US embassy cable - 03GUATEMALA1299

C O N F I D E N T I A L SECTION 01 OF 03 GUATEMALA 001299 
 
SIPDIS 
 
HARRARE FOR BRUCE WHARTON 
 
E.O. 12958: DECL: 05/16/2013 
TAGS: PREL, PGOV, ETRD, SNAR, PHUM, KDEM, EAID, ELAB, GT 
SUBJECT: PRESIDENT PORTILLO DISCUSSES CAFTA, PEACE ACCORDS, 
COUNTER-NARCOTICS COOPERATION AND LABOR RIGHTS 
 
 
Classified By: PolCouns David Lindwall for reason 1.5 (b) and (d). 
 
1.  (C) Summary:  In a May 14 breakfast at the Ambassador's 
residence with visiting senior USG officials, President 
Portillo expressed hope for the prompt conclusion of a free 
trade agreement with the U.S. which, he said, "will transform 
Guatemala;" said that in his remaining months in office he 
would seek Congressional passage of laws implementing the 
peace accords in order to "ensure the accords remain a 
priority for the next government" and prevent a new 
administration from rolling back reforms; and noted that he 
hoped Guatemala's increased counter-narcotics cooperation 
would lead to an early USG decision to "re-certify" to reduce 
the chances that this issue would influence the upcoming 
national elections.  Portillo and Minister of Finance Weymann 
spoke of the need for constitutional reform in order to 
modernize tax laws and implement many elements of the peace 
accords.  The Ambassador and senior Washington visitors told 
Portillo that, through trade capacity building programs, we 
will help the GOG prepare their most disadvantaged economic 
sectors to participate effectively in CAFTA; stressed the 
importance of making concrete advances in implementation of 
the peace accords in the next eight months; and expressed 
hope that the GOG would initial a maritime counter-narcotics 
cooperation agreement in the next few days, increasing the 
likelihood of an early inter-agency review of Guatemala's 
decertification as a cooperating partner in the war on drugs. 
 The meeting was cordial and reaffirmed President Portillo's 
desire to advance issues of interest to us in the remaining 
months of his presidency.  End summary. 
 
2. (SBU) On May 14, the Ambassador hosted a breakfast at the 
Residence for visiting USG officials to discuss CAFTA, Peace 
Accord implementation, counter-narcotics cooperation and 
labor rights with President Alfonso Portillo.  Portillo was 
accompanied by Minister of Foreign Affairs Edgar Gutierrez 
and Minister of Finance Eduardo Weymann.  The Ambassador was 
accompanied by Assistant USTR Regina Vargo, USAID Assistant 
Administrator for LAC Adolfo Franco, Deputy Assistant 
Secretary of State for INL Deborah McCarthy, Acting Deputy 
 
SIPDIS 
Undersecretary of Labor Jorge Perez-Lopez, WHA/CEN Guatemala 
Desk Officer Brian Wilson, Acting USAID Guatemala Director 
Deborah Kennedy-Iraheta, EconCouns Steve Olson, and PolCouns 
David Lindwall (notetaker). 
 
Bullish on Free Trade 
--------------------- 
3. (C) President Portillo opened the meeting by saying his 
government believes a free trade agreement with the United 
States will transform Guatemala, not only by creating jobs 
and generating economic growth, but also by modernizing and 
opening up the economy.  Portillo said he expects Guatemala's 
Congress to overwhelmingly approve the final agreement, 
noting that "only a handful of legislators from the left" 
will oppose it.  He noted that some in the private sector and 
civil society will oppose CAFTA based on their own parochial 
interests and fundamental misunderstandings of how it will 
work, but said that opposition will not be significant. 
Portillo noted that it will be important to work with sectors 
of the economy that will be disadvantaged by CAFTA -- 
specifically mentioning small farmers -- to prepare them to 
better compete.  He acknowledged that CAFTA will not 
transform Guatemala overnight, but heralded it as the best 
hope for bringing Guatemala's economy into the 21st century. 
Foreign Minister Gutierrez added that CAFTA will break the 
monopolies that have long dominated Guatemala's economy. 
 
4. (C) USAID Franco said that the USG is prepared to help 
disadvantaged sectors of the Central American economies 
prepare for CAFTA, and has established a fund for trade 
capacity building focused largely on small enterprise and the 
rural sector.  He added that USAID is currently working in 
Guatemala on agricultural diversification in response to the 
coffee crisis.  He noted that the success of CAFTA would 
depend to a large extent on GOG actions to increase 
transparency and to improve the administration of justice. 
USTR Vargo commented that customs rules in Central America 
need to be uniform and transparent in order for Central 
American economic integration to also benefit from CAFTA. 
Finance Minister Weymann acknowledged that Guatemala's 
customs procedures are in great need of reform, and blamed 
the zeal of the tax authority (SAT) for much of the current 
lack of transparency in customs operations (Comment: Weymann 
has recently been trying to distance himself from the SAT, 
which reports to him.  He appears to be signalling that Vice 
President Reyes, not he, is the one who condones some of the 
SAT's heavy handed tactics. End comment).  President Portillo 
interjected that despite major reforms in customs, tax 
evasion at the port of entry is still on the order of 45%. 
Minister Weymann said that, in terms of USG trade capacity 
building programs, he believes reforming the way Central 
Americans market their products is just as important as 
modernizing production. 
 
