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

UNCLAS SECTION 01 OF 03 COLOMBO 001934 
 
SIPDIS 
 
SENSITIVE 
 
AID/ANE/AA FOR MARK WARD, AID/ANE/SAA FOR BERNADETTE BUNDY, 
AID/DCHA/OTI FOR RACHEL WAX, AID/DCHA/GC FOR GARY WINTER, 
AND AID/ANE/JAKARTA/DIR SEAN CALLAHAN 
 
E.O. 12958:  N/A 
TAGS: EAID PTER CE LTTE
SUBJECT:  AID/OTI OFFICIALS VISIT KILINOCHCHI TO RESOLVE 
LTTE "TAX" ISSUES 
 
Summary 
------- 
 
¶1.  (SBU) Per State guidance approving operational/working 
level discussions with counterpart LTTE representatives and 
based on approval from the Embassy's Front Office, on 
November 24 two USAID staff held a meeting in Kilinochchi 
with the Coordinator of the LTTE's Coordinating Office for 
INGOs and UN agencies.  The meeting was requested on short 
notice by USAID to discuss specific issues related to a 
recent problem with USAID's tax-free transport of goods 
through LTTE-controlled territory south of the Jaffna 
Peninsula ("the Vanni").  The meeting lasted for 
approximately one hour, was extremely cordial, did not 
stray from the operational issues at hand, and ended with 
clear action points to ensure USAID's Office of Transition 
Initiatives (OTI) can continue to implement grants in 
Jaffna.  Unfortunately, follow-up phone conversations on 
November 30 revealed that while the "long tax" issue was 
resolved, a new issue had arisen of payments for the 
unloading and reloading of lorries at LTTE checkpoints. 
AID/OTI officials are working to resolve this.  END SUMMARY 
 
Tax-Free System Breaks Down 
--------------------------- 
 
¶2.  (SBU) In line with State Department guidance (State 
256563) that approved operational/working level 
interactions between U.S. officials and LTTE 
representatives, on November 17 USAID sought concurrence 
from the Embassy's Front Office to arrange an operational- 
level meeting with the LTTE.  The meeting was deemed 
crucial to resolve problems related to recent LTTE attempts 
to tax goods being transported on the A9 highway through 
the Vanni, the LTTE-controlled area that links the Jaffna 
Peninsula with government-controlled areas to the South. 
While this issue had been resolved approximately one year 
ago when a similar meeting was held in Kilinochchi, in mid- 
November the agreed upon tax-free system broke down when 
the LTTE Customs Office at the Omanthi checkpoint in 
Vavuniya district insisted that 14 trucks transporting 
USAID-procured goods pay a newly established "Lorry Tax" 
that was put in place on November 1, 2004.  The Customs 
Office maintained that while the goods were being allowed 
to pass the checkpoint duty-free as stipulated in the 
customs documentation arranged by USAID prior to the 
transport of the goods, the trucks were subject to the 
lorry tax that had to be paid by the vendor.  After a 
negotiation process that included the truck drivers, the 
LTTE's Administrative Wing and the LTTE Customs office, ten 
vehicles were allowed to travel to Jaffna while the 
remaining four trucks decided to return to Colombo without 
delivering their loads to the USAID grantee in Jaffna. 
 
Meeting with Relevant LTTE Office Easily Arranged 
--------------------------------------------- ---- 
 
¶3.  (SBU) In light of this checkpoint problem and the fact 
that it had been one year since there had been any contact 
between USAID and LTTE administrative officials, two staff 
from USAID's Office of Transition Initiatives (USAID/OTI) 
received Embassy Front Office approval for the needed 
meeting.  It was ascertained that USAID staff should speak 
with Mr. M. Thiyagarajah, the Coordinator for the LTTE's 
Coordinating Office for INGOs and UN Agencies and the same 
person with whom USAID staff had met a year ago.  USAID was 
able to call Mr. Thiyagarajah's office in Kilinochchi 
directly and arranged for a meeting on the morning of 
November 24.  The meeting was scheduled easily, despite the 
fact that it requested on short notice and just a few days 
before the LTTE's annual Heroes Day celebration, and the 
USAID staff involved had the impression that Mr. 
Thiyagarajah wanted to accommodate them. 
 
