US embassy cable - 04BOGOTA1280

UNCLAS SECTION 01 OF 04 BOGOTA 001280 
 
SIPDIS 
 
SENSITIVE 
 
DEPT PLEASE PASS USTR 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ETRD, EAGR, CO, FTA 
SUBJECT: COLOMBIAN PRIVATE AND PUBLIC SECTOR PREPARATIONS 
FOR FTA NEGOTIATIONS: ON THE RIGHT TRACK, BUT STILL A WAYS 
TO GO 
 
1. (SBU) Summary:  During A/S Wayne's January 28-29 trip to 
Bogota, Colombian government and business leaders expressed 
strong support for an FTA.  They recognized, however, that 
they have a great deal of homework to do before they are 
ready to negotiate.  Moreover, they expressed concern that 
nascent outreach campaigns aimed at educating the public and 
Congress on the benefits of an FTA and building grassroots 
support are weak and need to be reinforced.  There are also 
many, mostly in the business sector, who believe that 
Colombia merits special concessions.  The more sophisticated 
attempted to link these calls with the need to develop strong 
legal alternatives for illicit narcotics production, but even 
this appears anchored in the concerns of agricultural groups 
worried about U.S. imports.  A/S Wayne made clear at every 
meeting that this would be a serious negotiation; that the 
more the negotiators understand their own country, the 
better; and that building a pro-FTA coalition at home is 
important.  He also stressed that an FTA is not a panacea, 
but an opportunity to help deepen reforms and increase growth 
as part of a sound economic development strategy.  Colombian 
leaders understood his message, which was also carried in a 
full-page interview in Colombia's leading economic daily. 
End Summary. 
 
The Perspective of U.S. Companies 
--------------------------------- 
 
2. (SBU) U.S. company representatives were bullish on doing 
business in Colombia and offered suggestions on how to 
improve local preparations for FTA negotiations.  Energy 
sector executives praised improvements in security, noting 
that these improvements had made larger investments possible. 
 They agreed that an FTA would improve the business climate 
and benefit the extractive industry, but expressed a need for 
a more thorough public education campaign to dispel negative 
stereotypes surrounding free trade.  Representatives of the 
pharmaceutical and banking sectors stated that the GOC has 
not touted the successes of programs such as ATPA and ATPDEA 
enough, noting that the only people speaking up are critics 
-- namely, Agriculture Minister Cano (reflecting fear of 
large grain, rice, and sugar producers) and several members 
of Congress.  They added that the GOC also needed to be more 
aggressive in selling an FTA, noting that President Uribe has 
been silent on the issue over the past several months after 
mentioning it often, and underscored the need for the 
President to take up the FTA banner once more.  All agreed 
that the private sector could play a role in lobbying the 
legislative bodies of both countries and explaining the 
benefits of free trade. 
 
3.  (SBU) Ambassador Wood highlighted the benefits of an FTA 
and urged the businessmen to look beyond job creation and 
increasing the value of established exports and to focus on 
creating new industries.  He also stressed the importance of 
understanding the linkages and constituencies in both 
economies, calling on the companies to become actively 
involved in supporting an FTA.  The businessmen agreed, 
noting Colombia's excellent entrepreneurial potential, 
earnestness in resolving investment disputes, and readiness 
to proceed in an FTA, with or without Peru.  A/S Wayne 
stressed that Colombians must recognize the gains and new 
opportunities from freer trade and emphasized the need to 
continue judicial and financial structural reforms, even 
after an FTA. 
 
Trading FTA Points with Trade Minister Botero 
--------------------------------------------- 
 
4.  (SBU) A/S Wayne highlighted to Minister Botero and FTA 
Negotiator Ambassador Hernando Jose Gomez that a Colombia FTA 
is a priority and that negotiations would start in the second 
quarter.  He added that unlike ATPDEA, the free trade 
agreement would require commitments from both sides.  A/S 
Wayne urged Minister Botero to make this clear to the public, 
adding that the "toughest negotiation will likely be the 
internal one."  Trade benefits would be limited without 
continuing structural reforms, the A/S said; framing an FTA 
as one part of an overall economic plan, he added,  places it 
in the context of other social and economic improvements, 
blunting criticism.  The A/S stated that the United States 
plans to begin negotiations with Colombia and Peru, and will 
then broaden them to include Ecuador and Bolivia.  Botero 
expressed concern the negotiations might be delayed if Peru 
was not ready to begin.  He added that the GOC had convened 
the negotiators from the other countries to begin 
consolidating their positions, and that Colombia would 
continue to take the lead. 
 
