US embassy cable - 05SANTODOMINGO1836

UNCLAS SECTION 01 OF 03 SANTO DOMINGO 001836 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CAR, WHA/EPSC, WHA/USOAS, EB/TPP/BTA, 
EB/IFD/OMA; STATE PASS USAID; NSC FOR SHANNON AND MADISON; 
USCINCSO FOR POLAD;STATE PASS USTR FOR VARGO, RYCKMAN, 
MALITO, CRONIN; USDA FOR FAS; TREASURY FOR OASIA-LCARTER; 
USDOC FOR 3322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION;TREASURY 
FOR LUTHER CARTER; 
USDOC FOR 3134/ITA/USFCS/RD/WH; DHS FOR CIS-CARLOS ITURREGUI 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EINV, ETRD, DR 
SUBJECT: DOMINICAN POLITICS #18: EMBASSY PUTS CAFTA-DR 
DEBATE CENTER STAGE WITH CHILEAN NEGOTIATOR 
 
1. (SBU) This is #18 in our current series on politics in the 
Dominican Republic: 
 
EMBASSY PUTS CAFTA-DR DEBATE CENTER STAGE WITH CHILEAN 
NEOGOTIATOR 
 
The Ambassador, USAID, and EcoPol arranged the three-day 
visit to the Dominican Republic of Amb. Osvaldo Rosales, 
currently Director of the Trade Division at the UN Commission 
for Latin America and the Caribbean (ECLAC) and previously 
Chile,s chief trade strategist and negotiator. The 
Ambassador sought Rosales out on the suggestion of USTR,s 
Regina Vargo. 
 
The Embassy kept Rosales busy throughout his stay.  The key 
event was a closed-door seminar, March 31, at President 
Fernndez,s Fundacin Global para el Desarrollo y Democracia 
(FUNGLODE). 
 
Just before the seminar, President Fernandez received 
Ambassadors Hertell and Rosales, FUNGLODE director Frederic 
Eman-Zade and embassy staff. The meeting lasted about fifteen 
to twenty minutes. The Ambassador briefed the President on 
the results of previous meetings and discussed the need for 
the Dominican Republic to move quickly to ratify the CAFTA-DR 
agreement. 
 
The FUNGLODE seminar meeting was attended by the President, 
the Ministers of Finance and Trade, and approximately 60 
private sector leaders. It lasted about three hours and there 
were presentations by Ambassador Rosales (on the Chilean 
experience in negotiating the Chile-US FTA as well as the 
very positive outcome in the first year; exports increased by 
more than 30 percent for both countries); by Ambassador 
Hertell; by Trade Secretary Javier Garcia; by AUSTR Chris 
Padilla via video teleconference; by Jorge Ivan Ramirez, 
AmCham President and head of the Coalition for the approval 
of the CAFTA-DR agreement; by Sra. Elena Viyella, head of the 
Entrepreneurs Council, CONEP; by Sr. Cesareo Contreras, for 
the agriculture sector; and by Sra. Yandra Portela, President 
of the Association of Industries. 
 
All spoke in favor of the FTA. Ambassador Rosales in his 
presentation spoke more on the Chile,s positive experience 
with trade agreements with the United States and other FTAs 
and explained that Chile saw these agreements as 
opportunities to accelerate Chile,s economic growth. 
 
Ambassador Hertell, Trade Secretary Garcia, Assistant USTR 
Chris Padilla, and Sr. Ramirez spoke of the need for the 
Dominican Republic to approve the agreement as quickly as 
possible so as to be able to take advantage of the agreement, 
particularly so investment and production would move to other 
countries.  Chris Padilla's presentation effectively made the 
case that momentum is building toward U.S. Congressional 
action and that the business and political elite in the 
Dominican Republic should work toward early ratification here 
as well.  His was a well-crafted message, communicated in 
positive terms that showed we are in this together. 
 
The last three speakers, while acknowledging the importance 
of the FTA, stressed private sector concerns that the country 
was not ready for the agreement. Elena Viyella and Yandra 
Portela, representing the views of Dominican industrial 
firms, stressed the need for fiscal and customs reform, in 
order for domestic industry to be able to compete and to 
become more export oriented. They were particularly insistent 
that the &exchange commission8 (&comision cambiaria8) 
equivalent to 13 percent of CIF value collected by Customs 
was an intolerable competitive disadvantage vis-a-vis the 
Central American competition. 
 
