VZCZCXRO5161
RR RUEHLMC
DE RUEHSN #0830/01 1931716
ZNR UUUUU ZZH
R 111716Z JUL 08
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC 9771
RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUMIAAA/CDR USSOUTHCOM MIAMI FL
RUEHME/AMEMBASSY MEXICO 6726

UNCLAS SECTION 01 OF 02 SAN SALVADOR 000830 
 
STATE PASS USAID/LAC 
STATE ALSO PASS USTR 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON ES
SUBJECT: MINISTER OF ECONOMY REVIEWS CAFTA, BILATERAL ECONOMIC 
ISSUES 
 
REF: SAN SALVADOR 812 
 
¶1. (SBU) Summary. Minister of Economy Yolanda de Gavidia and the 
Ministry of Economy's (MINEC) senior leadership team discussed 
CAFTA-DR and bilateral issues from mining to telecommunications with 
EconCouns on June 20.  De Gavidia pushed for efforts to "keep 
CAFTA-DR alive" and requested U.S. assistance for constructing a 
pork processing plant and completing technical fixes to CAFTA-DR. 
De Gavidia also acknowledged that a proposed international telephone 
tax would hurt El Salvador's competitiveness.  Minister De Gavidia 
resigned effective June 30.  Information on her successor will be 
reported septel.   End Summary. 
 
¶2. (U) On June 20, EconCouns and EconOff met with (now former) 
Minister of Economy Yolanda de Gavidia at the Minister's request. 
Vice Minister Johanna Hill, Director of Trade Policy Juan Carlos 
Fernandez, and CAFTA-DR Office Chief Jorge Guzman also 
participated. 
 
CAFTA-DR 
-------- 
 
¶3. (U) Minister de Gavidia provided a copy of the Ministry's draft 
report highlighting CAFTA-DR successes after two years.  She stated 
that she thought a meeting among the Central American ministers and 
U.S. Trade Representative Susan Schwab was very important "to keep 
the treaty alive."  Based on their latest conversations, de Gavidia 
expected a "coordinator"-level meeting in August, a Vice 
Minister-level meeting in September, and the Ministerial in late 
September/early October.  (COMMENT: With de Gavidia's departure, it 
is unclear if MINEC will continue to push for the conference.  END 
COMMENT.) 
 
¶4. (SBU) Vice Minister Hill briefed on environment and labor 
developments, noting the Government's overall satisfaction with the 
level of cooperation on both.  Hill stated that El Salvador had 
presented a plan to the Council on Environmental Issues that would 
detail the procedures for elevating matters to the Secretariat of 
Environmental Issues.  Once the Central American countries reached 
agreement, they would forward the draft to the United States.  On 
labor issues, Hill expressed concerns about cuts to the 
International Labor Organization's (ILO) programs for combating the 
worst forms of child labor.  While El Salvador had made considerable 
progress, she noted that more needed to be done. 
 
¶5. (SBU) Noting that the NAFTA cumulation and "pocketing" agreements 
would enter into force in mid-August, de Gavidia stated that El 
Salvador would appreciate a visit that could highlight the benefits 
of the agreements to producers.  Guzman added that El Salvador was 
still waiting for progress on "technical fixes" on other textile 
issues (e.g., a Harmonized Tariff System designation for sleepwear) 
after two years; they have been waiting "for several months" on a 
new draft from USTR. 
 
¶6. (SBU) De Gavidia repeated requests for U.S. assistance in 
building a pork processing plant the Government of El Salvador 
promised pork producers during CAFTA negotiations.  The Government 
had purchased the land, and Spain had provided funding for the 
design.  The Ministry of Foreign Affairs has sent the U.S. 
Department of Agriculture the proposal, and de Gavidia promised to 
send a copy to Post, which we have yet to receive. 
 
¶7. (U) Commenting on media reports before the visit of HHS Secretary 
Leavitt that the U.S. Food and Drug Administration (FDA) would open 
offices overseas, de Gavidia stated that the Government of El 
Salvador hoped the FDA would put any Central American office in El 
Salvador. 
 
GOVERNMENT PROCUREMENT 
---------------------- 
 
¶8. (SBU) De Gavidia said that El Salvador was interested in pursuing 
government procurement contracts with the U.S. Department of 
Defense; Salvadoran companies had identified several possibilities, 
especially with the U.S. Navy.  The Government of El Salvador hopes 
to pursue exceptions/waivers to the Berry Amendment, possibly 
through a Memorandum of Understanding between the respective Defense 
Ministries. 
 
ARBITRATION & TELECOMMUNICATIONS 
-------------------------------- 
 
SAN SALVAD 00000830  002 OF 002 
 
 
 
¶9. (SBU) EconCouns raised a legislative proposal that would put 
arbitration under control of the Supreme Court.  He also raised the 
Saca Administration's proposed tax on telephone calls originating 
from outside of El Salvador; both acts that would send a strong 
negative message to investors.  EconCouns also noted that U.S. 
telcom Americatel had won an arbitration decision that it was unable 
to enforce because of delay tactics by Mexican-owned CTE in the 
Salvadoran courts, yet another negative signal to investors.  De 
Gavidia acknowledged that the telephone tax would make El Salvador 
less competitive in the international marketplace, but it was a 
decision by the Ministry of Hacienda (Finance) and the money for new 
social programs "had to come from somewhere."  She added that the 
big call center operations (e.g., Dell) should be unaffected.  De 
Gavidia had no comment on the Americatel case or the legislative 
arbitration proposal. 
 
MINING 
------ 
 
¶10. (SBU) EconCouns discussed the mining sector, stating that 
companies like Pacific Rim had approached the Embassy because the 
Government of El Salvador was not following its own procedures for 
approval (reftel).  De Gavidia said that the government was about to 
complete the tender for a 9-month environmental impact study 
covering the entire country.  She was aware that the mining 
companies might bring a case under CAFTA-DR, but MINEC's primary 
concern was that anything done "is safe for the environment." 
 
COMMENT 
------- 
 
¶11. (SBU) The discussion was, in fact, de Gavidia's end of tenure 
review, and her emphasis on CAFTA-DR reflects the area in which she 
enjoyed the most success.  In her final months in office, much of 
the economic policy-making appeared to have shifted from MINEC to 
the political wing of the Presidency in the run-up to the 2009 
election.  De Gavidia subtly acknowledged this when, noting who was 
driving which issue before reiterating the government position.  Her 
replacement, Ricardo Esmahan, the former head of the Agricultural 
Business Chamber (more reported septel) has already made one 
misstep.  He suggested July 7 that the GOES would look into 
re-establishing international price parity controls for gasoline 
prices.  However, that notion was quickly shot down by President 
Saca on July 8 (as it had been previously by de Gavidia), stating 
the GOES would stick with free market principles when it came to 
gasoline prices. 
 
Glazer