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DE RUEHPE #4035/01 2841702
ZNR UUUUU ZZH
P 111702Z OCT 06 ZDK
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 2676
INFO RUEHBO/AMEMBASSY BOGOTA 4000
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RUEHCV/AMEMBASSY CARACAS 9833
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RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC

UNCLAS LIMA 004035 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR H (JOHN REDDY) 
DEPT FOR WHA/AND, WHA/EPSC, EB/TPP 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
USTR FOR BHARMAN AND MCARRILLO 
 
E.O. 12958: N/A 
TAGS: ETRD ECON CODEL OVIP ELAB PGOV PE
SUBJECT: CONGRESSMAN SMITH VISITS PERU TO DISCUSS FREE 
TRADE AGREEMENT 
 
REF: STATE 161385 
 
SENSITIVE BUT UNCLASSIFIED, PLEASE HANDLE ACCORDINGLY 
 
¶1. (SBU) SUMMARY:  Congressman Adam Smith, Democrat from 
Washington, spent four days in Lima, Peru (Oct 1-5) talking 
with government and private sector representatives about the 
potential impact of the Peru Trade Promotion Agreement (PTPA) 
on both countries' economies, and the state of current 
Peruvian labor laws, a bone of U.S. Congressional contention. 
 Upon departing, he said he had not decided how he would 
vote, but he would try to make the case with his fellow 
Democrats.  He said his overall impression was quite 
positive, and that he was impressed with the commitment by 
both the GOP and Peruvian civil society to ensure that the 
country's economic growth translated into a reduction of 
poverty.  END SUMMARY. 
 
PRO-GROWTH DEMOCRAT MEETS MINISTERS, BUSINESS 
--------------------------------------------- 
 
¶2. (U) Describing himself as "pro-growth Democrat" who also 
supports strong labor rights, five-term Rep. Adam Smith (D, 
WA) spent four full days (October 1-5) in Lima, Peru, talking 
with Peruvian government officials, legislators, labor 
unions, large and small business groups, farmers, and NGOs 
about the Peru Trade Promotion Agreement (PTPA).  He told his 
interlocutors that his principal concerns were the economic 
impact on the U.S. and Peruvian economies, as well as whether 
the PTPA would help reduce poverty and redistribute some of 
the wealth generated by trade.  Rep. Smith urged GOP 
officials and business groups to contact Congressional 
Democrats, including House Ways and Means Ranking Minority 
Member Charles Rangel. 
 
¶3. (SBU) Upon departing, Rep. Smith, who is also a member of 
the House International Affairs Committee (HIRC), said his 
overall impression was positive.  He noted that Peru was 
making progress on labor rights and said he believed there 
was a broad commitment on the part of the GOP and civil 
society to making progress.  While telling his interlocutors 
he had not made up his mind on the vote, he indicated that he 
viewed the PTPA in a favorable light and that he would work 
to persuade fellow Democrats to support the agreement. 
Fortuitously, Peru is undergoing a complete review of its 
labor law, and Rep. Smith urged key GOP officials, including 
the Foreign Minister, the Trade Minister, the Labor Minister 
and the Agriculture Minister to highlight and promote this 
fact before next month when he expected the White House to 
send the PTPA implementation bill to the Congress. 
 
FOCUS ON POVERTY REDUCTION 
-------------------------- 
 
¶4. (SBU) Virtually all of Rep. Smith's interlocutors in Peru 
focused their comments on efforts to improve the fate of 
Peru's workforce and poor.  The theme of poverty reduction 
was perhaps the essential topic of both the 2006 Peruvian 
presidential election, and of President Alan Garcia's 
proposed government program.  Rep. Smith noted pointedly that 
he had not seen this commitment among the CAFTA countries. 
Rep. Smith told his interlocutors that, unlike Rep. Sandy 
Levin (D, MI), who visited Peru in January 2006, he was 
impressed by Peru's efforts on labor rights during the Toledo 
years and the early months of the Garcia Administration. 
 
PTPA WILL STRENGTHEN THE FORMAL SECTOR 
-------------------------------------- 
 
¶5. (U) Rep. Smith's business interlocutors pointed proudly to 
the high quality of protections afforded most workers in the 
formal sector, i.e. 30 days of annual vacation, three months 
of paid maternity leave, 14 monthly salaries a year, etc. 
Political analysts and consultants agreed that these 
demanding labor laws often drove companies into the less 
onerous informal sector.  Smith said he remained concerned 
about the precariousness of many of those informal workers, 
 
most of whom are self-employed, as well as the rural poor. 
Rep. Smith's interlocutors confirmed that increased 
export-led activities would move more workers into the formal 
sector of the economy.  The bulk of exporting sector textile 
workers are in the formal sector, as are the bulk of workers 
in farm export companies. 
 
PTPA IS GOOD ON BALANCE FOR AGRICULTURE 
--------------------------------------- 
 
¶6. (U) Rep. Smith agreed with analysts that small, 
inefficient agricultural producers might well be losers when 
highly subsidized U.S. products such as cotton, rice or corn 
entered the small Peruvian market duty-free.  However, 
Agriculture Minister Salazar, 
himself a farmer, told Rep. Smith he thought the PTPA was 
very good "on balance" for Peruvian agriculture.  He said 
Peru boasted a highly profitable agricultural export sector 
in non-traditional products (asparagus, bell peppers, 
artichokes, avocados, table grapes, etc.), and the GOP has 
planned temporary support payments to farmers in the weaker 
sectors to help soften the blow.  He also described GOP 
programs to encourage farmers to grow more profitable crops. 
Rep. Smith visited two textile factories and a grape and 
avocado farm outside Lima. 
 
¶7. (SBU) Rep. Smith told his interlocutors, including 
opponents of the agreement, that he believed increased trade 
and economic growth would help Peru increase its GDP and help 
lift its people out of poverty - but that it needed to be 
supplemented by strong workers' rights and capacity building 
to enable more Peruvians to take advantage of trade 
opportunities.  He seemed satisfied with the Garcia 
Administration's announced commitment to reducing poverty. 
He also cautioned critics of the PTPA about arbitrarily 
raising the bar on labor practices, a practice which could 
cast a negative light on practices in many countries, 
including in the developed world. 
 
DEFEAT WOULD BE A BLOW TO POLICY IN THE REGION 
--------------------------------------------- -- 
 
¶8. (SBU) Rep. Smith agreed with analysts and representatives 
of the business community that defeat of the PTPA in the U.S. 
Congress would be a significant blow to the confidence of the 
Peruvian economy.  He also pointed to the need to support our 
friends and allies in Latin America against the influence of 
leaders like Hugo Chavez.  He told the press he believed 
America needed friends like Peru in the region. 
 
COMMENT: HIGH SUPPORT AND HIGH EXPECTATIONS 
------------------------------------------- 
 
¶9. (SBU) Following the Peruvian Congress's ratification in 
July of the PTPA by a vote of 76 to 14, polls here show even 
greater support for the agreement than before.  Even critics 
seem to admit that on balance, the PTPA will "lock in" key 
economic and social reforms and provide stability for a 
country that is still threatened by narcotics trafficking, 
the informal economy and persistent poverty.  But the high 
approval ratings are also accompanied by high expectations. 
Many Peruvians, especially in the business sector, are 
looking to the U.S. Congress to ratify this agreement as 
early as the end of the year, and more broadly, to confirm 
the U.S. Government's commitment to a deeper and mutually 
supportive economic and political relationship. 
STRUBLE