DOMINICAN POLITICS #31: POSITIONING TO RATIFY

UNCLAS SECTION 01 OF 04 SANTO DOMINGO 003369

SIPDIS

SENSITIVE

DEPT FOR WHA, WHA/CAR, INR, EB/TPP/BTA/EWH;
DEPT PASS USTR FOR R VARGO, A MALITO; NSC FOR SHANNON; \
USCINCSO ALSO FOR POLAD;TREASURY FOR OASIA-MAUREEN WAFER;
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION
USDOC FOR 3134/ITA/USFCS/RD/WH; DHS FOR CIS-CARLOS ITURREGUI

E.O. 12958: N/A
TAGS: PGOV ETRD PREL DR CAFTA
SUBJECT: DOMINICAN POLITICS #31: POSITIONING TO RATIFY
CAFTA

REF: SANTO DOMINGO 3199


1. (SBU) This is #31 in our series of political reports on
Leonel Fernandez's first year in office.

Positioning to Ratify CAFTA
- - - - - - - - - - - - - -

The question is no longer whether the Dominicans will ratify
the free trade agreement, but when -- whether they can manage
to do so while the U.S. Congress is considering the
implementating legislation or whether domestic busines
sectors will succeed in efforts to get the administration and
Congress to enact "pro-competitive" adjustments at the same
time, a process that will inevitably be lengthy.

Inside the Tent
- - - - - - - - -

On June 22 President Fernandez formally received sectoral
representatives at a closed-door session at the palace to
discuss their desires in connection with ratification of the
free trade agreement with the United States and Central
America, as agreed in last week's meeting prompted by the
Ambassador (reftel). The session was organized and chaired by
National Dialogue mediator Msgr Agripino Nunez and included
in addition to the President his senior policy advisors --
chief of staff Danilo Medina, Commerce Minister Javier
Garcia, Finance Minister Vicente Bengoa, Agriculture Minister
Amilcar Romero, economic advisor Julio Ortega, and ambassador
to the United States Flavio Dario Espinal. The organizers had
reserved a seat for the Ambassador, with a name card
prominent in front of it; however, Msgr Nunez had not asked
the Ambassador to attend this all-Dominican discussion and
the Ambassador would have declined, had he done so.

An Insider's Account
- - - - - - - - - -

Just hours after the conclusion of the four-hour event,
Ambassador to the United States Espinal came to the Embassy
at the Ambassador's invitation. Espinal said he had
explained the U.S. ratification process and likely timetable.
President Fernndez in two interventions said clearly that
the Dominican national interest requires ratification of
CAFTA &without playing games.8

Each of the interest groups ) the National Council of
Private Enterprise (CONEP),agroindustry, free-zone
manufacturing, pharmaceuticals, and unions -- briefed on its
own desires. The palace later commented that there had been
21 presentations. Fernandez agreed to name a
&mini-commission8 from his economic team, to work with
private sector groups and legislators after -- note, AFTER --
ratification to see whether measures to promote
competitiveness might be identified within the constraints of
the IMF standby and the already approved 2005 budget. He
said that measures would probably have to wait for the 2006
budget and cautioned that not everything the private sector
was requesting would be feasible.

Secretary of Industry and Commerce Javier Garca also spoke

SIPDIS
out strongly in favor of ratification. Finance Secretary
Vicente Bengoa said CAFTA would expand Dominican firms,
opportunities for markets and investments.

Senate president Bautista called for prompt CAFTA
ratification. However, neither he nor House of
Representatives president Pacheco responded to Fernndez,s
caveats eitther positively or negatively, so Espinal was
uncertain of their attitude.

The Public Story
- - - - - - - - - - - -

According to the press, presidential chief of staff Danilo
Medina told the press that participants in the meeting had
been &unanimous8 in supporting CAFTA ratification: "All
the sectors present spoke of the need to ratify th treaty,
although some sectors presented conditions that they consider
should be recongized as compensatory measures allowing them
to survive and to compete adequately with the CAFTA countries
we are joing." Medina said that Fernandez had heard out the
presentations and had left in the hands of the Economic
Cabinet the duty of studying the measures, quantifying them
and putting numbers on them. "What was clearly understood by
all was that the Treaty would be examined as quickly as
possible by Congress."

Bautista, speaking next, emphasized that no one was opposing
approval of CAFTA but added, "Once this adjustment is
successful, it will be adopted as quickly as possible." His
qualification -- adjustment first, ratification afterwards --
put a big question mark on the understanding on quick
ratification previously reached with the Ambassador (reftel).


An 8 Percent Solution?
- - - - - - - - - - - - - - - - -

Journalists learned fairly quickly that CONEP President Elena
Viyella had suggested a specific offset to the fiscal
adjustments necessary to meet requirements of CAFTA (tariff
reductions) and the WTO (elimination of the exchange
commission). She reportedly suggested continuation of the
current 16 percent value-added tax, which applies to
approximately 40 percent of goods, and application of an 8
percent value-added tax to items not currently taxed. There
has been a fine dust-up as unions and other putative consumer
representatives have countered through the press with calls
for the tax authorities to crack down on business tax
evasion, instead. Meeting the House Finance Committee on
June 23, Finance Minister Bengoa estimated that for 2006
tariff reductions could cost the budget 2.6 billion pesos
(USD 90 million) and eliminatation of the exchange commission
would cost another 21 billion (USD 725 million). "We agreed
with the IMF that we would provide a draft for fiscal
adjustment by September, but if CAFTA is ratified we might
have to accelerate the process."

