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C O N F I D E N T I A L LA PAZ 000126 
 
SIPDIS 
 
USTR: BENNETT HARMAN; DOC: JULIE ANGLIN 
 
E.O. 12958: DECL: 01/29/2019 
TAGS: PREL BEXP ECON EFIN ETRD KTDB KTEX VN BR
SNAR, BL 
SUBJECT: BOLIVIA POST-ATPDEA: WOOL COATS TO CARACAS? 
 
REF: A. 08 LA PAZ 2192 
     ¶B. 08 LA PAZ 2118 
     ¶C. 08 LA PAZ 2111 
     ¶D. 08 LA PAZ 1793 
     ¶E. 08 LA PAZ 1180 
 
Classified By: Acting ECOPOL Chief Joe Relk for reasons 1.4b,d 
 
¶1. (C) SUMMARY. As of December 15, Bolivian exporters can no 
longer use the Andean Trade Promotion and Drug Eradication 
Act (ATPDEA) to send their goods tariff-free to the United 
States.  While most goods can enter the United States under 
the General System of Preferences (GSP), many exporters, 
mainly in textiles, see the U.S. market as lost. The Bolivian 
government arranged for purchasing agreements with Venezuelan 
businesses to help cushion the blow to textile exports, but 
Bolivian businesses question the legitimacy and legality of 
the offers.  The government will also do its share of 
subsidizing, funding a major textiles plant in El Alto to 
rival current textile giant Ametex as it simultaneously 
offers Ametex loans to offset increased tariff costs. 
Privately, business leaders share our skepticism about the 
sustainability of the government's dubious Band-Aid approach 
to ATPDEA, particularly as the economy and government revenue 
heads for a downturn in 2009.  However, Bolivian businesses 
are also disappointed by the U.S. decision, arguing that the 
private sector should not have been punished for the 
government's mistakes.  President Evo Morales announced that 
he would protest the ATPDEA suspension at the World Trade 
Organization (WTO) but later backtracked and said that he 
will give President Obama a chance to change the current 
policy before doing so.  END SUMMARY. 
 
- - - - - - - - - - - 
TEXTILES TIT FOR TAT 
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¶2. (U) On September 25, President Bush announced his proposal 
to suspend Bolivia's benefits under ATPDEA. The U.S. Trade 
Representative (USTR) then held a 30-day review period to 
receive testimony on the issue.  During the October 23 
inter-agency review panel in Washington, the Bolivian private 
sector maintained that removing the benefits would promote 
illegitimate industries, such as drug trafficking.  Bolivian 
ministers argued that the Morales Administration had not 
failed demonstrably in counternarcotics cooperation and 
implied the U.S. ATPDEA decision was made strictly on 
political grounds in response to the expulsion of Ambassador 
Goldberg only weeks earlier.  President Bush signed a 
proclamation November 25 to officially suspend Bolivia's 
benefits on December 15.  On that day, textiles and leather 
manufacturers began to face tariffs of over 18 percent, while 
other ATPDEA products began to enter under GSP duty-free 
status.  Separately, the U.S. Congress decided to include 
Bolivia in an extension of the ATPDEA legislation, but upheld 
the President's authority to determine compliance and gave 
Bolivia six months to improve counternarcotics cooperation. 
Instead, Bolivian President Evo Morales expelled the Drug 
Enforcement Administration (DEA) from Bolivia on November 1. 
 
- - - - - - - - - - - - - - 
"EXPORTING ICE TO ESKIMOS" 
- - - - - - - - - - - - - - 
 
¶3. (U) Initial Bolivian reaction to the September 25 
announcement was denial.  Morales and his ministers, trying 
to calm private sector fears, announced the expansion of "new 
markets," including China, India and other Asian nations. 
Businesses publicly scoffed at the idea, likening selling 
Bolivian textiles to Asia to "exporting ice to Eskimos." 
Morales continued to push for new markets, but newspaper 
editorials called instead for a change in the government's 
attitude towards the United States.  Many economic analysts 
and pundits pointed out that while expanding markets was 
generally a good idea, it could not replace the established 
U.S. market. 
 