5.  (SBU) Botero said FTA opponents exist in congress, the 
private sector, and the media.  He is especially concerned 
about the opinion of the Catholic Church, as the power of the 
pulpit is still very strong in Colombia.  The government 
needs a concerted outreach effort, Botero said.  He added 
that Colombia is not competitive with U.S. grains and 
cereals, but would be very competitive in fruit and 
vegetables.  Adjustments in phytosanitary rules would also 
make them very competitive in poultry, dairy, and beef.  A/S 
Wayne pointed out that although the science of the rules 
cannot be negotiated, the goals are to streamline processes 
and foster greater transparency on both sides.  Botero 
underscored the social and political sensitivity of Colombian 
agriculture, saying farm workers who lose their jobs growing 
corn and rice are most likely to turn to illicit crops.  He 
stated that his government works well with USTR and looks 
forward to the negotiations, but hopes that other USG 
agencies might help USTR to develop positions that would take 
into account the political realities of Colombia.  A/S Wayne 
added that it is important to be very clear about such issues 
up front and to present a thorough analysis of these problems 
early in the process in order to assure the negotiators that 
they are legitimate and deserve attention.  Minister Botero 
ended by reiterating that Colombia is ready to proceed on an 
FTA, with or without the other countries. 
 
We will stay the course -- Finance Minister Carrasquilla 
--------------------------------------------- ----------- 
 
6.  (SBU) A/S Wayne met with Finance Minister Alberto 
Carrasquilla, Vice-Minister Juan Ricardo Ortega (soon to be 
Vice-Minister of Trade), and Director of Macroeconomic Policy 
Andres Arias (subsequently named Vice Minister of 
Agriculture).  A/S Wayne congratulated the financial team on 
Colombia,s economic growth and progress in resolving 
commercial disputes, and noted that free trade should be a 
win-win situation.  However, he stressed that an FTA must be 
part of a broader economic plan and will not bear fruit 
without serious structural reforms.  A/S Wayne also stressed 
the need to settle investment disputes and urged the Minister 
to promptly pay Nortel once that dispute has been settled. 
Carrasquilla responded that he understood and that the 
necessary funds would be available. 
 
7.  (SBU) Carrasquilla provided a comprehensive overview of 
the fiscal situation and acknowledged that liabilities 
outweigh assets on Colombia,s balance sheet.  Last year 
pensions and servicing interest on the debt alone cost 
Colombia roughly USD 9 billion of the USD 14 billion 
collected in taxes.  He explained that the Uribe 
administration remains committed to improving efficiency this 
year by increasing the tax base, eliminating special pension 
regimes and loopholes in the tax code, and decreasing the 
size of government.  Ortega added that with the loss of the 
referendum, the Uribe administration faces a tough battle to 
push cost-cutting and reform measures through a reluctant 
Congress.  He added that Colombia needs to repair local 
finances, but acknowledged that cutting transfers to regions 
would be politically difficult.  Carrasquilla expressed hope 
in the paramilitary demobilization and re-integration, noting 
that the GOC has budgeted sufficient funds to cover the 
process.  He added that demobilization may increase revenues 
as people move away from petroleum and gasoline smuggling -- 
a problem costing Colombia USD 300 million a year. 
 
Lunch with GOC Economic Officials 
--------------------------------- 
 
8. (SBU) The Ambassador hosted a lunch on trade issues with 
the Minister the Environment, Sandra Suarez, Presidential 
Economic Advisor Dr. Rudolf Hommes, Finance Vice Minister 
Juan Ricardo Ortega, and trade negotiator Hernando Jose 
Gomez. 
 
9.  (SBU) A/S Wayne and the Ambassador noted the importance 
of including environmental and labor considerations in an 
FTA.  Minister Suarez acknowledged this and spoke of the 
importance of sustainable development and of working with 
business.  Minister Suarez and Hommes also expressed doubts 
about the GOC's ability to change existing environmental 
legislation to meet the levels required in an FTA.  A/S Wayne 
and Mr. Manogue explained that the Chile and CAFTA FTA's 
primarily focused on enforcing existing laws.  Presidential 
Advisor Hommes then noted that there must be greater public 
education and discourse about the benefits of free trade to 
all sectors of society.  He added that there is great fear of 
an FTA in the agricultural sector in Colombia and agreed that 
the GOC must begin to talk to Congress and the media.  Ortega 
added that in order to gain widespread support, the GOC also 
needs to focus its educational efforts on the sub-federal 
level.  He added that support from local officials will be 
critical in winning Congressional backing.  In an op-ed 
published Feb. 2, Hommes focused on these issues. 
 
10.  (SBU) A/S Wayne stressed to the GOC that an FTA has to 
be part of a national strategy if it is to succeed, noting, 
for example, that it must be easier to start a business and 
be an entrepreneur in Colombia.  The GOC representatives 
strongly agreed, but expressed concern about getting the 
public to buy into changes.  Ortega stressed that an FTA 
could be a catalyst for change, but agreed with the A/S 
Wayne's assertion that an FTA is not an economic cure-all. 
Gomez and Hommes agreed the GOC needs to work with the 
private sector to prepare for the negotiations and will need 
even more support from businessmen to get an agreement 
approved by Congress. 
 
