[WPRT 109-6]
[From the U.S. Government Publishing Office]


109th Congress                                                    WMCP:
                            COMMITTEE PRINT                       
 1st Session                                                      109-6
_______________________________________________________________________

                                     


                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                               __________

                                 REPORT

                                   on
 
              TRADE MISSION TO COLOMBIA, ECUADOR, AND PERU


                                     
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

                                     
                             SEPTEMBER 2005

 Prepared for the use of Members of the Committee on Ways and Means by 
members of its staff. This document has not been officially approved by 
      the Committee and may not reflect the views of its Members.



                    U.S. GOVERNMENT PRINTING OFFICE
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_____________________________________________________________________________
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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
THOMAS M. REYNOLDS, New York         JOHN B. LARSON, Connecticut
PAUL RYAN, Wisconsin                 RAHM EMANUEL, Illinois
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel


                         LETTER OF TRANSMITTAL

                     U.S. HOUSE OF REPRESENTATIVES

                      COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

                   Washington, DC, September 9, 2005

The Honorable Bill Thomas
Chairman
Committee on Ways and Means
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Mr. Chairman:

    I am pleased to transmit to you the enclosed congressional 
delegation report on the recent Committee mission to Colombia, Ecuador, 
and Peru. This report contains an overview of the mission as well as 
summaries of meetings with foreign officials.
    The report describes the trade, investment, and security issues 
which were investigated during the trip.

            Sincerely,
                                              Angela Paolini Ellard
                                         Staff Director and Counsel
                                              Subcommittee on Trade

Enclosure

                       MEMBERS OF THE DELEGATION

              MEMBERS OF THE U.S. HOUSE OF REPRESENTATIVES

HON. BILL THOMAS, Chairman,          HON. STEPHANIE TUBBS JONES
  Committee on Ways and Means
HON. E. CLAY SHAW, Chairman,
  Subcommittee on Trade,
  Committee on Ways and Means
HON. JERRY WELLER
HON. DEVIN NUNES

                   COMMITTEE ON WAYS AND MEANS STAFF

ANGELA P. ELLARD, Staff Director     JULIE HERWIG, Democratic Trade 
and                                  Counsel,
  Counsel, Subcommittee on Trade       Committee on Ways and Means
MARY SUE ENGLUND, Special 
Assistant,
  Committee on Ways and Means
STEPHANIE LESTER, Professional 
Staff,
  Subcommittee on Trade
STEVEN SCHRAGE, International Trade
  Counsel, Subcommittee on Trade


                            C O N T E N T S

                               __________

                                                                   Page

Members of the Delegation........................................    iv
Outline of Trip Conclusions......................................     1
Discussion of Trip Meetings......................................     4
Colombia.........................................................     4
Ecuador..........................................................     7
Peru.............................................................    15
      
