GARCIA SAYS HE WILL ASK BUSH TO SEND FREE TRADE

C O N F I D E N T I A L LIMA 004384 SIPDIS SIPDIS STATE FOR WHA/AND, WHA/EPSC, EB, USTR FOR EISSENSTAT, HARMAN, CARILLO COMMERCE FOR ITA/MAC/SSMITH NSC FOR FISK, TOMLINSON E.O. 12958: DECL: 11/16/2016 TAGS: ETRD ECON PREL PE SUBJECT: GARCIA SAYS HE WILL ASK BUSH TO SEND FREE TRADE AGREEMENT TO HILL NOW; PRIME MINISTER TO LEAD CABINET DEL TO U.S. Classified By: Ambassador J. Curtis Struble, Reasons 1.4 (b) and (d) ¶1. (C) SUMMARY. President Alan Garcia announced that he would personally ask President Bush in the next few days to submit the implementing legislation for the Peru Trade Promotion Agreement (PTPA) to Congress now. Garcia announced on state-run television November 15 that the Democrats' mid-term victory had altered the prospects for approval of the PTPA during the lame duck session, and that he would therefore send Prime Minister Jorge del Castillo to Washington along with seven cabinet ministers to meet with outgoing and incoming Members of Congress to advocate for the agreement's passage. Hernando de Soto, Garcia's personal envoy for the PTPA, currently in Washington, told Ambassador November 16 that he thought things were going well, and that he lanned to discourage President Garcia from sending the cabinet delegation. The uncertainty over passage of the PTPA is viewed with some concern in the government and the business community. While the Peruvians realize they are holding few of the right cards at this time, the President's declaration is likely intended to blunt criticism that his Administration is not doing enough. END SUMMARY. 2.(U) In a television interview Wednesday November 15, Garcia announced he would personally ask President Bush to send the PTPA implementing legislation to Congress for approval now. He said that due to the changes as a result of the U.S. mid-terms elections, it was necessary to reach out to "new actors", especially in the incoming Congress. Garcia said he would send Prime Minister Jorge del Castillo and seven key cabinet members to Washington to establish contact with them. ¶3. (U) No date was given for this travel by the President, but Defense Minister Allan Wagner and Prime Minister del Castillo have confirmed the delegation would likely be in Washington December 4-5, when Congress came back from its Thanksgiving recess. Prime Minister del Castillo told a radio interviewer he thought Garcia would call President Bush in the next days. ¶4. (SBU) Garcia said del Castillo would travel accompanied by Ministers Jose Antonio Garcia Belaunde (Foreign Relations), Mercedes Araoz (Foreign Trade),Allan Wagner (Defense), Susana Pinilla (Labor),Pilar Mazzetti (Interior) and Maria Zavala (Justice). This delegation, he said, would "do what was necessary to be convincing". DE SOTO IS STILL OPTIMISTIC -------------- ¶5. (C) Development economist Hernando de Soto, whom Garcia named as personal envoy for the PTPA in September 2006, told Ambassador November 16 he thought things were going well. De Soto is currently in Washington, where he has been consulting with Congress and the Administration. His team has taken the position that there is actually space during the lame duck Congressional session to move PTPA. They have had indications of agreement from a number of their interlocutors in Washington. He believes the person to give a nod to make all this happen is Democrat Rep. Charles Rangel, likely incoming chairman of the Ways and Means Committee. De Soto said that he has mobilized former President Clinton aide Mack McLarty and AFL-CIO president John Sweeney towards that end. THE LABOR ISSUE -------------- ¶6. (C) On the labor issue, essential for many Democrats, de Soto has indicated his government's willingness to collaborate on a side-letter to the PTPA, which was approved by Peru's Congress in June 2006. He told Ambassador he was trying to shift the terms of debate on that issue. While Peru's labor laws are well-regarded in the hemisphere by the World Bank and the IMF, and generally well-enforced, they only cover the small portion of workers in the formal sector (between 10 and 25 percent). However, De Soto suggests that any stricter language on labor would never affect Peru's huge informal sector. ¶7. (C) Regarding the ministerial delegation's proposed visit to Washington, de Soto told Ambassador he was awaiting a call from President Garcia and planned to discourage it. No one he's talked to in Washington thinks it would be useful and some think it would smack of desperation and do harm. (COMMENT: This reinforces what we have heard from Peruvian business contacts in Washington that dispatching the Ministers indicates Garcia's disappointment in the work of de Soto and newly arrived Peruvian Ambassador to the United States, Felipe Ortiz de Zevallos. END COMMENT.) ¶8. (SBU) Hernando de Soto told the daily El Comercio November 16 that the Administration had in fact promised to send the PTPA's implementing legislation to Congress. He said he was worried that in the new Congressional climate, the PTPA could be overshadowed by other more pressing business, a concern expressed by Jose Miguel Morales, president of Peru's leading business association. De Soto added that he was not asking the U.S Congress to vote on the legislation, but simply for the Administration to send the legislation to the Hill, thereby putting the ball in Congress' court and creating a sense of urgency. UNCERTAINTY FOR EXPORTERS -------------- ¶9. (SBU) The GOP and the business community in Peru have been concerned by the uncertainty over U.S. Congressional approval of the PTPA, particularly since last week's Democratic victory in the House and Senate. Prospects for approving the extension of the Andean Trade Preference Drug Enforcement Act (ATPDEA) reportedly look better, yet the trade ministry and export associations have confirmed that with both the ATPDEA and the PTPA pending, some U.S. retailers have already moved their textile and apparel sourcing from Peru to other countries. Banks that lend to exporters have reportedly tightened up their credit policies as a result. Peruvian business leaders and U.S. importers have been among the most active participants in the lobbying effort on the PTPA and will likely be in Washington when the Congress meets in early December. ¶10. (SBU) Presidential Advisor Ricardo Pinedo told Poloff November 16 that he thought Garcia was unperturbed by the lack of progress on passage of the PTPA in the current U.S. Congressional session. He said that former President Toledo's famous "TLC, si o si" comment had boxed Garcia in from the start, and the idea that there was new wiggle room was not necessarily a problem. He said Garcia believed the PTPA will necessarily be ratified in the end, even if it was unclear when, because "the world is moving toward fuller integration." At the same time, he suspected that Garcia would take some political heat if that didn't happen quickly. ¶11. (SBU) COMMENT: Polls show most Peruvians continue to be very supportive of the PTPA, and booming sectors of the economy, especially apparel and textiles, depend heavily on the U.S. market. If Garcia advisor Pinedo's somewhat relaxed view is more than bluster, then today's announcement that Garcia is sending a team of ministers to Washington to press for expeditious PTPA passage is likely intended to preempt blunt criticism. Whether the Prime Minister and his team make it to Washington or not in December, the Peruvian and U.S. business representatives will continue to work the Hill. STRUBLE