US embassy cable - 04SANTODOMINGO5024

C O N F I D E N T I A L SECTION 01 OF 04 SANTO DOMINGO 005024 
 
SIPDIS 
 
SENSITIVE 
 
USDA FOR ITP - SHEIKH AND GRUNENFELDER, REPEATING SANTO 
DOMINGO 5017 DTG 07 1326 SEP 04 SENT ACTION GENEVA, WHITE 
HOUSE FOR USTR, SECSTATE 
 
E.O. 12958: DECL: 09/06/2010 
TAGS: PGOV, ETRD, EFIN, DR 
SUBJECT: DOMINICAN POLITICS: SUGAR, IPR, TAXES AND TRADE -- 
TROUBLE FOR FREE TRADERS 
 
REF: SANTO DOMINGO 5017 
 
Classified By: EcoPol counselor Michael Meigs.  Reason: 1.4 (a) and (d) 
. 
 
1. (U) Following is the first in our series on the politics 
of the new Dominican administration of Leonel Fernandez. 
 
(U) Dominican Politics #1: Sugar, IPR, Taxes and Trade ) 
Trouble for Free Traders 
 
(U) Powerful opponents of free trade are mounting a campaign 
to discredit the agreement with the United States and the 
Central Americans, manipulating Congress and hoping the USG 
will walk away from the deal.  Leonel Fernandez needs to stop 
talking generalities and make a commitment to free trade. 
 
(U) The enormously wealthy and influential sugar interests in 
the Dominican Republic have pursued a relentless public 
campaign over the past month against the country,s free 
trade agreement (FTA) with the United States and Central 
America.  At a rhythm of two or three per week, full-page ads 
of breath-taking vehemence have appeared, simultaneously, in 
all the country,s dailies.  Some have appeared as 
communiqus of the "Agricultural Association" of two dozen 
agricultural interest groups.  Others were re-publications of 
anti-trade opinion pieces from elsewhere in the press.  Still 
others have been ad hominem attacks against the Dominican 
negotiators, the U.S. ambassador, and those few editorialists 
who have written in favor of the FTA. 
 
(SBU) The arguments are the familiar rants of protectionism: 
the FTA will completely eliminate the agriculture of the 
country, now more than 20 percent of GDP.  The United States 
unfairly subsidizes its farmers and exports.  The country 
will lose autonomy in food protection.  Millions of poor 
farmers will lose their livelihoods.  The Dominican 
negotiators failed to consider the needs of agriculture.  The 
FTA must be renegotiated, and the U.S. elections will present 
the opportunity to do so. 
 
Where is Leonel? 
 
(U) In his first public event, the day after his 
inauguration, President Fernandez endorsed the FTA to the 
press, in the presence of U.S. Secretary of Agriculture Ann 
Veneman.  He reminded journalists,"&The Dominican Republic 
cannot afford to lose access to the U.S. market, and for that 
reason the agreement was concluded, with no time limits to 
free trade"  The Caribbean Basin Initiative "is what has 
permitted the development of our free zone industries"  He 
declared that the agreement would advance regional 
integration and benefit the country: "We are greatly 
confident that the future development of the Dominican 
Republic may rest in the ability to take advantage of the 
opportunities presented to us." 
 
(SBU) Fernandez has long espoused just this sort of soft 
globalism, talking about the inevitability of trade pressures 
and about the need to seek competitive advantage. 
Unfortunately, he has, in our view, so far failed in his 
first three weeks in power to appoint or empower free traders 
in his administration. 
 
(SBU) Foreign Minister Carlos Morales Troncoso is straight 
out of 40 years of managing and owning Central Romana, the 
country,s leading sugar complex - - although, to be fair, 
the Minister told the Ambassador on August 24 that he was 
"setting aside"his concerns about sugar and trade.  Trade 
negotiating authority has moved back to the Foreign Ministry, 
to Juan Giuiliani, not known to favor U.S. trade initiatives 
for the hemisphere.  Minister of Commerce and Industry 
Francisco Javier Garcia manifested no particular interest in 
the FTA during the Ambassador,s courtesy call on August 23, 
dwelling instead on domestic concerns.  Agriculture Minister 
Anibal Romero says that agricultural complaints must be 
heard.  Though certainly peripheral to these issues, even 
Culture Minister Rafael Lantigua is close to the sugar 
interests. 
 
