This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 04 COLOMBO 002194 
 
SIPDIS 
 
STATE PASS USTR FOR DEPUTY USTR AMBASSADOR HUNTSMAN 
 
E.O. 12958:  DECL:  11/26/2012 
TAGS: ETRD ECON EINV CE USTR ECONOMICS
SUBJECT:  SRI LANKA: DEPUTY USTR HUNTSMAN PUSHES FURTHER 
LIBERALIZATION 
 
 
Classified By:  Charge d'Affaires W. Lewis Amselem.  Reasons: 
1.5 (b, d) 
 
¶1.  (U) Summary:  Deputy U.S. Trade Representative Ambassador 
Jon M. Huntsman Jr. used his November 19-22 visit to Sri 
Lanka to push the GSL to move forward with key economic 
reforms.  He delivered this message during separate meetings 
with President Kumaratunga, Prime Minister Wickremesinghe and 
G.L. Peiris, Minister of Enterprise Development.  Ambassador 
Huntsman also engaged leading business representatives to 
hear their concerns on Sri Lanka's investment climate and the 
threat to the apparel industry post 2004.  The visit 
succeeded in focusing the GSL on the steps it needs to take 
to enhance its trade relationship with the U.S.  End Summary. 
 
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First TIFA Meeting 
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¶2.  (U) Deputy U.S. Trade Representative Ambassador Jon M. 
Huntsman Jr. visited Sri Lanka November 19-22 to take part in 
the first meeting of the U.S. - Sri Lankan Joint Council on 
Trade and Investment established under the bilateral Trade 
and Investment Framework Agreement (TIFA).  He was 
accompanied by Elena Bryan, USTR Senior Director for 
Southeast Asia and the Pacific.  The Joint Council meeting, 
which consumed most of the first full day of the visit, will 
be reported septel. 
 
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The President on her economic record, LTTE misdeeds 
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¶3.  (U) Ambassador Huntsman called on President Kumaratunga 
November 21 at her official residence.  He was accompanied by 
Ambassador Wills and Econoff (notetaker).  Former Foreign 
Minister Lakshman Kadirgamar and Ambassador-designate to the 
U.S. Davinda Subasinghe were also present. 
 
¶4.  (C) Ambassador Huntsman opened the meeting by affirming 
U.S. interest in expanding the bilateral trade relationship. 
With peace on the horizon and a government in place that is 
pursuing further economic reform, he said, a new era is 
dawning in Sri Lanka.  Kumaratunga then launched a long and 
discursive apologia of her administration's economic reform 
efforts.  Every economic initiative the current government is 
pursuing, she claimed, started with her: from privatization 
to infrastructure development to regional FTAs and the plan 
for reconstructing the North/East.  Kumaratunga struck a 
statesman-like tone as she described how the government of 
the Prime Minister was carrying out her vision of Sri Lanka 
as a hub for South Asian trade.  Ambassador Huntsman replied 
that her cooperation on the current government's economic 
reform plan was vital to the prospects for renewed economic 
growth in Sri Lanka. 
 
¶5.  (C) As the discussion shifted toward the peace process, 
however, Kumaratunga's conciliatory tone toward the Prime 
Minister and his government grew more venomous.  Ambassador 
Huntsman asked her what sort of peace dividend she expected 
for the nation.  Kumaratunga said there would be a big peace 
dividend - provided peace is achieved.  Based on the actions 
of the LTTE, she was not sure that peace was imminent for Sri 
Lanka.  The LTTE, she said, is breaking the Memorandum of 
Understanding (MoU) signed with the GSL at will, and the 
Prime Minister is allowing them to do so with impunity.  She 
repeatedly listed LTTE misdeeds she claimed were still going 
on today - recruitment of soldiers (including children), 
opening of new training camps and importation of arms. 
"These things," she added cryptically, "I don't know about 
officially," implying that her own intelligence sources were 
keeping her informed, in spite of deceptions by the Prime 
Minister and his government. 
 
