DOMINICAN POLITICS: SUGAR, IPR, TAXES AND TRADE --

C O N F I D E N T I A L SECTION 01 OF 04 SANTO DOMINGO 005024

SIPDIS

SENSITIVE

USDA FOR ITP - SHEIKH AND GRUNENFELDER, REPEATING SANTO
DOMINGO 5017 DTG 07 1326 SEP 04 SENT ACTION GENEVA, WHITE
HOUSE FOR USTR, SECSTATE

E.O. 12958: DECL: 09/06/2010
TAGS: PGOV ETRD EFIN DR
SUBJECT: DOMINICAN POLITICS: SUGAR, IPR, TAXES AND TRADE --
TROUBLE FOR FREE TRADERS

REF: SANTO DOMINGO 5017

Classified By: EcoPol counselor Michael Meigs. Reason: 1.4 (a) and (d)
.


1. (U) Following is the first in our series on the politics
of the new Dominican administration of Leonel Fernandez.

(U) Dominican Politics #1: Sugar, IPR, Taxes and Trade )
Trouble for Free Traders

(U) Powerful opponents of free trade are mounting a campaign
to discredit the agreement with the United States and the
Central Americans, manipulating Congress and hoping the USG
will walk away from the deal. Leonel Fernandez needs to stop
talking generalities and make a commitment to free trade.

(U) The enormously wealthy and influential sugar interests in
the Dominican Republic have pursued a relentless public
campaign over the past month against the country,s free
trade agreement (FTA) with the United States and Central
America. At a rhythm of two or three per week, full-page ads
of breath-taking vehemence have appeared, simultaneously, in
all the country,s dailies. Some have appeared as
communiqus of the "Agricultural Association" of two dozen
agricultural interest groups. Others were re-publications of
anti-trade opinion pieces from elsewhere in the press. Still
others have been ad hominem attacks against the Dominican
negotiators, the U.S. ambassador, and those few editorialists
who have written in favor of the FTA.

(SBU) The arguments are the familiar rants of protectionism:
the FTA will completely eliminate the agriculture of the
country, now more than 20 percent of GDP. The United States
unfairly subsidizes its farmers and exports. The country
will lose autonomy in food protection. Millions of poor
farmers will lose their livelihoods. The Dominican
negotiators failed to consider the needs of agriculture. The
FTA must be renegotiated, and the U.S. elections will present
the opportunity to do so.

Where is Leonel?

(U) In his first public event, the day after his
inauguration, President Fernandez endorsed the FTA to the
press, in the presence of U.S. Secretary of Agriculture Ann
Veneman. He reminded journalists,"&The Dominican Republic
cannot afford to lose access to the U.S. market, and for that
reason the agreement was concluded, with no time limits to
free trade" The Caribbean Basin Initiative "is what has
permitted the development of our free zone industries" He
declared that the agreement would advance regional
integration and benefit the country: "We are greatly
confident that the future development of the Dominican
Republic may rest in the ability to take advantage of the
opportunities presented to us."

(SBU) Fernandez has long espoused just this sort of soft
globalism, talking about the inevitability of trade pressures
and about the need to seek competitive advantage.
Unfortunately, he has, in our view, so far failed in his
first three weeks in power to appoint or empower free traders
in his administration.

(SBU) Foreign Minister Carlos Morales Troncoso is straight
out of 40 years of managing and owning Central Romana, the
country,s leading sugar complex - - although, to be fair,
the Minister told the Ambassador on August 24 that he was
"setting aside"his concerns about sugar and trade. Trade
negotiating authority has moved back to the Foreign Ministry,
to Juan Giuiliani, not known to favor U.S. trade initiatives
for the hemisphere. Minister of Commerce and Industry
Francisco Javier Garcia manifested no particular interest in
the FTA during the Ambassador,s courtesy call on August 23,
dwelling instead on domestic concerns. Agriculture Minister
Anibal Romero says that agricultural complaints must be
heard. Though certainly peripheral to these issues, even
Culture Minister Rafael Lantigua is close to the sugar
interests.