Colombian Business Leaders Say They're Getting Set for FTA 
--------------------------------------------- ------------- 
 
11.  (SBU) A/S Wayne met with the Presidents of Colombia's 
banking, agricultural producers, and exporters associations. 
According to Rafael Mejia, president of the national 
agricultural producers' association, the sector supports an 
FTA, but he warned that illegal crops and armed groups make 
Colombia,s situation distinct from that of Chile and Mexico. 
 The cultivation of corn, rice, and cotton provides many 
rural jobs; as a result, the social and political impacts of 
an FTA are as important as the economic aspects.  The sector 
wants U.S. transition and reconversion funds as well as 
outreach to help Colombian farmers.  Patricia Cardenas, 
president of the national banking association, stated that 
her sector sees the FTA as a good opportunity for growth, 
employment generation, and the development of integrated 
capital markets.  Bankers are concerned, however, that U.S. 
banks locating branches in Colombia under an FTA would use 
their off-shore capital, giving them an unfair advantage over 
local banks with less capital.  Finally, national exporters 
association president Javier Diaz said an FTA provides a 
unique opportunity to boost Colombia,s legal economy and to 
deal a blow to the problems presented by narcotics and 
insurgents.  APTDEA has permitted the country to increase 
sales in new dynamic industries like textiles and shoes, 
lowering unemployment.  An FTA not only offers trade in goods 
but also more potential investment, which would help further 
reduce unemployment. 
 
12.  (SBU) The Colombian business associations said they are 
working to develop a single voice in the negotiations, and 
are planning to meet with their U.S. counterparts.  Entire 
sectors are not threatened per se, they stressed.  Rather, 
the threat is to individuals and firms that refuse to adapt. 
Part of the problem, the A/S agreed, is that people measure 
wins and losses against the economy as it currently exists, 
while in reality trade permits new economic actors to enter 
on the scene to create many more winners.  The business 
leaders also said the FTA promises to bring more 
sophisticated business practices as well as reforms in tax 
structures and investment.  A/S Wayne stressed that unlike 
ATPDEA, the FTA requires give and take, and should be just 
one part of a broad economic approach that includes 
structural reforms.  A/S Wayne also stressed that the private 
sector has a role in explaining the benefits to the public. 
 
Press Interview 
--------------- 
 
13.  (U) A/S Wayne's interview appeared in the February 2 
edition of Portafolio, the leading economic daily.  In the 
interview, A/S Wayne highlighted the same points that he has 
raised in his visits. He praised GOC efforts to date to 
restructure the economy and pave the way for an FTA.  The 
interview highlighted the need for the Colombian negotiating 
team to work closely with the private sector to identify 
important negotiating areas.  He also made it clear that the 
FTA was a negotiation, not a concession. 
 
Leading Economic Think Tank Positive on Colombia's Prospects 
--------------------------------------------- --------------- 
 
14. (U) A/S Wayne met with former Mining Minister and Central 
Bank board member Carlos Caballero, now of the leading 
economic think-tank, Fedesarollo.  After outlining the woes 
of the economy after 1998, Caballero painted a very bright 
picture of Colombia,s current recovery, with 3.4 percent GDP 
growth in 2003 and a projected 3.8 to 4 percent this year. 
Caballero noted that while productivity and efficiency have 
been increasing, job creation is slow and the average 
Colombian does not yet feel the recovery.   The government's 
top three priorities, he believes, should be to consolidate 
security gains, pass an effective structural fiscal reform, 
and to sign an FTA. 
 
15.  (U) Caballero said private investment grew 20 percent in 
2003 fueled by a construction boom, but added that further 
growth and new jobs will depend on signing an FTA. 
Colombia,s once significant trade with Venezuela dropped by 
half last year, only to be replaced by U.S. trade thanks to 
the time-limited ATPDEA preferences.  He added that it is 
critical that Colombia focus outwards, but explained that a 
national consensus does not yet exist because the priority 
has been on internal reforms.  Fedesarollo is now focusing on 
reforms in regional revenue sharing and the need to increase 
land taxes.  They believe military spending should be made 
more rational, and that reprogramming funds from other 
government agencies, especially the inefficient health and 
education budgets, will be necessary to maintain the higher 
military commitments under Uribe. 
 
16. (SBU) Comment:  The GOC is off to a good start on FTA 
preparations inside the government, but still has to do the 
hard work of building and cementing a pro-FTA consensus at 
home.  Uribe's popularity and high public confidence due to 
recent security and economic successes will help, but the GOC 
will need a careful analysis of sector by sector benefits and 
opportunities as well as ways to address potential "losers'" 
concerns.  End Comment. 
 
17.  (U)  This cable has been cleared by A/W Wayne. 
WOOD