VZCZCXRO3612
PP RUEHLMC
DE RUEHSN #2410/01 3511419
ZNR UUUUU ZZH
P 171419Z DEC 07
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC PRIORITY 8733
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUEHRC/USDA FAS WASHDC
RUEHSG/AMEMBASSY SANTIAGO 0202
RUEHME/AMEMBASSY MEXICO 6663
RUEHBR/AMEMBASSY BRASILIA 0143

UNCLAS SECTION 01 OF 03 SAN SALVADOR 002410 
 
SIPDIS 
 
STATE PASS USAID/LAC 
STATE ALSO PASS USTR 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD EFIN EAGR ENRG PREL ES
SUBJECT: A/S SULLIVAN & A/S LOWERY'S MEETING WITH GOVERNMENT OF EL 
SALVADOR ECONOMIC TEAM ON EXTENDING THE BENEFITS OF TRADE 
LIBERALIZATION 
 
¶1. (SBU) SUMMARY.  A joint State/Treasury delegation led by EEB 
Assistant Secretary Sullivan and Treasury Assistant Secretary Lowery 
discussed regional integration, including a like-minded association 
of free trade partners; extending the benefits of CAFTA-DR to all 
parts of society; and the status of the U.S.-Brazil biofuels 
initiative with the Government of El Salvador's ministerial-level 
economic team.  The GOES ministers welcomed the idea of an 
association of free trade partners, offering to promote the idea 
with other Central American nations.  The ministers also discussed 
trade capacity building and GOES efforts to promote SME exports, 
especially in the agricultural sector.  END SUMMARY. 
 
¶2. (U) Participants: 
 
U.S. 
A/S Dan Sullivan, Economic, Energy, and Business Affairs 
A/S Clay Lowery, International Affairs, Treasury 
PDAS Craig Kelly, Western Hemisphere Affairs 
DAS Brian O'Neill, Western Hemisphere Affairs, Treasury 
Greg Delawie, Director, Bilateral Trade Affairs, EEB 
Luyen Tran, Director, Western Hemisphere Affairs, Treasury 
Econ Counselor Donn-Allan Titus 
MCC Director Ruddy 
Econoff Christensen (notetaker) 
 
El Salvador 
Eduardo Ayala Grimaldi, Technical Secretary (Chief of Staff) to the 
President 
Yolanda Mayoria De Gavidia, Minister of Economy 
William Handal, Minister of Hacienda (Finance) 
Mario Salaverria, Minister of Agriculture 
Anabella Larde de Palomo, Deputy Technical Secretary 
Johanna Hill, Vice-Minister of Economy 
 
PROMOTING FURTHER ECONOMIC INTEGRATION 
---------------------- 
 
¶2. (SBU)  Sullivan stated that the USG planned to continue its total 
economic engagement - using all USG economic policy tools, such as 
Free Trade Agreements, MCC, USAID programs, OPIC, air service 
agreements, etc. - in the Western Hemisphere and hoped to build on 
existing free trade agreements to continue the momentum. 
 
¶3. (SBU) Sullivan stressed that the immediate priority for the USG 
was the passage of FTAs with Peru, Columbia, and Panama, and noted 
the positive House of Representatives vote on Peru.  He said that 
the USG wanted to consolidate and maintain the momentum of these 
historic achievements with regard to free trade in the hemisphere. 
He suggested the establishment of an association of free trade 
partners in the hemisphere, committed to democracy, the rule of law, 
and open market policies, the primary purpose of which would be to 
work together to promote competitiveness and ensure the benefits of 
trade liberalization were spread as broadly as possible in all our 
societies, especially to small business, farmers, and others who had 
not yet directly benefited from free trade. 
 
¶4. (SBU) Such an association could have strong links to the private 
sector and could include initiatives, such as the U.S. Treasury's 
program to enhance access to financing for small and medium 
enterprises (SMEs), to help citizens take better advantage of FTAs 
in the region.  An important longer term goal of such an association 
would be to work on "knitting together" the different hemispheric 
trade agreements - possibly harmonizing issues like customs 
procedures, rules of origin, intellectual property rights, etc., and 
working on cumulation issues. 
 
¶5. (SBU) This association of free trade partners coud potentially 
include an administrative headquartrs to serve as a coordinating 
body and driving frce for continued progress on reducing poverty, 
ncreasing competitiveness and social cohesion in te Western 
Hemisphere.  It could complement the wrk of other institutions in 
the region, such as the OAS and IDB. 
 
¶6. (SBU) Sullivan emphasized tha the delegation was seeking input 
from the threeleaders on trade in Latin America - Chile, El 
Salvador, and Mexico - as well as Canada - before moving forward 
with this idea.  He noted the delegation would return to Washington 
to work with other agencies in the USG to consolidate the ideas of 
 
SAN SALVAD 00002410  002 OF 003 
 
 
the Latin leaders and refine the proposal for final approval by the 
USG interagency economic team. 
 
¶7. (SBU) Ayala said that the GOES would welcome efforts to harmonize 
free trade agreements in the hemisphere and agreed that private 
sector participation would be important part of the effort.  De 
Gavidia noted that CAFTA-DR had created great expectations for this 
government, many of which they were still working to fulfill.  She 
added that the GOES had been discussing trade integration efforts 
with the Government of Mexico for some time, including raising the 
idea of a NAFTA-CAFTA summit with Mexican President Calderon.  In 
addition, she said that El Salvador could promote the concept within 
the region when it takes over the rotating presidency of the Central 
American Regional Integration System (known by the Spanish acronym 
SICA) in January. 
 
