FONMIN TO A/S SHANNON: PARAGUAY SEEKS ECONOMIC

C O N F I D E N T I A L ASUNCION 000355 SIPDIS SIPDIS NSC FOR JOSE CARDENAS; SOUTHCOM FOR POLAD C O R R E C T E D C O P Y (ADDED PORTION MARKINGS ON PARA 11) E.O. 12958: DECL: 04/26/2027 TAGS: PREL PGOV KDEM PTER ECON PA SUBJECT: FONMIN TO A/S SHANNON: PARAGUAY SEEKS ECONOMIC RETURN ON U.S. RELATIONSHIP TO COUNTER CHAVEZ C O R R E C T E D C O P Y (ADDED PORTION MARKINGS ON PARA 11) Classified By: PolCouns James P. Merz; Reasons 1.4(b),(d) ¶1. (C) SUMMARY. Paraguayan Foreign Minister Ramirez stressed with A/S Shannon the need for greater access to U.S. markets and an agreement on biofuels to more effectively counter the appeal of Chavez's populist message and generously funded assistance offers. He asserted Paraguay's rejection of our request for WTO waivers was not driven by a desire to extort the U.S.; rather Paraguay sought a signal from the U.S. that it was prepared to ease access to U.S. markets. Paraguay was proud of progress achieved thus far on its MCA Threshold program and was worried its hard work may not produce the improvements in anti-corruption indices necessary to qualify for an MCA compact. Paraguay's MFA team pledged its commitment to fight terrorism and transnational crime appealing for greater U.S. assistance to support its strong counter-narcotics efforts. ¶2. (C) A/S Shannon assured Ramirez of the U.S. desire to strengthen our relationship with Paraguay and the rest of the hemisphere by more effectively responding to the region's social and economic needs. President Bush's trip to the region and his recent meeting with President Lula reflected our renewed commitment to the region. Venezuela's petrodollars held out a seductive appeal but Chavez's record for delivering on his promises was uneven at best. Biofuels offer the region an alternative energy source with the potential to contribute to development and respond to environmental concerns; the U.S. was prepared to discuss further with Paraguay our plans for biofuels in the region. END SUMMARY. ¶3. (U) A/S Shannon met April 27 in Asuncion with Foreign Minister Ruben Ramirez Lezcano, who was accompanied by Presidential Advisor Carlos Walde, Vice FONMIN Federico Gonzalez, Vice FONMIN for Economic Integration Emilio Gimenez, MFA Director of Bilateral Affairs Ceferino Valdez, and Paraguay's Ambassador to the U.S. James Spalding. The Ambassador, DCM, USAID Director, PolCouns, and EconCouns rounded out U.S. participation in this meeting that focused almost exclusively on the question of Paraguay's participation in the MCA program, access to the U.S. market, and the future of biofuels for the region. Immediately prior, Vice FONMIN Gonzalez led a large delegation of MFA officials, the Director of Paraguay's Anti-Drug Secretariat (SENAD),and a representative of the Attorney General's office in a discussion of a wide range of bilateral issues. Market Access Key to Countering Populist Appeal ¶4. (C) Ramirez lamented the appeal of Chavez's populist message and his generous assistance offers. He said reform efforts underway in the United Nations, the WTO, and the IFI's hold out little prospect for responding more effectively to the developing world's economic and social needs. Chavez's policies don't offer real promise but they fill a void left in the wake of few alternatives. U.S. pledges of cooperation, in and of themselves, are not enough. Ramirez noted that Paraguay suffers a serious trade deficit with the U.S. and is only asking for the kind of access many of its neighbors throughout the region enjoy by virtue of special agreements acceding reduced tariffs. Ramirez recognized the need to develop stronger bilateral alliances with the U.S. to counter the risk of a strong anti-West ideology gaining foothold. ¶5. (C) Ramirez insisted Paraguay's decision to withhold consent for our WTO waiver request was painful but necessary. President Duarte saw the U.S. as an ally and would like to deepen commercial cooperation between our two countries. As Paraguay observed all of its neighbors enjoying preferential access to U.S. markets, it asked for some sign from the U.S. of our intention to extend Paraguay the terms of trade its neighbors enjoy. Paraguay wants to end its dependency on Brazil. As difficult as it was for Paraguay to take its decision on the waivers, it would be impossible politically, given strong private sector interest in this issue, to reverse it absent some response by the U.S. to Paraguay's needs. ¶6. (C) Vice FONMIN Gimenez made some of the same points in the large delegation meeting. Noting Paraguay's large trade deficit with the U.S., he urged the U.S. to ease access for Paraguayan sugar (by allowing for an increase in the present quota and Paraguay's use of other minimum boatload country's quotas that are unused),beef, stevia (by approving its identification as a food complement),textile, and artisan products. Paraguay looked to developed countries to improve the terms of negotiation particularly on the subject of agricultural subsidies. He proposed June 7-8 as the date for the next Joint Council on Trade and Investment (JCTI) but maintained that if the meeting produced no concrete results in the way of greater trade access, Paraguay saw little reason to continue holding the meetings. Looking for a Piece of the Biofuel Action ¶7. (C) A/S Shannon briefed Ramirez on the principles undergirding our biofuel accord with Brazil. He conveyed U.S. willingness to discussing further the contribution Paraguay could make on biofuels. Ramirez insisted Paraguay was keen to explore greater investment in sugar cane given its potential as a biofuel producer and that President Duarte was focusing on the potential it offered to