TRADE-TALK: PARAGUAY'S OPPOSITION IN THE WTO

C O N F I D E N T I A L ASUNCION 000691

SIPDIS

WHA/FO MCMULLEN, WHA/BSC DRUCKER, FRIEDMAN, DASCHBACH, PASS
TO USTR DUCKWORTH, SHACKLEFORD, TAGLIANI PASS TO COMMERCE
COOK

E.O. 12958: DECL: 10/08/2027
TAGS: EFIN PGOV EIND ECON EINV ETRD PREL PA
SUBJECT: TRADE-TALK: PARAGUAY'S OPPOSITION IN THE WTO

Classified By: DCM Michael J. Fitzpatrick; reasons 1.4 (b) and (d).

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SUMMARY
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1. (C) SUMMARY: The new Paraguayan Government of Fernando
Lugo is soon to decide whether to lift Paraguay's three-year
old opposition in the WTO to U.S. requests for waivers for
AGOA, CBERA, and ATPA trade preference programs. Commerce
Minister clearly wants to reverse Paraguay's position.
However, MFA officials seek first concrete signals from the
U.S. to "guarantee" Paraguay's insertion in any future trade
program. Visiting DAS McMullen cautioned against anything
suggesting "extortion" and emphasized October 1 that a first
move by Paraguay is a pre-condition for any closer trade
talks. The GOP understood, conceding that it is reasonable
for the U.S. to seek a bilateral solution that does not lend
credibility to the perception of a trade-off.
jAQQ&(ne-dry Paraguay in
August, Heisecke characterized as a worrisome trend
Venezuela's push to grow its influence in Paraguay's economy.
The Paraguayans acknowledged the benefits of the current
Generalized System of Preferences (GSP) program, but urged
inclusion of textiles and a modification of the handicrafts
exemption. In an upbeat, candid discussion, GOP demonstrated
a sense of urgency in resolving the WTO impasse. Paraguay
seeks to expand its markets to sustain high growth and looks
to the U.S. market as a significant opportunity. President
Lugo is strongly considering whether to lift Paraguay's
opposition in the WTO before the October 27 meeting with
President Bush. The USG should be ready to signal the
opportunity to build closer commercial and political ties
with the new Lugo administration. END SUMMARY.

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THE WILL TO WORK IT OUT AND THE VALUE OF SIGNALS
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3. (SBU) Senior representatives from the Ministry of Industry
and Commerce (MIC) and the Ministry of Foreign Affairs (MFA)
participated in an October 1 working breakfast hosted by the
Ambassador with WHA/DAS McMullen to discuss Paraguay's
opposition in the WTO to U.S. requests for waivers for trade
preference programs. Led by MIC Minister Martin Heisecke, the
GOP team included: Vice Minister of Commerce Gladys Bareiro,
MFA Vice Minister of Economic Relations and Integration Oscar
Rodriguez Campuzano, MFA General Director of Economic
Relations Raul Cano, Senior Advisor to Minister Heisecke
Guillermo Sosa, MFA Director of Economic Policy Marcelo
Scappini, and Director of Paraguay,s Export Promotion Agency
Guillermo Alcaraz. Ambassador, DAS McMullen, DCM, and
Econoff represented U.S. interests.


4. (C) Minister Heisecke made clear that the new Lugo
government wants to lift Paraguay's opposition in the WTO to
U.S. waiver requests for ATPA, AGOA, and CBERA. He expressed
a strong willingness to solve the situation, and great
urgency in quickly moving forward. The other GOP
participants echoed Heisecke's words. Professing a great
admiration for the U.S., Heisecke was candid about Paraguay's
limitations, and emphatic about how important it is for
Paraguay to gain increased access to the U.S. market--"it is
one of the best options for us to promote job creation and
reduce poverty... what we want is not aid but trade, the
opportunity to compete." (NOTE: Heisecke traveled to the
U.S. in July on a pre-presidential inauguration IVP trip, and
came back clearly energized by talks with USTR. END NOTE.)
Such an opportunity, he indicated, could turn into one of the
economic growth anchors of President Lugo's administration.


5. (C) MFA officials argued that Paraguay needs concrete
signals from the U.S. on trade to build the necessary
political capital for such an about-face in GOP policy.
Signals about increased market access, Heisecke underscored,
would boost President Lugo's job creation and poverty
reduction priorities.


