DEPUTY USTR VERONEAU WITH PERU'S PRESIDENT GARCIA

C O N F I D E N T I A L LIMA 001019

SIPDIS

SENSITIVE
SIPDIS

STATE FOR E, EB, EB/TPP, WHA/AND
PASS TO USTR FOR VERONEAU, EISSENSTAT, HARMON
COMMERCE FOR MCAMERON
TREASURY FOR JEWELL, SHWARZMAN

E.O. 12958: DECL: 03/26/2017
TAGS: ETRD ELAB EAGR PGOV USTR PE
SUBJECT: DEPUTY USTR VERONEAU WITH PERU'S PRESIDENT GARCIA
ON TRADE AND REGIONAL DEVELOPMENTS, MARCH 12-13


Classified By: AMBASSADOR J. CURTIS STRUBLE, REASONS 1.4 (b) AND (d)


1. (C) SUMMARY. Peru's President Alan Garcia received
Deputy U.S. Trade Representative John Veroneau in Lima, March
12 for a discussion of the Peru Trade Promotion Agreement
(PTPA) and regional developments. Garcia told Veroneau that
the PTPA was essential for his country's economic development
and that the majority of Peruvians supported the agreement
and value good relations with the United States. Garcia told
Veroneau that the success of the PTPA would mean a victory
for market and open investment- oriented countries like
Colombia, Chile, Peru and Mexico over Hugo Chavez's model. As
he has with other high-level visitors, Garcia spoke of a
"Cold War" in South America and of his disappointment over
Argentina and Brazil's complicit support of Chavez. He noted
Chavez's interest in supporting North Korea and Iran's
nuclear ambitions, and urged the U.S. to act with "studied
indifference" towards Ecuador. Ambassador Veroneau explained
to Garcia the current Congressional dynamics on the PTPA, as
he did with business representatives, congressmen,
environmental groups and labor leaders that he met with
during his visit. END SUMMARY.


2. (C) During a March 12-13 visit to Peru, President Alan
Garcia received Deputy US Trade Representative John Veroneau
for a discussion of the Peru Trade Promotion Agreement and
regional developments. President Garcia said that it is
important for people to recognize that economic borders
between countries are falling. The PTPA is essential, he
said, to help fight passivity in a Peruvian population that
has not discovered its potential. Peru can grow at 10
percent a year, Garcia predicted, if PTPA is in place and
Peruvians discover what they can do. To push the process, he
added, Peru was engaged in what he termed a "unilateral FTA",
i.e. cutting to zero most tariffs on imports of productive
machinery. On this visit, Ambassador Veroneau was
accompanied by Deputy Assistant U.S. Trade Representative
Bennett Harman and Press Spokesman Gretchen Hamel.

PTPA APPROVAL WILL DEMONSTRATE CHAVEZ FAILURE
--------------


3. (C) Garcia said that there is a second, geopolitical
dimension to the PTPA, recalling that he had told President
Bush in October that the US needs allies with vision. There
is a momentary challenge posed by people like Hugo Chavez,
Garcia said, but it will pass. Bringing the PTPA with Peru
into force would be the best way to demonstrate their
failure. PTPA will create solid relations with the U.S. and
help steer Latin America in the direction of friendship with
Washington. Ambassador Veroneau agreed with the President,s
observation and said that countries can adopt policies, he
said, that strengthen democracy and broaden the base of the
economy or policies that narrow the economic base. Broadening
opportunity consists of more than throwing money at problems.


4. (C) Garcia said that his administration is trying to
broaden investment and employment. The Peruvian people had
heard many messianic and demagogic promises in the past 50
years. They therefore understood, Garcia said, the
responsible course his administration is taking and have
confidence in its direction. The President said that 75
percent of Peruvians are in favor of the PTPA and a similar
number think that relations with the U.S. are the most
important. For that reason Garcia lamented the contrary
message that Chavez was trying to send out with his protest
rally in Argentina. "Governments can,t distribute what they
don,t produce. For that reason, they need open economies
combined with social investment." The President opined that
Chavez is trying to escape Venezuela,s social problems: "The
more he talks abroad the more problems he is running from."

A "COLD WAR" IN SOUTH AMERICA
--------------


5. (C) As he has with other recent senior USG visitors,
Garcia spoke of a "Cold War" in South America. Venezuela,
Bolivia and increasingly Ecuador and Argentina are on one
side of the divide with Colombia, Peru, Chile and Mexico
sharing a more democratic and open market orientation.
Chavez is overacting, Garcia said, because he can,t show
results in his own country. His rhetoric puts political
leaders against a wall and makes them feel obliged to follow
his radical course. Correa in Ecuador, the President said,
is an example of this, and is someone who will lose if he
follows his own discourse. Garcia said that he was scheduled
to visit Correa in Quito in an effort to be a counterweight
to Chavez,s influence but lamented that he couldn,t go
because Correa had "closed Congress in an anti-democratic
fashion." The Peruvian President said he advised Correa to
explain publicly to Ecuadorians why the country cannot afford
to distance itself from the U.S.

CHAVEZ: "I THINK WE'LL BEAT HIM"
--------------


6. (C) Returning to the challenge posed by Chavez, Garcia
said, "I think we,ll beat him." The Venezuelan leader is
trying to reinvent himself as Castro but the latter,s unique
image among Latin Americans won,t transfer to Chavez. As he
did with Ambassador Tobias, Garcia spoke in frank terms of
his disappointment with Brazil, which along with Argentina
has become complicit with Chavez. Brazil is only in favor of
South American union when it directly serves Brazilian
interests; the GOB had been the greatest impediment to the
FTAA. I believe in a South American union, Garcia said, but
the moment is not right for it and won,t be until we have
the right example to follow. In that regard Garcia said that
President Bush might have found it more productive to invite
South American leaders to Washington rather than travel to
the region, as the latter exposed him to the double game of
Lula and Kirchner.


