US embassy cable - 04SANTODOMINGO5302

C O N F I D E N T I A L SECTION 01 OF 03 SANTO DOMINGO 005302 
 
SIPDIS 
 
STATE FOR WHA - SHAPIRO, URS, MCISAAC; EB FOR DONNELLY, 
MANOGUE, VOLK, YOUTH, HONAN, AARON, FRISBIE; E FOR CADE; 
TREASURY FOR OASIA - LEE, TOLOUI, AND LAMONICA; WHITE HOUSE 
FOR USTR - MALITO, VARGO; USTR FOR ALLGEIER; NSC FOR TOM 
SHANNON 
 
E.O. 12958: DECL: 09/22/2014 
TAGS: ETRD, PREL, BEXP, PGOV, EFIN, DR 
SUBJECT: FORMER DOMINICAN PRESIDENT OPTIMISTIC THAT SENATE 
WILL PASS FISCAL REFORM WITHOUT HFCS-RELATED TAX 
 
REF: A. (C) SANTO DOMINGO 05242 
 
     B. (U) SANTO DOMINGO 05156 
     C. (C) SANTO DOMINGO 05080 
     D. (C) SANTO DOMINGO 05024 
 
Classified By: AMBASSADOR HANS H. HERTELL FOR REASON: 1.4 (A) AND (D). 
 
1.  (C)  SUMMARY AND COMMENT.  Former Dominican President 
Hipolito Mejia told Ambassador Hertell September 22 that he 
expects that the effort will succeed to remove from the 
fiscal reform bill now in the Senate the proposed 25 percent 
tax on beverages that use high-fructose corn syrup (HFCS). 
It may take a few more days.  Mejia has been lending, and 
will continue to lend, his weight and political clout from 
behind the scenes to resolve this issue.  Mejia,s clear 
support, plus that of President Fernandez, Monsignor Agripino 
Nunez Collado and other heavyweights, including major 
business organizations, brings new confidence that the vote 
will come out the right way.   End Summary and Comment. 
 
2.  (C)  At short notice, former President Mejia agreed to 
meet with Ambassador Hertell September 22 to discuss the 
problematic 25 percent tax on drinks made with HFCS included 
in the fiscal reform legislation currently up for a second 
vote in the Senate.  As reported in (Ref C), a first reading 
of the draft legislation, which includes a 25 percent tax on 
beverages made with HFCS, was approved last week in a rush 
vote by the opposition PRD-controlled Senate.  This meeting 
followed a heated week of diplomacy and advocacy to remove 
the HFCS-related tax from the fiscal reform legislation 
needed for the Dominican Republic to resume its IMF program, 
and then pass the fiscal reform package (See Reftels.) 
 
Background:  Ambassador,s and Fernandez, September 20 
Meetings with Senators 
--------------------------------------------- ------------ 
3.  (C)  On September 20, the Ambassador met with Senate 
President Andres Bautista, PRD whip and spokesman Senator 
Anibal Garcia, and eight other senators (including several 
from sugar provinces) to review the US position on the 
question removing the HFCS-related tax from the fiscal reform 
bill.  The Ambassador unequivocally said that the Senate 
should not allow the HFCS-related tax to be included in a tax 
reform law, and cautioned that without senators' strong 
leadership, our two countries would not realize the benefits 
of DR-CAFTA.  He conveyed Washington views that an attempt to 
remove the HFCS-related tax after first passing the fiscal 
reform bill would be unworkable.  Though the senators present 
complained that President Fernandez,s own position on the 
issue was not entirely clear, they agreed to work to remove 
the tax, pass the modified bill in the Senate, and then send 
it back to the Chamber of Deputies for, hopefully, a quick 
vote along the same lines. 
 
4.  (C)  In the afternoon of the same day, President 
Fernandez asked the Ambassador to join his own meeting with 
the Senate leadership (Bautista and Garcia).   The Ambassador 
hand-delivered USTR Zoellick,s letter to Fernandez and 
reviewed its contents.  President Fernandez told the senators 
that without DR-CAFTA, the Dominican Republic would be left 
out of the region,s largest free trade group, while Mexico 
and the Central Americans would have advantaged access to the 
US market.  Fernandez noted that the fiscal reform package 
was a very high priority for the GODR, but it could not be 
achieved at the expense of DR-CAFTA.  He reiterated that a 
week earlier, he himself had instructed his Technical 
Secretary, Temistocles Montas, to send the Senate a letter 
 
