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Viewing cable 06LIMA466, CONGRESSMAN LEVIN'S FACT FINDING MISSION ON U.S.-

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Reference ID Created Released Classification Origin
06LIMA466 2006-02-05 13:16 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Lima
VZCZCXYZ0001
RR RUEHWEB

DE RUEHPE #0466/01 0361316
ZNR UUUUU ZZH
R 051316Z FEB 06
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 8572
INFO RUEHBO/AMEMBASSY BOGOTA 2935
RUEHBU/AMEMBASSY BUENOS AIRES 2235
RUEHCV/AMEMBASSY CARACAS 9030
RUEHQT/AMEMBASSY QUITO 9991
RUEHLP/AMEMBASSY LA PAZ FEB SANTIAGO 0157
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHNSC/NSC WASHDC
UNCLAS LIMA 000466 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USTR FOR AUSTR EEISSENSTAT AND BHARMAN 
DEPT FOR WHA/AND, EB/TPP, WHA/EPSC 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EINV PGOV KIPR PREL PE
SUBJECT: CONGRESSMAN LEVIN'S FACT FINDING MISSION ON U.S.- 
PERU TRADE AGREEMENT 
 
REF: LIMA 246 
 
1. (SBU) Summary:  Congressman Sandy Levin (D-Michigan) 
discussed the impact of a future Trade Promotion Agreement 
in Peru with a broad spectrum of government, private sector, 
NGO, labor, academic and Catholic Church leaders.  The 
Congressman met twice with President Toledo, the second time 
to discuss his findings on three issues: access to 
medicines; displacement of subsistence agricultural farmers; 
and labor conditions.  On the latter two, the Congressman 
noted the different views he had heard and his desire to 
study the issues further.  President Toledo and other trade 
agreement advocates urged the Congressman to support the 
U.S. trade accord, emphasizing that the best way to reduce 
poverty in Peru is through sustained economic growth, new 
investment, and the creation of jobs in the formal sector. 
End Summary. 
 
2. (SBU) During his January 21-26 visit to Peru, Congressman 
Levin met with a wide cross section of society including 
government officials (President Toledo, Trade, Labor, and 
Foreign Ministers, Chief Trade Negotiator, Members of 
Congress); U.S. and Peruvian Private Sector (AmCham Board of 
Directors and private companies); NGOs (Foro Salud, CEDAPAL, 
Catholic Church-afiliated organizations); a pharmaceutical 
association affiliated with Phrma (Alafarpe); ILO officials 
and labor leaders (CGTP, CUT, Mining and Telecommunication 
workers); industry and trade associations (SNI, Comex and 
Adex); importer of U.S. fruits and small farmers association 
(Conveagro); think tanks (IPE, APOYO, Macroconsult); and 
Catholic Church representatives, notably Bishop Pedro 
Barreto.  Congressman Levin, who made no media statements, 
explained that he was in Peru to learn about its economic 
reality and the potential impact of a U.S. free trade 
agreement. 
 
GOP: Trade Accord Essential for Peru's Development 
--------------------------------------------- ----- 
 
3. (SBU) In their first meeting on January 23, President 
Toledo emphasized that the best policies to reduce poverty 
are through new jobs and education.  He highlighted how 
Peru's 53 consecutive months of economic growth and the 6.3 
percent GDP growth in 2005 -- a record in the region -- has 
reduced poverty, which still remains too high.  Toledo said 
that he knows poverty, as he came from there: one of 16 
children, seven of whom died in their first year.  Through 
education, he had options, including teaching at Harvard. 
Toledo said that increased trade and growth generates income 
for the state, which permits the government to fulfill its 
key role of investing in health and education. 
 
4. (SBU) The President agreed with Congressman Levin that 
economic growth and international trade should generate 
equity and better distribution of the benefits, noting that 
Peru's progress has produced applause on Wall Street, but it 
needs more applause on "Main Street."  The President 
emphasized that trade and investment is not for the rich 
only.  However, if the quality of life of the poor does not 
improve, expectations are dashed and democracy loses. 
 
5. (SBU) President Toledo asked for the Congressman's 
support in approving Peru's trade agreement with the United 
States.  He emphasized that the accord would create new jobs 
and accelerate GDP growth as well as help reduce coca 
production.  The President noted how Peru with its 148 micro- 
climates has diversified and increased the number of jobs 
for the poor growing asparagus, grapes, lemons, and 
artichokes, among other products. 
 
