PARAGUAY POLITICAL AND ECONOMIC UPDATE, SEPTEMBER

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SUBJECT: PARAGUAY POLITICAL AND ECONOMIC UPDATE, SEPTEMBER
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Classified By: PolOff Sterling Tilley; Reason 1.4(b),(d).


1. (U) SUMMARY:

-- Supreme Court May Modify Ethics Code
-- Airline Industry Developments
-- Six Percent Commission Bill in Congress
-- Taiwan Donates USD 3 Million
-- Ambassador Calls on new Minister of Industry and Commerce
-- Ambassador Calls on new Minister of Agriculture
-- Ambassador Discusses Beef with Animal Health Service
-- Paraguayan Industrialists Favor FTA with the US

SUPREME COURT MODIFIES ETHICS CODE


2. (U) The President of the Supreme Court, Jose Raul Torres
Kirmser, expressed his intention to modify the recently
approved Judicial Code of Ethics, due to strong pressure from
the Paraguayan Bar Association. At the center of the
controversy is Article 21 of the Code that prohibits ex parte
meetings (e.g., private meetings between a judge, who is
examining a given case, and only one of the parties
involved). This article is one of the key provisions of the
Code as it aims to assure impartiality and reduce the
opportunities for influence peddling and bribes. This issue
was discussed by the Justices during the plenary on August

29. In a divided decision (5-4),and with the leading
position taken by Justice Minister Alicia Pucheta, the Court
decided not to modify any article of the Code. In another
important step forward, the Supreme Court agreed to designate
all members of the two implementing bodies (the Ethics
Tribunal and the Consultative Council) of the Code. These
members were sworn in by five (of nine) Supreme Court
ministers on September 5. USAID will provide the first
training session for these members on September 11 to discuss
the Code and the procedures for reviewing cases. There are
many pending cases to be heard by the Tribunal because the
Ethics Code and Office have been functioning since the
beginning of this year.

AIRLINE INDUSTRY DEVELOPMENTS


3. (U) MFA's Under Secretary for Bilateral Agreements
Ceferino Valdez told us that Bolivian airline Aerosur will
begin flying into Paraguay on September 20. Valdez said he
thought Aerosur would introduce direct flights from Asuncion
to Miami and Asuncion to Madrid, Spain. In addition, TAM
Mercosur has announced it is considering flying larger
regional aircraft (but not widebody planes) into Asuncion to
increase cargo capacity. Press reports indicate, Air Madrid,
a Spanish Airline, also intends to begin flights to Asuncion
on October 29.

SIX PERCENT COMMISSION BILL IN CONGRESS


4. (SBU) Colorado Deputy Mario Alberto Coronel Paredes
introduced a bill to repeal the article in the Tourism Law
(effective December 2005) that legislates six percent
commission for travel agents on the sale of air tickets. The
promulgation of the law prompted American Airlines to exit
the market. The new bill has received the approval of the
Industry, Commerce and Tourism Commission, but must receive a
favorable ruling by the Legislation Commission before coming
to a full vote. It would then have to be approved by the
Senate. EconCouns participated in an Amcham briefing of the
Legislation Commission supporting the repeal of the article.
(NOTE: It remains unclear if American Airlines would return
if the repeal legislation becomes law. In August, the
Supreme Court overturned a judgement against American
Airlines by a former employee that claimed American owed
excessive severance pay. Six other cases remain outstanding.
VP Castiglioni plans to meet with American Airlines
officials during his fourth trip to the U.S. for UNGA. END
NOTE.)

TAIWAN DONATES USD 3 MILLION


5. (U) Taiwanese Ambassador, David Hu, announced that the
Government of Taiwan is donating USD 3 million for the
construction of homes in cooperation with the Secretariat of
Social Action (SAS) and the National Council of Housing
(Conavi). This donation is part of the USD 29 million
promised by Taiwanese President Chen Shuiban over a five-year
period. The homes will be constructed in the metropolitan
area of Asuncion for residents of rural and squatter areas.

AMBASSADOR CALLS ON NEW MINISTER OF INDUSTRY AND COMMERCE


6. (SBU) The Ambassador called on Jose Maria Ibanez, the new
Minister of Industry and Commerce on August 31. Ibanez,
whose past positions include DCM in Paraguay,s Washington
Embassy, assured the Ambassador that he remained committed to
a strong IPR regime and to fighting informality and
contraband. The Ambassador signaled our support for key
Ministry personnel, such as the Director of Intellectual
Property, the head of the INL-supported IPR investigative
unit (UTE) and the head of the financial intelligence unit.
The Ambassador also underscored our support for the Ministry
through two components of the MCC Threshold Program and
USAID,s Paraguay Vende program, and requested the
Minister,s support for the ongoing reform of the penal code,
which includes key issues such as money laundering and
increased penalties for IPR violators. Ibanez requested help
with vetting Ministry inspectors, widely known for corruption.

AMBASSADOR CALLS ON NEW MINISTER OF AGRICULTURE


7. (SBU) The Ambassador, USAID Director and Econcouns called
on Ricardo Garay, the new Minister of Agriculture on
September 1. Garay is a technocrat with degrees from the
U.S. As the fourth Minister of Agriculture under Duarte and
the seventh in ten years, he quipped that the odds were
against him. The Ambassador discussed the importance of
following through on the processes to obtain access to the US
beef market, and the USAID Director gave an overview of the
MCC Threshold Program and USAID,s business development
program Paraguay Vende. The Minister,s main priorities will
be increasing the efficiency of cotton production, done
mainly by small landholders, and encouraging alternative
crops such as sesame and horticulture.

WHERE'S THE BEEF? AMBASSADOR DISCUSSES BEEF WITH ANIMAL
HEALTH SERVICE


8. (U) The Ambassador called on Hugo Corrales, the director
of SENACSA, Paraguay,s animal health service, on August 30.
The Ambassador encouraged Corrales to push forward with
efforts to gain access to the US beef market. Corrales
reported that SENACSA was awaiting a reply from the Food
Safety and Inspection Service (FSIS) to its May submission,
and said that SENACSA would submit initial technical
documents to the Animal and Plant Health Inspection Service
(APHIS) by the end of September. Corrales was optimistic
that the European Union, which completed an assessment
mission in early August, would grant Paraguay access to the
EU market via the Hilton Quota in the coming months.

PARAGUAYAN INDUSTRIALISTS FAVOR FTA WITH THE US


9. (C) According to recent press reports, the Paraguayan
Industrial Union (UIP) wants the government to seek a Free
Trade Agreement (FTA) with the US. The UIP believes this
would be a means to substantially increase local exports.
The President of the UIP indicated that a delegation of UIP
members would soon visit Uruguay and would meet with senior
and former government officials to obtain information on
US-Uruguay trade discussions. He expressed the UIP,s
interest in studying the possibility of joining forces with
Uruguay or seeking an independent trade agreement with the
United States. (NOTE: Notwithstanding support from the
business community for an FTA with the US, President Duarte
in a recent meeting with the Ambassador (reftel) conveyed

serious misgivings about free trade that would suggest
short-term prospects for moving ahead on this are not
realistic. END NOTE.)
CASON