US embassy cable - 04SANTODOMINGO5080

C O N F I D E N T I A L SECTION 01 OF 03 SANTO DOMINGO 005080 
 
SIPDIS 
 
STATE FOR WHA, WHA/CAR, WHA/EPSC, EB/OMA 
NSC FOR SHANNON AND MADISON; USTR FOR VARGO 
USDA FOR ITP - SHEIKH AND GRUNENFELDER 
LABOR FOR ILAB; TREASURY FOR OASIA-LAMONICA 
USCINCSO ALSO FOR POLAD 
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION 
USDOC FOR 3134/ITA/USFCS/RD/WH 
 
E.O. 12958: DECL: 04/26/2009 
TAGS: PGOV, ETRD, EFIN, PREL, DR 
SUBJECT: DOMINICAN SENATORS TELL AMBASSADOR THEY'LL BLOCK 
TAX ON FRUCTOSE SYRUP 
 
REF: SANTO DOMINGO 5024 
 
Classified By: Ambassador Hans Hertell.  Reason: 1.4 (a) and (d). 
 
 1. (C) Summary. The Ambassador obtained from Senate and PRD 
leaders September 8 a commitment to delete a proposed 25 
percent tax on beverages using imported high fructose corn 
syrup (HFCS) from paragraph 9 of the pending fiscal reform 
legislation (reftel).  The Ambassador told them the 
protectionist tax, if passed, would close the door to the 
Dominican Republic's free trade agreement (FTA) with the 
United States.  Senate President Andres Bautista (opposition 
PRD), PRD president Vicente Sanchez Baret, and special 
committee for tax reform chair Senator Tomas Duran (PRD) said 
that the Senate -- with its overwhelming PRD majority -- 
would strike the tax from the fiscal reform bill on September 
13 or 14 and immediately send their version to the House of 
Representatives.  On September 9 on the margins of a courtesy 
call by Eximbank Vice President Jeffrey Miller (septel) the 
Ambassador urged Fernandez to support revision of the bill. 
House Chairman Alfredo Pacheco has told the press that the 
House would, if asked, pass separate legislation repealing 
the HFCS tax if it is included in the tax package.  End 
summary. 
 
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Their Position 
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2. (C) On September 8 Senate President Andres Bautista 
(opposition PRD) requested on short notice a meeting to 
discuss the tax reform package and USG requests to eliminate 
a 25 percent tax aimed at imported fructose syrups.  The 
Ambassador received Bautista, along with PRD party president 
Vicente Sanchez Baret and PRD Senator Tomas Duran, chair of 
the 12-person special committee discussing the tax bill. 
 
3.  (C) Bautista said that after GODR officials and 
legislators had received word last week from Embassy oficers 
of Washington's objections to the HFCS tax included at the 
last minute by the House of Representatives (reftel), on 
September 7 during three hours of Senate hearings, Finance 
Secretary Vicente Bengoa, Internal Revenue Director Juan 
 
SIPDIS 
Hernandez, and Customs Director Miguel Cocco suggested the 
Senate approve the bill as is, including paragraph 9, and 
send it back to forward to the President. The Fernandez 
administration would submit a separate bill that, once passed 
by both Congressional houses and signed into law, would 
repeal the provisions of paragraph 9 from the already 
approved fiscal reform law.  Bautista emphasized the 
Dominicans' priority of getting the tax reform operational as 
soon as possible both for revenue reasons and to  enable 
progress toward a renewed IMF accord. 
 
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Our Position 
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4. (C) The Ambassador spoke "as a friend of the Dominican 
Republic, without any intention of exerting pressure."  He 
explained that senior Washington officials were dismayed by 
the proposed HFCS tax, which was counter to the WTO 
agreements and against the spirit and letter of the FTA. 
USTR, part of the President's White House office, was 
emphatic in this view.  Ratification of CAFTA was moving 
ahead, but a Dominican protectionist tax measure would throw 
a huge obstacle in the road to DR-CAFTA approval.  The HFCS 
conflict was a clash of interests between Dominican private 
sector entities, the sugar producers and the bottlers.  The 
Ambassador advised them that Congress "has the key" to FTA 
ratification." He emphasized,"You can open the door to the 
FTA, or you can slam it shut for good." 
 
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A Position Taken 
---------------- 
 
5.  (C) Bautista, seconded by Sanchez Baret, replied, "We are 
not going to put the FTA at risk.  If the tax would do that, 
then we won't accept it."  He said he would convoke the 
Senate on September 14, or -- at the Ambassador's suggestion 
-- possibly on September 13, and place before Senators a 
modified bill without the tax provision for approval on an 
urgent basis in two consecutive readings.  The revised bill 
would go back to the House by the evening of September 14. 
Sanchez Baret said that the PRD would instruct its senators 
(a majority in the Senate) and congressional representatives 
(a plurality of 72 of 150 in the Chamber) to support this 
revision.  Duran expressed a desire for President Fernandez 
to take a clear position on the matter.  Sanchez Baret noted 
that, if Fernandez supported the change and so instructed the 
PLD's 42 deputies, then the final legislation "would not 
fail" to gain approval.  However, if the Chamber rejected the 
revision, the GODR would have to originate a completely new 
fiscal reform bill, which would be open to further lobbying 
and modifications in both houses of Congress. 
 
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The President's Reluctance 
-------------------------- 
 
6.  (C) In a subsequent private conversation with President 
Fernandez on September 8, the Ambassador urged him to support 
passage of the fiscal reform without the HFCS tax provision. 
The President initially objected that U.S. corn producers 
should not be able to influence sovereign decisions of the 
Dominican Republic.  The Ambassador replied that much more 
was at stake, including the highest interests of the nation. 
Fernandez appeared to accept his argument, although 
reluctantly. 
 
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Other Allies 
------------ 
 
7.  (SBU) The same day, House President Alfredo Pacheco (PRD) 
told the press that in his opinion the Chamber would accept a 
bill to repeal the HFCS tax, to avoid any confrontation that 
could harm the social or economic development of the country. 
 This played in the leading daily September 9 opposite a 
statement by influential Senator Jose Hazim Frappier, former 
PRSC vice presidential candidate from a sugar province, 
condemning free trade in sweeteners as a form of "hari-kiri" 
for the local industry.  The American Chamber of Commerce 
broke its silence and wrote in strong terms to the Senate, 
asking that the HFCS tax be eliminated as contrary to WTO 
agreements and to the FTA. 
 
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Comment 
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8.  (SBU)  Bautista is holding open hearings on the tax 
reform bill and as of Friday, September 10, there is no 
indication in the press of the intentions of the Senate 
leadership.  The Ambassador's September 9 courtesy call on 
Agriculture Minister Amilcar Romero, previously scheduled, 
provided an opportunity for sugar supporters to vent and 
journalists to speculate about "blackmail" by the United 
States.  The Ambassador's comments to the press afterwards 
were that the country has the obligtion to comply with its 
undertakings in the FTA; the issue has many repercussions and 
the Dominican Republic "has the key in hand" to solve its 
difficulties. 
 
9.  (SBU) The Ambassador and staff will continue to maintain 
a low public profile on this issue, waiting for it to play 
out in Congress and the executive, in the expectation that 
participants now undertand that the country's best interests 
lie in avoiding a self-defeating protectionist gambit and in 
separating consideration of tax reform from consideration of 
the FTA. 
HERTELL