Using the Consultative Group to Move Peace Process Forward 
--------------------------------------------- ------------- 
5. (C) The Ambassador told President Portillo that we have 
firm expectations that the Consultative Group Meeting (which 
met in Guatemala on May 13-14) would lead to a GOG plan of 
concrete actions which would implement many remaining Peace 
Accord commitments during the last eight months of the 
Portillo Administration.  The Ambassador praised the IDB's 
leadership of the meetings, and said we would consider the CG 
a success if it produced a package of specific areas for 
short-term compliance.  He expressed disappointment that the 
political parties had used their fifteen minutes at the CG to 
attack the government, but did not offer a vision on how they 
would implement the accords, leaving the impression that the 
political parties are not making peace accord implementation 
an important component of their electoral platforms. 
 
6. (C) Foreign Minister Gutierrez blamed civil society and 
the opposition for "self-fulfilling prophecies of failure" of 
the accords, noting that both played an important role in 
implementing the accords.  He said that the Portillo 
Government's big challenge in its remaining months was 
ensuring that peace accord implementation "survives the 
transition to a new government."  President Portillo said 
that he had implemented many of the accords through 
presidential decrees, which could easily be undone by a new 
government.  He intends to consolidate much of the 
implementation to date by having Congress pass laws 
implementing the reforms, making it more difficult for a new 
government to change them.  Minister of Finance Weymann 
commented that it is particularly important to resume 
implementation of the fiscal pact, noting that several of the 
candidates in the upcoming election are already talking about 
dropping taxes in possible violation of the peace accord 
commitment to raise tax revenue to 12% of GDP. 
 
7. (C) President Portillo launched into an impassioned 
defense of the need for constitutional reform, saying that 
the current constitution had been "made to order" by the 
different interest groups that held sway at the time of its 
drafting (1985).  He said constitutional provisions affecting 
financial and fiscal laws stand in the way of genuine 
economic reform and create a drag on implementing the peace 
accords.  In response to questions regarding what mechanism 
he would use to reform the constitution (i.e. through a vote 
in Congress, ratified by a national referendum or by a 
constituent assembly), Portillo said that previous attempts 
to reform the constitution by Congress had been voted down 
when submitted to a national referendum.  Therefore, he 
believes the only way to achieve constitutional reform is 
through a constituent assembly.  He acknowledged that opening 
up the whole constitution for reform, as would happen if a 
constituent assembly were convoked, had its perils, but said 
he is considering calling for a constituent assembly to meet 
after the first round of elections (November 9, 2003) to 
minimize potential politicization (Note:  Guatemala's 
constitution requires that Congress convoke constituent 
assemblies by a two-thirds majority vote, a virtual 
impossibility without significant consensus among all 
parties. End note). 
 
The Path Ahead on Counter-Narcotics Cooperation 
--------------------------------------------- -- 
8. (C) INL DAS McCarthy said that recent improvements in GOG 
counter-narcotics cooperation were encouraging, and said that 
the U.S. would look to Guatemala to initial a maritime 
counter-narcotics cooperation agreement before we would 
consider proposing an early decision on "re-certifying" 
Guatemala.  Foreign Minister Gutierrez acknowledged the 
importance of a maritime agreement, and said his Ministry had 
provided a counter-proposal to us "in record time."  He 
welcomes our comments on their counterproposal and said the 
GOG hopes to initial an agreement with us "very soon." 
Gutierrez said that re-certifying Guatemala early (before the 
normal September review) would reduce the impact of the 
decision on the November presidential elections, and would be 
healthy for all sides.  DAS McCarthy noted that the interests 
of the different USG agencies that weigh-in on certification 
decisions are very diverse, and urged the Guatemalans to 
sustain counter-narcotics performance in all areas if they 
want an early review of their certification status. 
 
9. (C) The Ambassador said that we were pleased with the 
Castillo extradition, but that other extradition requests are 
pending that could be moved forward by the GOG.  He noted 
that the Attorney General's office is cooperating with an 
extensive request by DOJ for evidence in a recent money 
laundering case in which cash was seized in Guatemala, and 
that completing that request is very important to us.  He 
added that we remain interested in seeing the Attorney 
General's office assign greater personnel resources to their 
money laundering unit, and said that cooperation between that 
unit and bank supervisors is still inadequate.  The 
Ambassador noted, however, that we have been pleased with the 
passage of asset forfeiture legislation, the increase in 
cocaine seizures, the burning of stored drugs used for 
evidence in old cases and other progress in counter-narcotics 
cooperation.  President Portillo said "you will see new 
progress in the next week!" 
 
New Steps on Labor Reform 
------------------------- 
10. (C) DOL Jorge Perez-Lopez told President Portillo that he 
had met at length with Minister of Labor Victor Moreira on 
May 13 and was pleased with the recent establishment of a 
bilateral working group on labor rights, formed at the 
Ambassador's suggestion in the context of a GSP labor rights 
review.  He said the USG views this as an important mechanism 
for continuing dialogue on this critical issue that has 
implications for human rights and free trade.  President 
Portillo recounted his government's actions in promoting 
labor rights, and the opposition these had generated on the 
part of the private sector.  He said that he intends to 
promote further reforms in his remaining months in office, 
including one aimed specifically at reducing the time labor 
courts can consider a case from the current two years down to 
six months. 
 
Comment 
------- 
11. (C) President Portillo clearly appreciated the chance to 
meet with visiting senior USG officials, and to articulate 
his vision for progress on the bilateral agenda in the 
remaining months of his presidency.  He has made conclusion 
of a free trade agreement with us and regaining certification 
as a cooperating partner in the war on drugs a high priority, 
but provided little indication that peace accord 
implementation would see much concrete progress in coming 
months.  We will continue to press Portillo to not let the 
election campaign distract him from the full range of issues 
on our bilateral agenda. 
 
12. (C) The cable was not cleared by visiting USTR, USAID, 
DOS and DOL officials prior to their departure from post. 
HAMILTON