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