¶4. (C) Foreign Minister David Choquehuanca publicly 
discounted ATPDEA's benefits, pointing to the decline in 
textile exports to the United States over the past few years. 
 Many business leaders countered that the lower numbers were 
based on the government's inability to secure a long-term 
trade agreement with the United States.  Textile export 
numbers for 2008 indicate a further decline in the U.S. 
market, down to $13.3 million from $19 million  in 2007. 
 
- - - - - - - - - - - - - - - - - - 
WITH A LITTLE HELP FROM MY FRIENDS 
- - - - - - - - - - - - - - - - - - 
 
¶5. (C) After the initial ATPDEA uproar, Morales announced 
that the Venezuelan government would offset the loss of what 
he called "blocked markets" due to the suspension. (NOTE: The 
Embassy made an effort to explain markets were not "blocked" 
and that most exports could still enter the U.S. duty free. 
END NOTE.)  Spearheaded by newly-appointed Minister of 
Production and Small Business Susana Rivero, a "Round of 
Negotiations" was held between Bolivian and Venezuelan 
companies November 11-14, 2008.  Rivero hailed the rounds as 
a major successes and claimed that over 50 Bolivian companies 
participated. (NOTE: Contacts tell us that Rivero will be 
replaced by Pablo Guzman, currently Vice Minister of Foreign 
Economic and Trade Relations in the Ministry of Foreign 
Affairs, in March. END NOTE.) 
 
¶6. (C) Venezuela is not the only country stepping in to 
ostensibly replace the U.S. market.  In a speech on January 
15, Brazilian President Luis Lula Inacio Da Silva announced 
that Brazil would open its normally heavily-protected markets 
for Bolivian imports in part to help his "buddy" Morales make 
up for ATPDEA suspension.  Brazil imported approximately $4 
million dollars worth of Bolivian textiles in 2008. 
 
- - - - - - - - - - - - - - - - - - - - 
DO THESE T-SHIRTS SMELL FISHY TO YOU? 
- - - - - - - - - - - - - - - - - - - - 
 
¶7. (C) Behind the scenes, Morales has been subsidizing a new 
textile production conglomerate called "EBIT," bringing seven 
"shareholders" together that combine resources to form a 
company.  Roberto Maldonado, U.S. citizen and Embassy 
contact, is the brain behind the idea: "The key is to sell 
capitalism without using any of the terminology." Maldonado, 
who used to work for Ametex, left to open his own textiles 
business and soon recognized the opportunity. As Maldonado 
explains, "Once I saw it, I called my friend Javier (Hurtado, 
former Minister of Production and Small Business) and told 
him my idea to combine these small producers."  From there, 
Hurtado spoke with Morales, who supported the idea.  The 
Bolivian government, through Venezuelan funds, gave the group 
$3.5 million dollars.  Each member received $500,000 to 
update their businesses.  All seven have combined and are 
currently operating out of a plant in El Alto with over 200 
workers. Maldonado plans to expand the business to include 
plants in Cochabamba, Potosi, Oruro, and Copacabana.  Morales 
himself inaugurated the El Alto plant on January 16, 
promising as much as $20-30 million for the project. 
Maldonado reports that at the inauguration, Morales began 
speaking about the "softening of his opinions on U.S. trade," 
but didn't elaborate on any potential changes in attitude or 
action. 
 
¶8. (C) In the round of negotiations with Venezuela, 
Maldonado's group initially didn't get any orders.  Maldonado 
was dismayed to hear that Ametex had already received a 
contract.  He called his contacts within the Government and 
said, "Don't make me tell Evo that his project received no 
orders while Ametex has contracts."  Within two days, 
Venezuelans were calling and asking to negotiate with his 
group.  Maldonado was prepared to bargain, but when he 
offered to sell T-shirts at $5 a shirt, the Venezuelans 
counter-offered at a higher price of $7.50 and said they had 
no preference for style, color, or brand. 
 
¶9. (C) At first, Maldonado said he "really didn't care" why 
the Venezuelans had seemed eager to pay more than the asking 
price on the goods involved, but later told Emboff that he's 
not counting on something that "might not be real."  Other 
businesses, such as medium-sized Orbol, were concerned about 
the deals.  Orbol President Augusto Millares told Emboff that 
his experience at the round of negotiations amounted to very 
little and at lower prices than he expected.  Millares said 
the deals do not come close to replacing the U.S. buyers he 
has sold to for years. 
 
