US embassy cable - 04SANTODOMINGO483

UNCLAS SECTION 01 OF 06 SANTO DOMINGO 000483 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA AND EB 
STATE PASS USTR FOR ZOELLICK AND VARGO 
STATE PASS AID FOR LAC 
NSC FOR SHANNON, MADISON, AND CRUZ 
LABOR FOR ILAB 
TREASURY FOR OASIA-LAMONICA 
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION 
USDOC FOR 3134/ITA/USFCS/RD/WH 
 
E.O. 12958: N/A 
TAGS: DR, ETRD, EAID, EFIN, PGOV, PREL, OVIP, OREP 
SUBJECT: DOMINICAN REPUBLIC: USTR ZOELLICK LAUNCHES FTA 
NEGOTIATIONS 
 
 
1.  (U) Summary.  U.S. Trade Representative Amb. Robert 
Zoellick told Dominicans on January 15 that bilateral free 
trade agreement (FTA) negotiations offer an opportunity for 
new engagement, economic growth and strengthened 
institutions. He stressed that an FTA, free and fair 
presidential elections and a renewed IMF agreement are the 
three essential elements for overcoming the "difficult year" 
just past.  Amb. Zoellick met President Mejia and his 
cabinet, the congressional leadership, civil society 
organizations, leading press and media commentators, and 
opposition presidential candidates.  Congressman Jerry Weller 
(R-IL) accompanied the USTR during much of the visit, 
providing a perspective on legislative requirements and 
prospects.  Dominicans generally held the same view as 
leading opposition candidate Leonel Fernandez: that no one 
was against free trade but the public needed to be better 
informed about the negotiations.  The first round of 
bilateral talks moved forward, with both sides publicly 
expressing satisfaction on the technical content and the 
cordial relations at the bargaining table.  Amb. Zoellick 
noted in private meetings that economic growth in the 
Dominican Republic would also provide indirect help to the 
population of Haiti.  End summary. 
 
2.  (U) U.S. Trade Representative Robert Zoellick carried out 
a full program in Santo Domingo on January 15 to launch the 
negotiations between the Dominican Republic and the United 
States on a free trade agreement.  The Ambassador, DCM, and 
chief negotiator Assistant USTR Regina Vargo accompanied him 
throughout the program. At the presidential palace, after 
conferring briefly with lead Dominican negotiator Secretary 
of Industry and Commerce Sonia Guzman, he participated in a 
full discussion with President Mejia and his economic 
cabinet.  Following a press opportunity there, he called on 
congressional leaders at the Senate president's office and 
spoke with business leaders at a luncheon offered by the 
Ambassador.  The USTR party visited the new, modern container 
port at nearby Caucedo (an investment in cooperation with 
U.S. firm CSX) and then went to the Catholic University 
(PUCMM) for exchanges with non-governmental organizations 
representing civil society and small and medium enterprises. 
Amb. Zoellick concluded the day with an hour-long press 
roundtable with editorialists from leading newspapers and 
media outlets.  On January 16 he met separately with 
opposition presidential candidates Eduardo Estrella (PRSC) 
and Leonel Fernandez (PLD) before an early morning departure. 
 
3.  (U) USTR Zoellick,s message to all interlocutors 
revolved around the same core elements: 
 
- - The U.S. government understands that Dominican Republic 
has had a difficult year.  The government, Congress and civil 
society have had to take hard decisions. 
 
- - There are "three legs" to support the country,s 
recovery: free, fair and transparent elections to reinforce 
legitimate institutions and to provide a stable base for 
relations; a renewed agreement with the IMF to set the 
conditions for financial stability; and a free trade 
agreement to permit the country to benefit from new 
opportunities in international trade. 
 
- - Trade talks are part of a larger bilateral relationship; 
the USG wishes to work closely with the GODR on each of the 
three elements, including support with the international 
financial institutions. 
 
- - As for timing, the Dominican authorities have been 
working for almost two years to prepare for these talks.  The 
U.S. is pleased to offer a partner -- the Dominican Republic 
-- a priority place in the U.S. trade agenda. 
 
- - The world is changing and countries that wait will be 
disadvantaged.  China and India, for example, will not wait. 
The expiration of quotas on textiles at the end of 2004 will 
directly affect trading opportunities and require innovation 
and adjustment. 
 