¶8. (SBU) Sullivan and Kelly emphasized the USG was not looking to 
create new "blocs" in the region, and that the association should be 
flexible in adding new members as long as they were committed to the 
shared principles of democracy, open markets, and free trade.  For 
example, he noted Chile's interest in including Uruguay in a future 
association.  Likewise, the Caribbean countries might be included. 
Ayala replied that El Salvador had free trade agreements in the 
hemisphere with many of the same countries as the United States. He 
noted that these FTAs had many things in common, which meant that 
they presented a good opportunity for integration.  He agreed on the 
need for flexibility, but cautioned that an association not be made 
"too inclusive too soon."  De Gavidia raised the possibility of 
extending the association to Asia in the future.  Ayala added that 
an important part of such an association would be to send a message 
to the hemisphere and the world in defense of democracy and free 
trade. 
 
¶9. (SBU) De Gavidia stated that the GOES would discuss and promote 
the concept of an association with its counterparts in the region. 
De Gavidia thought Guatemala and Honduras definitely would support 
an association and they were hopeful about Costa Rica, but they were 
unsure about Nicaragua.  Ayala noted that Central America was very 
pleased with CAFTA-DR overall - even Nicaragua under its current 
government. 
 
EXTENDING CAFTA-DR BENEFITS 
--------------------------- 
 
¶10. (SBU) While noting the success of several programs, including 
USAID's export promotion program, De Gavidia lamented the lack of 
new ideas and originality in trade capacity building programs. 
Lowery said the trade capacity building should focus on creating 
access to markets and financing.  He described two Treasury 
initiatives: infrastructure financing and technical support to 
municipalities which run together with the International Financial 
Center, and Small and Medium Enterprise Financing Support which run 
together with the Multilateral Investment Fund of the International 
Development Bank (IDB). 
 
¶11. (SBU) Kelly described the new U.S.-Chile Scholarship Initiative, 
under which 100 Government of Chile-funded students will study 
science and technology in the United States each year, and inquired 
about educational programs could be targeted at Central America.  De 
Gavidia replied that El Salvador needed more education and training 
relative to the service sector, describing a Ministry of Education 
program to increase vocational training related to logistics, 
tourism, and information technology.  Increased English language 
training is also vital to increasing competitiveness. Ayala noted 
the importance of creating strategic alliances with universities and 
other institutions to increase the level of professional development 
in the country.  O'Neill added that it was important to coordinate 
assistance efforts to maximize the use of the resources. 
 
AGRICULTURAL SECTOR 
------------------- 
 
¶12. (SBU) Salaverria discussed El Salvador's agricultural success in 
exporting frozen "nostalgic" products to the USA, especially exports 
by small and medium enterprises.  As a small country, he said, El 
Salvador needed to specialize in things like organic and gourmet 
coffee, exotic fruits, and unique products like Salvadoran beans; 
they couldn't compete with the United States or even Guatemala on 
 
SAN SALVAD 00002410  003 OF 003 
 
 
more common products like corn.  They also need to focus on 
value-added agricultural exports.  Salaverria noted that the GOES 
was working with the IDB to reconvert unused industrial areas into 
agricultural-industrial areas, but the project only had funding for 
60 percent of proposed projects.  Salaverria also stressed the 
importance of focusing on added-value agricultural products and 
biotechnology development. 
 
¶13. (SBU) Salaverria said that U.S. sanitary and phytosanitary (SPS) 
regulations were often a challenge for the small producer, who often 
has exports rejected because of lack of knowledge. He also raised 
the difficulty of exporting fresh fruit - a higher value product 
than frozen - because of the Mediterranean fruit fly.  Lowery 
responded that they had heard a great deal about the challenge of 
SPS regulations from other meetings during their trip, and the 
delegation would discuss ways to increase education in the region 
with their colleagues in the Department of Agriculture. 
 
BIOFUELS 
-------- 
 
¶14. (SBU) Sullivan closed the discussion by asking for an update on 
Salvadoran biofuels efforts under the U.S.-Brazil biofuels 
initiative.  Salaverria stated that he and De Gavidia would be 
accompanying President Saca to Brazil the following week on an 
official visit that would include biofuels discussion.  His Vice 
Minister Jose Emilio Suadi would also be attending biofuels meetings 
in Miami.  Salaverria said that El Salvador's focus was on ethanol 
derived from sugarcane, where they had a comparative advantage; from 
one hectare of Salvadoran sugarcane they could produce 6,000 liters 
of ethanol.  De Gavidia noted progress on an ethanol law that would 
mandate a 10 percent ethanol blend. 
 
¶15. (SBU) Salaverria also emphasized that the GOES needs to overcome 
a public perception problem on biofuels.  Biofuels were being blamed 
for an increase in basic food prices as rice production in the 
United States and elsewhere was being redirected to corn, and corn 
production was being redirected from food products to biofuel 
production.  The GOES would have to work closely with all sectors to 
stress the value of biofuels, he added, especially as oil approaches 
$100 per barrel. 
 
¶16. (SBU) Sullivan asked for GOES reaction to the initial Winrock 
report.  De Gavidia replied that she thought the Winrock report 
would be of great use to the private sector, but was not as helpful 
to the Government.  She expressed hope that Winrock's future efforts 
could help the government in examining blending requirements. 
Sullivan said that he hoped GOES, U.S., and Brazilian 
representatives, together with Winrock and the Brazilian Fundacion 
Getulio Vargas, could meet together in Miami to discuss next steps 
for the initiative.  [Note:  Sullivan chaired a meeting of this 
group in Miami the following week]. 
 
¶17. (U) A/S Sullivan has cleared this message. 
 
Glazer