SRI LANKA: SCENESETTER FOR TRADE MINISTER GL PEIRIS VISIT

UNCLAS SECTION 01 OF 03 COLOMBO 000873 SIPDIS SENSITIVE SIPDIS STATE FOR A/S BOUCHER AND SCA/INS COMMERCE FOR JONATHAN STONE AND EROL YESIN DOL/ILAB FOR TINA MCCARTER MCC FOR S. GROFF, D. TETER, D. NASSIRY AND E. BURKE TREASURY FOR LESLIE HULL GENEVA PASS USTR E.O 12958: N/A TAGS: ECON EINV ELAB ETRD PGOV PREL CE SUBJECT: SRI LANKA: SCENESETTER FOR TRADE MINISTER GL PEIRIS VISIT TO WASHINGTON JUNE 22-26 REF: A) 06 COLOMBO 2070 B) COLOMBO 848 ¶1. (SBU) Summary: Sri Lankan Trade Minister Peiris will visit Washington June 22-26 to meet with senior officials including Assistant Secretary Boucher and Deputy U.S. Trade Representative Bhatia. Peiris will be accompanied by representatives of Sri Lanka's main garment exporter association, which aims to draw attention to the Sri Lankan garment sector's high labor standards. The association has been a strong partner with USAID in developing apparel-related vocational training. It has also partnered with North Carolina State University to begin laying the groundwork for a college of textiles in Sri Lanka that would seek to attract students from all over Asia. (SBU) Summary (cont): Peiris was one of seventeen MPs who in January "crossed over" from the opposition to the government, citing among other reasons their intention to make a constructive contribution toward resolving Sri Lanka's ethnic conflict. He is one of Sri Lanka's leading constitutional experts, the GSL's chief negotiator during the 2002-2003 negotiations, the principal drafter of the devolution proposals submitted by President Kumaratunga in 2000 that many considered a good basis for talks, and a highly regarded elder statesman figure who has held numerous ministries over the last fifteen years. Washington officials should engage Peiris both on issues related to the bilateral Trade and Investment Framework Agreement and on the status of proposals to devolve power from the central government as part of an effort to resolve the conflict. End summary. ¶2. (SBU) Sri Lankan Minister of Export Development and International Trade GL Peiris will visit Washington D.C. June 22-26 to discuss both trade and political issues with senior USG officials. Minister Peiris will be accompanied by a delegation from Sri Lanka's Joint Apparel Association Forum (JAAF),which represents garment exporters. "GARMENTS WITHOUT GUILT" -- SRI LANKA'S GOOD NEWS STORY -------------- -------------- ¶3. (SBU) The Joint Apparel Association Forum (JAAF) would like to use the Washington visit to draw attention to the high labor, environmental, and ethical standards prevalent in Sri Lanka's garment sector. In meetings with Commerce Department, USTR, and Congressional members and staffers, the association will highlight its "Garments without Guilt" campaign and the sector's efforts to maintain market share against lower cost but less ethical competitors in countries like China and Vietnam. The association hopes to convince lawmakers to extend tariff concessions to Sri Lanka to help it remain competitive when U.S. safeguards on Chinese garment exports expire in 2008. The GSL understands that they face an uphill battle in their effort to win tariff concessions, but were encouraged during last year's talk with USTR to undertake such a road show and are pleased to have the opportunity to deliver some good news about positive developments in Sri Lanka. JAAF Public-Private Partnerships with AID -------------- ¶4. (U) JAAF has been a strong partner with the US Embassy in Colombo in USAID's vocational training effort. JAAF is providing particular assistance to two of the nine vocational centers AID is building: one is Sammanthurai near Ampara in the east, and one in Kogala near Galle in the south. In both cases JAAF will develop the curriculum for the centers, build a miniature factory floor so trainees get first-hand experience, train the trainers for the center, accredit the centers so they are up to an industry-wide standard and it will hire all of the 450 graduates from each of the two centers each year to work in its nearby garment factories. Trainees will receive training as machine operators, mechanics, pattern makers, cutters, quality inspectors, fabric inspectors and supervisors. COLOMBO 00000873 002 OF 003 JAAF has also been a pioneer in an effort to "take the work to the worker". Whereas in the past governments sought to establish industrial zones near major cities, thereby spawning urban migration, separation of families and other familiar ills, JAAF has sought to locate factories around the country so that workers can commute from their villages, families remain together and the income they earn helps to develop a host of new service industries in their