- - Zoellick and U.S. negotiators want to understand 
Dominican needs and sensitivities, so that the sides can 
mutually decide how to move ahead.  Tools are available, 
including safeguard measures and gradual phase-ins.  An FTA 
should provide benefits for both sides -- beyond those of the 
Caribbean Basin Initiative -- and will assure a better 
climate for investment and job creation. 
 
- - The text defined for the Central American countries 
(CAFTA) builds on those negotiated with Chile and with 
Singapore and is comprehensive in scope.  U.S. negotiators 
anticipated issues of concern to the Dominican Republic and 
included them -- one example being the treatment of duty 
draw-backs.  Special consideration was afforded the Central 
American countries in sectors of special sensitivity, with 
lengthy phase-in periods -- for dairy, some reached 20 years. 
 
- - The agreement will require governments to adhere to 
standards of transparency and procedure that will reinforce a 
competitive environment.  They will give greater access to 
small and medium businesses and will reduce the advantages of 
those previously enjoying privileged treatment. 
 
- - Assistance in building trade capacity is essential.  It 
can be channeled through the USG, through multilateral 
development banks, via the sector or through non-governmental 
organizations. 
 
- - Regard for labor standards and for environmental 
standards is essential and is included in the text.  Parties 
will undertake to enforce their own laws. 
 
GODR MEETINGS 
 
4.  (SBU) President Mejia led the meeting with the GODR 
cabinet, breaking protocol to emphasize the importance of the 
FTA talks and his personal involvement. Attending along with 
Secretary Guzman were Finance Secretary Rafael Calderon, 
 
SIPDIS 
Secretary of Foreign Relations Guerrero Prats,  Secretary of 
 
SIPDIS 
Labor Ray Guevera, Secretary of Environment Moya Pons, 
Intellectual Property Commissioner Jorge Mera, Assistant 
Governor of the Central Bank Calvo, and Commissioner for 
Foreign Investment Galvan.  Mejia commented that Dominican 
monopolists and oligopolists were pretending that there was 
no need to open the economy, a view he found disingenuous. 
Mejia said that as the private sector understands the 
seriousness of U.S. negotiators, they will understand the 
advantages of an agreement. 
 
5.  (SBU) President Mejia reaffirmed his "will and iron 
position" to complete the IMF agreement and to comply with 
what he signs.  The President noted that the Fund 
preconditions were 90 percent complete.  He said that he was 
alarmed by the exchange rate, but added that government 
policy is for a free market rate, one the government cannot 
control.  Referring to currency speculation, he commented 
that the dollar-earning sectors of the economy do not 
understand their social and economic responsibility. 
 
6.  (SBU) Central Bank Deputy Governor Calvo said the GODR 
needed more time to meet the monetary targets, alleging that 
recent developments had hurt the country's ability to comply. 
 (Note: The Central Bank Governor subsequently sent a letter 
to Secretary Snow, which Embassy has forwarded to Treasury, 
asking for understanding of the GODR non-compliance with the 
reduction in monetary base.)  Calvo also raised the topic of 
dollarization of the economy (apparently without prior 
coordination), stating that studies suggest that this might 
be feasible.  USTR Zoellick asked whether this topic had been 
raised at the OAS special summit in Monterrey on January 
12-13. 
 
7.  (SBU) Mejia indicated that he had participated in a 
20-minute meeting with Secretary of State Powell, during 
which President Bush had stopped in to greet presidents. 
Mejia told USTR Zoellick that fifteen minutes of that meeting 
had focused on Haiti, for which, Mejia commented, "there is 
no solution."  Mejia added that France and Canada should take 
on more responsibility for addressing problems in Haiti. 
Zoellick noted that recovery for the Dominican economy would 
provide indirect benefits to Haiti.  Mejia agreed, noting 
that a million Haitians are currently in the Dominican 
Republic. 
 
