BOLIVIA-US TRADE: THE FACTS

C O N F I D E N T I A L SECTION 01 OF 03 LA PAZ 001793 SIPDIS PLEASE PASS TO USTR: BHARMAN E.O. 12958: DECL: 08/18/2017 TAGS: ECON ETRD PGOV PREL KTEX BL SUBJECT: BOLIVIA-US TRADE: THE FACTS REF: A. LA PAZ 1533 ¶B. LA PAZ 1485 ¶C. LA PAZ 1264 ¶D. LA PAZ 1180 Classified By: ECOPOL Chief Mike Hammer for reasons 1.4(b,d.) ¶1. (C) SUMMARY. As the Bolivian government looks towards the December 2008 expiration date on their unilateral trade preferences with the U.S., the Andean Trade Preferences and Drug Eradication Act (ATP-DEA,) it is worth examining the impact it would have on Bolivia if it were not to be renewed. The textiles industry would be hurt the most, but wood products and jewelry would likely continue their tariff-free U.S. entrance through the General System of Trade Preferences (GSP.) END SUMMARY. - - - - - - - WORK IT OUT - - - - - - - ¶2. (SBU) Employment. A November 2007 study put out by the Bolivian-American Chamber of Commerce suggests that previous reports of ATP-DEA employment were inflated. Previous estimates have calculated that as many as 50,000 direct and indirect jobs arise from ATP-DEA, but new figures suggest closer to 17,000. The majority of these are located in Evo's stronghold of El Alto. Exports from El Alto and the department of La Paz have seen the most growth in the past five years, particularly in the jewelry industry, which went from $47 million in 2002 to $74 million by 2006. The jewelry industry is not heavily dependent on ATP-DEA but the textile industry is, as it is the second most important export from this area. According to the study, the loss of jobs from non-renewal would nearly all be focused within textiles, approximately 5,000 direct and 7,000 indirect jobs. - - - - - - - - - - - - REGIMES OF THE EMPIRE - - - - - - - - - - - - ¶3. (U) The Export Regimes. Bolivian goods enter the United States in three ways: first, if eligible, under ATP-DEA. This excludes many goods, but does include textiles. The second way is through the General System of Preferences (GSP),a USG program authorized by the World Trade Organization (WTO) that allows the U.S. to lower tariffs beyond their Most Favored Nation (MFN) status for developing countries. The final way is under MFN status, which offers Bolivia no additional special treatment than the U.S. gives to any other WTO member country. ¶4. (C) While most focus on the December expiration for ATP-DEA, the GSP program will also be up for Congressional renewal in the same month. GSP is particularly important to Bolivia, as it allows for jewelry to enter zero tariff, making ATP-DEA a moot point. Under U.S. trade provisions, countries such as Bolivia can be removed from the GSP program if they are shown to be reluctant in implementing WTO IPR law. As a member of the Andean Community of Nations (CAN,) Bolivia is a signature to Andean Decision 486, which mandates IPR protection in line with Bolivia's WTO commitments. - - - - - - - - - - - - - - - - - LEATHER & CHAINS: BOLIVIAN GOODS - - - - - - - - - - - - - - - - - ¶5. (C) Textiles and Leather Goods. These industries would be particularly affected if the preferences were not renewed. Currently these goods enter U.S. markets under ATP-DEA without tariff. If ATP-DEA was not in place, these goods are not eligible to enter the U.S. under GSP but could enter under MFN status at a tariff rate of 19%. According to Bolivian exporters, this rate makes them uncompetitive. One manufacturer in alpaca goods told EmbOff that his buyers in the U.S. have already told him they will significantly decrease their orders if ATP-DEA is not renewed because they can't afford to tack 19% on to their price. Additionally, the LA PAZ 00001793 002 OF 003 textile industry's main competition, besides Asia, is Peru. With the new Free Trade Agreement (FTA) being implemented, the Bolivian textile industry has good reason to be very concerned about ATP-DEA. The study suggests that $130 million dollars would be lost in these sectors should ATP-DEA not be renewed. ¶6. (C) Jewelry and Metalworks. The jewelry industry makes up the vast majority of goods that enter under the preferences. $311 million entered between 2002-2006 and 90% was under ATP-DEA. Mining used for jewelry is important is crucial in Bolivia, particularly in the pro-Evo states of Oruro and Potosi. Jewelry is permitted under GSP, and very little would be changed in terms of tariffs. Even if for some reason GSP was removed, the current U.S. tariffs is 5.5% for these types of goods, meaning that the loss of ATP-DEA would cause few tangible losses on tariff costs alone. A major jewelry producer has told EmbOff that one U.S. buyer has already indicated he will be purchasing from Peru as it has a more stable political and economic situation and a new FTA. It should be mentioned that this industry is much more reactive to the falling price of mineral commodities, rather than trade agreements with the United States. ¶7. (U) Wood and Furniture. Woodworking, a crucial industry to the northern and eastern departments is not at risk if Bolivia lost ATP-DEA. Wood products currently enter to the U.S. under GSP, exporting a total of approximately $9.5 million in 2007. If GSP were removed, wood products could enter in under MFN with a tariff of between 3-10%, depending on the item and type of tree used for its production. - - - - - - - - - - - - - - - - - - - - - THE MAN WITH A PLAN, ALBEIT IT A POOR ONE - - - - - - - - - - - - - - - - - - - - - ¶8. (C) The Government itself has been more proactive in trying to compensate for an increase in tariffs on the textile sector. The Ministry of Production and Microenterprise has set aside $8 million dollars to offset the 19% increase that the textile industry would face should ATP-DEA not be extended. They have not taken into account any possible loss of GSP at this point. It is unclear how long their subsidizing could last, but with a reserve amount of $7.3 billion dollars, $8 million is not a substantial enough cost to be of concern. The main problem with the plan is that those that would be affected don't think it's a good idea. Marcos Iberkleid, owner of major textiles company Ametex, tells Econoff "Why would I accept a loan from the Government? I'd still have to pay it back, and with what funds? I'm not even sure that it's legal. It's certainly not common for Governments to pay the tariffs of private export businesses." ¶9. (C) In a meeting with a U.S. Congressional Staffer Delegation on August 19, Minister of Production Graciela Toro discussed her government's plan to push for a five-year extension of ATP-DEA. She said there is a close coordination between the Government and the private sector in the lobbying effort, but business leaders disagree. They recently complained to the Ambassador that while they were actively involved in trying to secure ATP-DEA, there was no "real" coordination with the Government. In fact, most feel the Government's efforts have been counter-productive in light of Morales' anti-U.S. rhetoric. Export Chamber President Eduardo Bracamonte told Econoff that he has less faith in the Government than ever. "They don't recognize their actions have an effect," said Bracamonte, referencing the Government's attacks on the USG. "If ATP-DEA is not renewed, we'll all be done for. Simply because it is the last official tie we have with the U.S." - - - - COMMENT - - - - ¶10. (C) Evo is skeptical that the U.S. will renew ATP-DEA. He has already "challenged" the U.S. not to renew ATP-DEA and has begun setting the stage for Bolivia to play the "victim" LA PAZ 00001793 003 OF 003 should the preferences not be extended and the U.S. "abandons" his country. Evo and his Ministers consistently demonstrate a lack of understanding of the unilateral nature of the program, as they say they will "not permit" ATP-DEA unless it is under their terms. One thing he is clear on is his adamant opposition to free trade in the Andean region. (ref A) He's privately acknowledged the jobs at stake, but he will take his chances that the U.S. Congress won't punish the Bolivian poor despite his anti-American rhetoric. END COMMENT. GOLDBERG