BOLIVIA POST-ATPDEA: WOOL COATS TO CARACAS?

C O N F I D E N T I A L LA PAZ 000126

SIPDIS

USTR: BENNETT HARMAN; DOC: JULIE ANGLIN

E.O. 12958: DECL: 01/29/2019
TAGS: PREL BEXP ECON EFIN ETRD KTDB KTEX VN BR
SNAR, BL
SUBJECT: BOLIVIA POST-ATPDEA: WOOL COATS TO CARACAS?

REF: A. 08 LA PAZ 2192

B. 08 LA PAZ 2118

C. 08 LA PAZ 2111

D. 08 LA PAZ 1793

E. 08 LA PAZ 1180

Classified By: Acting ECOPOL Chief Joe Relk for reasons 1.4b,d


1. (C) SUMMARY. As of December 15, Bolivian exporters can no
longer use the Andean Trade Promotion and Drug Eradication
Act (ATPDEA) to send their goods tariff-free to the United
States. While most goods can enter the United States under
the General System of Preferences (GSP),many exporters,
mainly in textiles, see the U.S. market as lost. The Bolivian
government arranged for purchasing agreements with Venezuelan
businesses to help cushion the blow to textile exports, but
Bolivian businesses question the legitimacy and legality of
the offers. The government will also do its share of
subsidizing, funding a major textiles plant in El Alto to
rival current textile giant Ametex as it simultaneously
offers Ametex loans to offset increased tariff costs.
Privately, business leaders share our skepticism about the
sustainability of the government's dubious Band-Aid approach
to ATPDEA, particularly as the economy and government revenue
heads for a downturn in 2009. However, Bolivian businesses
are also disappointed by the U.S. decision, arguing that the
private sector should not have been punished for the
government's mistakes. President Evo Morales announced that
he would protest the ATPDEA suspension at the World Trade
Organization (WTO) but later backtracked and said that he
will give President Obama a chance to change the current
policy before doing so. END SUMMARY.

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TEXTILES TIT FOR TAT
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2. (U) On September 25, President Bush announced his proposal
to suspend Bolivia's benefits under ATPDEA. The U.S. Trade
Representative (USTR) then held a 30-day review period to
receive testimony on the issue. During the October 23
inter-agency review panel in Washington, the Bolivian private
sector maintained that removing the benefits would promote
illegitimate industries, such as drug trafficking. Bolivian
ministers argued that the Morales Administration had not
failed demonstrably in counternarcotics cooperation and
implied the U.S. ATPDEA decision was made strictly on
political grounds in response to the expulsion of Ambassador
Goldberg only weeks earlier. President Bush signed a
proclamation November 25 to officially suspend Bolivia's
benefits on December 15. On that day, textiles and leather
manufacturers began to face tariffs of over 18 percent, while
other ATPDEA products began to enter under GSP duty-free
status. Separately, the U.S. Congress decided to include
Bolivia in an extension of the ATPDEA legislation, but upheld
the President's authority to determine compliance and gave
Bolivia six months to improve counternarcotics cooperation.
Instead, Bolivian President Evo Morales expelled the Drug
Enforcement Administration (DEA) from Bolivia on November 1.

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"EXPORTING ICE TO ESKIMOS"
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3. (U) Initial Bolivian reaction to the September 25
announcement was denial. Morales and his ministers, trying
to calm private sector fears, announced the expansion of "new
markets," including China, India and other Asian nations.
Businesses publicly scoffed at the idea, likening selling
Bolivian textiles to Asia to "exporting ice to Eskimos."
Morales continued to push for new markets, but newspaper
editorials called instead for a change in the government's
attitude towards the United States. Many economic analysts
and pundits pointed out that while expanding markets was
generally a good idea, it could not replace the established
U.S. market.


4. (C) Foreign Minister David Choquehuanca publicly
discounted ATPDEA's benefits, pointing to the decline in
textile exports to the United States over the past few years.
Many business leaders countered that the lower numbers were
based on the government's inability to secure a long-term
trade agreement with the United States. Textile export
numbers for 2008 indicate a further decline in the U.S.
market, down to $13.3 million from $19 million in 2007.

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WITH A LITTLE HELP FROM MY FRIENDS
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5. (C) After the initial ATPDEA uproar, Morales announced
that the Venezuelan government would offset the loss of what
he called "blocked markets" due to the suspension. (NOTE: The
Embassy made an effort to explain markets were not "blocked"
and that most exports could still enter the U.S. duty free.
END NOTE.) Spearheaded by newly-appointed Minister of
Production and Small Business Susana Rivero, a "Round of
Negotiations" was held between Bolivian and Venezuelan
companies November 11-14, 2008. Rivero hailed the rounds as
a major successes and claimed that over 50 Bolivian companies
participated. (NOTE: Contacts tell us that Rivero will be
replaced by Pablo Guzman, currently Vice Minister of Foreign
Economic and Trade Relations in the Ministry of Foreign
Affairs, in March. END NOTE.)


6. (C) Venezuela is not the only country stepping in to
ostensibly replace the U.S. market. In a speech on January
15, Brazilian President Luis Lula Inacio Da Silva announced
that Brazil would open its normally heavily-protected markets
for Bolivian imports in part to help his "buddy" Morales make
up for ATPDEA suspension. Brazil imported approximately $4
million dollars worth of Bolivian textiles in 2008.