7. (C) Ambassador Veroneau said that President Bush is a
political leader with principles. What is even more
troubling for the President than the way some South American
countries have distanced themselves from the U.S. is the fact
that their policies don,t work for the people; what is
frustrating about Chavez,s message is that it goes nowhere.

CHAVEZ, IRAN, NORTH KOREA AND ECUADOR
--------------


8. (C) Chavez's goal, Garcia continued, is to make himself a
big problem. He is a very irresponsible leader. Reiterating
a theme he has mentioned in other recent private meetings,
Garcia said that he is convinced Chavez is interested in
aiding Iran,s and North Korea,s nuclear ambitions and
buying the technology. Garcia said Chavez's rhetoric and
economic errors are secondary compared to the risk that he
will seek to "nuclearize" South America as Castro tried to do
in 1961.


9. (C) Ambassador Veroneau asked Garcia what advice he would
offer the U.S. for dealing with Ecuador. Garcia recommended
that the U.S. act with studied indifference -- don,t adopt a
hostile policy but say "if you don,t want an FTA, fine and
goodbye." If the U.S. adopts a policy of good will it will
be perceived as condescending, he argued, while assuming a
low profile is the best way to bring Ecuador back. The U.S.
should not give Ecuador an ATPDEA extension, Garcia said,
because it rewards populism: Correa is tying to keep the
benefits of an FTA without assuming the costs of guiding
political debate in the country on the importance of foreign
markets. The GOE will use an extension, Garcia feared, to
buy time while waiting for Venezuelan benefits to come
through.

CONSIDER "STRATEGIC INTERESTS"
--------------


10. (C) Ambassador Veroneau next brought the conversation
around to PTPA dynamics within the U.S. Congress. President
Garcia said that he had recently been briefed by his
Ambassador to Washington on those who are for PTPA, those who
are against, and who in Congress is undecided. "We will do
the necessary to secure broad bipartisan support. He added,
"I am hopeful that strategic interests will weigh favorably
on members of Congress."

OTHER MEETINGS
--------------


11. (C) LABOR LEADERS. Ambassador Veroneau also met on
March 12 with nine union leaders for a 60-minute discussion
of the PTPA. As expected, the union leaders staked out
positions that were critical of the PTPA and expressed doubt
that the agreement would improve working conditions for the
majority of Peruvian workers. Labor leaders echoed some of
the U.S. Congress's concerns, but had few constructive
suggestions or alternatives. COMMENT. A standoff between
union and management negotiators in the ILO-brokered talks
over the direction of the General Labor Law, currently stuck
in Congress, has complicated internal rivalries, and may have
led to their cautious comments. END COMMENT.


12. (C) CONGRESSIONAL LEADERS. A broad section of Peruvian
Congressional leaders expressed a generally positive view of
the PTPA. Trade Committee chairman Carlos Bruce warned
Ambassador about the negative impact the rejection of the
PTPA might have. Labor supporter Aldo Estrada and others
commented on how important the PTPA was to Peru's economic
development. The Congressional leaders asked how they could
most effectively weigh in with their legislative colleagues
in Washington.


13. (C) TRADE AND LABOR MINISTERS. In meetings with both
Trade Minister Mercedes Araoz and Labor Minister Susana
Pinilla, Ambassador Veroneau explained how delicate domestic
Congressional negotiations were. Pinilla provided Ambassador
Veroneau with updated data on Peru's workforce, of which
roughly 75 percent is in the informal sector. The
government's efforts are geared towards moving those workers
into the formal sector and increasing their benefits. On the
other hand, Labor Minister Susana Pinilla noted that labor
affiliations have increased slihtly in the last year


14. (C) ENVIRONMENTAL GROUPS. Ambassador Veroneau assured
environmental groups that the Administration shared their
goal of balancing environmental goals with economic
development. Meeting with members of conservation, wildlife
protection and advocacy groups, Veroneau listened to their
concerns with respect to overfishing, illegal logging, and
protection of biodiversity. Overall, all said they believed
the PTPA was positive for the environment, but they expressed
their interest in seeing continued U.S. assistance programs
in compliance and institution strengthening.

15. (C) BUSINESS LEADERS. Ambassador Veroneau also met with
presidents of Peru's principal business associations, many of
whom have spent recent months visiting Congress and staff on
behalf of the PTPA. He explained the Administration's strong
desire to move ahead with free trade agreements in the region
rather than to seek extensions of the Andean Trade Preference
Act (ATPA).

COMMENT
--------------


16. (C) Deputy USTR Veroneau's visit was well-timed. His
schedule enabled him to explain the facts concerning the
Administration's efforts on the Hill, and served to convey to
nervous Peruvians a sense of cautious optimism regarding the
PTPA. In addition to meeting with Peru's President, Trade
Minister, Labor Minister and key Congress people, Ambassador
Veroneau also saw a broad cross-section of Peru's civil
society, including labor, business, and environmental groups.
Most continue to be strongly in favor of the PTPA, not only
for commercial reasons or because the agreement will provide
opportunities to reduce poverty, but because the agreement
will help civil society lock in much-needed reforms in a
variety of areas. These include, among others, labor and
environmental laws, general transparency, rules and practices
governing trade and investment and economic regulations
covered by the PTPA.


17. (U) USTR has cleared this message.
STRUBLE