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