UNCLAS SECTION 01 OF 02 SANTO DOMINGO 003820

SIPDIS

SENSITIVE

DEPT FOR WHA, WHA/CAR, WHA/EPSC, EB/TPP/BTA-MANOGUE;
STATE PASS USTR FOR VARGO AND MELITO;
NSC FOR SHANNON AND MADISON; 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: ETRD PREL DR PGOV CAFTA
SUBJECT: DOMINICAN REPUBLIC REACTS TO DR-CAFTA APPROVAL
ON HILL



1. Summary: In the hours after the U.S. House of
Representatives voted to approve DR-CAFTA implementing
legislation, Dominican reactions indicate that the vote
has dispelled any doubts about U.S. ability to
implement DR-CAFTA and may have improved prospects for
Dominican ratification. End summary.


2. Background note: For the past three weeks,
Dominican private sector, labor, and civil society
representatives have been negotiating a proposal on tax
reforms that will be required to replace tax revenues
lost under DR-CAFTA. Opposition politicians and some
business interests have demanded that ratification of
DR-CAFTA be linked to simultaneous passage of the
reforms and compensatory measures to make national
businesses more competitive. The tax talks have
progressed, but the newly elected party president of
the main opposition PRD, Senator Ramon Alburquerque,
has taken a hard line on this linkage. A meeting of
the PRD leadership on July 25 adopted his view as the
party line. End note.


3. The mediator of the negotiations on tax reform and
DR-CAFTA ratification, Monsignor Agripino Nunez, called
DCM Kubiske to congratulate us on the House vote and
say that DR-CAFTA will be good for both countries. He
said that an agreed package on tax reform should be
achievable by July 29, at least in broad outline. The
DCM mentioned the desirability of DR-CAFTA ratification
as soon as possible.


4. In another call to DCM, the chief of the Dominican
DR-CAFTA negotiating team, former Secretary of Commerce
Sonia Guzman, and former presidential trade advisor
Carolina Mejia commended the "triumph" of the vote in
the United States. They were "euphoric" that DR-CAFTA
was moving forward, optimistic that Dominican
ratification would be completed, and equally optimistic
that in 10 years the Dominican Republic would be "a new
country."

5. Senator Enriquillo Reyes (PRD) asserted to political
officers, "We will pass DR-CAFTA." Reyes, like Senate
president Andres Bautista (PRD) but unlike Senator
Alburquerque, wants to ratify now and then deal with
the other, more time-consuming, proposals.
Alburquerque and others are playing politics in advance
of the May 2004 Congressional elections, said Reyes.
He also believed that the razor-thin margin in the
House of Representatives would help convince Dominicans
that DR-CAFTA is not lopsidedly favorable to the United
States - as critics have claimed -- but will have real
benefits for the Dominican Republic.


6. In remarks to the afternoon press, Albuquerque - who
has been increasingly criticized by Dominican
commentators as the biggest roadblock on the road to
ratification - used terms that were only slightly less
obstinate than what he told the Ambassador over lunch
on July 14. Alburquerque's bottom line was the same:
DR-CAFTA ratification, compensatory measures for
national business interests, and tax reform must
proceed together. And the Fernandez administration
must submit its own tax reform proposal for debate by
the opposition (Comment: to share the political cost of
raising taxes. End comment.).


7. Chamber of Deputies president Alfredo Pacheco (PRD),
contacted by the DCM, said there had been progress in
the direction of ratification (Comment: presumably on
tax reform). Pacheco, who will shepherd ratification
through the lower house of Congress, commented that
with the favorable U.S. Congressional vote, "the
Dominican people" will see things more clearly now and
will move expeditiously toward ratifying DR-CAFTA. The
DCM mentioned that, with investors inclined to work
with countries that have already ratified, the
Dominican Congress might wish to conclude the matter
promptly, consistent with the national interest.
Pacheco agreed.


7. Dominican Ambassador to the United States Flavio
Dario Espinal, in a phone interview with daily "El
Caribe," commented that the U.S. approval of DR-CAFTA
"opens a new scenario in our relations with the United
States." To Espinal, the House vote "is a clarion call
to our Congress to focus on ratification."


8. The local Coalition to Support DR-CAFTA, which
includes the AmCham, issued a press release July 28
revising its earlier stance published the week of July
11, advocating action on tax reform and DR-CAFTA "on
parallel tracks." Now, the Coalition "calls on the
Dominican Congress to seize this important moment and
act in the highest national interest approving the
agreement as soon as possible. This action would show
the Dominican Republic's commitment to integration in
the global economy and "to economic and institutional
reforms to establish a modern market economy under rule
of law." The country, concluded the statement, "cannot
delay this historic decision." The statement also
called for "a framework of action" to strengthen the
country's competitiveness in order to take advantage of
the opportunities presented by DR-CAFTA.

KUBISKE