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Viewing cable 06LIMA469, EU IMPROVES PERU'S TRADE PREFERENCES, BUT FTA

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Reference ID Created Released Classification Origin
06LIMA469 2006-02-06 12:48 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Lima
VZCZCXRO6997
RR RUEHAG RUEHDF RUEHIK RUEHLZ
DE RUEHPE #0469/01 0371248
ZNR UUUUU ZZH
R 061248Z FEB 06
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 8578
INFO RUEHBO/AMEMBASSY BOGOTA 2940
RUEHQT/AMEMBASSY QUITO 9997
RUEHLP/AMEMBASSY LA PAZ 2989
RUEHSG/AMEMBASSY SANTIAGO 0162
RUEHCV/AMEMBASSY CARACAS 9035
RUEHBU/AMEMBASSY BUENOS AIRES 2240
RUEHBR/AMEMBASSY BRASILIA 6493
RUEHSJ/AMEMBASSY SAN JOSE 1787
RUEHMU/AMEMBASSY MANAGUA 0845
RUEHTG/AMEMBASSY TEGUCIGALPA 0700
RUEHSN/AMEMBASSY SAN SALVADOR 2365
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/USDA FAS WASHDC 1416
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCNMEM/EU MEMBER STATES COLLECTIVE
RHEHNSC/NSC WASHDC
UNCLAS SECTION 01 OF 02 LIMA 000469 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/AND, WHA/CEN, WHA/EPSC, EB/TPP/ABT 
TREASURY FOR OASIA/INL 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
USDA FOR FAS/ITP/GRUNENDFELDER 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EAGR PGOV PREL PE
SUBJECT: EU IMPROVES PERU'S TRADE PREFERENCES, BUT FTA 
UNLIKELY 
 
 
1. (SBU) Summary.  On January 1, 2006, the European Union 
extended its Generalized System of Preferences (GSP) for 
Peru, making Peru one of 15 countries to receive GSP Plus 
benefits.  Under GSP Plus, Peru will be able to export up to 
7,200 products duty free to the EU, an increase from 6,900 
under GSP.  Additionally, countries are granted a longer 
time frame for "graduating" from GSP plus; instead of 
monitoring growth levels for individual products, the EU 
will instead monitor groups of products.  The EU Delegation 
in Peru indicated that while Peru could benefit from GSP 
Plus, the EU was unlikely to negotiate a free trade 
agreement with the Andean Community until the Andeans 
establish a common external tariff for EU products.  The EU 
will make a decision on the future of FTA negotiations with 
the Andean Community in its EU-Latin American meeting in 
Vienna this May.  End Summary. 
 
Introducing GSP Plus 
-------------------- 
 
2.  (U)  In November 2005, the European Union provisionally 
granted additional Generalized System of Preferences (GSP) 
benefits to Peru and 14 other countries, including the 
remaining Andean countries, six Central American countries, 
Moldova, Georgia, Mongolia and Sri Lanka.  On January 1, the 
European Union extended the additional GSP benefits, known 
as GSP Plus, now set to expire at the end of 2008.  Under 
GSP Plus, the fifteen countries will be able to ship 7,200 
products, mainly agricultural and fisheries products, to the 
European Union duty-free compared to the 6,900 products 
under the regular GSP.  Additionally, countries are granted 
a longer time frame for "graduating" from GSP Plus.  Instead 
of monitoring growth levels for individual products, the EU 
will instead monitor groups of products. 
 
3.  (SBU) To qualify for GSP Plus, a country must be a 
signatory to 23 different international accords in the areas 
of environment, intellectual property and labor, among 
others.  Alain Bothorel, Economic Counselor at the European 
Union Delegation, informed us that one of the goals of GSP 
plus is to encourage regional integration, thus paving the 
way for possible future free trade agreements (FTAs) with 
the European Union.  Bothorel explained that the EU is 
interested in pursuing an FTA with either the Central 
American or the Andean countries, both regions now covered 
by GSP Plus benefits. 
 
But is an FTA with the 
Andean Countries Likely? 
------------------------ 
 
4.  (SBU)  Further elaborating on the future of an FTA with 
the Andean countries, Bothorel first noted that the European 
Union is not interested in pursing a bilateral agreement 
with only Peru.  Instead, the EU, which uses its FTAs as a 
way to promote development and democracy, is interested in 
an FTA with the entire Andean Community, which includes 
Peru, Colombia, Ecuador, Bolivia and Venezuela.  During 
2005, the EU discussed the possibility of beginning FTA 
negotiations with the Andeans in 2006. However, according to 
Bothorel, the EU has begun to shift its focus to the Central 
American region, as it feels that these countries are more 
serious about FTA talks. 
 
5.  (SBU)  Bothorel highlighted several reasons why FTA 
negotiations between the EU and the Andean Community may not 
occur in 2006.  First, before FTA talks can commence, the EU 
wants the Andean Community to establish a common tariff 
 
LIMA 00000469  002 OF 002 
 
 
policy.  Bothorel explained that EU products must be subject 
to the same tariff rates in all Andean countries to ease 
trade of EU products within the Andean bloc.  To date, the 
Andean Community has not yet harmonized its tariff rates. 
The EU recently completed a joint assessment of the Andean 
Community's tariff policies; Bothorel explained that the 
assessment was not very positive and could further delay FTA 
talks. 
 
6.  (SBU) Second, Bothorel noted that the EU wants national 
treatment for investors.  He lamented that the recent 
election of Evo Morales in Bolivia and his plans to 
nationalize certain industries further undermines plans for 
FTA negotiations in 2006.  Additionally, Bothorel 
highlighted that political developments in the region, with 
the recent surge in popularity for ultra-nationalist 
Presidential candidate Ollanta Humala in Peru and the 
tendency of Hugo Chavez in Venezuela to denounce trade with 
the EU in favor of trade with the Mercosur countries, 
creates further uncertainty. 
 
7.  (SBU)  The EU will make a decision about whether to 
pursue an FTA with the Andean Community or the Central 
American countries at the EU-Latin America meeting in Vienna 
this May.  He commented that even if the EU does begin 
negotiations with the Andean Community in 2006, he expects 
that it would take approximately four years to conclude 
negotiations.  Talks on issues such as agriculture and 
intellectual property protection will be the most sensitive 
and may take years to conclude. 
 
Pressure from the Andeans 
------------------------- 
 
8.  (U)  The Secretary General of the Andean Community, Alan 
Wagner, continues to emphasize that FTA negotiations with 
the EU will begin in 2006.  In a recent press statement 
during the visit of World Trade Organization Director 
General Pascal Lamy, Wagner claimed that the Andean 
Community would establish a special common tariff for EU 
products in the next four months, which would pave the way 
for FTA talks. 
 
Comment 
------- 
 
9.  (SBU)  Bothorel believes that the EU is more likely to 
begin negotiations with the Central American countries in 
2006, delaying FTA talks with the Andeans until 2007 or 
later.  Several EU countries argue that the political 
uncertainty in the Andean region and the upcoming elections 
in Peru, Colombia and Ecuador are justifications for the 
delay.  Bothorel noted, however, that the Andean countries, 
particularly Peru, Colombia and to a lesser extent Ecuador, 
are well equipped to negotiate an agreement with the EU 
based on their experience with the United States.  He 
expressed concern that many of the agricultural issues 
discussed in the U.S.-Andean talks will become much larger 
issues during the EU negotiations given the EU Common 
Agricultural Policy. 
 
STRUBLE