INDUSTRY AND COMMERCE VICE-MINISTER ROSA MEETING

C O N F I D E N T I A L TEGUCIGALPA 001311 SIPDIS SIPDIS STATE FOR WHA/CEN ELIA TELLO AND WHA/EPSC LISA MARTILOTTA AND COMMERCE FOR ITA DESK OFFICER MARK SIEGELMAN AND TREASURY FOR CENTRAL AMERICA DESK OFFICER SARA GRAY E.O. 12958: DECL: 08/02/2017 TAGS: ECON EIND EINV ETRD ETTC PGOV PREL HO SUBJECT: INDUSTRY AND COMMERCE VICE-MINISTER ROSA MEETING WITH AMBASSADOR ON SOCKS Classified By: AMB CHARLES FORD. REASONS 1.4(b) AND (d) ¶1. (C) Summary. Ambassador and EconOff met with Industry and Commerce Vice-Minister Jorge "Coque" Rosa and Official CAFTA-DR negotiator Melvin Redondo on August 2, 2007, regarding the potential imposition of safeguards on the sock industry. The GOH does not believe that the USG has a legitimate rationale to institute safeguards at this time and also worries about the political fallout in Honduras of a trade spat with the United States at this time of strong national debate about the foreign policy direction of the Zelaya administration. Ironically, this concern about the US-Honduras relationship may make this the best time for the USG to push for a negotiated settlement. End summary. ¶2. (C) Vice-Minister Rosa started the meeting by blaming the press for the woes of CAFTA-DR in Honduras, saying that all the papers talk about is "blood and judicial insecurity" and that Honduras should be making more progress than it is. After the Ambassador pointed to weaknesses in Honduras's macroeconomic program and lack of structural economic reforms as more likely causes of Honduras's problems, Rosa argued that Honduras is not a threat to investment. ¶3. (C) Redondo then attacked the economic case for safeguards in the sock industry, saying that current circumstances do not warrant such action. He stated that the sock industry in the US has been decreasing for 10-15 years, and that other countries such as China, Korea, and Honduras have filled the void. In his opinion, initiating safeguards on Honduras would not revitalize the US sock industry; production would just shift to other countries such as China and Pakistan, whose growth has been much more rapid than that of Honduras. He said further that safeguards would restrict US sellers of thread, of which Honduras is the largest consumer. According to Redondo, exports to Honduras for outward processing have increased significantly even as US domestic production has declined, and there is a high degree of US content in Honduran hosiery. Safeguards would force Honduras to make use of foreign yarns instead. In total, according to Redondo's statistics, Honduras's yearly output has increased by 2.4 million dollars per year since 2001. This represented only 0.72 percent of the US hosiery market in 2006 and cannot be seen as causing serious damage. ¶4. (C) In addition, Redondo felt that the implementation of safeguards would require amendments to CAFTA-DR and regional compensation for its members. He said that decreased demand for US textiles could be further compounded by the application of the CAFTA-DR mutual concessions provision. ¶5. (C) Vice-Minister Rosa then switched to political arguments against the safeguards. The implementation of safeguards, he said, would be portrayed by some domestic political actors as an action against President "Mel" Zelaya for his relationship with President Hugo Chavez of Venezuela and President Daniel Ortega of Nicaragua. He said that safeguards could badly affect President Zelaya politically and that there would be further regional repercussions. In particular, Redondo said, safeguards would cause the Costa Ricans to vote "no" in the their upcoming October 7 referendum on CAFTA-DR. ¶6. (C) The Ambassador ended the meeting by promising to report the GOH's arguments against safeguards to Washington and by suggesting that the GOH work through its Ambassador in the US to continue to press its case. However, the Ambassador was also clear that there was very little time left to argue this issue and that therefore the GOH's options would appear to be either to work with USTR to come to a negotiated settlement or to accept the imposition of safeguards and negotiate a solution in the public arena. ¶7. (C) Comment. Rosa and Redondo seemed disappointed yet accepting of the Ambassador's analysis and recommendations. Given the GOH's concern about its relationship with the US and its own political image, now appears to be an opportune moment to push for a negotiated solution. End comment. FORD