VISIT OF STAFFDEL WALKER TO PERU

UNCLAS SECTION 01 OF 05 LIMA 002600

SIPDIS

STATE FOR E, EB, WHA/AND, WHA/EPSC, INL
USTR FOR B. HARMANN
COMMERCE FOR 4331/IEP/WH/MCAMERON

SENSITIVE - NOT FOR INTERNET DISTRIBUTION

E.O. 12958: N/A
TAGS: ETRD ECON SNAR EFIN EINV SOCI PGOV PE
SUBJECT: VISIT OF STAFFDEL WALKER TO PERU


1. SUMMARY. (SBU) During a busy two-day visit, Staffdel
Walker raised pending U.S. company commercial disputes,
trafficking of narcotics and persons, and the benefits of an
U.S.-Andean Free Trade Agreement (FTA) in discussions with
Members of Congress, high-ranking government officials, and
private sector leaders. Most of the Peruvians emphasized
the importance of the FTA as a national development tool to
reduce the country's high levels of poverty and to provide
alternatives to illicit coca production. The well-received
visit proved useful in explaining the difficult
Congressional vote on CAFTA and reiterating the message that
a U.S.-Andean FTA with Peru will require that the GOP
resolve its few remaining ATPDEA commercial disputes. END
SUMMARY.


2. (SBU) House Western Hemisphere Subcommittee Staff
Director Mark Walker and Professional Staff Member Dan Getz
discussed the benefits of a U.S.-Andean FTA with a wide
cross-section of Peruvians during a June 1-4 visit to Peru.
Among public officials, they met with Congressmen from
different political parties, Peru's Chief FTA negotiator,
the ATPDEA Commercial Disputes Coordinator, officials in the
Foreign, Finance, and Trade Ministries. Their private
sector meetings included discussions of the Central American
and Andean FTAs' prospects with the AmCham Board of
Directors, business association leaders, and top economic
consultants. Walker and Getz reviewed USAID trade capacity
building efforts and a pilot project focused on a key
Millennium Challenge Account criterion - business
registrations. On drug trafficking, the StaffDel met with a
leading NGO and two Congressmen, including the chairman of
the counternarcotics commission. During a site visit in the
port city of Callao, Walker and Getz reviewed efforts by
Catholic nuns to combat the trafficking in persons.

FOREIGN MINISTRY ON TRADE AND TIPS
--------------


3. (SBU) Following a Country Team briefing at the
Ambassador's residence, Walker and Getz visited the Foreign
Ministry to discuss the U.S.-Andean FTA with Undersecretary
for Economic Affairs Gonzalo Gutierrez; Director for North
America Nestor Papolizio; Director for Economic Affairs Juan
Carlos Gamarra; Foreign Ministry FTA Commission members
Sylvia Alfaro and Roberto Rodriguez, and FTA Agriculture
Negotiator Cecilia Gervasi. Walker expressed appreciation
for the dinner Peruvian Ambassador Ferrero hosted for
Western Hemisphere Subcommittee Chairman Dan Burton,
Walker's boss, and Latin American Ambassadors.


4. (SBU) Under Secretary Gutierrez highlighted Peruvian
sensitivities in agriculture and intellectual property
rights, and urged that the pace of FTA negotiations be
accelerated because of upcoming Andean elections. Gutierrez
noted that there is the perception that the Central American
Free Trade Agreement (CAFTA) is limiting U.S. flexibility in
the Andean deal. Gutierrez emphasized that successes in
Plan Colombia has had the effect of increasing coca prices
and production in Peru; yet illicit narcotics are not even
mentioned during the FTA negotiations. Gutierrez cautioned
that if there is too much pressure on traditional small
farmers growing corn and cotton, there could be a switch to
illicit crops, such as coca. The objective, he said, is to
give Peru stability, eradicate poverty and support
democratic processes.