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DO THESE T-SHIRTS SMELL FISHY TO YOU?
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7. (C) Behind the scenes, Morales has been subsidizing a new
textile production conglomerate called "EBIT," bringing seven
"shareholders" together that combine resources to form a
company. Roberto Maldonado, U.S. citizen and Embassy
contact, is the brain behind the idea: "The key is to sell
capitalism without using any of the terminology." Maldonado,
who used to work for Ametex, left to open his own textiles
business and soon recognized the opportunity. As Maldonado
explains, "Once I saw it, I called my friend Javier (Hurtado,
former Minister of Production and Small Business) and told
him my idea to combine these small producers." From there,
Hurtado spoke with Morales, who supported the idea. The
Bolivian government, through Venezuelan funds, gave the group
$3.5 million dollars. Each member received $500,000 to
update their businesses. All seven have combined and are
currently operating out of a plant in El Alto with over 200
workers. Maldonado plans to expand the business to include
plants in Cochabamba, Potosi, Oruro, and Copacabana. Morales
himself inaugurated the El Alto plant on January 16,
promising as much as $20-30 million for the project.
Maldonado reports that at the inauguration, Morales began
speaking about the "softening of his opinions on U.S. trade,"
but didn't elaborate on any potential changes in attitude or
action.


8. (C) In the round of negotiations with Venezuela,
Maldonado's group initially didn't get any orders. Maldonado
was dismayed to hear that Ametex had already received a
contract. He called his contacts within the Government and
said, "Don't make me tell Evo that his project received no
orders while Ametex has contracts." Within two days,
Venezuelans were calling and asking to negotiate with his
group. Maldonado was prepared to bargain, but when he
offered to sell T-shirts at $5 a shirt, the Venezuelans
counter-offered at a higher price of $7.50 and said they had
no preference for style, color, or brand.


9. (C) At first, Maldonado said he "really didn't care" why
the Venezuelans had seemed eager to pay more than the asking
price on the goods involved, but later told Emboff that he's
not counting on something that "might not be real." Other
businesses, such as medium-sized Orbol, were concerned about
the deals. Orbol President Augusto Millares told Emboff that
his experience at the round of negotiations amounted to very
little and at lower prices than he expected. Millares said
the deals do not come close to replacing the U.S. buyers he
has sold to for years.

10.(C) Ametex, however, did take advantage of the program.
Despite earlier telling Emboff that there was "no way" he
would accept a deal with Venezuela, Ametex President Markos
Iberkleid signed a contract during the round of negotiations,
though he has yet to receive the promised official orders
from the Venezuelan companies. Iberkleid is also using the
special $8 million government account set aside in February,
2008 to offset tariff costs in the event of ATPDEA
suspension. As month after ATPDEA suspension, Iberkleid had
received $100,000. He called the fund a very short-term
solution to a very long-term problem. Iberkleid said he will
be keeping his U.S. suppliers, even if it means taking a loss
on the goods sold. "We'll maintain 40 percent production for
the U.S. market ... eventually (Venezuelan President Hugo)
Chavez and Evo (Morales) will fail and we will be able to
make a profit in the United States again." Iberkleid is very
skeptical of Maldonado's textile group, implying that
Maldonado has turned to shady deals with Venezuelan
exchange-rate schemers to get his group off the ground (ref
E).

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HIGH FASHION - HIGH DRAMA
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11. (C) Textiles producers exporting high-end items report
that their luxury goods have not seen a drop in demand.
Yelka Maric, who specializes in alpaca sweaters and coats,
told EmbOff, "For my suppliers, an 18 percent increase is not
significant enough to cause them to decrease orders."
High-end fashion designer Beatriz Canedo Patino agreed and
told EmbOff that her clientele is not affected by arbitrary
price jumps. She is more affected by "copy-cat" producers
who steal her designs. Canedo noted that the confusion over
ATPDEA has made it difficult to convince suppliers to buy
from Bolivia.


12. (C) Alpaca sweater and coats producer Altifashion has not
had the same luck. As a result of the suspension,
Altifashion created a sister company, Pitata, in Arequipa,
Peru. Pitata will handle all of the U.S. market, with
Altifashion doing basic work to be finished at and shipped
duty-free from the new plant. Altifashion currently employs
nearly 500 workers in Bolivia, but many of the employees may
lose their jobs in the near future, as CEO Humbert Bohrt
plans to move all of Altifashion to Peru to take advantage of
the additional free-trade options with Chile, China, and
Korea.

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PRIVATE SECTOR DISPLEASURE
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13. (C) Many business leaders feel betrayed by the ATPDEA
suspension. At a lunch for ATPDEA impacted companies hosted
by the Charge, many asked, "Why wasn't there a way to punish
the Government without punishing the private sector?" Most
understand that the suspension was the next step, but
repeated their USTR testimony, arguing that the suspension
will only push people further into illegitimate jobs. Many
said that the Asian producers will quickly take over their
U.S. buyers, leaving no room for Bolivians. Even if the
ATPDEA suspension is reversed, they feared it would come too
late.

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COMMENT
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14. (C) Morales has high expectations for ATPDEA renewal
under the Obama Administration. After announcing his
government would complain to the WTO about the ATPDEA
suspension, Morales back tracked and said he will wait until
President Obama has the chance to renew ATPDEA. Morales does
not appear to understand the inherent link between


counter-narcotics cooperation and renewal of ATPDEA. Morales
has followed through on his expulsion of DEA and has publicly
said that DEA will not return while he remains in power.
Post does not expect any imminent improvement in Morales'
counternarcotics cooperation with the United States. While
the government's collection of Band-Aid measures to offset
the impacts of ATPDEA suspension may keep Bolivia's textile
industry above water for the short term and mute public
criticism of the Morales Administration, we do not see the
government's "coats to Caracas" approach as economically
sustainable, particularly as government budgets and the
overall economy are expected to face significant strains in

2009. By the time national elections are scheduled in
December, ATPDEA suspension could well develop into an
election issue. END COMMENT.
LAMBERT