The agricultural spokesperson discussed concerns about U.S. 
subsidies to agricultural production and maintained that 
these were unfair competition to Dominican agriculture, and 
expressed concern about sanitary and phyto-sanitary policies 
of the United States that would make agriculture exports to 
the United States difficult. 
 
All of the last three speakers cited high interest rates and 
tax policies instituted at least in part in accordance with 
IMF requirements as factors that reduced the competitiveness 
of domestic industry and agriculture. Other members of the 
audience cited these issues as well as reasons to go slow in 
approving the DR CAFTA.  Luis Viyella, representing 
fertilizer manufacturers (and sugar) argued that the country 
needed &more time.8 
 
Minister of Finance Bengoa commented that fiscal reform was 
originally planned for July 2006 but must be moved up because 
it is required by the IMF agreement and it is needed to 
correct the "distortions in the economy caused by CAFTA." 
When CAFTA is approved it will create a 2 billion peso fiscal 
gap due to lower customs tariffs and an elimination of the 13 
percent exchange commission.  He emphasized that 90 percent 
of government revenue comes from a combination of six taxes: 
VAT, income, exchange commission, customs tariffs, fuels, and 
alcohol.  Bengoa pondered at the end: "The consumer is 
already overburdened. Who will pay for the loss of revenue - 
- where will the burden fall?" 
 
Ambassador Rosales replied that public and private sector 
leaders in Chile had expressed similar concerns when their 
FTA was being negotiated. He stressed the point that 
countries have to take advantage of opportunities when they 
arise, whether they think it is the optimal time or not. 
There will never be an optimal time. 
 
Both Ambassador Rosales and Chris Padilla emphasized the 
danger of lost opportunities in investment and production if 
there was a serious delay in approving the CAFTA-DR. Once 
investors make a decision to invest in another country that 
investment is lost to the Dominican Republic. 
 
Representative of pharmaceutical association INFADOMI Leila 
Mejia Roldan asserted that CAFTA would disadvantage Dominican 
health care, but Chris Padilla countered her directly, 
offering the example of expanded pharmaceutical production 
following implementation of the free trade agreement with 
Jordan. 
 
In summary, the event stimulated an open and frank discussion 
on the DR CAFTA and related issues. There was a clear 
agreement that the agreement was essential for the country. 
The issue of delaying approval until the Dominicans were 
&more ready8 was not put to rest, but it was strongly 
challenged by Amb. Rosales. In our discussions with attendees 
after the meeting, there was general agreement that the 
meeting had cleared the air and had forced people to be more 
forthcoming with their issues. Moreover, the exchange of 
views was cited as something refreshing and overdue.  We 
expect that there will be several thoughtful op-eds appearing 
in the leading papers over the next week. 
 
Impact of Video 
 
The visual impact of the video teleconference was impressive. 
Participants at FUNGLODE were gathered in a comfortable but 
intimate setting.  The fact that Chris Padilla was already 
seated there on three large screens as many of the guests 
entered the room and stayed on through the entire three-hour 
program (more for him since he was on time!) -- that alone 
communicated a great deal.  His body language consistently 
showed that he was an attentive listener.  In a conversation 
after the program, moderator Ambassador Bernardo Vega 
complimented him for staying through the entire discussion 
and said he had contributed positively to the discussion.  As 
we were signing off at the conclusion of the program, 
Ambassador Hertell said, "Good job, Chris." 
 
And Where was Fernandez? 
 
One concern was the silence of President Fernandez.  In early 
plans, FUNGLODE and the Embassy had suggested that the 
President open the session with some of the articulate 
improvised remarks that he does so well.  Instead, Fernandez 
listened without comment.  He accompanied the visitors to the 
central table and stayed for most of the presentations, but 
he slipped away toward the end without a word, on the way to 
a dinner with the Exporters' Association.  One interpretation 
is that the President was leaning so far back from the 
subject with this high powered audience that he almost fell 
over; another is that he judged that his support in principle 
for CAFTA was well known, and it was up to the interested 
parties to articulate their needs and requirements. 
 
 2. (U) Drafted by Joseph B. Goodwin (USAID), Dale Largent, 
and Michael Meigs. 
 
3. (U) This piece and others in our series can be consulted 
on classified SIPRNET site 
http://www.state.sgov/p/wha/santodomingo/ along with 
extensive other material. 
HERTELL