create employment for thousands of small time farmers. Ambassador Spalding remarked that Paraguay's state-owned petroleum company, Petropar, had plans to diversify into biofuels relying on private investment. Vice FONMIN Gonzalez used our delegation meeting to articulate clearly Paraguay's desire to 1) develop a comprehensive strategy on biofuels and 2) explore developing a bilateral agreement with the U.S. on biofuels. MCA Progress Good but Public Recognition Still Lagging ¶8. (C) Presidential Economic Advisor Walde expressed pride about Paraguay's progress in implementing Paraguay's MCA Threshold Program. Institutions were learning to cooperate with each other and Paraguay was moving smartly towards meeting indicators in most of the components. Nevertheless, Walde was worried that while Paraguay's institutions were improving their performance, it would take time for public attitudes to change and recognize the improvement. This meant Paraguay's performance on corruption perception indicators could lag notwithstanding signficant advancements by the GOP in meeting the requirements of its program. Ramirez was concerned that if Paraguay did not win a compact it stood the risk of losing the progress made to date. A/S Shannon applauded Paraguay's progress and encouraged GOP representatives to travel to Washington at the appropriate time to make their case to MCA compact decision makers, including those working for institutions that produce the indices. He also stressed the need for Paraguay to adopt as law the penal and procedural code reforms as this could well weigh into the MCA Board's decision on a compact. Paraguay Pledges Commitment to Fight Terror, Transnational Crime ¶9. (C) Vice FONMIN Gonzalez used the delegation meeting to draw attention to Paraguay's strong record on combating drug trafficking as reflected by its gaining U.S. certification seven years running. He urged the U.S. to increase its funding in support of SENAD's efforts, lamenting the significant reduction in assistance over the last three years. Paraguay saw no evidence pointing to the existence of terrorist cells in Ciudad del Este but recognized the potential for terrorist financing existed. Paraguay was committed to deepening anti-terror cooperation and looked forward to participating in Brazil's new intelligence center inaugurated last year in the Tri-Border Area (TBA). Paraguay used an inter-institutional task force to better coordinate efforts to combat trafficking in persons and appreciated U.S. funds being used to create a shared data base on trafficking cases. It hoped to find ways to strengthen military cooperation including through continued negotiation of a SOFA. ¶10. (C) A/S Shannon commended SENAD's success in combating narcotics trafficking and assured MFA officials he would look into what could be done to expand USG assistance. He stressed the importance the U.S. places on combating terrorist financing and urged Paraguay to move ahead in the adoption of penal and procedural code reform legislation which includes provisions to criminalize terrorism and toughen the current law on money laundering. A/S Shannon recognized Paraguay's contribution to the 3 1 forum but suggested it was time to explore making the forum more action oriented. He also raised Paraguay's decision not to renew our military agreement which had prompted the cancellation of several MEDRETE exercises and hoped that we could find a way to renew our cooperation based on a new agreement. And the Rest of the Agenda ... ¶11. (C) Vice FONMIN Gonzalez and A/S Shannon touched on a number of other important matters in the course of their exchange. -- Both officials applauded U.S. AID's decision to extend its Paraguay Vende program into a second phase. -- A/S Shannon and the Ambassador urged Paraguay to adopt legislation to eliminate the present 6 percent fee for travel agencies on airline tickets. American Airlines would like to return to Paraguay but would find it difficult absent movement on this issue. -- A/S Shannon and the DCM described the Embassy's development of a training program that will create an opportunity for young Paraguayan foreign service officers to travel to Washington to participate in a specially designed visitors program that would include some coordination with Georgetown University. -- Both sides celebrated formation of the board that will oversee implementation of activities in connection to Paraguay's recent signing of the Tropical Forest Conservation Act (TFCA) agreement to forgive $7.4 million. -- Paraguay said it continued to study the potential benefits of a Bilateral Investment Treaty but signaled this was not a high priority. -- The Ambassador urged Paraguay to take full advantage of the Department of Agriculture Cochran training fellowships we offer each year on issues such as biofuels, animal disease risk management, and IPR. Gonzalez assured us Paraguay would seek to identify more candidates for this program in the future. ¶12. (C) COMMENT. Foreign Minister Ramirez warmly welcomed A/S Shannon's visit as a reflection of the U.S. commitment to strengthen its engagement with Paraguay. Making the case for winning an MCA compact, gaining wider access to U.S. markets, and becoming a player on biofuels clearly reflected the MFA's priorities. Paraguay stressed repeatedly the importance it attaches to gaining access to U.S. markets on terms accorded to its neighbors without which it will remain politically difficult to extend the WTO waivers the U.S. has requested. Ramirez appreciated Secretary Rice's offer to visit Washington and asked his staff to explore scheduling a trip. END COMMENT. ¶13. (U) This message was cleared by A/S Shannon before he departed post. CASON