(C) Uncertainty about Fernandez,s trade policy is such that 
last week USTR picked up rumors that Fernandez might 
reappoint as WTO ambassador Federico Cuello, the determined 
anti-U.S. ideologist who has regularly sniped at the FTA 
effort in weekly newspaper columns over the last year. 
Secretary of the Presidency Temistocles Montas dismissed the 
 
SIPDIS 
notion in conversation with the Charge on September 3 (we 
understand Cuello is likely to go to Brussels, where he can 
do little to harm trade).  Montas offered no speculation 
about a possible nominee for Geneva. 
Congress - - A Field for Provocation 
 
(U) The highest-profile political show in town has been 
congressional consideration of the tax package crafted by 
Fernandez,s advisors and delivered on July 11, at arm,s 
length, by President Mejia.  All political actors understand 
that early implementation of increased taxes is a prior 
condition for renewing IMF negotiations for a badly needed 
standby program.  House Finance Committee president Rep. 
Marino Collantes conducted more than a month of hearings, 
debates, and discussions on the measure, right until 
expiration of the session on Sunday, August 15.  The House 
revived the legislation as soon as it reconvened in new 
session after the inauguration. 
 
(SBU) Also expiring on the 15th and revived on the 17th was 
an ugly little measure advocated by pharmaceutical 
manufacturers. In direct breach of commitments in the WTO and 
the FTA, a piece of draft legislation would reduce penalties 
on infringements of patents and trademarks to fines of 
derisory amount, at the same time eliminating jail terms.  It 
would also stipulate that petitions for compulsory licensing 
of patents would be considered approved in the absence of 
administrative reply within 120 days.  In the week before the 
inauguration the DCM and EcoPol Counselor strongly cautioned 
House President Pacheco about both aspects.  Pacheco, 
generally a reliable interlocutor, assured us he would see 
that the measure was held in committee for lengthy discussion. 
 
(SBU) The House passed a much-reduced tax package on August 
26, but with a sharp protectionist sting in its tail.  In 
paragraph IX of the approved version a new measure would 
impose a 25 percent tax on soft drinks and refreshments 
manufactured with fructose syrups.  This text had gone into 
the hopper late in the closing deliberations.  On August 27 
House President Pacheco expressed dismay to us, professing 
that he,d not understood it to constitute trade 
protectionism. 
 
(SBU) The tax package then went to the Dominican Senate, 
dominated by Meja,s PRD with 28 of 32 senators.  On Monday, 
August 30 EcoPol counselor explained the consequences of the 
anti-trade tactic to PRD president Vicente Sanchez Baret and, 
separately, to PRD Trade Committee president Sen. Alejandro 
Santos, also of the PRD. 
 
(C) On the same day the Charge called on Senate President 
Andres Bautista, who had apparently been ducking calls from 
the U.S. Agricultural Attache for three days.  Sen. Bautista 
was flanked by a committee of senators, including  Santos. 
The Charge warned them of immediate, wide-reaching 
consequences for the FTA if an anti-fructose tax became law. 
Bautista professed concern but commented that any 
modifications would necessarily send the package back to the 
House and further delays, prejudicial for prospects with the 
IMF.  Perhaps, he speculated, Congress could approve the 
package and then pass a separate measure to repeal the 
anti-fructose tax.  The Charge strongly warned senators 
against the tactic, advising them that the anti-trade 
paragraph had already greatly damaged the credibility of the 
country with the USG, the U.S. Congress, and supporters of 
free trade. 
 
(U) When the Senate met on August 31, it referred the tax 
package to a special committee of 12 senators - - far larger 
than the 5-senator committee previously planned, according to 
Senator Santos.  That committee met formally on September 2; 
during their session the Embassy delivered individually to 
each of the 12 senators the Embassy translation of a etter 
sent on August 31 from Deputy USTR Algier to Dominican 
ambassador Guiliani Cury. 
 
(C) The USTR letter expressing deep concern about the tax 
measure drew in part from elements proposed by Embassy Santo 
Domingo. Shortly after the letter was delivered to the 
Dominican embassy, their DCM in Washington Judith Marcano 
(protect) telephoned Santo Domingo trade contacts asking for 
help, saying that Amb. Guiliani was declining to deal with 
USTR, with the USTR letter, or with any of the approaches 
from U.S. interests. 
 
Senate Debate 
(U) The Senate is sharply divided, according to the press, 
with Senate vice president Cesar Matias strongest for 
elimination of the anti-trade measure.  Matias stated during 
debate that since the administration is responsible for the 
tax package, Fernandez should declare his position on the 
issue. 
 