5. (SBU) Director for Human Rights Carlos Roman highlighted
the Foreign Ministry's new social diplomacy role in
combating Trafficking in Persons (TIP). He described how
the Foreign Ministry had taken the lead in organizing every
sector that had previously operated on its own with TIP-
related programs. Roman stated that the Peruvian Congress
is now working on a law that will, for the first time,
define the TIP problem in legal terms. This will enhance
the GOP's ability to marshal all its resources to fight TIP.
(Note: Congress in fact has passed the law. End note).
Because of Peru's leadership, the Inter-American Development
Bank chose Peru to participate in one of three new TIPS
projects. Walker praised the Ministry for its work against
the trafficking in persons, particularly for its quick
reaction and the leadership role Peru has assumed. Walker
stated he would brief Congressman Burton, who served
previously as the Human Rights Subcommittee Chairman and
cares deeply about this issue.

CHIEF FTA NEGOTIATOR: CONCERN ABOUT CAFTA
--------------


6. (SBU) Peru's Trade Vice Minister and Chief FTA Negotiator
Pablo de la Flor asked about CAFTA's prospects on Capitol
Hill, noting that Peru's fate is probably tied to the
outcome of the Central American trade deal. Walker
cautioned that the CAFTA vote will be difficult and close.
While Congressman Burton had opposed several Free Trade
deals in the past including NAFTA, he is now a strong
proponent of CAFTA and the Andean FTA because of our broad
national interests in the region. Walker noted that
Congressman Burton keeps a list and on a daily basis
discusses the CAFTA vote with undecided Members. Walker
welcomed the White House's engagement, which will entail
calls from President Bush to fence-sitting Members. Walker
described why trade votes are so difficult. Burton's
district in Indiana, for example, lost its manufacturing
base following NAFTA's approval: RCA, Whirlpool, AC Delco,
Ford, among other companies, relocated their plants to other
countries.


7. (SBU) De la Flor stated that Peru's Ministers of Trade,
Finance, Production, and Agriculture will visit Washington
the third week of June to lobby for the U.S.-Andean FTA.
Walker offered to organize a meeting for the Ministers with
the members of the Western Hemisphere Subcommittee. De la
Flor added that Peru's widely-acclaimed economist Hernando
de Soto has agreed to help with Peru's lobbying, but the
Vice Minister was not sure of the details of this effort.
De la Flor made a final plea for increased U.S. flexibility
on agriculture, noting that it would be short sighted if the
deal were to collapse over issues such as market access,
which are not the U.S.'s overriding interests in Peru. De
la Flor expressed concern over recent demonstrations by
agricultural and coca farmers who oppose the FTA.

ATPDEA DISPUTES NEARING CLOSURE
--------------


8. (SBU) Peru's ATPDEA Disputes Coordinator Aurelio Loret de
Mola reviewed in detail each of the remaining ATPDEA
disputes. He highlighted that three arbiters are near a
final decision in the Northrop Grumman case, and that the
Tax Court should be issuing a final ruling shortly in the
dispute involving Luz del Sur (owned by New Jersey-based
PSEG and California-based Sempra Energy).


9. (SBU) Loret de Mola stated that in both the Princeton
Dover and Engelhard cases, a fifth and final Superior Court
justice will issue an opinion to break the 2-2 ties in each
dispute. Oral hearings are scheduled for June 13 and June
28 respectively. If either company loses 3-2, the U.S. firm
can make a final appeal to the Constitutional Court; the GOP
cannot appeal a 3-2 decision against it.


10. (SBU) In the LeTourneau case, Loret de Mola reviewed a
document written by the company in 1968 that his team found
recently in the Agriculture Ministry's archives. Loret de
Mola argues that the GOP should use the total value of the
road assessed by the company's then-Vice President, which
totaled about $865,000. According to Loret de Mola, the
exercise should now be to take that number through time to
2005, leaving to a three person panel the task of
determining the final compensation figure by selecting the
mix among U.S. Treasury Bills, Treasury Bonds, and the Prime
Rate.


11. (SBU) Walker described the frustration among some
Members of Congress over the long delays in resolving the
U.S. company disputes, and informed de la Flor, Loret de
Mola, and the Foreign Ministry officials that failure to
resolve the pending ATPDEA commercial disputes would prevent
Peru's inclusion in the U.S.-Andean FTA. At Walker's
request, Loret de Mola promised to send via e-mail
developments in the ATPDEA disputes.