¶4.  (SBU) The USAID/OTI Sri Lanka Country Representative 
and the USAID/OTI Media and Information Program Manager, 
accompanied by a local staff member who handles OTI's 
procurement for Jaffna, arrived in Kilinochchi at 10:15 AM 
on November 24 in a clearly marked diplomatic vehicle. 
Despite being 15 minutes early for the scheduled meeting, 
Mr. Thiyagarajah was all smiles and the meeting started 
immediately.  The USAID staff first gave Mr. Thiyagarajah a 
very brief overview of USAID/OTI projects in Jaffna and 
then thanked him for his help last year in facilitating a 
tax-free system that up until this month had been working 
well.  At that point, the USAID staff spoke directly about 
the "Lorry Tax" problem, stated that it is impossible for 
this tax to be paid by the vendor, and suggested that much 
of USAID's work in Jaffna would have to stop if the LTTE 
insisted on levying this tax. 
 
¶5.  (SBU) Mr. Thiyagarajah was aware of the lorry tax 
problem and stated that it has been an issue for other 
donors such as the German aid organization GTZ.  He said 
that his office was meeting with other concerned parties 
within a few days after Heroes Day on November 27 to find a 
solution to the problem and he implied clearly that the 
LTTE Customs Office would be party to whatever agreement 
was made.  Responding to USAID's statement that the 
situation needed to be righted as soon as possible given 
the need for the goods in question to get to Jaffna 
immediately, he said that USAID should call him on November 
30 to confirm that the situation had been resolved and at 
that point it would be possible for USAID to resume 
transporting goods to Jaffna.  At no point in this part of 
the conversation did he suggest that he was not in a 
position to sort out the lorry tax issue or that his office 
had any desire to do anything but facilitate USAID's work 
in Jaffna. 
 
Why the Problem 
--------------- 
 
¶6.  (SBU) It should be noted that in the aftermath of the 
meeting USAID staff's assessment is that the LTTE was not 
deliberately creating problems but rather the tax-free 
system broke down due to a lack of communication between 
the LTTE and USAID and because of internal LTTE 
administrative bureaucracy and tax policy changes.  For 
example, initially after a tax-free system was negotiated 
last year USAID local staff went to Kilinochchi to process 
the needed paperwork prior to moving goods up the A9 to 
Jaffna. Over time this responsibility was shifted to people 
working for USAID grantees, thus removing USAID's very 
visible link to the goods being transported through LTTE- 
controlled areas.  Also, initially vendors displayed USAID 
banners on their trucks but as the movement of goods became 
more routine the banner system fell by the wayside so again 
there was no obvious link between USAID and the goods being 
sent to Jaffna.  Lastly, as Mr. Thiyagarajah pointed out, 
his office had made a mistake in recent months of 
inadvertently removing USAID's name from a list of 
accredited agencies that his office gives to the Customs 
Office on a regular basis.  Mr. Thiyagarajah promised that 
USAID would be put back on the list, plus in the future he 
would add to the list any international organizations that 
are being funded by USAID for work in Jaffna. 
 
Action Points to Move Forward 
----------------------------- 
 
¶7. (SBU) Having agreed that the "Lorry Tax' issue will be 
resolved in USAID's favor as soon as possible, Mr. 
Thiyagarajah and the USAID staff agreed on a few other 
action points to ensure the smooth transport of goods 
through the Vanni.  USAID suggested, and Mr. Thiyagarajah 
concurred, that it would be useful to use banners again so 
the link between the goods and USAID would be extremely 
clear.  USAID suggested, and Mr. Thiyagarajah concurred, 
that it would be useful for the USAID/OTI Country 
Representative to sign a cover letter to accompany tax-free 
requests to the LTTE Customs Office.  Responding to a 
question from USAID, Mr. Thiyagarajah stated that he should 
be USAID's primary contact for any operational problems and 
that USAID should not hesitate to contact him as necessary. 
Lastly, the two sides agreed that it would be useful to 
meet on a more regular basis to review the tax-free system 
in an effort to head off any possible misunderstandings 
related to the transport of goods to Jaffna. 
 