villages. ¶5. (U) JAAF has also been a pioneer in establishing a Memorandum of Understanding with North Carolina State University with the eventual goal of partnering with the University to establish a college of textiles in Sri Lanka which would seek to attract students from all over Asia. Students would receive degrees in industrial engineering, supply chain management, product design and other textile related skills. ¶6. (U) The following provides additional background and points for discussions with Minister Peiris on trade issues. TRADE ISSUES -------------- ¶7. (U) In 2006, Sri Lanka's exports to the United States, its largest market, totaled $2.1 billion, or nearly a third of total exports. Apparel continued to dominate U.S.-bound exports, but grew by only two percent to $1.7 billion. Other major exports from Sri Lanka to the United States were, in order, rubber, gems, tea, and spices. United States exports to Sri Lanka in 2006 were worth $237 million. Major U.S. exports were machinery, yarn and fabric, medical equipment, paper, and computers and related equipment. 2007 statistics for the first quarter show the U.S. trade deficit with Sri Lanka narrowing somewhat. ¶8. (SBU) In December 2006 Trade and Investment Framework Agreement (TIFA) talks (ref A),U.S interests focused on the following: -- gaining market access for U.S. seed potatoes, which Sri Lanka had blocked for spurious phytosanitary reasons; -- reducing Sri Lanka's high tariffs and para-tariffs; -- improving transparency of Sri Lankan government procurement; -- improving contract sanctity in Sri Lanka; -- avoiding potential non-tariff barriers that could impede U.S. exports of pharmaceuticals and genetically modified foods. ¶9. (SBU) Sri Lanka's interests focused on: -- obtaining preferential tariffs for apparel; -- receiving U.S. trade capacity building assistance in GSP utilization, anti-dumping/countervailing duties, and IPR enforcement; -- attracting increased U.S. investment; -- securing a Millennium Challenge Account Compact. ¶10. (SBU) Following are some specific points Washington interlocutors may wish to draw on: o Glad Sri Lanka recently agreed to permit access to U.S. seed potatoes. o Urge Sri Lanka to permit access of genetically modified feed maize. o High tariffs and paratiffs, in addition to reducing trade, contribute to the high cost of living for average Sri Lankans. o We have not seen progress on transparency of government procurement. o Contract sanctity has not improved. For example, Ceylon Electricity Board's failure to issue letters of credit to U.S. power COLOMBO 00000873 003 OF 003 producer AES three years after required to do so by the power purchase agreement is egregious. (Note: See ref B for more cases.) o Important to improve contract sanctity and procurement transparency as Sri Lanka tries to attract global oil investors. o We are glad to see increased fines being levied on IPR violators. o We maintain our offers of capacity building assistance in GSP utilization, anti-dumping/ countervailing duties, and IPR enforcement. POLITICAL ISSUES -------------- ¶11. (SBU) In addition to his trade portfolio, Peiris occupies a unique position as a close advisor of President Rajapaksa. Peiris was one of the UNP Members of Parliament who crossed over earlier in the year to join the Rajapaksa government. The crossovers released their own devolution proposal on May 22. Peiris himself drafted this proposal as a means to build on the 13th Amendment which made the province the unit of devolution. Although he was the drafter, Peiris parted company with his colleagues when they decided to go public with the proposal. Peiris had advocated that the group try to work privately with the President to help shape the SLFP proposal. ¶12. (SBU) The Minister continues to be a constructive but quiet advocate within the Cabinet for a strong devolution proposal that will meet the needs of the Tamil people. As the former chief negotiator for the government during the 2002-2003 negotiations, and as the principal drafter of the devolution proposals submitted by President Kumaratunga in 2000 that many considered a good basis for talks, Peiris is uniquely qualified to provide the President with good advice. In a meeting with the Ambassador before his departure for the US, he agreed that the President must personally embrace a strong devolution proposal if it is to have any hope of success. But he also expressed understanding for the President's concern that he faces a substantial political risk if he endorses a strong devolution proposal only to have the LTTE refuse to negotiate, thereby leaving the President exposed to criticism from his southern base. Peiris looks forward to a candid discussion of these matters with A/S Boucher. BLAKE