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