Comments 
-------- 
 
¶8.  (SBU)  Beyond noting the obvious preparations for 
Heroes Day in Kilinochchi and the mass of yellow and red 
flags everywhere in the LTTE-controlled area, the most 
lasting impression from the meeting was that Mr. 
Thiyagarajah was extremely willing to meet with the USAID 
staff and to tackle problems raised by them.  Beyond being 
engaging and cordial, he made himself available on the day 
and time specified by USAID, was candid about his office's 
oversight in regards to fully informing the LTTE's Customs 
Office about USAID's status, did not question the need for 
USAID's tax exemption, did not attempt to steer the 
conversation towards political questions that USAID staff 
have no authority to discuss, and expressed a willingness 
in the future to resolve any operational problems related 
to the transport of USAID goods through LTTE-controlled 
areas.  It should be noted that the meeting was made much 
more relaxed and friendly by the presence on the USAID side 
of an American staff who is a Tamil speaker and has long 
years of experience in different parts of Sri Lanka.  As 
with the meeting a year ago, this dynamic made the whole 
process much easier and ensured accurate, direct 
translations for everyone in the meeting. 
 
¶9.  (SBU) At the end of the meeting, Mr. Thiyagarajah asked 
when USAID will be working in the Vanni.  USAID staff 
briefly responded that it is not possible right now and did 
not further elaborate.  Mr. Thiyagarajah also asked if 
USAID would be willing to procure certain items such as 
sand and cement in Jaffna if the price were the same as the 
duty-free price paid south of the Vanni.  Since this was a 
problematic request given the opaque LTTE tax system in 
Jaffna, USAID staff responded by saying USAID has to follow 
very clear rules and regulations that make it impossible to 
do this procurement in Jaffna.  Mr. Thiyagarajah accepted 
both of these answers and did not press either of the 
points.  The meeting ended with a request by USAID that 
these discussions be kept low profile, with the clear 
insinuation that USAID would be unhappy with any publicity 
in LTTE-friendly media regarding the contact.  Mr. 
Thiyagarajah was very understanding on this point and said 
there was no need for concern over this issue.  To date no 
such publicity has come to the attention of USAID. 
 
¶10.  (SBU) As referenced above, there was a phone 
conversation on November 30 between Mr. Thiyagarajah and 
USAID/OTI staff.  While the Lorry Tax has been shelved as 
anticipated, a separate issue has arisen involving needed 
payments related to the loading and unloading of lorries on 
the LTTE side of the Omanthi checkpoint.  The LTTE has 
stated that this loading and unloading is mandatory for all 
trucks and only UN-owned vehicles can be exempted from a 
related service charge levied by the LTTE's Transport Unit. 
The loading and unloading is linked to LTTE security 
protocols and a similar system is standard practice at the 
two Sri Lankan Army checkpoints at the north and south ends 
of the Vanni. Due to this unforeseen hurdle, there were 
several follow up phone conversations between USAID and Mr. 
Thiyagarajah later on November 30 and on December 1 that 
for the moment have failed to resolve this transport 
problem.  In the short-term USAID/OTI has asked UNHCR for 
help in moving some goods to Jaffna and as a longer term 
solution USAID continues to negotiate for a workable 
system.  It has become abundantly clear that while Mr. 
Thiyagarajah was the right person to handle the Lorry Tax 
problem, the loading and unloading charge is an issue that 
involves a number of LTTE offices and can not be settled as 
easily.  Once a framework for an agreement emerges, the 
USAID/OTI Country Representative plans to return to 
Kilinochchi to cement that deal.  It is anticipated that 
this trip will take place by December 10.  If no framework 
for an agreement is reached, USAID/OTI will have little 
choice but to curtail its work in Jaffna.  This point has 
been reiterated to the LTTE over the course of the past two 
days. 
 
LUNSTEAD