ONE HONDURAN PRIVATE SECTOR GROUP PANICKING IN

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001031

SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, WHA/EX, WHA/PPC, EB/OIA/IFD
TREASURY FOR DDOUGLASS
STATE PASS AID (LAC/CAM)
STATE PASS USTR: ANDREA MALITO
GUATEMALA FOR COMMAT:MLARSEN

E.O. 12958: DECL: 05/13/2015
TAGS: ETRD ECON PGOV HO
SUBJECT: ONE HONDURAN PRIVATE SECTOR GROUP PANICKING IN
FACE OF CAFTA DELAYS


Classified By: EconChief PDunn for reason 1.4(b,d)


1. (U) This is an action request -- please see para 7.


2. (C) Following publication here of reports of the CAFTA
Presidents' 05/12/05 CNN interview, in which they indicated
there is no "Plan B" if the U.S. Congress fails to ratify
CAFTA, EconChief received a worried phone call from a
prominent business leader. Adolfo "Fito" Facusse, President
of the Honduran Industrial Association (ANDI) and
Vice-President of the Latin American Industrial Association,
told Post that he remains a staunch supporter of CAFTA, but
that he is very concerned about the apparent lack of impact
on ratification prospects of the recent CAFTA Presidents,
visit.


3. (C) Facusse told EconChief that at its upcoming 5/17/05
meeting, ANDI is contemplating issuing a statement calling
for sharp retrenchment if CAFTA does not pass in the U.S. He
said the Association would call for imposition of 35% tariffs
on imports, to be imposed immediately, and only to be lifted
when a Free Trade Agreement is signed along with an agreement
for 500,000 temporary work permits. ANDI would also call for
immediate initiation of FTA talks with Brazil and the EU.


4. (C) Facusse said this measure is intended to support CAFTA
ratification by demonstrating that a failure to ratify would
lead to dire consequences for the U.S. He also said that
such a step would remind public and private sector officials
in the U.S. that the Central American market is not a
birthright, but could be lost to Brazilian or EU competitors.


5. (C) EconChief stressed to Facusse that such an approach
would be short-sighted, would harm Honduran interests in both
the short and long terms, and could harm rather than bolster
ratification prospects for CAFTA. Those who oppose CAFTA on
sovereignty grounds would see this as proof of their fears
and could further harden their stance. Those concerned about
Central American dedication to free trade would see the
threat of a sharp protectionist move as evidence that
dedication to free trade is superficial and cannot be counted
upon. Threatening the U.S. Congress, we told him, is
unlikely to be a wise or productive strategy.


6. (C) Moreover, such a move would be premature. It is too
soon to see the real results of the CAFTA Presidents' visit,
but early indications are of a public success. Further,
CAFTA has not been formally introduced into Congress, and
once it is, there will be an additional 60 days in which ANDI
can lobby for ratification. Therefore, EconChief told
Facusse to strongly encourage ANDI not to do anything
precipitous or rash. Statements of support for CAFTA are
legitimate and welcome, but threats and brinksmanship are
not. By the end of our conversation, Facusse was persuaded to
soften his stance substantially and agreed to consult with us
prior to making any such declaration. That said, Facusse
continues to harbor three significant concerns: (1) As a
textile manufacturer, Facusse is intensely aware that without
CAFTA, the PRC will erode his market-share and eventually
drive him out of business. (2) Facusse is concerned that a
failed ratification vote for CAFTA would lead to a political
retaliation and a "wave of protectionism." (3) Finally,
Facusse noted that Brazil has long held a different vision
for regional trade (starting with a Brazil-dominated trading
bloc),and this alternative would likely gain adherents if
CAFTA were to fail.


7. (C) Comment and Action Request: We think we have talked
Facusse back off the ledge, but we will follow-up with him
again on Monday, prior to the ANDI meeting to reinforce our
unequivocal message. In our view Facusse remains a strong
supporter of CAFTA and seems to genuinely believe that his
threat of trade war would advance the cause of ratification.
His reaction is not representative of the broader Honduran
private sector, but he is an influential and highly visible
personality. Should he choose to stake out such a position,
he could garner significant media coverage and potentially do
real harm to the CAFTA ratification effort in the U.S. that
he seeks to support. We will do our utmost to prevent such
an eventuality. ANDI's impulse to speak out in favor of
CAFTA, however, is laudable, and we would welcome Department
guidance on what message from the Honduran private sector
would most effectively support their goal of CAFTA
ratification. End Comment.

Palmer
Palmer