¶6.  (C) Ambassador Wills countered that the LTTE were under 
great pressure from the people of the North/East - those whom 
the LTTE claims as constituents - to uphold the peace 
process.  Kumaratunga agreed that this was a positive factor 
that had not been present to the same extent in previous 
attempts at peace.  That is why, she said, we need 
development of the North/East as soon as possible - to "win 
the hearts and minds of the Tamil people."  Nonetheless, 
Kumaratunga added, LTTE leader Prabhakaran is "obsessed" with 
the idea of a separate state, and it is "very dangerous" to 
proceed in the absence of a formal political solution.  The 
Prime Minister's strategy of engaging the LTTE without 
addressing the "core issues" (devolution of power, 
de-mobilization) would be fine if the LTTE were adhering to 
the terms of the MoU, but they are not.  Ambassador Huntsman 
pressed Kumaratunga, asking if her doubts about the peace 
process meant that foreign investors should "wait and see" 
before coming into Sri Lanka.  She said, again cryptically, 
"No. As a Sri Lankan I must say the foreign investors should 
come in now." 
 
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The Prime Minister on trade, WTO 
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¶7.  (U) Ambassador Huntsman also called on Prime Minister 
Ranil Wickremesinghe November 21 in his office at Temple 
Trees.  Ambassador Huntsman was accompanied by Ambassador 
Wills, USTR Senior Director Bryan and Econoff (notetaker). 
From the Sri Lankan Embassy in Washington, 
Ambassador-designate Subasinghe and Commercial Minister Saman 
Udagedara were also present. 
 
¶8.  (U) Ambassador Huntsman began by remarking that the 
previous day's TIFA meeting had gone well and was a good 
first step toward strengthening bilateral trade and 
investment.  Ambassador Huntsman highlighted the large $1.8 
billion trade deficit in Sri Lanka's favor, saying he saw it 
not as a threat but as an opportunity.  Wickremesinghe, 
clearly briefed on the TIFA meeting, proceeded to list 
several new areas where U.S. companies could do business in 
Sri Lanka.  On agri-business, he promised the GSL would make 
large tracts of land available to U.S. companies under 
long-term (99 year) freehold leases.  He promised to re-start 
the stalled proposal by U.S. firm IMC Agrico (the so-called 
"Eppawala" project) to mine phosphate in north-central Sri 
Lanka, a potential $400 million investment.  Wickremesinghe 
also vowed not to restrict the import of biotech foods into 
Sri Lanka, saying such a move would hurt his efforts to 
develop a local biotechnology industry. 
 
¶9.  (U) Turning to WTO matters, Ambassador Huntsman asked for 
Sri Lankan cooperation in the Doha Development Agenda. 
Working together in the WTO, he said, was a key way to 
enhance the bilateral relationship.  Wickremesinghe assured 
Ambassador Huntsman that as a trade dependent nation, Sri 
Lanka also had an interest in seeing the Doha round succeed. 
Ambassador Huntsman pressed on agriculture, noting that the 
U.S. saw great danger in a "two-track" system, one for 
developed economies and one for developing economies.  "We 
don't want a two-track system either," Wickremesinghe said; 
we just want enough of a transition period to allow us to 
shift out of subsistence agriculture.  Ambassador Huntsman 
underscored that Sri Lanka's early cooperation on these 
issues was vital; we must work hard to meet the deadlines we 
have set for ourselves in the WTO. 
 
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G.L. Peiris on peace and economic development 
--------------------------------------------- 
 
¶10.  (U) Hunstman also met with Minister G.L. Peiris on 
November 21, accompanied by USTR Senior Director Bryan and 
Econoff (notetaker).  (Note: Peiris' duties in the government 
extend well beyond is official title of Minister of 
Enterprise Development, Industrial Policy and Investment 
Promotion.  Peiris is also government spokesman, as well as 
head of the GSL delegation to peace talks with the LTTE.  End 
Note.)  Ambassador Huntsman began by saying that Sri Lanka is 
on the verge of a virtuous cycle, whereby peace encourages 
foreign investment, which in turn bolsters peace.  The U.S., 
he said, sees great potential for American companies in Sri 
Lanka in a variety of sectors - from infrastructure to 
services to information technology.  Peiris agreed that peace 
and economic development are closely linked, adding that a 
lack of economic growth could ultimately threaten the peace 
process.  Ambassador Huntsman queried Peiris on whether the 
peace process was sufficiently advanced for U.S. companies to 
enter Sri Lanka in a big way.  Yes, Peiris said: the de facto 
situation on the ground is the only one that matters, and 
peace reigns right now in Sri Lanka.  We should not worry 
about the minutiae of a political settlement to the ethnic 
conflict, nor should the foreign investor. 
 
