PARAGUAY POLITICAL AND ECONOMIC UPDATE, SEPTEMBER

C O N F I D E N T I A L ASUNCION 000920 SIPDIS SIPDIS STATE FOR WHA/BSC AND EB/IFD/OIA STATE PASS TO USAID FOR LAC/AA STATE PASS TO USTR FOR LYANG NSC FOR SUE CRONIN TREASURY FOR OSIA MAUREEN WAFER TREASURY FOR OTA WARFIELD, VAN KOCH, MILLAR COMMERCE FOR ITA SARAH COOK SOUTHCOM FOR POLAD E.O. 12958: DECL: 09/08/2026 TAGS: PGOV PREL PHUM ECON PA SUBJECT: PARAGUAY POLITICAL AND ECONOMIC UPDATE, SEPTEMBER 2 - 8 REF: ASUNCION 0915 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