US embassy cable - 05SANTODOMINGO3369

UNCLAS SECTION 01 OF 04 SANTO DOMINGO 003369 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA, WHA/CAR, INR, EB/TPP/BTA/EWH; 
DEPT PASS USTR FOR R VARGO, A MALITO; NSC FOR SHANNON; \ 
USCINCSO ALSO FOR POLAD;TREASURY FOR OASIA-MAUREEN WAFER; 
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION 
USDOC FOR 3134/ITA/USFCS/RD/WH; DHS FOR CIS-CARLOS ITURREGUI 
 
E.O. 12958: N/A 
TAGS: PGOV, ETRD, PREL, DR, Dominican Politics, CAFTA 
SUBJECT: DOMINICAN POLITICS #31: POSITIONING TO RATIFY 
CAFTA 
 
REF: SANTO DOMINGO 3199 
 
1. (SBU)  This is #31 in our series of political reports on 
Leonel Fernandez's first year in office. 
 
Positioning to Ratify CAFTA 
- - - - - - - - - - - - - - 
 
The question is no longer whether the Dominicans will ratify 
the free trade agreement, but when -- whether they can manage 
to do so while the U.S. Congress is considering the 
implementating legislation or whether domestic busines 
sectors will succeed in efforts to get the administration and 
Congress to enact "pro-competitive" adjustments at the same 
time, a process that will inevitably be lengthy. 
 
Inside the Tent 
- - - - - - - - - 
 
On June 22 President Fernandez formally received sectoral 
representatives at a closed-door session at the palace to 
discuss their desires in connection with ratification of the 
free trade agreement with the United States and Central 
America, as agreed in last week's meeting prompted by the 
Ambassador (reftel). The session was organized and chaired by 
National Dialogue mediator Msgr Agripino Nunez and included 
in addition to the President his senior policy advisors -- 
chief of staff Danilo Medina, Commerce Minister Javier 
Garcia, Finance Minister Vicente Bengoa, Agriculture Minister 
Amilcar Romero, economic advisor Julio Ortega, and ambassador 
to the United States Flavio Dario Espinal. The organizers had 
reserved a seat for the Ambassador, with a name card 
prominent in front of it; however, Msgr Nunez had not asked 
the Ambassador to attend this all-Dominican discussion and 
the Ambassador would have declined, had he done so. 
 
An Insider's Account 
- - - - - - - - - - 
 
Just hours after the conclusion of the four-hour event, 
Ambassador to the United States Espinal came to the Embassy 
at the Ambassador's invitation.  Espinal said he had 
explained the U.S. ratification process and likely timetable. 
 President Fernndez in two interventions said clearly that 
the Dominican national interest requires ratification of 
CAFTA &without playing games.8 
 
Each of the interest groups ) the National Council of 
Private Enterprise (CONEP), agroindustry, free-zone 
manufacturing, pharmaceuticals, and unions -- briefed on its 
own desires. The palace later commented that there had been 
21 presentations.  Fernandez agreed to name a 
&mini-commission8 from his economic team, to work with 
private sector groups and legislators after -- note, AFTER -- 
ratification to see whether measures to promote 
competitiveness might be identified within the constraints of 
the IMF standby and the already approved 2005 budget.  He 
said that measures would probably have to wait for the 2006 
budget  and cautioned that not everything the private sector 
was requesting would be feasible. 
 
Secretary of Industry and Commerce Javier Garca also spoke 
 
SIPDIS 
out strongly in favor of ratification.  Finance Secretary 
Vicente Bengoa said CAFTA would expand Dominican firms, 
opportunities for markets and investments. 
 
Senate president Bautista called for prompt CAFTA 
ratification.  However, neither he nor House of 
Representatives president Pacheco responded to Fernndez,s 
caveats eitther positively or negatively, so Espinal was 
uncertain of their attitude. 
 
The Public Story 
- - - - - - - - - - - - 
 
According to the press, presidential chief of staff Danilo 
Medina told the press that participants in the meeting had 
been &unanimous8 in supporting CAFTA ratification:  "All 
the sectors present spoke of the need to ratify th treaty, 
although some sectors presented conditions that they consider 
should be recongized as compensatory measures allowing them 
to survive and to compete adequately with the CAFTA countries 
we are joing."  Medina said that Fernandez had heard out the 
presentations and had left in the hands of the Economic 
Cabinet the duty of studying the measures, quantifying them 
and putting numbers on them.  "What was clearly understood by 
all was that the Treaty would be examined as quickly as 
possible by Congress." 
 
 Bautista, speaking next, emphasized that no one was opposing 
approval of CAFTA but added, "Once this adjustment is 
successful, it will be adopted as quickly as possible."   His 
qualification -- adjustment first, ratification afterwards -- 
put a big question mark on the understanding on quick 
ratification previously reached with the Ambassador (reftel). 
 
 
An 8 Percent Solution? 
- - - - - - - - - - - - - - - - - 
 
Journalists learned fairly quickly that CONEP President Elena 
Viyella had suggested a specific offset to the fiscal 
adjustments necessary to meet requirements of CAFTA (tariff 
reductions) and the WTO (elimination of the exchange 
commission).  She reportedly suggested continuation of the 
current 16 percent value-added tax, which applies to 
approximately 40 percent of goods, and application of an 8 
percent value-added tax to items not currently taxed.  There 
has been a fine dust-up as unions and other putative consumer 
representatives have countered through the press with calls 
for the tax authorities to crack down on business tax 
evasion, instead.  Meeting the House Finance Committee on 
June 23, Finance Minister Bengoa estimated that for 2006 
tariff reductions could cost the budget 2.6 billion pesos 
(USD 90 million) and eliminatation of the exchange commission 
would cost another 21 billion (USD 725 million).  "We agreed 
with the IMF that we would provide a draft for fiscal 
adjustment by September, but if CAFTA is ratified we might 
have to accelerate the process." 
 