(C) Uncertainty about Fernandez,s trade policy is such that
last week USTR picked up rumors that Fernandez might
reappoint as WTO ambassador Federico Cuello, the determined
anti-U.S. ideologist who has regularly sniped at the FTA
effort in weekly newspaper columns over the last year.
Secretary of the Presidency Temistocles Montas dismissed the

SIPDIS
notion in conversation with the Charge on September 3 (we
understand Cuello is likely to go to Brussels, where he can
do little to harm trade). Montas offered no speculation
about a possible nominee for Geneva.
Congress - - A Field for Provocation

(U) The highest-profile political show in town has been
congressional consideration of the tax package crafted by
Fernandez,s advisors and delivered on July 11, at arm,s
length, by President Mejia. All political actors understand
that early implementation of increased taxes is a prior
condition for renewing IMF negotiations for a badly needed
standby program. House Finance Committee president Rep.
Marino Collantes conducted more than a month of hearings,
debates, and discussions on the measure, right until
expiration of the session on Sunday, August 15. The House
revived the legislation as soon as it reconvened in new
session after the inauguration.

(SBU) Also expiring on the 15th and revived on the 17th was
an ugly little measure advocated by pharmaceutical
manufacturers. In direct breach of commitments in the WTO and
the FTA, a piece of draft legislation would reduce penalties
on infringements of patents and trademarks to fines of
derisory amount, at the same time eliminating jail terms. It
would also stipulate that petitions for compulsory licensing
of patents would be considered approved in the absence of
administrative reply within 120 days. In the week before the
inauguration the DCM and EcoPol Counselor strongly cautioned
House President Pacheco about both aspects. Pacheco,
generally a reliable interlocutor, assured us he would see
that the measure was held in committee for lengthy discussion.

(SBU) The House passed a much-reduced tax package on August
26, but with a sharp protectionist sting in its tail. In
paragraph IX of the approved version a new measure would
impose a 25 percent tax on soft drinks and refreshments
manufactured with fructose syrups. This text had gone into
the hopper late in the closing deliberations. On August 27
House President Pacheco expressed dismay to us, professing
that he,d not understood it to constitute trade
protectionism.

(SBU) The tax package then went to the Dominican Senate,
dominated by Meja,s PRD with 28 of 32 senators. On Monday,
August 30 EcoPol counselor explained the consequences of the
anti-trade tactic to PRD president Vicente Sanchez Baret and,
separately, to PRD Trade Committee president Sen. Alejandro
Santos, also of the PRD.

(C) On the same day the Charge called on Senate President
Andres Bautista, who had apparently been ducking calls from
the U.S. Agricultural Attache for three days. Sen. Bautista
was flanked by a committee of senators, including Santos.
The Charge warned them of immediate, wide-reaching
consequences for the FTA if an anti-fructose tax became law.
Bautista professed concern but commented that any
modifications would necessarily send the package back to the
House and further delays, prejudicial for prospects with the
IMF. Perhaps, he speculated, Congress could approve the
package and then pass a separate measure to repeal the
anti-fructose tax. The Charge strongly warned senators
against the tactic, advising them that the anti-trade
paragraph had already greatly damaged the credibility of the
country with the USG, the U.S. Congress, and supporters of
free trade.

(U) When the Senate met on August 31, it referred the tax
package to a special committee of 12 senators - - far larger
than the 5-senator committee previously planned, according to
Senator Santos. That committee met formally on September 2;
during their session the Embassy delivered individually to
each of the 12 senators the Embassy translation of a etter
sent on August 31 from Deputy USTR Algier to Dominican
ambassador Guiliani Cury.

(C) The USTR letter expressing deep concern about the tax
measure drew in part from elements proposed by Embassy Santo
Domingo. Shortly after the letter was delivered to the
Dominican embassy, their DCM in Washington Judith Marcano
(protect) telephoned Santo Domingo trade contacts asking for
help, saying that Amb. Guiliani was declining to deal with
USTR, with the USTR letter, or with any of the approaches
from U.S. interests.

Senate Debate
(U) The Senate is sharply divided, according to the press,
with Senate vice president Cesar Matias strongest for
elimination of the anti-trade measure. Matias stated during
debate that since the administration is responsible for the
tax package, Fernandez should declare his position on the
issue.

