US embassy cable - 05LIMA2235

UNCLAS SECTION 01 OF 02 LIMA 002235 
 
SIPDIS 
 
DEPT FOR WHA/AND 
DEPT PASS TO PEACE CORPS 
USTR FOR B. HARMAN 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD, EINV, ECON, PGOV, PE 
SUBJECT: AMBASSADOR DISCUSSES FREE TRADE IN PIURA 
 
 
1.  (SBU) Summary.  During a May 5-6 trip to Piura in 
northern Peru, the Ambassador met with local dignitaries to 
discuss free trade and economic development, inaugurated a 
new AID-sponsored small business center, toured a local 
textile plant, and visited Peace Corps volunteers.  Although 
the World Bank lists Piura as a relatively wealthy 
department, the Regional Government asserts that Piura's 
poverty rate is over 50 percent.  The Regional Government 
recognizes the need to promote economic growth in all 
sectors, particularly in agriculture, textiles and 
handicraft work.  Even though local agriculture producers 
benefit from access to U.S. markets, local cotton producers 
fear that American cotton will flood the Peruvian market 
under a U.S.-Andean Free Trade Agreement.  End Summary. 
 
Rich in Resources, But High Levels of Poverty 
--------------------------------------------- 
 
2.  (U) Piura Department has abundant natural resources, 
with over 245,000 hectares of arable land and large 
phosphate deposits.  Despite mineral wealth, the northern 
Department suffers from high levels of poverty.  Over 50 
percent of the population (approximately 700,000 people) 
lives in rural areas.  Although Piura's per capita GDP in 
2000 was $1,800, close to the national levels of $2,100, the 
standard of living in the rural areas was significantly 
lower, with a per capita GDP of less than $800.  The 
majority of Piurans make their living by producing 
agricultural products, including mangos and lemons.  Piura 
produces 64 percent of Peru's total mango crops - more than 
three-quarters of these are exported to the United States, 
totaling $13.5 million in 2004.  Textile and artisan 
production accounts for 25 percent of employment. 
 
Local Government Interested in Investment 
----------------------------------------- 
 
3.  (SBU)  During his trip, the Ambassador met with the 
Regional President, Mayor of Piura, and the Mayor of 
Catacaos to discuss social and economic development, 
including the benefits of an FTA and possible U.S. 
investment.  Regional President Cesar Trelles Lara (APRA) 
explained that his government is coordinating with several 
other northern departments, including Tumbes, Lambayeque, 
Cajamarca, and La Libertad, to establish an economic zone. 
The priority of the Piura government is to improve the 
region's competitiveness by expanding agricultural 
production and improving infrastructure, including building 
highways, expanding the airports, and developing the ports 
at Paita and Bayovar.  With improved transportation 
linkages, Trelles stated, investment, exports, and people 
will move more freely in and out of Piura. 
 
4.  (SBU) Mayor Eduardo Caceres (APRA) declared that the 
local government is committed to reducing the level of 
poverty.  The recent privatization of Bayovar Phosphates, he 
noted, should help with economic growth.  Caceres also 
hinted that there were several regional projects, including 
airport and port concessions, which will be open to any 
future U.S. investment. 
 
Inauguration of New Economic Service Center 
------------------------------------------- 
 
5.  (SBU) On May 5, the Ambassador participated in an 
inauguration ceremony for the opening of a USAID/Poverty 
Reduction and Alleviation Activity (PRA) Economic Service 
Center in Piura.  The center will offer non-financial 
services, including market analysis, supply information and 
organization, and technical assistance, to local small 
businesses in an effort to promote business development.  By 
encouraging economic growth in the region, the Economic 
Service Center will help prepare small businesses for future 
business opportunities under a U.S.-Andean FTA. 
 
Ambassador Discusses Cotton Issues 
---------------------------------- 
 
6.  (SBU) Piura is one of four places in the world that 
produces pima cotton, which is used to make high-quality 
textiles.  The Ambassador, on May 6, toured Textil Piura, 
one of Peru's largest spinning factories.  Textil Piura, 
like many other textile plants in Peru, uses a substantial 
amount of U.S. cotton - 20 to 50 percent - to make its 
finished products.  During a lunch before the tour, the 
Ambassador addressed local business officials about the 
economic benefits of an FTA.  Piura Congressmen Humberto 
Requena questioned how the FTA would affect the local cotton 
industry, highlighting local fears that U.S. cotton will 
either flood the market or will hold down local prices once 
the FTA is signed.  Noting that Peru produces only 50 
percent of the cotton used by local manufacturers, the 
Ambassador explained that U.S. cotton does not displace 
Peruvian cotton.  Imports of U.S. cotton, rather, enable 
Peru to continue producing and exporting high quality 
textile products; the Ambassador noted that overall Peruvian 
textile exports to the U.S. have grown since January 2005 
despite the elimination of quotas for China.  That is 
because Peru exports high quality goods in a niche where 
China does not compete well.  Congressman Requena agreed, 
and asked that the Ambassador further clarify the issue to 
the Peruvian Congress.  (Note: The Ambassador emphasized the 
same point in a meeting at Congress' Economic Commission one 
week later.  End Note.) 
 
Visit to Peace Corps Sites 
-------------------------- 
 
7.  (U) The Peace Corps has a robust presence in Piura, with 
25 volunteers living and working throughout the region. 
Volunteers work in several sectors, including small business 
development, community health, and youth development.  On 
May 6, the Ambassador toured two of the regional Peace Corps 
sites; one a small business program approximately 15 minutes 
from Piura where locals can learn how to produce high 
quality silver and gold jewelry; the other a rural health 
post in a small town 30 minutes from Piura. 
 
Comment 
------- 
 
8.  (SBU)  On paper, Piura, a wealthy department along the 
northern coast of Peru, should benefit from the U.S.-Andean 
FTA.  Even though the regional government supports the FTA, 
popular support varies by economic sector.  Agriculture 
continues to be a key sticking point.  Piuran mango farms 
currently benefit from improved access to U.S. markets under 
ATPDEA and are firm supporters of the FTA.  In contrast, 
local cotton farmers mistakenly continue to fear that a 
trade agreement will allow U.S. cotton to undermine them. 
This trip highlighted that regional governments and local 
leaders need to do a better job of explaining the benefits 
of trade and investment to these uninformed groups.  We will 
continue working with local governments on outreach efforts 
in the departments. 
 
STRUBLE