10.(C) Ametex, however, did take advantage of the program. 
Despite earlier telling Emboff that there was "no way" he 
would accept a deal with Venezuela, Ametex President Markos 
Iberkleid signed a contract during the round of negotiations, 
though he has yet to receive the promised official orders 
from the Venezuelan companies.  Iberkleid is also using the 
special $8 million government account set aside in February, 
2008 to offset tariff costs in the event of ATPDEA 
suspension.  As month after ATPDEA suspension, Iberkleid had 
received $100,000.  He called the fund a very short-term 
solution to a very long-term problem.  Iberkleid said he will 
be keeping his U.S. suppliers, even if it means taking a loss 
on the goods sold.  "We'll maintain 40 percent production for 
the U.S. market ... eventually (Venezuelan President Hugo) 
Chavez and Evo (Morales) will fail and we will be able to 
make a profit in the United States again."  Iberkleid is very 
skeptical of Maldonado's textile group, implying that 
Maldonado has turned to shady deals with Venezuelan 
exchange-rate schemers to get his group off the ground (ref 
E). 
 
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HIGH FASHION - HIGH DRAMA 
- - - - - - - - - - - - - - 
 
¶11. (C) Textiles producers exporting high-end items report 
that their luxury goods have not seen a drop in demand. 
Yelka Maric, who specializes in alpaca sweaters and coats, 
told EmbOff, "For my suppliers, an 18 percent increase is not 
significant enough to cause them to decrease orders." 
High-end fashion designer Beatriz Canedo Patino agreed and 
told EmbOff that her clientele is not affected by arbitrary 
price jumps.  She is more affected by "copy-cat" producers 
who steal her designs.  Canedo noted that the confusion over 
ATPDEA has made it difficult to convince suppliers to buy 
from Bolivia. 
 
¶12. (C) Alpaca sweater and coats producer Altifashion has not 
had the same luck.  As a result of the suspension, 
Altifashion created a sister company, Pitata, in Arequipa, 
Peru.  Pitata will handle all of the U.S. market, with 
Altifashion doing basic work to be finished at and shipped 
duty-free from the new plant.  Altifashion currently employs 
nearly 500 workers in Bolivia, but many of the employees may 
lose their jobs in the near future, as CEO Humbert Bohrt 
plans to move all of Altifashion to Peru to take advantage of 
the additional free-trade options with Chile, China, and 
Korea. 
 
- - - - - - - - - - - - - - 
PRIVATE SECTOR DISPLEASURE 
- - - - - - - - - - - - - - 
 
¶13. (C) Many business leaders feel betrayed by the ATPDEA 
suspension.  At a lunch for ATPDEA impacted companies hosted 
by the Charge, many asked, "Why wasn't there a way to punish 
the Government without punishing the private sector?"  Most 
understand that the suspension was the next step, but 
repeated their USTR testimony, arguing that the suspension 
will only push people further into illegitimate jobs.  Many 
said that the Asian producers will quickly take over their 
U.S. buyers, leaving no room for Bolivians.  Even if the 
ATPDEA suspension is reversed, they feared it would come too 
late. 
 
- - - - 
COMMENT 
- - - - 
 
¶14. (C) Morales has high expectations for ATPDEA renewal 
under the Obama Administration.  After announcing his 
government would complain to the WTO about the ATPDEA 
suspension, Morales back tracked and said he will wait until 
President Obama has the chance to renew ATPDEA.  Morales does 
not appear to understand the inherent link between 
 
 
counter-narcotics cooperation and renewal of ATPDEA.  Morales 
has followed through on his expulsion of DEA and has publicly 
said that DEA will not return while he remains in power. 
Post does not expect any imminent improvement in Morales' 
counternarcotics cooperation with the United States.  While 
the government's collection of Band-Aid measures to offset 
the impacts of ATPDEA suspension may keep Bolivia's textile 
industry above water for the short term and mute public 
criticism of the Morales Administration, we do not see the 
government's "coats to Caracas" approach as economically 
sustainable, particularly as government budgets and the 
overall economy are expected to face significant strains in 
¶2009.  By the time national elections are scheduled in 
December, ATPDEA suspension could well develop into an 
election issue.  END COMMENT. 
LAMBERT