SIPDIS 
asking it to remove the HFCS-related tax (which Montas had 
done).  Fernandez, speaking directly to the senators, 
suggested that once the fiscal reform, minus the HFCS-related 
tax, was passed, he could support private sector complaints 
with a GODR-launched complaint against the United States at 
the WTO.   Bautista agreed that this might be a good way to 
proceed.  The Ambassador said the US position was that we 
should be partners in the WTO (in ongoing multilateral 
negotiations).  Fernandez and the senators agreed to try to 
get the support of the Senate leaders of all three major 
political parties, in order to set an example for the Chamber 
of Deputies, where the bill would be very controversial once 
again.  They agreed to try to move the legislation as quickly 
as possible. 
Politicking 
------------- 
5.  (C)  The senators spent the following day, September 21, 
trying to broker this arrangement.  In the meantime, the 
Ambassador, who then traveled to Santiago, received public 
support from all the major business organizations of this 
trade-oriented city for DR-CAFTA (and for removing the 
HFCS-related tax from the fiscal reform bill).  These 
organizations also took out full-page ads in the country,s 
leading dailies. 
 
6.  (C)  As of the morning of September 22, there were 14 
senators ready to vote to remove the tax and pass a modified 
fiscal reform bill, but 17 senators who wanted to pass the 
bill as is.  (One senator was out of the country.)  Note: 
These numbers have changed slightly throughout the day and 
could change again.  The PRD opposition reportedly saw an 
opportunity to win concessions from the PLD on a host of 
other issues, which further complicated the work.  Faced with 
this situation, the Ambassador called former President Mejia, 
who arrived at the Ambassador,s residence a scant 10 minutes 
later. 
 
The Conversation with Former President Mejia 
--------------------------------------------- --------------- 
7.  (C)  The Ambassador reiterated that the US position 
remained firm, that the Dominican Republic would lose its 
participation in DR-CAFTA if the fiscal reform bill passed 
with the HFCS-related tax in it.  Former president Mejia 
noted that the United States had been perfectly clear; "you 
have been clearer than a diplomat," he joked.  Mejia was 
confident that the vote would come out right.  "I didn,t 
want to get out in front, but I,ve got control in the Senate 
and can get enough votes."  It would probably take a few 
days, he said.  He calls Foreign Minister Morales Troncoso,s 
comments on behalf of sugar "unfortunate" and a reflection of 
the foreign minister,s own personal opinion.  He offered to 
get together with the Ambassador again on Monday, September 
27. 
 
Other Conversations 
-------------------------- 
8.  (C)  The Ambassador and Emboffs have had a series of 
other conversations during the past several days, including 
with Monsignor Agripino Nunez Collado, Senator Alejandro 
Santos (PRD and favorable to the US position), former chief 
Dominican negotiator and trade secretary Sonia Guzman, 
Guzman,s assistant Hugo Rivera, and others.   All of these 
contacts have been (and continue to be) active, either out in 
front or behind the scenes, and they come to the task 
representing different constituencies. 
 
Comment 
------------ 
9.  (C)  At this stage, given the participation of several 
real heavyweights in Dominican politics and President 
Fernandez,s clear language with the Senate leadership, we 
are now guardedly optimistic of winning this titanic 
struggle, though not as quickly as we had hoped.  We have 
confidence in Mejia,s ability to deliver the additional 
Senate votes needed.  This is not to say that the battle will 
be over in the Senate; the likelihood is for a renewed battle 
as well in the Chamber of Deputies (where, we have been told, 
we can count on the support of Chamber of Deputies president 
Alfredo Pacheco, of the PRD). 
 
10.  (C)  This confrontation between Fernandez and the 
Congress after just one month in office has provided the 
first major test of the administration.  In the executive 
branch, we have seen a lack of discipline about the 
government,s policy, e.g., in the public statement made by 
Foreign Minister Morales Troncoso against his 
own president,s position.  We suspect the Foreign Minister 
was motivated by his own personal loyalties from a long 
association with the largest sugar interest in the country. 
In the legislative branch, Fernandez has proved to be able to 
sway the vote of his own PLD's sole senator, but seemingly 
hesitant in the face of PRD and PRSC opposition.  The best 
outcome would be rapid passage of the fiscal reform -- minus 
the HFCS-related tax -- and a resulting new respect for 
Fernandez, presidency.  Time and continued efforts by the 
Embassy, Washington, and the GODR will tell.  The outcome 
could affect Fernandez,s ability  to enact his proposals 
into law between now and the 2006 legislative elections, when 
his ruling PLD will have its first chance to tilt the balance 
of forces in Congress. 
 
11.  (C) Events like this are opportunities to strengthen 
democracy.  In our view, former President Mejia, Senate 
President Bautista, and political mediator Monsignor  Nunez 
have stepped up to the leadership plate.  They are heavy 
hitters, and there are several innings left in the game. 
 
 11. 
KUBISKE