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

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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