CONGRESS 
 
8. (SBU) Congressman Jerry Weller (R-IL) joined the USTR 
party at the office of Senate President Jesus Vasquez.  The 
Dominican side included House of Representatives President 
Alfredo Pacheco and committee chairs for foreign relations, 
industry and trade, and finance from both houses.  In the 
course of discussion, Amb. Zoellick acknowledged the 
misgivings of Dominican producers of pork and poultry and 
undertook to be sensitive to local needs.  He stressed the 
importance of labor laws and of enforcement, particularly the 
laws against child labor and trafficking in persons.  He 
commented that reductions in tariffs under an FTA would 
require fiscal adjustments over a transition period; lowering 
tariffs and increasing competition on basic goods and 
consumer commodities would directly benefit the poorest 
Dominicans. (Q: WHAT DID THE DOMINICAN SIDE SAY?) 
 
9. (SBU)  Congressman Weller commented that legislative 
approval of the FTA would be difficult for both countries in 
an election year and asked that the legislators help explain 
the FTA's benefits to their constituents and to Dominicans 
living in the U.S. through the Dominican American Roundtable 
and other organizations. 
 
10.  (SBU) Senate President Vasquez noted that the Dominican 
Congress and Executive have assigned a liaison group of 
legislators to follow the FTA negotiations, keep other 
members updated, and answer any questions they might have. 
He hoped the IMF negotiations could be concluded as quickly 
as possible and said his country had "advanced greatly" in 
conducting free and fair elections and would not backslide to 
the irregularities of earlier times.  House of 
Representatives President Pacheco and a committee chairman 
spoke of their concerns about the high costs of maritime and 
air freight.  One committee chairman appealed for more aid 
from the international community for reconstruction of Haiti, 
"which cannot be at the expense of the Dominican Republic" 
(Note: Providing services to illegal Haitian migrants.  End 
note.)  Amb. Zoellick replied that one of the best ways to 
help Haiti would be to develop the Dominican economy next 
door. 
 
OPPOSITION CANDIDATES 
 
11.  (SBU) Amb. Zoellick hosted breakfast meetings at his 
hotel for PRSC candidate Eduardo Estrella and for PLD 
candidate Leonel Fernandez.   Estrella opened with the 
affirmation that he supports an FTA and was one of the first 
to request it.  Pork and poultry are sensitive sectors; 
tariffs need to be reformed generally and customs must apply 
them in transparent fashion.  He is concerned about 
corruption in the customs service and in general; this will 
be a theme of his campaign.  Amb. Zoellick noted that an FTA 
will lower the cost of corn as an input to the livestock 
sector.  The United States is a pork exporter, so that sector 
is a supporter for free trade; however, the U.S. side will 
deal in a sensitive manner with sensitive subjects.  Estrella 
spoke of his support for competition and openness in 
government procurement, an area where the FTA could help.  He 
expects to make this point during campaign trips to New York 
and New Jersey.  He outlined his concerns about maneuvers 
affecting the Dominican presidential elections and commented 
that the proposed draft changes to the electoral law would 
create confusion and could open the door to massive fraud. 
 
12. (SBU) In contrast to Estrella,s focused approach, PLD 
candidate Leonel Fernandez focused first on the presidential 
election.  In campaign speech style, he recalled the 
flourishing of the Dominican economy during his 1996-2000 
presidency.  The 2000 elections had been fair.  President 
Mejia had made untimely decisions and mismanaged fiscal 
policy, wage rates, public sector employment and debt. 
During his own presidency, he said, the government had stood 
in the background to the private sector; in contrast, 
Mejia,s administration has made itself central.  Debt has 
risen from the equivalent of 18 percent of GDP to more than 
50 percent.  Mejia had shown his authoritarian tendencies 
with constitutional amendments and the imposition of judges 
for the Elections Board (JCE).  Fernandez,s PLD wants a code 
of conduct for the JCE.  He said that political primaries do 
not work in the Dominican context but rather encourage 
fragmentation.  The country needs international election 
observers.  Special attention should be paid to auditing 
computer systems and their use. 
 
13.  (SBU)  Amb. Zoellick outlined U.S. views on the FTA and 
the need for an IMF package and agreed on the importance of 
free and fair elections.  Fernandez noted that talks coincide 
with the presidential election campaign, in which polls 
currently show him receiving 63 percent as opposed to 15 
percent for Mejia.  When Zoellick asked Fernandez for his own 
opinion about the FTA, Fernandez commented that farmers were 
uncertain about the proposals, especially the producers of 
rice, pork and chicken.  U.S. farmers are subsidized while 
Dominicans are not.   The Dominican Agricultural bank is 
decapitalized, the United States imposes non-tariff barriers 
and the GODR is imposing (temporary) export taxes.  Farmers 
see the FTA as benefiting primarily the free trade zones. 
 