(U) Journalists are portraying the drama as one of Senate 
reaction to "pressures from the U.S. Embassy."To their 
inquiries the Embassy issued a succinct reply:  "he United 
States Embassy regularly carries out consultations with all 
parts of the Dominican government, including the House of 
Representatives and the Senate, on a wide range of matters of 
mutual interest.  We share the interest of the Dominican 
government in obtaining an appropriate package of fiscal 
reforms, consistent with the international obligations of the 
Dominican Republic, in order to put the Dominican economy 
back on the road to recovery." 
 
(C) On September 3 Technical Secretary of the Presidency 
Temistocles Montas opened a pre-Paris-Club meeting with 
Charge and EcoPol counselor with word that Senate President 
Bautista had raised the issue with the administration - - 
evidently with the suggestion that the tax package might go 
through unchanged if Fernandez asked for it.  Montas took no 
position, as Charge again detailed the consequences of 
allowing the anti-fructose tax to become law, even with a 
perhaps a promise, perhaps unachievable, that it would be 
repealed.  EcoPol counselor warned that congressional 
approval of the protectionist tax might prompt the USG to 
suspend action on the DR and proceed only with CAFTA. 
 
The Losers, Strategy 
 
(SBU) Sugar producers and pharmaceutical manufacturers see 
that they are the losers under the free trade agreement. 
Sugar cannot use the additional quota of 10,000 tons for the 
United States, because they can scarcely produce the 180,000 
now authorized. The pharmaceutical producers know that 
effective enforcement of intellectual property laws will bar 
their plans to dominate the local market. 
 
(C) Therefore the direct and immediate interest of both 
groups is to sabotage DR-CAFTA.  Their first tactic was to 
shift perceptions, making the U.S. government, the U.S. 
ambassador, and the Embassy the villains of the piece.  The 
intemperate rhetoric of their advertising sought to provoke a 
USG response, which would give them further material for 
polarizing opinion against the agreement.  Leading sugar 
owner Pepe Fanjul, with production both in the Dominican 
Republic and in Florida, is putting about the story that the 
Embassy is revoking visas of supporters of the sugar sector - 
- a patent absurdity, but one that Dominicans, with their 
conspiracy theories of bilateral relations, would be eager to 
swallow. 
 
(SBU) Their second tactic has been to poison Dominican law 
and regulations with trade-unfriendly measures that might 
prompt the United States openly to walk away from the deal. 
USTR could decide not to submit to the U.S. Congress only the 
trade agreement negotiated with the Central (CAFTA).  If that 
happened, it would be the culmination of a process that may 
already have started  -- with U.S. supporters in the private 
sector and in Congress estimating that Dominicans will never 
be able to deliver on their commitments. 
 
(SBU) Against the fictions and malevolent ruses of these 
opponents, the most powerful potential force is Dominican 
self-interest. President Fernandez has not convincingly 
articulated the national interest in this trade deal and too 
few Dominicans have spoken up in defense of it.  For example, 
the public appears to have no idea that it is paying double 
the world price for its principal staple, rice, or that 
cartels of protected producer-importers of agricultural goods 
are routinely gouging the public and especially the poor. 
 
 (SBU) The Dominican industrialists most capable of cashing 
in on new export opportunities contributed generously to the 
Leonel Fernandez presidential campaign.  But they have done 
very little, either individually or collectively, to counter 
the tactics of the sugar lobby, a group everyone perceives to 
be motivated and wealthy enough to purchase congressional 
votes wholesale.  Similarly, associations, civic leaders and 
economists who understand the advantages of the agreement 
have been intimidated by the ferocity of the agricultural 
counterattack.  The American Chamber of Commerce leadership 
endorses the FTA in general terms but has not engaged in this 
fight, largely because sugar interests are influential 
members who regularly contribute to the Chamber and its 
programs. 
 
(U) The struggle over the FTA will provide early tests for 
Leonel Fernandez:  of his understanding of economic advantage 
in the modern world and of his ability to articulate a vision 
of the path to growth, transformation and modernization of 
the economy.  And even more so, of his willingness to take on 
the privileged and protected, in the interests of those who 
elected him. 
 
2. (U) Drafted by Michael Meigs 
3. (U) This cable and other cables in our various series on 
the Dominican Republic, along with extensive other material, 
can be consulted on our classified SIPRNET site 
http://www.state.sgov.gov/p/wha/santodomingo/   . 
HERTELL