Putting Forth the Message
- - - - - - - - - - - - - - - - - - -

In contrast to Fernandez's dilatory approach to CAFTA through
much of 2005, the presidential press and public relations
apparatus has now embraced the pro-CAFTA message.
Presidential press spokesman Rafael Nunez called the
Wednesday meeting "transcendental" and stressed that
Fernandez's intention was "not to provide compensation or
protection but rather to find the adjustments necessary so
that the economy could take advantage of the opportunities."
He promised that the process will be transparent.

To conclude, we can offer an example of the palace spin on
CAFTA, witnessed by the DCM when she accepted the invitation
of the Embassy FSN personnel specialist to attend a meeting
of the national association of personnel managers. Vice
President Rafael Albuquerque was the keynote speaker and
spent almost all of his palace-drafted speech discussing
CAFTA. The DCM was the only foreigner in the room as the Vice
President,himself a former minister of labor, spoke to an
audience of some 75 human resource managers from leading
Dominican firms. His remarks were very positive on CAFTA
while still acknowledging the challenge ahead for Dominican
business. Not only did the Vice President suggest that CAFTA
would add jobs to the economy, he expressed the view that
CAFTA would not lower labor standards (Albuquerque, a
professor of labor law, was one of the authors of the 1992
revision of the Labor Code). Putting CAFTA in the context
of President Fernandez,s strategy of economic recovery and
growth, the VP made support for CAFTA a Dominican idea, not
something being imposed by any outsiders.


The Rationale of the VP and the Palace, especially on Labor
- - - - - - - - - - - - - - - - - - -

In summary, Albuquerque described CAFTA as one component of
the government strategy for economic recovery. The
government
had already managed to stabilize the exchange rate, lower
inflation, decrease public spending, and increase
domestic confidence and credibility in the eyes of the
international community. The government had exceeded
IMF fiscalgoals and international expectations.

The Dominican Republic still had to become more globally
competitive, he stressed. CAFTA would help industry
do that by lowering the cost of inputs and bringing in
know-how. It would attract investment, create jobs,
and ultimately sustainable growth. Taking advantage of the
opportunities presented by CAFTA would require
a government-private sector response - - the government to
create conditions of legal stability and a good
business climate, and the private sector to create new
business and growth. Businesses would have to be
creative, ready to make changes, and to become increasingly
competitive. Albuquerque said on behalf of President
Fernandez, that he was giving an "absolute assurance" that
the Government of the Dominican Republic is working
to reduce barriers to competitiveness.

Globalization has its pros and cons, but what is important,
Albuquerque continued, was that globalization is a
fact. The Dominican Republic has to make sure it made the
most of globalization,s benefits and minimize the
impact of the negatives. The Caribbean Basin Initiative was
likely to end by 2008 and the Dominican Republic
could not afford to be isolated.

Concerning labor, the Dominican Republic is very well
positioned, Albuquerque said. It had ratified 8 fundamental
conventions of the International Labor Organization, and
Dominican labor laws are fully consistent with these and
with CAFTA. He knew that U.S. labor had spoken out against
CAFTA and that some Central American unions had as well,
but, "speaking as an expert," he said, "the Dominican
Republic has made a lot of progress and we have little to
fear from signing CAFTA." He noted that in his 4 years as
Labor Secretary 1996-2000, there had been only one
case brought regarding child labor. He noted that the ILO
will monitor labor law implementation in CAFTA countries.

Albuquerque additionally noted that there is no forced labor
in the Dominican Republic and that Dominican labor law
applies to all who work in the country, even undocumented
aliens, regardless of sex, race, origin, national background,
or nationality. He assured the audience that the government
is working hard to fight the worst forms of child labor,
trying to get children out of agriculture. In this regard,
he pointed to agreements between the labor secretariat
and tomato processors against buying tomatoes from producers
who use child labor and against giving loans to such
producers. There was no serious child labor problem in
industry, he said.

Albuquerque reiterated that the Dominican Supreme Court has
affirmed that CAFTA will be treated as a national law,
and in case of a conflict, CAFTA undertakings will take
precedence over other national laws because of their status
as international treaty commitments.

Overall, he concluded, CAFTA has many more benefits than
negative points. The Dominican Republic can grow,
reduce poverty, and reduce currently high) unemployment.
CAFTA, Alburquerque said, is "indispensable" for the
country. The country, in turn, was well prepared to take on
the challenge of CAFTA. Working together as government
and the private sector, he concluded, "we can move forward."
("E, p,alante que vamos" - - the administration,s
electoral campaign slogan).


2. (U) Drafted by Lisa Kubiske, Michael Meigs, and Bain
Cowell.


3. (U) This piece and others in the series can be found on
our SIPRNET website
http://www.state.sgov.gov/p/wha/santodomingo/ along with
extensive other material.














2. (U) Drafted by Lisa Kubiske, Michael Meigs, Bain Cowell.


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