                      INTRODUCTION AND BACKGROUND

    On July 3-9, 2005, a bipartisan delegation of Members of the 
Committee on Ways and Means traveled to Colombia, Ecuador, and Peru. 
The purpose of the delegation's trip was to focus on the ongoing 
negotiations for a free trade agreement with the countries and to 
discuss investment and security issues in the region. The delegation in 
particular emphasized that current unilateral trade preferences under 
the Andean Trade Promotion and Drug Eradication Act (ATPDEA) are set to 
expire in December 2006, and the only way that the Andean countries can 
replicate their access to the U.S. market after these benefits expire 
is through a comprehensive bilateral free trade agreement providing 
reciprocal market access.
    Congress first granted unilateral trade preferences to the region 
in 1991 under the Andean Trade Preference Act (ATPA), and the law 
identifies Bolivia, Colombia, Ecuador, and Peru as potential 
beneficiaries. Columbia and Bolivia were designated for benefits in 
1992; Ecuador and Peru were designated in 1993. Each of these 
designations has been reviewed annually and renewed. The original ATPA 
did not allow duty-free treatment for several sensitive products such 
as certain textile and apparel articles. In 2002, Congress enacted the 
ATPDEA to extend and enhance ATPA trade benefits as a way to create 
additional alternatives to illicit drug production, thereby enhancing 
political security in the Andean region and the hemisphere. In general, 
the ATPDEA extended trade benefits until December 31, 2006, and 
expanded coverage to include additional products such as apparel made 
of U.S. fabric, Andean apparel made of regional fabric subject to a 
cap, and certain tuna.
    During the Ministerial for the Free Trade Area of the Americas in 
Miami, Florida in November 2003, the Administration notified Congress 
of its plans to negotiate a free trade agreement (FTA) with Colombia, 
Peru, Ecuador, and Bolivia. FTA negotiations began in May 2004 with 
Colombia, Peru, and Ecuador, and eleven negotiating rounds have been 
held. Bolivia is currently an observer in the negotiations.
                      OUTLINE OF CODEL CONCLUSIONS
General comments:
      FTAs must be comprehensive: The delegation supports the 
negotiation of a comprehensive free trade agreement with the Andean 
countries, in compliance with the objectives of Trade Promotion 
Authority, which provides commercially meaningful market access for 
goods, services, and agriculture, without exclusions, and includes 
strong protections in areas such as investment and intellectual 
property rights. The Andean market holds tremendous opportunity for 
U.S. interests but only if a comprehensive agreement is struck.
      Congressional passage of an Andean FTA dependent on 
content: The Administration and Congress have developed a successful 
structure for FTAs, and the Andean FTA must contain the elements of 
that structure to maximize support.
      Unilateral preferences to expire: The ATPDEA provides 
preferences to the region that are temporary and expire at the end of 
2006. These preferences have successfully served their purpose of 
supporting the Andean countries through unilateral access to the U.S. 
market. The relationship between the Andean countries and the United 
States, however, has matured, and such unilateral preferences are no 
longer appropriate after 2006. Instead, a reciprocal, mutually 
beneficial arrangement must take the place of the unilateral access. 
Accordingly, the only way for these countries to guarantee permanent 
preferential access to the U.S. market is through a comprehensive FTA.
      Colombia's negotiating efforts lagging: Commercially, 
Colombia's market holds the greatest potential in the region for the 
U.S. private sector, but Colombia's government is finding it 
politically challenging to agree to a comprehensive FTA, particularly 
regarding agriculture. The delegation believes that Colombia expects 
special treatment because of its valuable role in counternarcotics and 
counterterrorism efforts. Despite the strategic importance of the 
relationship between the United States and the Andean community, the 
U.S. Congress will judge an Andean FTA on its merits; Congressional 
support for trade deals--even with Colombia--cannot be assumed, as 
evident during Congressional consideration of the United States-
Dominican Republic-Central America Free Trade Agreement (CAFTA).
      Ecuador struggling with democratic institutions and an 
unfavorable investment climate: Ecuador's economy is strong, but its 
political institutions are unstable and face tremendous challenges. The 
environment for business is unfavorable and even perceived as hostile, 
and it is not clear that Ecuador's government institutions have the 
confidence of the U.S. business community that they would comply with 
FTA obligations. Nevertheless, the business community supports the FTA 
as a mechanism for pushing the government to be transparent and enact 
reforms and as an opportunity for dispute settlement to enforce 
Ecuador's commitments.
      Peru making good progress, but more work needed: Peru has 
been the most forward-leaning Andean country in the negotiations. It 
began the negotiations with a relatively more open trade regime, and as 
a result it is more focused in its priorities. In some areas Peru has 
broken ranks with Colombia and Ecuador in stating that it could accept 
U.S. proposals, and the delegation appreciates Peru's leadership in the 
negotiations. However, Peru also has a lot of ground to cover to close 
the agriculture negotiations.
      FTA could include fewer countries: The delegation 
supports including in an FTA only those countries that are ready and 
have made the requisite concessions. At the same time, an effort to 
conclude a smaller FTA must be balanced with the reality of obtaining 
U.S. Congressional support. While negotiations with Peru are the most 
advanced, the delegation encouraged Peruvian officials to work with 
their counterparts particularly in Colombia to reach agreement on a 
comprehensive FTA to maximize Congressional support; it will be 
difficult for Congress to pass an FTA with Peru alone. If Peru and 
Colombia are united in presenting commercially significant 
opportunities to U.S. interests through the agreement, Ecuador would 
have a strong incentive to join in order to protect its ability to 
compete commercially with its neighbors, and this combination increases 
the chances for Congressional approval.
      Window is closing: There is very little time left to 
finish negotiations and obtain Congressional approval for an FTA, 
particularly given Congressional interest in the WTO negotiations and 
FTAs with Middle Eastern countries as well as upcoming Presidential 
elections in the region. While the Andean countries hope that the 
negotiations will conclude in October, the delegation is somewhat 
pessimistic that the negotiations will finish and be implemented before 
the preferences expire, given that negotiators have held 11 rounds 
without resolution of critical agriculture issues. The delegation 
intends to work with USTR negotiators to make sure that there is no 
delay on the U.S. side in presenting offers and responding to Andean 
requests.
Sector-specific comments:
      Narcotics: The delegation shares the concerns of the 
Andean countries about the serious problems posed by narcotics 
production and trafficking in the region. Free trade is compatible with 
counter-narcotics objectives, and the United States should be prepared 
to allow for transition periods where warranted. Consequently, the 
delegation believes that U.S. negotiators should take into account 
requests for flexibility if there is credible proof that an FTA 
provision would negatively impact counternarcotics efforts, 
particularly whether the specific agricultural products for which the 
Andean countries are seeking protection are crops targeted as 
alternatives to drug production. More generally, the United States 
should also help in the development of alternative crops. However, the 
specter of narcotrafficking cannot be used as a broad brush excuse for 
exceptional treatment to protect sectors from competition.
      Agriculture: The delegation is very concerned that 
Colombia and some elements of the government in Ecuador insist on 
perpetuation of their price bands in the FTA and is encouraged that 
Peru is willing to eliminate such distorting mechanisms. The delegation 
notes that the WTO has found such price bands to violate WTO 
obligations, and Chile eliminated its price bands through its FTA with 
the United States without adverse effects. The delegation is also 
opposed to using safeguards in perpetuity as a means for the Andean 
countries to protect their agriculture sectors. Negotiators should 
instead work with USTR to identify sensitivities and to craft a path to 
liberalization for each product.
      Agriculture subsidies/supports: The delegation firmly 
believes that the United States must not negotiate agriculture domestic 
support or subsidies in this or any other FTA. The appropriate forum to 
negotiate domestic support is in the WTO because it is a multilateral 
issue affecting third countries.
      Intellectual property rights: Because support from the 
U.S. IPR community is essential to passage of the FTA, the delegation 
believes that the FTA must contain a strong IPR chapter with 
commitments that go beyond the WTO Agreement on Trade Related Aspects 
of Intellectual Property Rights (TRIPs), to which the Andean countries 
are already party. Support from the U.S. IPR community is essential to 
passage of the FTA.

