A/S SULLIVAN & A/S LOWERY MEET WITH SALVADORAN VP ON

UNCLAS SECTION 01 OF 02 SAN SALVADOR 002411 SIPDIS STATE PASS USAID/LAC STATE ALSO PASS USTR USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ETRD PREL EINV ES SUBJECT: A/S SULLIVAN & A/S LOWERY MEET WITH SALVADORAN VP ON EXTENDING THE BENEFITS OF TRADE LIBERALIZATION ¶1. (SBU) SUMMARY. A joint State/ Treasury delegation led by EEB Assistant Secretary Sullivan and Treasury Assistant Secretary Lowery discussed regional integration, including a like-minded association of free trade partners, and extending the benefits of CAFTA-DR to all parts of society with El Salvador Vice President Ana Vilma de Escobar on November 29. Escobar stated that the proposed association was "music to her ears." Escobar also updated the delegation on efforts to bring foreign direct investment to El Salvador. END SUMMARY. ¶2. (U) Participants: U.S. A/S Dan Sullivan, Economic, Energy, and Business Affairs A/S Clay Lowery, International Affairs, Treasury PDAS Craig Kelly, Western Hemisphere Affairs Charge d'Affairs, A.I. Butler DAS Brian O'Neill, Western Hemisphere Affairs, Treasury Greg Delawie, Director, Bilateral Trade Issues, EEB Luyen Tran, Director, Western Hemisphere Affairs, Treasury Econ Counselor Donn-Allan Titus Econoff Christensen (notetaker) El Salvador Vice President Ana Vilma de Escobar GOES Notetaker ¶3. (SBU) Sullivan opened by noting the USG planned to continue its total economic engagement (use of all USG tools such as Free Trade Agreements, MCC, USAID programs, OPIC, air service agreements, etc.) in the Western Hemisphere and hoped to build on existing free trade agreements to continue the momentum. ¶6. (SBU) Sullivan stressed that the immediate priority in the Hemisphere for the USG was the passage of FTAs with Peru, Columbia, and Panama, and noted the positive House of Representatives vote on Peru. He said the USG wanted to consolidate and maintain the momentum of the historic achievements with regard to free trade in the hemisphere. He suggested the establishment of an association of free trade partners in the hemisphere, committed to democracy, the rule of law, and open market policies, the primary purpose of which would be to work together to promote competitiveness and ensure the benefits of trade liberalization were spread as broadly as possible in all our societies, especially to small business, farmers, and others who had not yet directly benefited from free trade. ¶7. (SBU) Such an association could have strong links to the private sector and could include initiatives, such as the US Treasury's program to enhance access to financing for small and medium enterprises (SMEs),to help citizens take better advantage of FTAs in the region. An important longer term goal of such an association would be to work on "knitting together" the different hemispheric trade agreements - possibly harmonizing issues like customs procedures, rules of origin, intellectual property rights, etc., and working on cumulation issues. 8 (SBU) This association of free trade partners potentially could include an administrative headquarters to serve as a coordinating body and driving force for continued progress on reducing poverty, increasing competitiveness and social cohesion in the Western Hemisphere. It could complement the work of other institutions in the region, such as the OAS and IDB. ¶9. (SBU) Sullivan emphasized that the delegation was seeking input from the three leaders on trade in Latin America - Chile, El Salvador, and Mexico - as well as Canada - before moving forward with this idea. He noted the delegation would return to Washington to work with other agencies in the USG to consolidate the ideas of the Latin leaders and refine the proposal for final approval by the USG interagency economic team. ¶10. (SBU) Kelly added that the USG was not interested in creating competing "blocs," but rather enhancing cooperation among those who had common values to reinforce the positive elements of free trade agreements. Escobar replied that the proposal was "like music to her ears," and that bringing together like-minded countries would be important to spreading the benefits of trade. She said creating jobs through trade is the best social policy a government can SAN SALVAD 00002411 002 OF 002 deliver. Sullivan noted the positive response from GOES Ministers and said that they would continue to work together to develop this proposal. ¶11. (SBU) Lowery discussed the need for both governments to expand the benefits of CAFTA by increased education, better access to finance for micro, small, and medium enterprises, and better knowledge of sanitary and phytosanitary (SPS) regulations to help the agriculture sector, especially the small farmer. Discussing education, Escobar emphasized the need for more English speakers, especially among young people, and additional technical and engineering training. ¶12. (SBU) Escobar noted that, almost two years after CAFTA-DR, which made it possible to advance important economic changes, the people were looking to the Government to deliver on issues like job creation. The opposition FMLN, she added, had its first credible Presidential candidate, and if the Government did not deliver on economic issues, the people would look for an alternative in the 2009 elections. ¶13. (SBU) Escobar described efforts to attract more Foreign Direct Investment (FDI) to El Salvador, noting the Government needed a greater sense of urgency and that the country needed to become more agile if it is to expand its investor base. She pointed to its success in attracting an aircraft maintenance operation that services TACA and Air Canada jets. However, El Salvador needed to work to improve its international indicators, including the Millennium Challenge Corporation eligibility indicators, to distinguish itself from other countries. She also emphasized the importance of Central American integration and the region acting as a bloc for expanding trade opportunities; together, the region was the third-largest market in the hemisphere. To achieve this, she added, finishing a Central American customs union is essential. El Salvador is also interested in strengthening its ports and customs, including joining the U.S. Container Security Initiative. Sullivan noted many businesspeople the delegation had met, both American companies and Salvadoran SMEs, had highlighted customs delays as a major issue undermining Salvadoran competitiveness. ¶14. (SBU) Escobar highlighted two issues El Salvador faces in continuing to attract FDI. First, many foreign companies currently operate in Free Zones, which the WTO has said may not continue past ¶2015. It was not yet clear to the GOES how to restructure the free zone incentives to keep existing investors from moving elsewhere. (Note. Earlier this year the WTO granted El Salvador an extension from 2009 to 2015 to end its non-compliant free trade zone regime. End note.) Second, El Salvador has significant needs for new energy generation. The GOES has made some progress on diversification, working on a new liquefied natural gas (LNG) law and participating in the U.S.-Brazil biofuels initiative, but more still needs to be done. (Comment. The LNG company has yet to secure financing for the project. Another U.S. company, AES, plans to build a coal-fired generation plant in the same area, but has not received its environmental approval. Both companies have expressed their concern over recent GOES attempts that allegedly try to hold down electricity prices at their expense. End comment.) ¶15. (SBU) Noting perception did not always match reality, Escobar described the security situation as another impediment to investment. Kelly highlighted the Merida Initiative as part of USG efforts to help Mexico and Central America address security issues. He emphasized that security and economic prosperity go hand-in-hand, and one is not possible without addressing the other. ¶16. (U) A/S Sullivan has cleared this message. Glazer