6. (SBU) Congressman Levin explained that he was on a fact 
finding mission to learn and encourage discussion of the 
trade accord and its impact in Peru.  He lamented the 
breakdown of bipartisanship on trade in Congress, and that 
Members often chose sides on trade agreements too quickly. 
He highlighted his work on the African Growth and 
Opportunity Act (AGOA) and the Caribbean Basin Initiative 
(CBI), emphasizing that the framework for increased trade 
should maximize the equitable distribution of benefits. 
 
 
Toledo Sought Second Meeting 
---------------------------- 
 
7. (SBU) Congressman Levin discussed three issues in a wrap 
up session on January 25 that President Toledo had 
requested:  access to medicines, labor conditions, and 
agriculture.  The Congressman told the President that, while 
he did not like certain IPR provisions in the U.S.-Peru 
Trade Promotion Agreement (notably data protection), he did 
not find the medicine access issue to be a significant 
problem. 
 
8. (SBU) Congressman Levin noted a divergent number of views 
on labor conditions in the country and a worrisome sub- 
contracting policy.  The Congressman asked to be in further 
contact on labor issues with Peruvian authorities.  The 
Congressman added that he also heard different views on 
agriculture, notably from the small farmers association, 
Conveagro.  He wanted to learn more about the potential 
displacement of rural subsistence farmers under a trade 
agreement and how the government intended to deal with this 
potential problem. 
 
9. (SBU) President Toledo thanked Congressman Levin for 
taking the time to understand the issues and exchanging 
views with those with different perspectives.  He agreed 
about the importance of labor rights, noting that his 
administration has incurred considerable fiscal expense 
rectifying unjust firings by the Fujimori administration. 
The President assigned Ambassador Eduardo Ferrero in 
Washington and Trade Minister Alfredo Ferrero to coordinate 
with the Congressman on labor concerns. 
 
Private Sector: U.S. Trade to Generate Jobs and Benefits 
--------------------------------------------- ----------- 
 
10. (U) Representatives of think tanks, trade associations, 
and the private sector argued that a U.S. free trade 
agreement would bring several benefits to Peru.  Think tank 
analysts Fritz DuBois (IPE) and Guillermo Arbe (APOYO) 
highlighted clearer rules of the game for investors; lower 
costs with customs reforms (48-hour processing or less); 
increased transparency with pre-publication comment periods 
for new regulations; a strengthening of government 
institutions; and improved investor confidence with reliable 
dispute settlement mechanisms.  Given Peru's small capital 
and internal markets, DuBois indicated that expanding an 
export-led growth strategy would be the quickest means to 
create new jobs and reduce poverty. 
 
11. (U) Amcham Directors emphasized that a U.S. trade 
agreement would attract new private investment, enhancing 
stability and confidence in Peru.  Moreover, an agreement 
would move many informal workers (roughly 60 percent of 
Peru's workforce) into formal, export-related employment, 
contributing to better labor standards.  Currently there is 
considerable competition between the formal and informal 
economies, the latter of which does not generate tax 
revenues nor protect workers' rights.  Informal vendors of 
gasoline, for example, do not abide by environmental 
standards and notably undercut the prices of established 
fuel retailers, such as Exxon-Mobil. 
 
Free Trade Agreement Preferable to ATPDEA 
----------------------------------------- 
 
12. (SBU) Chief Trade Negotiator Pablo de la Flor explained 
that a trade deal is far superior to the renewal of ATPDEA 
benefits, which he noted are temporary and can be withdrawn 
at any time at the instigation of special interests groups. 
Without a trade agreement, investors would not have the 
certainty to commit to new projects. 
 
13. (U) IPE analyst DuBois noted that making ATPDEA benefits 
permanent through a trade deal would solidify new 
investment.  Peru's recent export boom has been accomplished 
by maximizing installed capacity; in the short term, there 
has been little construction of new plants, he said.  With a 
trade deal, private investors would expand and build new 
facilities, largely because of the expansion of 
 
opportunities, such as the export of textiles (not covered 
by ATPDEA) and the certainty a trade agreement represents. 
 
Congressmen: Trade Helps Against Terrorism and Narcotics 
--------------------------------------------- ----------- 
 
14. (SBU) Congressmen Luis Iberico (FIM) and Adolfo La Torre 
(Peru Posible) highlighted the importance of the U.S. trade 
agreement to counter the threat of terrorism and narcotics 
trafficking.  LaTorre noted that coca is grown in the 
poorest areas of Peru; the trade agreement would help 
generate jobs and discourage people from migrating to these 
areas.  Both LaTorre and Iberico warned of the dangers posed 
by Presidential candidate Ollanta Humala, a former military 
officer with views similar to Hugo Chavez and Evo Morales in 
Bolivia.  A trade deal would serve as a strategic 
counterweight to Chavez in the region. 
 
