THE TOLEDO-URIBE MEETING AND PERU'S GAME PLAN FOR

UNCLAS SECTION 01 OF 03 LIMA 003888

SIPDIS

SENSITIVE

DEPT FOR WHA/AND, EB/TPP
COMMERCE FOR 4331/MAC/WH/MCAMERON
USTR FOR RVARGO AND BHARMAN

E.O. 12958: N/A
TAGS: ETRD ECON EINV PGOV PREL PE
SUBJECT: THE TOLEDO-URIBE MEETING AND PERU'S GAME PLAN FOR
U.S.-ANDEAN FTA

REF: BOGOTA 8415


1. (SBU) Summary: In separate meetings with the Ambassador
the Ministers of Trade, Foreign Relations and Production
described Toledo's one-day trip to Colombia as productive.
The GOP believes Uribe was not previously aware of how much
Colombia's FTA team is out of sync with Peru's. Peruvian
business representatives who accompanied Toledo expressed
dismay over the negative attitudes and unrealistic
expectations of their Colombian counterparts; Some Peruvian
commercial reps wonder whether Colombia's lead negotiator
intentionally put them up against anti-FTA counterparts in
the hopes of reining in Peruvian enthusiasm. Peruvian
participants perceived a change of tone once Uribe staked
out a strong position in favor of wrapping up negotiations
in October, but remain cautious about whether this will
happen. Toledo and Uribe reportedly agreed to visit
Washington together in mid-October to meet with US officials
regarding the FTA. Trade Minister Ferrero told us that
wrapping up the FTA in concert with Colombia remains plan A,
but the GOP is weighing a Plan B: concluding an agreement
with the U.S. first in the expectation it would force
Colombia's hand. End Summary.

Got Uribe's Attention
--------------


2. (SBU) The Ambassador and Econcouns met with Trade
Minister Alfredo Ferrero on September 7 to review President
Toledo's recent visit to Colombia (reftel) and Peru's plans
for the U.S.-Andean Free Trade Agreement (FTA). Ferrero
said Toledo performed well, describing the September 5
meeting with Colombian President Uribe as productive,
resulting in a public commitment by both presidents to
conclude the FTA negotiations in October. While President
Uribe appears sincere in his desire to finish negotiations
next month, Ferrero was skeptical Colombia could achieve
this.


3. (SBU) Ferrero noted that Uribe realized that his FTA team
is moving at a different pace than Peru. Ferrero also
noticed disunity among the Colombian Ministers and FTA
negotiators, making it unclear who is in charge or makes the
decisions. In response to Colombian complaints that they
are tired of presenting proposal that receive no U.S.
response, Ferrero said he encouraged the Colombians to make
more realistic proposals and not waste time on dead-end
issues. For example, he told them they should assume U.S.
exclusion for sugar, and propose something to get in return.
Ferrero said he urged the Colombian team to take risks,
noting that in the end, nothing is final until the whole
package is accepted.

GOP Strategy: Negotiate Peru First
--------------


4. (SBU) Ferrero described two scenarios, either of which
President Toledo is prepared to pursue. Plan A is to
negotiate the FTA alongside Colombia; under this scenario
Ecuador would follow afterwards. Plan B is for Peru to
negotiate the FTA with the U.S. by itself, without Colombia
and Ecuador. The two Andeans would join later when ready.


5. (SBU) Ferrero emphasized that Peru previously pulled the
Andean trade cart during negotiations with Mercosur. Once
Peru concluded that deal by itself, the other Andeans
followed suit, signing a similar deal with the Mercosur
countries six months later. Ferrero expected a similar
result in the U.S.-Andean FTA: the two Andean partners would
feel left out and disadvantaged under a Peru-first FTA
scenario. Consequently, Colombia and perhaps Ecuador would
return to the negotiating table with more realistic
expectations and positions to close the deal.


6. (SBU) The Trade Ministers' only reservation about going
it alone is that Colombia might later negotiate a better
deal than Peru's. The Peruvian trade negotiators received
considerable criticism at home when Colombia and the other
Andeans signed what was perceived by some to be an improved
deal with Mercosur. Ferrero stated that Peru could guard
itself against such a hypothetical (and deflect potential
criticism of its strategy) by stipulating in the FTA text
that Peru could equalize any arrangements negotiated in
subsequent Andean FTA deals.