14.  (SBU) Amb. Zoellick characterized negotiations as a 
"problem solving exercise" -- building in measures to deal 
with prevailing conditions, such as high interest rates in 
pesos and U.S. producers, complaints about low wages abroad. 
 He stressed the utility of the transparency required by the 
FTA.  Dominicans resident in the United States could help 
persuade U.S. legislators to accept a CAFTA/Dominican 
Republic agreement. 
 
15. (SBU)  "There is no real rejection of free trade by 
Dominicans,"  replied Fernandez, "either here or there." 
There was apprehension, however, and a need to educate people 
and advertise the advantages of an agreement. 
 
16.  (SBU) Amb. Zoellick mentioned competition in services 
and the interest in reducing the costs of remittances from 
the United States.  Fernandez agreed, citing a study done by 
CUNY,s Dominican Studies Center.  Remittances are about USD 
2.2 billion, he said, which is about 10 percent of the 
earnings of Dominicans in the United States and equivalent to 
about 10 percent of Dominican GDP.  He agrees that an FTA is 
part of a larger development process.  Amb. Zoellick closed 
by emphasizing that with financial stability secured with IMF 
help, an FTA can create a turnaround for the Dominican 
economy. 
 
CIVIL SOCIETY AND PRESS ROUNDTABLES 
 
17. (SBU) A roundtable at the Pontifical Mother and Master 
Catholic University, chaired by Rector (and prominent 
political mediator) Msgr. Agripino Nunez, included some 
eighteen economic, environmental,  legal, justice reform, 
small and medium business, and labor experts.  Participants 
agreed there were concerns about the fast timetable for the 
FTA negotiations, perceived shortcomings in CAFTA, and a 
potential negative impact on the Dominican Republic's jobs, 
small businesses, and environment. Amb. Zoellick emphasized 
the lengthy preparatory work on both sides and the extensive 
customizing to the proposed draft for the Dominican Republic. 
 He pointed to comprehensive environmental, regulatory, and 
transparency provisions in the draft and the potential of an 
FTA to create opportunities for small and medium enterprises 
and benefit consumers by opening up competition.  Amb. 
Zoellick also referred to USAID's trade capacity building 
program and related IFI financing.  He said the FTA could 
enable a bilateral partnership to solve problems together and 
help the Dominican Republic enforce its own labor and 
environmental laws. During an hour-long discussion with 
senior editorial board members and media representatives, 
Amb. Zoellick stressed that the U.S. intention was not 
limited to encouraging trade; instead, it is to create an 
opportunity for growth, development, support for the rule of 
law, a link to the U.S. economy, and points of leverage for 
domestic reform processes. 
 
COMMENT 
 
18.  (SBU) Amb. Zoellick delivered the message on free trade 
and in providing another strong demonstration of U.S. 
interest and concern for the economic plight of the hard 
pressed Dominicans.  He received extensive press coverage -- 
his photo and visit were the only items above the fold on the 
next day's "Listin Diario." We expect favorable op-ed comment 
to follow. 
 
19.  (SBU) His was an upbeat modulation on the U.S. 
diplomatic and public diplomacy approach. In November 
Treasury Under Secretary Taylor listened to Dominican 
concerns about a dire economic situation, reflected them back 
to interlocutors and provided steady reassurance that a 
solution was possible through the IFIs, with U.S. support. 
In December, Assistant Secretary of State Noriega continued 
that message and added the strong U.S. concern about 
institutional weaknesses, election arrangements and 
corruption.  USTR Amb. Zoellick explicitly included those 
themes in his visit and linked them to the promise of 
recovery and the opportunities of competition and free trade. 
 
 
20.  (U) The presence of Congressman Weller and his comments 
were a further demonstration of the seriousness of the U.S. 
side and its intention to see the free trade negotiation 
process through to a successful conclusion.  Meanwhile the 
first round of bilateral talks went forward January 12-16 
without incident, with both sides expressing satisfaction on 
the technical content and the cordial relations at the 
bargaining table. 
 
21.  USTR has reviewed this cable. 
HERTELL