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Business leaders on investment climate, post quota world 
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¶11.  (U) In a working lunch hosted by the American Chamber of 
Commerce, Ambassador Huntsman elicited the views of senior 
AmCham members on the investment climate in Sri Lanka. 
Overall, U.S. companies described the climate as positive - 
few restrictions on imports, a talented and literate labor 
force and a Board of Investment that truly streamlines 
investment approvals.  AmCham members had several concerns, 
though.  All members agreed that Sri Lanka's rigid labor 
laws, especially restrictions on termination, are in need of 
reform.  Members said that the GSL was moving toward positive 
changes, but hoped for faster progress on a flexible 
Termination Act.  Some members also expressed frustration at 
persistent capital and current account restrictions, which 
increase the cost of international transactions.  Ambassador 
Huntsman underscored that one of the central goals of the 
TIFA was to improve the atmosphere for U.S. companies doing 
business in Sri Lanka.  Doing so would increase trade and 
investment in both directions.  He asked AmCham reps to 
continue to offer input to the TIFA process, so that Sri 
Lanka could move faster toward openness and transparency. 
 
¶12.  (U) Ambassador Huntsman also engaged leading Apparel 
Exporters about their concerns as they near the expiration of 
the Multi Fiber Agreement at the end of 2004.  Ambassador 
Huntsman began by acknowledging the importance of the apparel 
industry (55% of total exports) to the Sri Lankan economy. 
But, he said, the U.S. believes strongly that Sri Lanka needs 
to diversify its economy, particularly its export base, to 
ensure strong economic growth in the coming years.  The 
apparel exporters queried Ambassador Huntsman on what the 
industry needed to do to stay competitive post 2004.  He 
offered that the competitive threat from China might not be 
as big as many now forecast, because most U.S. buyers will 
want to diversify their supply-base.  Furthermore, Sri 
Lanka's investment in high labor standards will differentiate 
it from many other apparel exporting countries in the region, 
especially as compliance issues become increasingly important 
to the apparel buyer and consumer.  Still, Ambassador 
Huntsman stressed, increased efforts to diversify out of 
apparel are clearly in the interest of Sri Lanka's economic 
development. 
 
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Press highlights closer trade ties 
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¶13.  (U) Ambassador Huntsman's visit generated lavish press 
coverage.  A November 18 Embassy press release announcing his 
visit appeared in independent and government-owned dailies, 
both English and vernacular, under headings such as "American 
trade representative to meet Sri Lankan business leaders," 
"American deputy in trade is visiting Sri Lanka," "US deputy 
trade rep here," and "Special American envoy in Sri Lanka 
this week."  On November 20 he starred on "In Black and 
White," an interview-format television program hosted by Sri 
Lanka's Minister of Economic Reform Milinda Moragoda and 
shown on Sri Lanka's MTV, an independent telecaster with 
national penetration.  On November 21 Ambassador Huntsman and 
Ambassador Wills convened a press conference for Sri Lanka's 
business, commercial and finance journalists.  The conference 
resonated in English and vernacular newspapers throughout the 
weekend.  "Framework trade agreement signifies USA's 
attachment to SL" said the ISLAND (opposition English daily). 
 LAKBIMA (independent Sinhala daily) quoted Ambassador 
Huntsman:  "Both countries will benefit by the implementation 
of the Sri Lanka-US Trade agreement." Headlines in the DAILY 
MIRROR (independent English daily) said "Peace alone will not 
make Sri Lanka competitive" and "US participation a boost to 
Sri Lanakan peace."  The government-owned English DAILY NEWS 
ran headlines such as "TIFA signifies USA's attachment to 
Lanka as trade partner" and "US keen on Lanka's 
infrastructure development - Huntsman."  And the government 
owned weekly, the SUNDAY OBSERVER, said "Lanka gets closer to 
FTA with USA." 
 
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Comment 
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¶14.  (U) The U.S. consumes 40% of Sri Lanka's annual exports 
and constitutes by far this nation's most important trade 
relationship.  Our commercial interests here are small by 
comparison, with $200 million in annual exports and only 
modest U.S. investment.  Yet Ambassador Huntsman's visit 
demonstrated to GSL, and to the Sri Lankan business 
community, that the U.S. sees great trade potential in a 
peaceful Sri Lanka - if the nation aggressively pursues 
further liberalization.  Ambassador Huntsman delivered the 
message at the highest levels of government that the U.S. 
seeks to foster competition in liberalization throughout 
South Asia, with Sri Lanka setting the standard for its 
neighbors to follow.  For GSL - which wants an enhanced trade 
relationship with the U.S. - the path forward is now clearly 
marked. 
 
AMSELEM