POST'S ACTIVE TRADE AGREEMENT COMPLIANCE EFFORTS

UNCLAS LIMA 003804 SIPDIS SIPDIS DEPT FOR WHA/AND, WHA/EPSC, EB/CBA, EB/TPP COMMERCE FOR 4331/MAC/WH/MCAMERON AND TCC/4110 PASS USTR FOR HIRSH, BHARMAN AND MCARRILLO GENEVA FOR USTR USDA FOR ITP/FAS/BERTSCH E.O. 12958: N/A TAGS: ETRD ECON EINV PE SUBJECT: POST'S ACTIVE TRADE AGREEMENT COMPLIANCE EFFORTS REF: STATE 152063 ¶1. (U) Trade agreement compliance and monitoring continue to be a central priority for Embassy Lima. In April 2006, the U.S. and Peru signed a comprehensive free trade agreement (U.S.-Peru Trade Promotion Agreement, or PTPA),which is currently pending approval by the U.S. Congress. In the meantime, the Andean Trade Preference Act remains in force until December 31, 2006. The Ambassador and the Embassy played a key role in facilitating the PTPA, promoting the agreement to Peruvian audiences, and securing its passage by the Peruvian Congress on June 28, 2006. ¶2. (U) Once implemented, the PTPA will improve the treatment of U.S. exports and investors in Peru as follows: - Levels the playing field for U.S. companies which will enjoy tariff-free access into Peru; - Reduces sanitary and phytosanitary (SPS) barriers to agricultural trade; - Provides new market access for U.S. consumer and industrial products such as machinery and agriculture goods; - Liberalizes the services sectors; - Provides unprecedented, non-discriminatory access to government procurement and the telecom market; - Opens the Peruvian market to remanufactured goods; - Protects U.S. investments through a more secure and predictable legal framework that provides equal footing with locals; - Creates new, transparent dispute settlement mechanisms; - Strengthens protections for U.S. patents, trademarks, and trade secrets, and e-commerce; SIPDIS - Improves customs facilitation; - Addresses government transparency and corruption, worker rights, and protection of the environment; and - Includes express shipment provisions that benefit courier and express delivery companies (unique to PTPA). Post will closely monitor the implementation of the agreement in Peru, and will continue to inform U.S. businesses of the opportunities and protections it creates. ¶3. (U) Following are post's responses to reftel questions: A) Embassy Peru has Economic, Foreign Commercial Service (FCS) and USDA (both FAS and APHIS) sections, as well as a USAID mission that manages key trade-related programs. Our Public Affairs efforts have also focused on trade and investment disputes, and on explaining the provisions of the trade agreements. The Ambassador chairs weekly meetings of these sections to share information and to coordinate action. B) Contact at Post: Economic Counselor Adam Shub, 011-51-1-618-2413, shubam@state.gov. The FCS Counselor is Margaret Hanson-Muse, 011-51-1-618-2442, mhansonm@mail.doc.gov. The FAS Counselor is Eugene Philhower, 011-51-1-6180-2650, eugene.philhower@usda.gov. C) The Commercial Service files reports via the Advocacy Center and Trade Compliance databases and convenes Compliance working groups that include USTR, MAC, PTO, and DHS representatives. The Economic Section reports by cable and through the State Department's Bureaus of Western Hemisphere Affairs (WHA) and Economic and Business Affairs (EB). USDA reports to both FAS and APHIS/IS. Here are a few of the success stories recently reported to EB and FCS: Date Resolved: July 2006 (LIMA 2942) Company: Le Tourneau Company Issue: GOP paid Le Tourneau for road construction services rendered between 1954 and 1968 by granting the company land. The military government subsequently expropriated the land, so Le Tourneau filed suit in 1970. After 35 years of haggling over value, GOP paid Le Tourneau a $10 million settlement on July 26, 2006, plus committed to pay $400k interest in August 2006. Specific Actions Taken: Embassy and USTR advocacy, September 2002 ATPDEA commitment, FTA pressure. Ray Le Tourneau wrote that outcome would have been impossible without Embassy and USTR. Date Resolved: June 2006 (LIMA 2529) Company: Pfizer Issue: In 2002, Pfizer filed a patent infringement case against an Indian company illegally copying its Lipitor patent. After a four-year battle, the GOP IPR agency issued two decisions in June 2006 in favor of Pfizer. The Indian company can no longer sell its copy and was fined $8,500. Specific Actions Taken: Embassy and