PERUVIAN CONGRESS: GENERALLY SUPPORTIVE OF FTA
-------------- -


12. (SBU) During a meeting at the Ambassador's Residence
with three Members of Congress -- Jacques Rodrich
(Independent),Kuennen Franceza (Unidad Nacional) and Cesar
Zumaeta (APRA) -- Walker and Getz discussed the U.S.-Andean
FTA and the prospects for its approval in Peru. The three
Congressmen were generally optimistic. Zumaeta said he
believes the Peruvian Congress will approve the trade deal
provided the Peruvian team has negotiated well. He noted
that Peruvians are concerned about the FTA's impact on
agricultural production and the cost of medicines, and are
apprehensive since this is Peru's first FTA negotiation.


13. (SBU) Rodrich stated that timing is key for FTA
approval, the sooner the better. The electoral campaign
will begin shortly as political parties must register in
October for national elections in April. Rodrich noted that
President Toledo will be a lame duck and he exercises little
party discipline; however, at the moment there appears to be
a comfortable majority in Congress that supports the FTA.
Kuennen said that an FTA would be good for Peru because it
would improve the country's economic integration and reduce
widespread poverty. He expressed concerns, however, noting
that opponents (such as coca growers) are increasing
pressure through demonstrations in an effort to turn public
opinion against the FTA.

PRIVATE SECTOR LEADERS AND ECONOMISTS FULLY BEHIND FTA
-------------- --------------


14. (SBU) During a meeting with the Board Directors of the
AmCham, which represents more than 400 companies that
produce roughly 60 percent of Peru's GDP, Walker answered
questions about CAFTA and its prospects for approval. He
encouraged representatives from large U.S. companies to take
an activist role in support of CAFTA, emphasizing that
approval of the Central American trade deal is key to
obtaining approval of the Andean FTA. Walker explained that
there is organized opposition to the CAFTA bill on several
fronts (labor unions and Democratic party leadership) and
that the Bush Administration will need to win the vote
convincing one Member at a time.


15. (U) Over lunch with Peruvian Business Association
Leaders -- Foreign Trade Association (Comex) Executive
Director Patricia Teullet; Peruvian Private Business
Confederation (Confiep) Vice President Raul Sanchez; and
former Confiep President Leopoldo Scheelje -- Walker and
Getz heard about the FTA's importance for Peru's economic
development and the positive effects it would have on the
country's fragile democracy and institutions. All agreed
that investors would benefit from clearer rules of the game,
including a well-defined dispute resolution mechanism.


16. (SBU) In a separate meeting, both Apoyo Consultant
Alvaro Quijandria and Instituto Peruano de Economia
Consultant Roberto Abusada highlighted Peru's outstanding
economic performance and praised the results that ATPDEA
helped generate. They stressed the importance of
consolidating ATPDEA benefits through an FTA. The
economists also expressed concerns about the negative impact
of failing to conclude a trade deal, notably lower economic
growth and investment and increased social pressures.
Quijandria emphasized that the FTA is an essential
development tool; if implemented successfully, the trade
pact would generate alternatives for traditional farmers in
the sierra -- the FTA's least likely beneficiaries.
Quijandria noted that underemployed highland farmers are
currently migrating to booming agriculture areas, such as La
Libertad and Ica Departments, but they could easily move to
the coca-growing, eastern jungle areas of Peru if the FTA is
not concluded and the economy stagnates.

FTA-RELATED TRADE CAPACITY BUILDING
--------------


17. (U) AID briefed Walker and Getz on a pilot project in
the Municipality of Villa del Maria del Triunfo on the
outskirts of Lima that has dramatically reduced the number
of days to register a business there, from 211 to between 5-
7 days. The project became a success because the
Municipality was able in six months to reduce duplication
and confusion in the business registration process as well
as increase its revenues. The project helped lower the
number of registration forms from 20 to seven or eight. Now
there is one office that handles the registrations;
previously there were at least six, and the number of
officials that review the applications has been reduced from
34 to six. USAID would like to reproduce this success story
in more of Peru's 1800 municipalities, but the agency
cautioned that a prerequisite is a committed mayor who is
willing to revamp the registration system.