Concerns About U.S. Ally
--------------


7. (SBU) Ferrero noted that Plan B -- Peru leading the way -
- would only work if USTR were willing to conclude with Peru
first. Without a U.S. commitment to test this approach,
Ferrero fears that an Andean FTA would slip away,
particularly given the upcoming Andean electoral campaigns.
Ferrero indicated that he will accompany President Toledo to
Washington in mid-September to bolster support for the
Andean FTA in Congress and within the executive.


8. (SBU) The Trade Minister noted that a good portion of the
discussion in Bogota focused on Andean concerns with USTR.
They lament that the Andean FTA is not on the U.S. political
agenda. Ferrero added that Hurricane Katrina might further
shift the U.S. Congress' attention to other priorities. He
also revealed Andean disappointed with changes of some U.S.
negotiators.
Other Ministerial Perspectives

Other Ministerial Perspectives
--------------


9. (SBU) In a separate meeting, Foreign Minister Maurtua
told the Ambassador that Uribe agreed to accompany Toledo to
Washington on or about October 11 to meet with US officials
regarding the FTA. The Foreign Minister expected the two
leaders to seek an appointment with President Bush.
Production Minister Lemor gave the Ambassador an account of
the Bogota meeting that was consistent with Ferrero's, but
he was even less convinced that Uribe's marching orders to
finish in October would stick. Lemor noted that the
Colombians had not advanced as far as Peru in discussing
internal compensation, domestic opposition to an FTA is
greater there, and the politics of early closure play out
quite differently for Uribe.

Peru's Private Sector View
--------------


10. (SBU) Peru's Exporter Association (ADEX) President Luis
Vega, who accompanied President Toledo to Bogota, told the
Ambassador on September 7 that his Colombian business
interlocutors demonstrated an unrealistic appreciation of
the situation. Some Colombian commercial leaders argued
that ATPDEA could be extended. Also worrisome, the
Colombian timeline for FTA closure was much longer, Vega
lamented. On the positive side, When President Uribe
announced the October goal, Vega noted that the head of the
Colombian business group adjusted his comments accordingly.
Vega opined that the Colombian Government had done a poor
job preparing its private sector, failing to develop (as had
the Toledo administration) compensation mechanisms for the
most sensitive agricultural products.


11. (SBU) The Executive Director of AmCham, another Peruvian
private sector participant, expressed similar disappointment
with Colombia's private sector leaders. He expressed dismay
that some of them argued Colombia would be worse off with a
U.S.-Andean FTA. Several Peruvian business representatives
found it perplexing that the Colombian Government did not
present its most supportive private sector FTA advocates.
Both they and the Minister of Production wondered whether
Colombia's lead FTA negotiator had convoked FTA skeptics in
order to put the brakes on the process.

Toledo Engages on Issues
--------------


12. (SBU) Peru's Chief FTA Negotiator Pablo de la Flor told
us that President Toledo's September 2 meeting with select
ministers and his FTA negotiators sparked the decision to
travel to Colombia. President Toledo spent four hours
reviewing options on difficult issues necessary to close the
deal with USTR. Describing it as the most substantive
meeting yet with Toledo, De la Flor stated that Peru's
agriculture package should now fall into place.


13. (SBU) De la Flor argues that it is critical to reach the
"handshake" with the United States by October. The
subsequent signing of the accord could be determined later,
decided by political considerations (e.g., electoral
calendars, resolution of commercial disputes, Colombia
joining the deal). With the new cabinet led by Pedro Pablo
Kuczynski, de la Flor believes that Peru is in the best
position to conclude the FTA negotiations (non-FTA
supporters such as former Prime Minister Carlos Ferrero and
Foreign Minister Rodriguez left the government).

Comment: Now is the Time
--------------


14. (SBU) It remains to be seen whether the GOP will be as
flexible and determined in the upcoming FTA round as our
interlocutors have claimed. What is not in question is that
as we approach Peru's national elections in April 2006,
Toledo's ability to wrap up the trade accord with the
current broad consensus in Congress and among the public
will probably diminish. The President realizes that his
window to finish the FTA is closing, and he appears ready to
cut a deal, with or without Colombia. Peruvian exporters
also are increasingly concerned that without a permanent
substitute for ATPDEA in place by next May-June, U.S. buyers
and manufacturers will look elsewhere for alternatives to
Peru.

STRUBLE