CONGRESSMAN SMITH VISITS PERU TO DISCUSS FREE

UNCLAS LIMA 004035

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DEPT FOR H (JOHN REDDY)
DEPT FOR WHA/AND, WHA/EPSC, EB/TPP
COMMERCE FOR 4331/MAC/WH/MCAMERON
USTR FOR BHARMAN AND MCARRILLO

E.O. 12958: N/A
TAGS: ETRD ECON CODEL OVIP ELAB PGOV PE
SUBJECT: CONGRESSMAN SMITH VISITS PERU TO DISCUSS FREE
TRADE AGREEMENT

REF: STATE 161385

SENSITIVE BUT UNCLASSIFIED, PLEASE HANDLE ACCORDINGLY


1. (SBU) SUMMARY: Congressman Adam Smith, Democrat from
Washington, spent four days in Lima, Peru (Oct 1-5) talking
with government and private sector representatives about the
potential impact of the Peru Trade Promotion Agreement (PTPA)
on both countries' economies, and the state of current
Peruvian labor laws, a bone of U.S. Congressional contention.
Upon departing, he said he had not decided how he would
vote, but he would try to make the case with his fellow
Democrats. He said his overall impression was quite
positive, and that he was impressed with the commitment by
both the GOP and Peruvian civil society to ensure that the
country's economic growth translated into a reduction of
poverty. END SUMMARY.

PRO-GROWTH DEMOCRAT MEETS MINISTERS, BUSINESS
--------------


2. (U) Describing himself as "pro-growth Democrat" who also
supports strong labor rights, five-term Rep. Adam Smith (D,
WA) spent four full days (October 1-5) in Lima, Peru, talking
with Peruvian government officials, legislators, labor
unions, large and small business groups, farmers, and NGOs
about the Peru Trade Promotion Agreement (PTPA). He told his
interlocutors that his principal concerns were the economic
impact on the U.S. and Peruvian economies, as well as whether
the PTPA would help reduce poverty and redistribute some of
the wealth generated by trade. Rep. Smith urged GOP
officials and business groups to contact Congressional
Democrats, including House Ways and Means Ranking Minority
Member Charles Rangel.


3. (SBU) Upon departing, Rep. Smith, who is also a member of
the House International Affairs Committee (HIRC),said his
overall impression was positive. He noted that Peru was
making progress on labor rights and said he believed there
was a broad commitment on the part of the GOP and civil
society to making progress. While telling his interlocutors
he had not made up his mind on the vote, he indicated that he
viewed the PTPA in a favorable light and that he would work
to persuade fellow Democrats to support the agreement.
Fortuitously, Peru is undergoing a complete review of its
labor law, and Rep. Smith urged key GOP officials, including
the Foreign Minister, the Trade Minister, the Labor Minister
and the Agriculture Minister to highlight and promote this
fact before next month when he expected the White House to
send the PTPA implementation bill to the Congress.

FOCUS ON POVERTY REDUCTION
--------------


4. (SBU) Virtually all of Rep. Smith's interlocutors in Peru
focused their comments on efforts to improve the fate of
Peru's workforce and poor. The theme of poverty reduction
was perhaps the essential topic of both the 2006 Peruvian
presidential election, and of President Alan Garcia's
proposed government program. Rep. Smith noted pointedly that
he had not seen this commitment among the CAFTA countries.
Rep. Smith told his interlocutors that, unlike Rep. Sandy
Levin (D, MI),who visited Peru in January 2006, he was
impressed by Peru's efforts on labor rights during the Toledo
years and the early months of the Garcia Administration.

PTPA WILL STRENGTHEN THE FORMAL SECTOR
--------------


5. (U) Rep. Smith's business interlocutors pointed proudly to
the high quality of protections afforded most workers in the
formal sector, i.e. 30 days of annual vacation, three months
of paid maternity leave, 14 monthly salaries a year, etc.
Political analysts and consultants agreed that these
demanding labor laws often drove companies into the less
onerous informal sector. Smith said he remained concerned
about the precariousness of many of those informal workers,

most of whom are self-employed, as well as the rural poor.
Rep. Smith's interlocutors confirmed that increased
export-led activities would move more workers into the formal
sector of the economy. The bulk of exporting sector textile
workers are in the formal sector, as are the bulk of workers
in farm export companies.

PTPA IS GOOD ON BALANCE FOR AGRICULTURE
--------------


6. (U) Rep. Smith agreed with analysts that small,
inefficient agricultural producers might well be losers when
highly subsidized U.S. products such as cotton, rice or corn
entered the small Peruvian market duty-free. However,
Agriculture Minister Salazar,
himself a farmer, told Rep. Smith he thought the PTPA was
very good "on balance" for Peruvian agriculture. He said
Peru boasted a highly profitable agricultural export sector
in non-traditional products (asparagus, bell peppers,
artichokes, avocados, table grapes, etc.),and the GOP has
planned temporary support payments to farmers in the weaker
sectors to help soften the blow. He also described GOP
programs to encourage farmers to grow more profitable crops.
Rep. Smith visited two textile factories and a grape and
avocado farm outside Lima.


7. (SBU) Rep. Smith told his interlocutors, including
opponents of the agreement, that he believed increased trade
and economic growth would help Peru increase its GDP and help
lift its people out of poverty - but that it needed to be
supplemented by strong workers' rights and capacity building
to enable more Peruvians to take advantage of trade
opportunities. He seemed satisfied with the Garcia
Administration's announced commitment to reducing poverty.
He also cautioned critics of the PTPA about arbitrarily
raising the bar on labor practices, a practice which could
cast a negative light on practices in many countries,
including in the developed world.

DEFEAT WOULD BE A BLOW TO POLICY IN THE REGION
-------------- --


8. (SBU) Rep. Smith agreed with analysts and representatives
of the business community that defeat of the PTPA in the U.S.
Congress would be a significant blow to the confidence of the
Peruvian economy. He also pointed to the need to support our
friends and allies in Latin America against the influence of
leaders like Hugo Chavez. He told the press he believed
America needed friends like Peru in the region.

COMMENT: HIGH SUPPORT AND HIGH EXPECTATIONS
--------------


9. (SBU) Following the Peruvian Congress's ratification in
July of the PTPA by a vote of 76 to 14, polls here show even
greater support for the agreement than before. Even critics
seem to admit that on balance, the PTPA will "lock in" key
economic and social reforms and provide stability for a
country that is still threatened by narcotics trafficking,
the informal economy and persistent poverty. But the high
approval ratings are also accompanied by high expectations.
Many Peruvians, especially in the business sector, are
looking to the U.S. Congress to ratify this agreement as
early as the end of the year, and more broadly, to confirm
the U.S. Government's commitment to a deeper and mutually
supportive economic and political relationship.
STRUBLE