Putting Forth the Message 
- - - - - - - - - - - - - - - - - - - 
 
In contrast to Fernandez's dilatory approach to CAFTA through 
much of 2005, the presidential press and public relations 
apparatus has now embraced the pro-CAFTA message. 
Presidential press spokesman Rafael Nunez called the 
Wednesday meeting "transcendental" and stressed that 
Fernandez's intention was "not to provide compensation or 
protection but rather to find the adjustments necessary so 
that the economy could take advantage of the opportunities." 
He promised that the process will be transparent. 
 
To conclude, we can offer an example of the palace spin on 
CAFTA, witnessed by the DCM when she accepted the invitation 
of the Embassy FSN personnel specialist to attend a meeting 
of the national association of personnel managers.  Vice 
President Rafael Albuquerque was the keynote speaker and 
spent almost all of his palace-drafted speech discussing 
CAFTA. The DCM was the only foreigner in the room as the Vice 
President,himself a former minister of labor, spoke to an 
audience of some 75 human resource managers from leading 
Dominican firms.  His remarks were very positive on CAFTA 
while still acknowledging the challenge ahead for Dominican 
business.  Not only did the Vice President suggest that CAFTA 
would add jobs to the economy, he expressed the view that 
CAFTA would not lower labor standards (Albuquerque, a 
professor of labor law, was one of the authors of the 1992 
revision of the Labor Code).   Putting CAFTA in the context 
of President Fernandez,s strategy of economic recovery and 
growth, the VP made support for CAFTA a Dominican idea, not 
something being imposed by any outsiders. 
 
 
The Rationale of the VP and the Palace, especially on Labor 
- - - - - - - - - - - - - - - - - - - 
 
In summary, Albuquerque described CAFTA as one component of 
the government strategy for economic recovery.  The 
government 
had already managed to stabilize the exchange rate, lower 
inflation, decrease public spending, and increase 
domestic confidence and credibility in the eyes of the 
international community.  The government had exceeded 
IMF fiscalgoals and international expectations. 
 
The Dominican Republic still had to become more globally 
competitive, he stressed. CAFTA would help industry 
do that by lowering the cost of inputs and bringing in 
know-how.  It would attract investment, create jobs, 
and ultimately sustainable growth.   Taking advantage of the 
opportunities presented by CAFTA would require 
a government-private sector response - - the government to 
create conditions of legal stability and a good 
business climate,  and the private sector to create new 
business and growth.  Businesses would have to be 
creative, ready to make changes, and to become increasingly 
competitive.  Albuquerque said on behalf of President 
Fernandez, that he was giving an "absolute assurance" that 
the Government of the Dominican Republic is working 
to reduce barriers to competitiveness. 
 
Globalization has its pros and cons, but what is important, 
Albuquerque continued, was that globalization is a 
fact.  The Dominican Republic has to make sure it made the 
most of globalization,s benefits and minimize the 
impact of the negatives.  The Caribbean Basin Initiative was 
likely to end by 2008 and the Dominican Republic 
could not afford to be isolated. 
 
Concerning labor, the Dominican Republic is very well 
positioned, Albuquerque said.  It had ratified 8 fundamental 
conventions of the International Labor Organization, and 
Dominican labor laws are fully consistent with these and 
with CAFTA.  He knew that U.S. labor had spoken out against 
CAFTA and that some Central American unions had as well, 
but, "speaking as an expert," he said, "the Dominican 
Republic has made a lot of progress and we have little to 
fear from signing CAFTA."    He noted that in his 4 years as 
Labor Secretary 1996-2000, there had been only one 
case brought regarding child labor. He noted that the ILO 
will monitor labor law implementation in CAFTA countries. 
 
Albuquerque additionally noted that there is no forced labor 
in the Dominican Republic and that Dominican labor law 
applies to all who work in the country, even undocumented 
aliens, regardless of sex, race, origin, national background, 
or nationality.  He assured the audience that the government 
is working hard to fight the worst forms of child labor, 
trying to get children out of agriculture.  In this regard, 
he pointed to agreements between the labor secretariat 
and tomato processors against buying tomatoes from producers 
who use child labor and against giving loans to such 
producers.  There was no serious child labor problem in 
industry, he said. 
 
Albuquerque reiterated that the Dominican Supreme Court has 
affirmed that CAFTA will be treated as a national law, 
and in case of a conflict, CAFTA undertakings will take 
precedence over other national laws because of their status 
as international treaty commitments. 
 
Overall, he concluded, CAFTA has many more benefits than 
negative points.  The Dominican Republic can grow, 
reduce poverty, and reduce currently high) unemployment. 
CAFTA, Alburquerque said, is "indispensable" for the 
country.  The country, in turn, was well prepared to take on 
the challenge of CAFTA.  Working together as government 
and the private sector, he concluded, "we can move forward." 
("E, p,alante que vamos" - - the administration,s 
electoral campaign slogan). 
 
2. (U)  Drafted by Lisa Kubiske, Michael Meigs, and Bain 
Cowell. 
 
3.  (U)  This piece and others in the series can be found on 
our SIPRNET website 
http://www.state.sgov.gov/p/wha/santodomingo/     along with 
extensive other material. 
 
 
 
 
 
 
 
 
 
 
 
 
 
2. (U)  Drafted by Lisa Kubiske, Michael Meigs, Bain Cowell. 
 
3. (U)  This piece and others in our series can be consulted 
at our SIPRNET site 
http://www.state.sgov.gov/p/wha/santodomingo/  
along with extensive other material. 
HERTELL