15. (SBU) Regarding timing for the accord's approval, both 
Congressmen agreed that the current Peruvian Congress should 
review the trade deal -- not the one inaugurated on July 28. 
Iberico stated that many Members of Congress have 
participated at the negotiating rounds and are familiar with 
the commitments in the accord.  LaTorre, who heads the 
Foreign Trade Commission, estimated that the vote on the 
accord would occur between Presidential electoral rounds, 
sometime between April 9 and May 7. 
 
Labor: Conditions Improving, Union Leaders Disagree 
--------------------------------------------- ------ 
 
16. (SBU) Government officials stated that Peru abides by 
core labor standards, and that ILO reports have been 
encouraging about progress being made.  While noting that 
Peru is still a developing country, they argued that as 
investment and employment continue to increase, so will 
labor conditions.  Chief Trade Negotiator de la Flor stated 
that there are more than 750,000 jobs tied to U.S. trade; 
this growing and positive trend would accelerate under a 
trade agreement, which is key to Peru's transformation.  De 
la Flor noted that the export sector in general has a good 
track record abiding to labor legislation. 
 
17. (U) Representatives of the National Society of 
Industries (SNI) and export associations (ADEX and COMEX) 
highlighted how the U.S. trade deal would create more formal 
sector jobs that generate tax revenues for the government 
and better working conditions and wages for workers. 
Businesses that want to export or import from the United 
States would have to comply with Peruvian labor laws and pay 
taxes using employer identification numbers, which would 
permit GOP agencies to track their activities. 
 
18. (U) At the AmCham meeting, the Marriott General Manager 
noted how his hotel's presence since 2000 has raised 
standards in the service sector, which tended in the past 
not to pay workers on time nor abide by labor regulations. 
After a $400 million investment, Nextel's General Manager 
indicated that his company's business is growing as informal 
small firms are increasingly joining the formal economy and 
gaining access to credit for the first time.  Consultant 
Luis Bustamante challenged the assertion that laborers are 
exploited in Ica, a beneficiary of the export boom of 
asparagus.  He said that over the past 10 years, he has 
personally seen a dramatic improvement in labor conditions. 
 
19. (U) Labor leaders and affiliates of the Peruvian 
Confederation of Workers (CGTP) told Congressman Levin that 
labor rights are not enforced in Peru and they lack 
confidence in the Toledo administration, claiming he has 
continued Fujimori's lower labor standards.  In the formal 
economy, they criticized sub-contracting by which employers 
avoid providing full benefits.  They noted that 90 percent 
of all bank tellers are hired as sub-contractors.  One 
leader lamented that 60 percent of the workers are from the 
informal sector, where they are mistreated and have no 
rights. 
 
20. (U) While one CGTP leader did not oppose the U.S. trade 
agreement, others did, claiming that the workers did not 
 
participate in the negotiations.  They indicated they could 
not afford travel to negotiating rounds to observe, but 
admitted they chose not to attend the two rounds in Lima. 
ILO representatives noted that many workers had limited 
information about the trade agreement. 
 
Agriculture: Export Successes and Sensitive Products 
--------------------------------------------- ------- 
 
21. (SBU) Peru's Chief Trade Negotiator Pablo de la Flor 
emphasized that for the first time in more than 20 years, 
the income gap between the regions and the capital are 
narrowing.  He attributed this trend to job creation 
associated with ATPDEA outside of Lima, notably export crops 
such as beans, asparagus, artichokes, and fruits. 
AmCham Directors highlighted the success of grape and 
asparagus production in southern Ica, for example, where 
there is full employment and many workers are migrating from 
poorer sierra locations to benefit from employment. 
 
22. (SBU) Trade Minister Alfredo Ferrero emphasized how 
agriculture and apparel production (which stimulated local 
cotton production) have been key contributors to Peru's 
meteoric export boom.  Since 2001, when Toledo became 
President, Peru's exports more than doubled to $17 billion. 
Sensitive agriculture products, such as corn, will have 
longer tariff phase outs and the government will compensate 
producers with a reconversion fund.  He noted that half of 
Peru's corn consumption currently comes from Argentina. 
 
