DOMINICAN POLITICS #18: EMBASSY PUTS CAFTA-DR

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E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD DR
SUBJECT: DOMINICAN POLITICS #18: EMBASSY PUTS CAFTA-DR
DEBATE CENTER STAGE WITH CHILEAN NEGOTIATOR


1. (SBU) This is #18 in our current series on politics in the
Dominican Republic:

EMBASSY PUTS CAFTA-DR DEBATE CENTER STAGE WITH CHILEAN
NEOGOTIATOR

The Ambassador, USAID, and EcoPol arranged the three-day
visit to the Dominican Republic of Amb. Osvaldo Rosales,
currently Director of the Trade Division at the UN Commission
for Latin America and the Caribbean (ECLAC) and previously
Chile,s chief trade strategist and negotiator. The
Ambassador sought Rosales out on the suggestion of USTR,s
Regina Vargo.

The Embassy kept Rosales busy throughout his stay. The key
event was a closed-door seminar, March 31, at President
Fernndez,s Fundacin Global para el Desarrollo y Democracia
(FUNGLODE).

Just before the seminar, President Fernandez received
Ambassadors Hertell and Rosales, FUNGLODE director Frederic
Eman-Zade and embassy staff. The meeting lasted about fifteen
to twenty minutes. The Ambassador briefed the President on
the results of previous meetings and discussed the need for
the Dominican Republic to move quickly to ratify the CAFTA-DR
agreement.

The FUNGLODE seminar meeting was attended by the President,
the Ministers of Finance and Trade, and approximately 60
private sector leaders. It lasted about three hours and there
were presentations by Ambassador Rosales (on the Chilean
experience in negotiating the Chile-US FTA as well as the
very positive outcome in the first year; exports increased by
more than 30 percent for both countries); by Ambassador
Hertell; by Trade Secretary Javier Garcia; by AUSTR Chris
Padilla via video teleconference; by Jorge Ivan Ramirez,
AmCham President and head of the Coalition for the approval
of the CAFTA-DR agreement; by Sra. Elena Viyella, head of the
Entrepreneurs Council, CONEP; by Sr. Cesareo Contreras, for
the agriculture sector; and by Sra. Yandra Portela, President
of the Association of Industries.

All spoke in favor of the FTA. Ambassador Rosales in his
presentation spoke more on the Chile,s positive experience
with trade agreements with the United States and other FTAs
and explained that Chile saw these agreements as
opportunities to accelerate Chile,s economic growth.

Ambassador Hertell, Trade Secretary Garcia, Assistant USTR
Chris Padilla, and Sr. Ramirez spoke of the need for the
Dominican Republic to approve the agreement as quickly as
possible so as to be able to take advantage of the agreement,
particularly so investment and production would move to other
countries. Chris Padilla's presentation effectively made the
case that momentum is building toward U.S. Congressional
action and that the business and political elite in the
Dominican Republic should work toward early ratification here
as well. His was a well-crafted message, communicated in
positive terms that showed we are in this together.

The last three speakers, while acknowledging the importance
of the FTA, stressed private sector concerns that the country
was not ready for the agreement. Elena Viyella and Yandra
Portela, representing the views of Dominican industrial
firms, stressed the need for fiscal and customs reform, in
order for domestic industry to be able to compete and to
become more export oriented. They were particularly insistent
that the &exchange commission8 (&comision cambiaria8)
equivalent to 13 percent of CIF value collected by Customs
was an intolerable competitive disadvantage vis-a-vis the
Central American competition.

The agricultural spokesperson discussed concerns about U.S.
subsidies to agricultural production and maintained that
these were unfair competition to Dominican agriculture, and
expressed concern about sanitary and phyto-sanitary policies
of the United States that would make agriculture exports to
the United States difficult.

All of the last three speakers cited high interest rates and
tax policies instituted at least in part in accordance with
IMF requirements as factors that reduced the competitiveness
of domestic industry and agriculture. Other members of the
audience cited these issues as well as reasons to go slow in
approving the DR CAFTA. Luis Viyella, representing
fertilizer manufacturers (and sugar) argued that the country
needed &more time.8

Minister of Finance Bengoa commented that fiscal reform was
originally planned for July 2006 but must be moved up because
it is required by the IMF agreement and it is needed to
correct the "distortions in the economy caused by CAFTA."
When CAFTA is approved it will create a 2 billion peso fiscal
gap due to lower customs tariffs and an elimination of the 13
percent exchange commission. He emphasized that 90 percent
of government revenue comes from a combination of six taxes:
VAT, income, exchange commission, customs tariffs, fuels, and
alcohol. Bengoa pondered at the end: "The consumer is
already overburdened. Who will pay for the loss of revenue -
- where will the burden fall?"

Ambassador Rosales replied that public and private sector
leaders in Chile had expressed similar concerns when their
FTA was being negotiated. He stressed the point that
countries have to take advantage of opportunities when they
arise, whether they think it is the optimal time or not.
There will never be an optimal time.

Both Ambassador Rosales and Chris Padilla emphasized the
danger of lost opportunities in investment and production if
there was a serious delay in approving the CAFTA-DR. Once
investors make a decision to invest in another country that
investment is lost to the Dominican Republic.

Representative of pharmaceutical association INFADOMI Leila
Mejia Roldan asserted that CAFTA would disadvantage Dominican
health care, but Chris Padilla countered her directly,
offering the example of expanded pharmaceutical production
following implementation of the free trade agreement with
Jordan.

In summary, the event stimulated an open and frank discussion
on the DR CAFTA and related issues. There was a clear
agreement that the agreement was essential for the country.
The issue of delaying approval until the Dominicans were
&more ready8 was not put to rest, but it was strongly
challenged by Amb. Rosales. In our discussions with attendees
after the meeting, there was general agreement that the
meeting had cleared the air and had forced people to be more
forthcoming with their issues. Moreover, the exchange of
views was cited as something refreshing and overdue. We
expect that there will be several thoughtful op-eds appearing
in the leading papers over the next week.

Impact of Video

The visual impact of the video teleconference was impressive.
Participants at FUNGLODE were gathered in a comfortable but
intimate setting. The fact that Chris Padilla was already
seated there on three large screens as many of the guests
entered the room and stayed on through the entire three-hour
program (more for him since he was on time!) -- that alone
communicated a great deal. His body language consistently
showed that he was an attentive listener. In a conversation
after the program, moderator Ambassador Bernardo Vega
complimented him for staying through the entire discussion
and said he had contributed positively to the discussion. As
we were signing off at the conclusion of the program,
Ambassador Hertell said, "Good job, Chris."

And Where was Fernandez?

One concern was the silence of President Fernandez. In early
plans, FUNGLODE and the Embassy had suggested that the
President open the session with some of the articulate
improvised remarks that he does so well. Instead, Fernandez
listened without comment. He accompanied the visitors to the
central table and stayed for most of the presentations, but
he slipped away toward the end without a word, on the way to
a dinner with the Exporters' Association. One interpretation
is that the President was leaning so far back from the
subject with this high powered audience that he almost fell
over; another is that he judged that his support in principle
for CAFTA was well known, and it was up to the interested
parties to articulate their needs and requirements.


2. (U) Drafted by Joseph B. Goodwin (USAID),Dale Largent,
and Michael Meigs.


3. (U) This piece and others in our series can be consulted
on classified SIPRNET site
http://www.state.sgov/p/wha/santodomingo/ along with
extensive other material.
HERTELL