18. (U) The Consortium of Private Organizations to Promote
the Development of Small and Micro Enterprises (Copeme)
explained how through training and technical assistance it
helped improve the performance of 30 microfinance
institutions, improving operational efficiency, lowering
interest rates, and significantly increasing their
portfolios and the number of loans issued.


19. (SBU) Walker and Getz also visited the OAS and State INL-
sponsored conference of the Andean Countries Cocoa Export
Support Opportunities (ACCESO),which is a regional network
designed to provide support and coordination of cocoa
initiatives in Bolivia, Colombia, Ecuador, and Peru. The
goal is to improve the production and marketing of quality
cocoa and increase the income of small farmers. The ACCESO
Secretariat, financed by the Cocoa Industry and USAID, will

SIPDIS
be located in Lima and share information and best practices
throughout the Andean region. Walker and Getz discussed the
initiative with representatives from U.S. industry, such as
Mars, and officials from USAID, OAS, INL, and the World
Cocoa Foundation. U.S. industry would like to diversify its
cocoa supply from Africa (70 percent) and Indonesia (12
percent) and increase its share from the Andes (5 percent).

COCA: CONCERNS ABOUT BALLOON EFFECT
--------------


20. (SBU) Alejandro Vassilaqui, the Executive Director of
CEDRO, a drug-awareness NGO, briefed Walker and Getz about
expanding coca and poppy production in Peru and the positive
effects an FTA could have in deterring the production of
illicit coca. Congressmen Jose Miguel Devescovi (FIM) and
Luis Iberico (FIM) -- President of the National Defense,
Intelligence, Alternative Development and Counternarcotics
Committee -- also participated in the discussion. They both
expressed support for the quick conclusion of the trade
accord. The two Congressmen plan to meet with House Foreign
Affairs Committee Chairman Henry Hyde to discuss Peru's
narcotics situation during an upcoming visit to Washington.


21. (SBU) Vassilaqui stated that while Peruvian coca
production has dropped from 150,000 hectares in 1985 to less
than 40,000 hectares in 2004, the price of coca has reached
new highs, raising incentives to produce coca. He is
concerned that effective eradication in Colombia has created
opportunities in Peru for poor farmers to produce illicit
coca. Regarding latex production in Peru, which is of a low
quality, Vassilaqui stated that no one knows the number of
hectares under poppy cultivation. He guessed the figure
ranged between 500-1,000 hectares, but he noted these cannot
be located by aircraft. Latex seizures in the first few
months of 2005 now exceed seizures during all of last year,
which Vassilaqui attributed to improved police work.

DOING GOD'S WORK: FIGHTING TRAFFICKING IN PERSONS
-------------- --------------


22. (U) Walker and Getz visited The Center of the Lima
Woman, a facility operated by The Adoring Sisters (Las
Hermanas Adoratrices),an order of nuns that dedicates
itself to helping prostitutes. The center provides a home
and vocational training for 65 underage girls who have
suffered sexual exploitation. Twenty of the young women are
accompanied by their children (one girl forced into
prostitution over three years gave birth on her twelfth
birthday). Formerly an abandoned state facility in the port
city of Callao, the center teaches the young women how to
operate a bakery and store, word processing on computers,
and hair styling and beauty salon skills. The government
donated the facility and covers the utility costs of the
center. The GOP also provides a psychologist from the
Ministry of Women's Affairs. The nuns help cover medical
expenses including dental care for the young women and their
children. The young women stay two-to-three years on
average at the center, and the nuns estimated that two-
thirds of those that return to society do not go back to
prostitution. The nuns are recognized as heroes in the
Department's Country Report on Trafficking in Persons.

COMMENT: A USEFUL MESSAGE
--------------


23. (SBU) Staffdel Walker successfully conveyed to different
Peruvian audiences the difficult task ahead for the Bush
Administration in obtaining Congressional approval of CAFTA.
He helped dampen expectations that the USG can be more
flexible in its FTA negotiations with its Andean partners.
The Staffdel also helped reinforced the USG message to the
GOP: that Peru needs to resolve its outstanding ATPDEA
commercial disputes to be part of a U.S.-Andean FTA.


24. (U) The Staffdel cleared this message.

STRUBLE