23. (U) Representatives of the small farmers association, 
Conveagro, told the Congressman that while they do not 
oppose a U.S. trade deal, they oppose signing one now 
because of the distortions caused by U.S. agricultural 
subsidies.  In Peru there are no credits, research or 
organizations that support agriculture production. 
Conveagro President Luis Zuniga emphasized that 90 percent 
of Peru's total agriculture production (including the 
sensitive corn, wheat, rice, sugar, cotton, beef, dairy, and 
coffee) are for the domestic market.  He argued that if 
these products are imported from the United States without 
duties, Peruvian products would not be able to compete and 
poverty could increase as a result of declining production. 
 
Medicines:  Data Protection Was Main Concern 
-------------------------------------------- 
 
24. (U) Carlos Franke of Foro Salud, a Peruvian NGO that 
follows public health issues, told the Congressman that one 
of the most controversial parts of the trade agreement was 
data protection in the IPR chapter.  Franke highlighted the 
results of one of three studies that analyzed the impact of 
data protection in Peru; he cited a Health Ministry study 
that claimed the prices of medicines would increase 
significantly, doubling in 10 years to an estimated $300 
million.  He added that the trade accord would enlarge 
monopoly power and raise prices of new drugs that enjoy data 
protection.  He said Peru already had high prices of 
medicines because the market is small and doctors prescribe 
brand name medicines. 
 
25. (U) Regarding other issues in the IPR chapter, Franke 
stated that Peru has a "best efforts" commitment to permit 
the patenting of plants.  He noted that the Doha exceptions 
would apply to data protection, although it is mentioned in 
a side letter.  While noting that for the first time in a 
trade accord biodiversity and traditional knowledge are 
mentioned, he stated that the text does not resolve anything 
and that it is not an important advance. 
 
26. (U) On the negotiations process, Franke said that the 
government and big companies dominated participation, and 
that the NGOs were partially informed.  He noted, however, 
that he knew six months ago that the Peruvian Government was 
going to accept 5 years for data protection. 
 
Access to Medicines: Three Studies, Impact Minimal 
--------------------------------------------- ----- 
 
27. (U) In a meeting with Alafarpe, a pharmaceutical 
 
research and development association of 19 companies in Peru 
(most foreign companies), the Chairman Antonio Pratto and 
its legal counsel Carlos Fernandez Davila described the 
minimal impact that data protection would have on the cost 
of medicines in Peru.  They noted that since the 2002 
implementation of data protection in Colombia, prices of 
medicines have not increased.  In Peru generic medicines are 
readily available, as only 10 of 5,000 medicines have patent 
protection. 
 
28. (U) Fernandez Davila described three Peruvian studies on 
the impact of the trade agreement on the drug market.  In 
the Apoyo analysis, commissioned by the Trade Ministry, Peru 
would experience a loss of $4 million per year in the worst 
case scenario (equivalent to less than 1 percent of the drug 
market).  The study by the IPR administrative agency 
(INDECOPI) estimated that the loss of welfare would total 
$3.5 million per year. 
 
29. (U) Alafarpe took issue with the Health Ministry study, 
noting that the analysis made unsubstantiated assumptions 
(claiming that after 7-13 years, the impact would reach $160 
million).  Fernandez Davila noted that the Health Ministry 
assumed that patented medicines would constitute 42 percent 
of Peru's entire drug market (today it is less than 2 
percent). Fernandez Davila stated that not even in the 
United States, where patent protection is most prevalent, 
does that figure even come close to the Ministry estimate. 
 
30. (U) When asked how the pharmaceutical companies would 
benefit from the trade accord, Alafarpe representatives 
indicated that the agreement would force Peru to strengthen 
regulations on drug quality; remove domestic industry 
protection policies that raise prices for consumers (by 
eliminating 12 percent tariff on imported medicines and 20 
percent preference for local drug manufacturers in 
government procurement bids); and reduce unfair commercial 
practices.  In practice, Peru provides no data protection 
even though the country's legislation provides for it, they 
noted. 
 
Comment: Useful and Informative Visit 
------------------------------------- 
 
31. (SBU) Congressman Levin's visit to Peru generated useful 
discussion among supporters and opponents of the U.S. trade 
agreement.  President Toledo's request for a second meeting 
with the Congressman was highly unusual, demonstrating the 
importance he places on a trade accord with the United 
States.  Post would encourage other Members of Congress to 
make similar fact finding visits to better understand the 
impact of a free trade agreement in Peru. 
 
32. (U) Congressman Levin did not review this cable. 
 
STRUBLE