USPTO assisted Pfizer in 2005 when it encountered difficulties with its patent defense. Date Resolved: June 2006 Company: Exxon Mobil Issue: SUNAT (tax authority) announced in October 2004 that it was levying taxes for fuel supplied to outbound international carriers and would be collecting these taxes on sales (IVG) for the past four years. For Exxon, these back taxes amounted to $15 million. The GOP, in an effort to resolve the problem, passed a new tax law in January 2005 that classified future sales of fuel for international transport (air and sea) as exports, exempting the sales from IVG. The law, however, failed to make the tax exemption retroactive. To rectify the situation, the Ministry of Finance drafted two bills, which were passed by Congress on October 6, 2005 and published November 18, 2005, that allowed for retroactive credit of the back taxes. This allowed Exxon to recoup over three years its previously paid fuel taxes ($15 million) as a credit for future taxes. Specific Actions Taken: Continuous advocacy by Embassy since November 2004 (with SUNAT, USTR, Peruvian Congress, Ministry of Finance, and Prime Minister). Date Resolved: January 2006 Company: Parsons Brinckerhoff, Inc. /Parsons Engineering Science /CESEL Company Headquarters: Pasadena, CA Issue: Parsons (CESEL in Peru) did not receive payment for potable water/waste work done for the state-run Sanitary Sector Reform Assistance Program (PARSSA). Parsons initiated arbitration in June 2001; in March 2004, the arbitration panel found in favor of Parsons and ordered PARSSA to pay approximately $1.5 million (plus interest); PARSSA and the Housing Ministry unsuccessfully appealed twice. Parsons received a $1.9 million partial payment for its arbitration award in December 2005, and a second payment of $600,000 in January 2006. Specific Actions Taken: Embassy counseling began July 2004. Embassy met with CESEL to develop and pursue advocacy strategy, including meetings with Vice Minister and letters to Minister from Embassy. Post and USTR raised case during FTA negotiations. Date Resolved: December 2005 Company: Scientific Games Company Headquarters: New York, NY Issue: Formed consortium in Peru employing 600 handicapped Peruvians, and providing revenue to handicapped associations and the GOP. Scientific Games requested post assistance July 1, 2005 in saving its $30m investment in the Peruvian lottery system, as a competitor had introduced a law headed for approval that would have changed the legal framework under which the investment had been made and forced Scientific Games out of business. The President of Peru vetoed the bill on July 6, 2005. Competitor again introduced problematic bill in December 2005; bill died in committee, and a version introduced by Scientific Games was passed. Specific Actions Taken: Post delivered letter to and discussed issue with President of Peru on July 5, who then vetoed the bill. Post counseled Scientific Games on countering competitor's second attempt and contacted Ministry of Economy & Finance. Ongoing compliance issue: Peru's Customs (SUNAT) doesn't live up to its WTO commitments because it continues to use reference pricing rather than accepting invoices for valuation purposes. Customs officials confuse objectivity with literal interpretation and do not apply "good faith" principles. Scale and proportionality are not applied when determining penalties, resulting in severe distortions that sometimes force companies into total bankruptcy. D) The Ambassador is very active with the business community in all sectors and serves as the honorary chair of the large American Chamber of Commerce in Peru. Economic and Commercial Counselors are also honorary members of the AmCham. Post has an open door policy for U.S. businesses, and enjoys excellent working relationships with in-country representatives. At the working level, we meet regularly with the relevant ministries and regulatory agencies. The Embassy has hosted training programs in compliance, monitoring and standards, and has sent numerous officials from the Peruvian customs, IPR, judiciary, police, and prosecutor's offices to training and conferences in the U.S. and elsewhere. FCS supported TDA grants to GOP telecommunications entities designed to strengthen the regulatory framework, improve transparency and provide greater access and lower operating costs for SMEs. STRUBLE