(U) Journalists are portraying the drama as one of Senate
reaction to "pressures from the U.S. Embassy."To their
inquiries the Embassy issued a succinct reply: "he United
States Embassy regularly carries out consultations with all
parts of the Dominican government, including the House of
Representatives and the Senate, on a wide range of matters of
mutual interest. We share the interest of the Dominican
government in obtaining an appropriate package of fiscal
reforms, consistent with the international obligations of the
Dominican Republic, in order to put the Dominican economy
back on the road to recovery."

(C) On September 3 Technical Secretary of the Presidency
Temistocles Montas opened a pre-Paris-Club meeting with
Charge and EcoPol counselor with word that Senate President
Bautista had raised the issue with the administration - -
evidently with the suggestion that the tax package might go
through unchanged if Fernandez asked for it. Montas took no
position, as Charge again detailed the consequences of
allowing the anti-fructose tax to become law, even with a
perhaps a promise, perhaps unachievable, that it would be
repealed. EcoPol counselor warned that congressional
approval of the protectionist tax might prompt the USG to
suspend action on the DR and proceed only with CAFTA.

The Losers, Strategy

(SBU) Sugar producers and pharmaceutical manufacturers see
that they are the losers under the free trade agreement.
Sugar cannot use the additional quota of 10,000 tons for the
United States, because they can scarcely produce the 180,000
now authorized. The pharmaceutical producers know that
effective enforcement of intellectual property laws will bar
their plans to dominate the local market.

(C) Therefore the direct and immediate interest of both
groups is to sabotage DR-CAFTA. Their first tactic was to
shift perceptions, making the U.S. government, the U.S.
ambassador, and the Embassy the villains of the piece. The
intemperate rhetoric of their advertising sought to provoke a
USG response, which would give them further material for
polarizing opinion against the agreement. Leading sugar
owner Pepe Fanjul, with production both in the Dominican
Republic and in Florida, is putting about the story that the
Embassy is revoking visas of supporters of the sugar sector -
- a patent absurdity, but one that Dominicans, with their
conspiracy theories of bilateral relations, would be eager to
swallow.

(SBU) Their second tactic has been to poison Dominican law
and regulations with trade-unfriendly measures that might
prompt the United States openly to walk away from the deal.
USTR could decide not to submit to the U.S. Congress only the
trade agreement negotiated with the Central (CAFTA). If that
happened, it would be the culmination of a process that may
already have started -- with U.S. supporters in the private
sector and in Congress estimating that Dominicans will never
be able to deliver on their commitments.

(SBU) Against the fictions and malevolent ruses of these
opponents, the most powerful potential force is Dominican
self-interest. President Fernandez has not convincingly
articulated the national interest in this trade deal and too
few Dominicans have spoken up in defense of it. For example,
the public appears to have no idea that it is paying double
the world price for its principal staple, rice, or that
cartels of protected producer-importers of agricultural goods
are routinely gouging the public and especially the poor.

(SBU) The Dominican industrialists most capable of cashing
in on new export opportunities contributed generously to the
Leonel Fernandez presidential campaign. But they have done
very little, either individually or collectively, to counter
the tactics of the sugar lobby, a group everyone perceives to
be motivated and wealthy enough to purchase congressional
votes wholesale. Similarly, associations, civic leaders and
economists who understand the advantages of the agreement
have been intimidated by the ferocity of the agricultural
counterattack. The American Chamber of Commerce leadership
endorses the FTA in general terms but has not engaged in this
fight, largely because sugar interests are influential
members who regularly contribute to the Chamber and its
programs.

(U) The struggle over the FTA will provide early tests for
Leonel Fernandez: of his understanding of economic advantage
in the modern world and of his ability to articulate a vision
of the path to growth, transformation and modernization of
the economy. And even more so, of his willingness to take on
the privileged and protected, in the interests of those who
elected him.


2. (U) Drafted by Michael Meigs

3. (U) This cable and other cables in our various series on
the Dominican Republic, along with extensive other material,
can be consulted on our classified SIPRNET site
http://www.state.sgov.gov/p/wha/santodomingo/ .
HERTELL