6. (C) Paraguay seeks, Heisecke explained, equitable and
comparable U.S. market access treatment, and noted that no
one benefits from Paraguay,s position in the WTO. Heisecke
asked about Paraguay's options for an expanded trade
preference package (an ATPDEA-like package, a FTA, a TIFA),
and affirmed that unlike other countries in the region that
benefit from trade preference packages, Paraguay is and will
continue to be a friend of the U.S. Heisecke said it is
difficult for him to understand why the USTR has instructed
to extend ATPDEA for Bolivia--despite Bolivia just expelling
the U.S. Ambassador--while Paraguay lacks comparable market
access to the U.S.

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PARAGUAY,S FIRST MOVE
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7. (C) DAS McMullen emphasized that a first move by Paraguay
would be required to lay the groundwork for any potential
closer trade and commercial relations. He explained that
exploring a trade preference package takes time and involves
several USG stakeholders, including USTR and Congress.
Heisecke alluded to a U.S. strategic lead in the process, and
suggested that the U.S., as the larger trading partner, make
the first move.


8. (C) McMullen described a growing interest in the U.S. in
Paraguay, referencing Secretary Gutierrez' and A/S Shannon's
visits, the October 27 meeting between President Lugo and
President Bush, the upcoming Congressional delegation led by
Representative Engel, and a possible USTR visit. McMullen
noted the importance of Paraguay placing the WTO issue in the
context of its desires to broaden the bilateral relationship
to include many other economic and political elements.

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LOOKS LIKE EXTORTION
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9. (C) McMullen explained that Paraguay,s position in the
WTO could be perceived by agencies and policy-makers in the
USG as "extortion" to get additional trade preferences. MFA
Vice Minister Campuzano and Director of Economic Policy
Scappini reasoned that a solution needs to balance bilateral
interests in a multilateral context. The MFA officials
conceded that Paraguay's position could be perceived as
extortion, and opined that it is reasonable for the U.S. to
seek a bilateral solution that does not lend credibility to
the perception of a trade-off. All other GOP participants
echoed support for these assertions, and expressed a sense of
urgency in solving the current impasse because, for commerce
and trade relations, Paraguay needs the U.S. more than the
U.S. needs Paraguay.

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A WORRISOME TREND
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10. (C) Heisecke asserted that one of Paraguay's strongest
and closest commercial and trade partners at this juncture
should be the U.S. Unfortunately, he confided, commercial
spaces are opening for other countries that present potential
risks to Paraguay. Referencing the diesel supplied by
Venezuela on an emergency-consignment arrangement at the time
of Lugo's inauguration in August, Heisecke shared his growing
concern over Venezuela's push to influence Paraguay's economy.

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ABOUT GSP AND THE CRAFTSMANSHIP EXEMPTION
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11. (SBU) Heisecke noted that the GSP program has greatly
benefited Paraguay, but urged inclusion of additional
products. In the textile sector, for instance, Heisecke
explained that Paraguay is positioned to attract investment
and wants to promote this labor-intensive industry. (NOTE:
According to a 2007 USTR briefer on Paraguay GSP utilization,
Paraguay's 2006 and first nine months of 2007 use of GSP
benefits was well above the world average of 87.9 percent,
with utilization rates of 98.2 and 99 percent, respectively.
END NOTE.)


12. (SBU) Heisecke also alluded to the handicraft exemption
given to Paraguay, explaining that it did not have the
desired impact because the majority of goods included are
goods that Paraguayan artisans have little or no experience
producing. Heisecke suggested modifying the exemption.

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COMMENT
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13. (C) COMMENT: In a very open, upbeat, and candid
discussion, the government took in U.S. reservations, and
demonstrated a sense of urgency in resolving the impasse. It
was clear that Paraguay understands that it needs to reverse
its WTO position to create the conditions for further
dialogue on trade. As members of Lugo,s Economic Cabinet and
leading actors in the process, the MIC and MFA team
unambiguously expressed their willingness to reverse
Paraguay's position. But the MFA does not wish to backtrack
and then be left "empty-handed", thus the emphasis on
"signals". Paraguay seeks to expand its markets to sustain
high growth and looks to the U.S. market as a significant
opportunity. This message is consistent with U.S. interests
in building closer commercial and political ties with the
Lugo administration while reducing the influence of countries
that undermine U.S. interests in the region.


14. (C) COMMENT (CONTINUED): The final decision to lift the
opposition to the waivers rests with President Lugo. Post
believes that Lugo is strongly considering instructing his
Ambassador in Geneva to reverse Paraguay,s position in the
WTO prior to his October 27 meeting with President Bush. It
would behoove the U.S. to be ready with a supportive package
as we seek to build closer political, commercial and trade
relations. END COMMENT.


15. DAS McMullen did not have an opportunity to clear this
cable before departure.

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