DOMINICAN SENATORS TELL AMBASSADOR THEY'LL BLOCK

C O N F I D E N T I A L SECTION 01 OF 03 SANTO DOMINGO 005080

SIPDIS

STATE FOR WHA, WHA/CAR, WHA/EPSC, EB/OMA
NSC FOR SHANNON AND MADISON; USTR FOR VARGO
USDA FOR ITP - SHEIKH AND GRUNENFELDER
LABOR FOR ILAB; TREASURY FOR OASIA-LAMONICA
USCINCSO ALSO FOR POLAD
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION
USDOC FOR 3134/ITA/USFCS/RD/WH

E.O. 12958: DECL: 04/26/2009
TAGS: PGOV ETRD EFIN PREL DR
SUBJECT: DOMINICAN SENATORS TELL AMBASSADOR THEY'LL BLOCK
TAX ON FRUCTOSE SYRUP

REF: SANTO DOMINGO 5024

Classified By: Ambassador Hans Hertell. Reason: 1.4 (a) and (d).


1. (C) Summary. The Ambassador obtained from Senate and PRD
leaders September 8 a commitment to delete a proposed 25
percent tax on beverages using imported high fructose corn
syrup (HFCS) from paragraph 9 of the pending fiscal reform
legislation (reftel). The Ambassador told them the
protectionist tax, if passed, would close the door to the
Dominican Republic's free trade agreement (FTA) with the
United States. Senate President Andres Bautista (opposition
PRD),PRD president Vicente Sanchez Baret, and special
committee for tax reform chair Senator Tomas Duran (PRD) said
that the Senate -- with its overwhelming PRD majority --
would strike the tax from the fiscal reform bill on September
13 or 14 and immediately send their version to the House of
Representatives. On September 9 on the margins of a courtesy
call by Eximbank Vice President Jeffrey Miller (septel) the
Ambassador urged Fernandez to support revision of the bill.
House Chairman Alfredo Pacheco has told the press that the
House would, if asked, pass separate legislation repealing
the HFCS tax if it is included in the tax package. End
summary.

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Their Position
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2. (C) On September 8 Senate President Andres Bautista
(opposition PRD) requested on short notice a meeting to
discuss the tax reform package and USG requests to eliminate
a 25 percent tax aimed at imported fructose syrups. The
Ambassador received Bautista, along with PRD party president
Vicente Sanchez Baret and PRD Senator Tomas Duran, chair of
the 12-person special committee discussing the tax bill.


3. (C) Bautista said that after GODR officials and
legislators had received word last week from Embassy oficers
of Washington's objections to the HFCS tax included at the
last minute by the House of Representatives (reftel),on
September 7 during three hours of Senate hearings, Finance
Secretary Vicente Bengoa, Internal Revenue Director Juan

SIPDIS
Hernandez, and Customs Director Miguel Cocco suggested the
Senate approve the bill as is, including paragraph 9, and
send it back to forward to the President. The Fernandez
administration would submit a separate bill that, once passed
by both Congressional houses and signed into law, would
repeal the provisions of paragraph 9 from the already
approved fiscal reform law. Bautista emphasized the
Dominicans' priority of getting the tax reform operational as
soon as possible both for revenue reasons and to enable
progress toward a renewed IMF accord.

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Our Position
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4. (C) The Ambassador spoke "as a friend of the Dominican
Republic, without any intention of exerting pressure." He
explained that senior Washington officials were dismayed by
the proposed HFCS tax, which was counter to the WTO
agreements and against the spirit and letter of the FTA.
USTR, part of the President's White House office, was
emphatic in this view. Ratification of CAFTA was moving
ahead, but a Dominican protectionist tax measure would throw
a huge obstacle in the road to DR-CAFTA approval. The HFCS
conflict was a clash of interests between Dominican private
sector entities, the sugar producers and the bottlers. The
Ambassador advised them that Congress "has the key" to FTA
ratification." He emphasized,"You can open the door to the
FTA, or you can slam it shut for good."

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A Position Taken
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5. (C) Bautista, seconded by Sanchez Baret, replied, "We are
not going to put the FTA at risk. If the tax would do that,
then we won't accept it." He said he would convoke the
Senate on September 14, or -- at the Ambassador's suggestion
-- possibly on September 13, and place before Senators a
modified bill without the tax provision for approval on an
urgent basis in two consecutive readings. The revised bill
would go back to the House by the evening of September 14.
Sanchez Baret said that the PRD would instruct its senators
(a majority in the Senate) and congressional representatives
(a plurality of 72 of 150 in the Chamber) to support this
revision. Duran expressed a desire for President Fernandez
to take a clear position on the matter. Sanchez Baret noted
that, if Fernandez supported the change and so instructed the
PLD's 42 deputies, then the final legislation "would not
fail" to gain approval. However, if the Chamber rejected the
revision, the GODR would have to originate a completely new
fiscal reform bill, which would be open to further lobbying
and modifications in both houses of Congress.

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The President's Reluctance
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6. (C) In a subsequent private conversation with President
Fernandez on September 8, the Ambassador urged him to support
passage of the fiscal reform without the HFCS tax provision.
The President initially objected that U.S. corn producers
should not be able to influence sovereign decisions of the
Dominican Republic. The Ambassador replied that much more
was at stake, including the highest interests of the nation.
Fernandez appeared to accept his argument, although
reluctantly.

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Other Allies
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7. (SBU) The same day, House President Alfredo Pacheco (PRD)
told the press that in his opinion the Chamber would accept a
bill to repeal the HFCS tax, to avoid any confrontation that
could harm the social or economic development of the country.
This played in the leading daily September 9 opposite a
statement by influential Senator Jose Hazim Frappier, former
PRSC vice presidential candidate from a sugar province,
condemning free trade in sweeteners as a form of "hari-kiri"
for the local industry. The American Chamber of Commerce
broke its silence and wrote in strong terms to the Senate,
asking that the HFCS tax be eliminated as contrary to WTO
agreements and to the FTA.

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Comment
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8. (SBU) Bautista is holding open hearings on the tax
reform bill and as of Friday, September 10, there is no
indication in the press of the intentions of the Senate
leadership. The Ambassador's September 9 courtesy call on
Agriculture Minister Amilcar Romero, previously scheduled,
provided an opportunity for sugar supporters to vent and
journalists to speculate about "blackmail" by the United
States. The Ambassador's comments to the press afterwards
were that the country has the obligtion to comply with its
undertakings in the FTA; the issue has many repercussions and
the Dominican Republic "has the key in hand" to solve its
difficulties.


9. (SBU) The Ambassador and staff will continue to maintain
a low public profile on this issue, waiting for it to play
out in Congress and the executive, in the expectation that
participants now undertand that the country's best interests
lie in avoiding a self-defeating protectionist gambit and in
separating consideration of tax reform from consideration of
the FTA.
HERTELL