and Executive have assigned a liaison group of
legislators to follow the FTA negotiations, keep other
members updated, and answer any questions they might have.
He hoped the IMF negotiations could be concluded as quickly
as possible and said his country had "advanced greatly" in
conducting free and fair elections and would not backslide to
the irregularities of earlier times. House of
Representatives President Pacheco and a committee chairman
spoke of their concerns about the high costs of maritime and
air freight. One committee chairman appealed for more aid
from the international community for reconstruction of Haiti,
"which cannot be at the expense of the Dominican Republic"
(Note: Providing services to illegal Haitian migrants. End
note.) Amb. Zoellick replied that one of the best ways to
help Haiti would be to develop the Dominican economy next
door.

OPPOSITION CANDIDATES


11. (SBU) Amb. Zoellick hosted breakfast meetings at his
hotel for PRSC candidate Eduardo Estrella and for PLD
candidate Leonel Fernandez. Estrella opened with the
affirmation that he supports an FTA and was one of the first
to request it. Pork and poultry are sensitive sectors;
tariffs need to be reformed generally and customs must apply
them in transparent fashion. He is concerned about
corruption in the customs service and in general; this will
be a theme of his campaign. Amb. Zoellick noted that an FTA
will lower the cost of corn as an input to the livestock
sector. The United States is a pork exporter, so that sector
is a supporter for free trade; however, the U.S. side will
deal in a sensitive manner with sensitive subjects. Estrella
spoke of his support for competition and openness in
government procurement, an area where the FTA could help. He
expects to make this point during campaign trips to New York
and New Jersey. He outlined his concerns about maneuvers
affecting the Dominican presidential elections and commented
that the proposed draft changes to the electoral law would
create confusion and could open the door to massive fraud.


12. (SBU) In contrast to Estrella,s focused approach, PLD
candidate Leonel Fernandez focused first on the presidential
election. In campaign speech style, he recalled the
flourishing of the Dominican economy during his 1996-2000
presidency. The 2000 elections had been fair. President
Mejia had made untimely decisions and mismanaged fiscal
policy, wage rates, public sector employment and debt.
During his own presidency, he said, the government had stood
in the background to the private sector; in contrast,
Mejia,s administration has made itself central. Debt has
risen from the equivalent of 18 percent of GDP to more than
50 percent. Mejia had shown his authoritarian tendencies
with constitutional amendments and the imposition of judges
for the Elections Board (JCE). Fernandez,s PLD wants a code
of conduct for the JCE. He said that political primaries do
not work in the Dominican context but rather encourage
fragmentation. The country needs international election
observers. Special attention should be paid to auditing
computer systems and their use.


13. (SBU) Amb. Zoellick outlined U.S. views on the FTA and
the need for an IMF package and agreed on the importance of
free and fair elections. Fernandez noted that talks coincide
with the presidential election campaign, in which polls
currently show him receiving 63 percent as opposed to 15
percent for Mejia. When Zoellick asked Fernandez for his own
opinion about the FTA, Fernandez commented that farmers were
uncertain about the proposals, especially the producers of
rice, pork and chicken. U.S. farmers are subsidized while
Dominicans are not. The Dominican Agricultural bank is
decapitalized, the United States imposes non-tariff barriers
and the GODR is imposing (temporary) export taxes. Farmers
see the FTA as benefiting primarily the free trade zones.


14. (SBU) Amb. Zoellick characterized negotiations as a
"problem solving exercise" -- building in measures to deal
with prevailing conditions, such as high interest rates in
pesos and U.S. producers, complaints about low wages abroad.
He stressed the utility of the transparency required by the
FTA. Dominicans resident in the United States could help
persuade U.S. legislators to accept a CAFTA/Dominican
Republic agreement.


15. (SBU) "There is no real rejection of free trade by
Dominicans," replied Fernandez, "either here or there."
There was apprehension, however, and a need to educate people
and advertise the advantages of an agreement.


16. (SBU) Amb. Zoellick mentioned competition in services
and the interest in reducing the costs of remittances from
the United States. Fernandez agreed, citing a study done by
CUNY,s Dominican Studies Center. Remittances are about USD
2.2 billion, he said, which is about 10 percent of the
earnings of Dominicans in the United States and equivalent to
about 10 percent of Dominican GDP. He agrees that an FTA is
part of a larger development process. Amb. Zoellick closed
by emphasizing that with financial stability secured with IMF
help, an FTA can create a turnaround for the Dominican
economy.

CIVIL SOCIETY AND PRESS ROUNDTABLES


17. (SBU) A roundtable at the Pontifical Mother and Master
Catholic University, chaired by Rector (and prominent
political mediator) Msgr. Agripino Nunez, included some
eighteen economic, environmental, legal, justice reform,
small and medium business, and labor experts. Participants
agreed there were concerns about the fast timetable for the
FTA negotiations, perceived shortcomings in CAFTA, and a
potential negative impact on the Dominican Republic's jobs,
small businesses, and environment. Amb. Zoellick emphasized
the lengthy preparatory work on both sides and the extensive
customizing to the proposed draft for the Dominican Republic.
He pointed to comprehensive environmental, regulatory, and
transparency provisions in the draft and the potential of an
FTA to create opportunities for small and medium enterprises
and benefit consumers by opening up competition. Amb.
Zoellick also referred to USAID's trade capacity building
program and related IFI financing. He said the FTA could
enable a bilateral partnership to solve problems together and
help the Dominican Republic enforce its own labor and
environmental laws. During an hour-long discussion with
senior editorial board members and media representatives,
Amb. Zoellick stressed that the U.S. intention was not
limited to encouraging trade; instead, it is to create an
opportunity for growth, development, support for the rule of
law, a link to the U.S. economy, and points of leverage for
domestic reform processes.

COMMENT


18. (SBU) Amb. Zoellick delivered the message on free trade
and in providing another strong demonstration of U.S.
interest and concern for the economic plight of the hard
pressed Dominicans. He received extensive press coverage --
his photo and visit were the only items above the fold on the
next day's "Listin Diario." We expect favorable op-ed comment
to follow.


19. (SBU) His was an upbeat modulation on the U.S.
diplomatic and public diplomacy approach. In November
Treasury Under Secretary Taylor listened to Dominican
concerns about a dire economic situation, reflected them back
to interlocutors and provided steady reassurance that a
solution was possible through the IFIs, with U.S. support.
In December, Assistant Secretary of State Noriega continued
that message and added the strong U.S. concern about
institutional weaknesses, election arrangements and
corruption. USTR Amb. Zoellick explicitly included those
themes in his visit and linked them to the promise of
recovery and the opportunities of competition and free trade.



20. (U) The presence of Congressman Weller and his comments
were a further demonstration of the seriousness of the U.S.
side and its intention to see the free trade negotiation
process through to a successful conclusion. Meanwhile the
first round of bilateral talks went forward January 12-16
without incident, with both sides expressing satisfaction on
the technical content and the cordial relations at the
bargaining table.


21. USTR has reviewed this cable.
HERTELL