EU IMPROVES PERU'S TRADE PREFERENCES, BUT FTA

UNCLAS SECTION 01 OF 02 LIMA 000469 SIPDIS SENSITIVE SIPDIS DEPT FOR WHA/AND, WHA/CEN, WHA/EPSC, EB/TPP/ABT TREASURY FOR OASIA/INL COMMERCE FOR 4331/MAC/WH/MCAMERON USDA FOR FAS/ITP/GRUNENDFELDER E.O. 12958: N/A TAGS: ETRD ECON EAGR PGOV PREL PE SUBJECT: EU IMPROVES PERU'S TRADE PREFERENCES, BUT FTA UNLIKELY ¶1. (SBU) Summary. On January 1, 2006, the European Union extended its Generalized System of Preferences (GSP) for Peru, making Peru one of 15 countries to receive GSP Plus benefits. Under GSP Plus, Peru will be able to export up to 7,200 products duty free to the EU, an increase from 6,900 under GSP. Additionally, countries are granted a longer time frame for "graduating" from GSP plus; instead of monitoring growth levels for individual products, the EU will instead monitor groups of products. The EU Delegation in Peru indicated that while Peru could benefit from GSP Plus, the EU was unlikely to negotiate a free trade agreement with the Andean Community until the Andeans establish a common external tariff for EU products. The EU will make a decision on the future of FTA negotiations with the Andean Community in its EU-Latin American meeting in Vienna this May. End Summary. Introducing GSP Plus -------------- ¶2. (U) In November 2005, the European Union provisionally granted additional Generalized System of Preferences (GSP) benefits to Peru and 14 other countries, including the remaining Andean countries, six Central American countries, Moldova, Georgia, Mongolia and Sri Lanka. On January 1, the European Union extended the additional GSP benefits, known as GSP Plus, now set to expire at the end of 2008. Under GSP Plus, the fifteen countries will be able to ship 7,200 products, mainly agricultural and fisheries products, to the European Union duty-free compared to the 6,900 products under the regular GSP. Additionally, countries are granted a longer time frame for "graduating" from GSP Plus. Instead of monitoring growth levels for individual products, the EU will instead monitor groups of products. ¶3. (SBU) To qualify for GSP Plus, a country must be a signatory to 23 different international accords in the areas of environment, intellectual property and labor, among others. Alain Bothorel, Economic Counselor at the European Union Delegation, informed us that one of the goals of GSP plus is to encourage regional integration, thus paving the way for possible future free trade agreements (FTAs) with the European Union. Bothorel explained that the EU is interested in pursuing an FTA with either the Central American or the Andean countries, both regions now covered by GSP Plus benefits. But is an FTA with the Andean Countries Likely? -------------- ¶4. (SBU) Further elaborating on the future of an FTA with the Andean countries, Bothorel first noted that the European Union is not interested in pursing a bilateral agreement with only Peru. Instead, the EU, which uses its FTAs as a way to promote development and democracy, is interested in an FTA with the entire Andean Community, which includes Peru, Colombia, Ecuador, Bolivia and Venezuela. During 2005, the EU discussed the possibility of beginning FTA negotiations with the Andeans in 2006. However, according to Bothorel, the EU has begun to shift its focus to the Central American region, as it feels that these countries are more serious about FTA talks. ¶5. (SBU) Bothorel highlighted several reasons why FTA negotiations between the EU and the Andean Community may not occur in 2006. First, before FTA talks can commence, the EU wants the Andean Community to establish a common tariff LIMA 00000469 002 OF 002 policy. Bothorel explained that EU products must be subject to the same tariff rates in all Andean countries to ease trade of EU products within the Andean bloc. To date, the Andean Community has not yet harmonized its tariff rates. The EU recently completed a joint assessment of the Andean Community's tariff policies; Bothorel explained that the assessment was not very positive and could further delay FTA talks. ¶6. (SBU) Second, Bothorel noted that the EU wants national treatment for investors. He lamented that the recent election of Evo Morales in Bolivia and his plans to nationalize certain industries further undermines plans for FTA negotiations in 2006. Additionally, Bothorel highlighted that political developments in the region, with the recent surge in popularity for ultra-nationalist Presidential candidate Ollanta Humala in Peru and the tendency of Hugo Chavez in Venezuela to denounce trade with the EU in favor of trade with the Mercosur countries, creates further uncertainty. ¶7. (SBU) The EU will make a decision about whether to pursue an FTA with the Andean Community or the Central American countries at the EU-Latin America meeting in Vienna this May. He commented that even if the EU does begin negotiations with the Andean Community in 2006, he expects that it would take approximately four years to conclude negotiations. Talks on issues such as agriculture and intellectual property protection will be the most sensitive and may take years to conclude. Pressure from the Andeans -------------- ¶8. (U) The Secretary General of the Andean Community, Alan Wagner, continues to emphasize that FTA negotiations with the EU will begin in 2006. In a recent press statement during the visit of World Trade Organization Director General Pascal Lamy, Wagner claimed that the Andean Community would establish a special common tariff for EU products in the next four months, which would pave the way for FTA talks. Comment -------------- ¶9. (SBU) Bothorel believes that the EU is more likely to begin negotiations with the Central American countries in 2006, delaying FTA talks with the Andeans until 2007 or later. Several EU countries argue that the political uncertainty in the Andean region and the upcoming elections in Peru, Colombia and Ecuador are justifications for the delay. Bothorel noted, however, that the Andean countries, particularly Peru, Colombia and to a lesser extent Ecuador, are well equipped to negotiate an agreement with the EU based on their experience with the United States. He expressed concern that many of the agricultural issues discussed in the U.S.-Andean talks will become much larger issues during the EU negotiations given the EU Common Agricultural Policy. STRUBLE