        All three negotiating partners are on USTR's Special 
301 watch list, which means IPR problems in each country merit 
bilateral attention.
        Colombia is the only Andean country to provide a full 
five years of data protection for pharmaceuticals. In the copyright 
context, Colombia has increased criminal penalties for copyright 
infringement and has established a specialized IPR unit in the 
Prosecutor General's office. Notwithstanding these improvements, 
however, high levels of piracy continue to dominate the Colombian 
market. Efforts to combat piracy through raids and other enforcement 
measures are hindered by a judicial system that fails to actively 
prosecute cases or issue deterrent criminal sentences.
        Although Ecuador generally has an adequate IPR law, 
enforcement remains a problem. Copyright piracy is rampant. The 
delegation is also concerned about Ecuador's lack of effective 
protection for undisclosed test data.
        A major concern of U.S. industry in Peru is the lack of 
IPR protection relating to both copyrights and patents. In particular, 
the lack of data protection is of concern.

      Investment: The Andean countries risk losing support from 
the private sector and Congress if they are viewed as not serious in 
establishing a good investment regime with fair and transparent dispute 
settlement.

        The delegation was particularly struck by the lack of 
confidence of the U.S. business community with respect to investment 
protection in Ecuador. Ecuador must resolve its disputes with U.S. 
investors in order to demonstrate that it can be a viable FTA partner. 
While the delegation welcomes the creation of an office to look into 
these issues, resolution will require political will and potentially 
significant judicial reforms, and tangible results are essential.
        Peru: The delegation appreciates that since 2002, Peru 
has committed to resolve or take steps to resolve several longstanding 
investment disputes. Despite some recent progress, several of the most 
difficult disputes remain unresolved. Peru cannot afford the liability 
these disputes represent if it wishes to be included in an FTA with the 
United States.

      Sanitary and phytosanitary measures: Several countries 
raised concerns regarding the U.S. application of sanitary and 
phytosanitary (SPS) rules. The delegation agrees with U.S. negotiators 
that the United States must not negotiate food safety and animal and 
plant health in FTAs because the WTO rules binding all WTO countries 
are already comprehensive. Instead, U.S. trading partners should engage 
in specific bilateral problem-solving discussions. The delegation 
supports U.S. efforts to provide technical capacity building, but the 
Andean countries, particularly Colombia, must demonstrate more 
willingness to engage in problem solving discussions on specific 
bilateral SPS issues during the negotiations.
      Labor: Ecuador's labor code must be modernized to ensure 
consistency with the core International Labor Organization (ILO) labor 
standards, particularly with respect to the right to organize. 
Ecuador's labor laws and practices, and their enforcement, will be 
closely scrutinized by the international community and the U.S. 
Congress. Congress will particularly demand that Ecuador improve 
enforcement of its child labor laws. The delegation is willing to 
explore technical assistance to Ecuador in these areas.
      Biodiversity: The delegation recognizes that biodiversity 
is an important issue for the Andean countries. The delegation observed 
that these countries have some of the greatest numbers of species in 
the world. However, the protections that the Andean countries seek in 
the FTA do not fit within the U.S. intellectual property regime. 
Instead, biodiversity should be protected through contract enforcement.
      Peruvian debt prepayment: The delegation will investigate 
options with the Administration to permit Peru to prepay its debt 
without penalty.
                      DISCUSSION OF CODEL MEETINGS
                                COLOMBIA

Country Team Briefing with U.S. Ambassador William Wood, Deputy Chief 
        of Mission Milton Drucker, and other U.S. Embassy Staff
    Ambassador Wood and his team gave the delegation a briefing on the 
political and economic issues facing Colombia with special attention on 
the ongoing Andean free trade agreement (FTA) negotiations and the 
fight against narcotrafficking and terrorism. The primary U.S. 
objectives in Colombia are to prevent the flow of illegal drugs into 
the United States and to help Colombia promote peace and economic 
development. The Ambassador noted that the U.S. Embassy in Colombia is 
the largest American Embassy in the world, with 2,100 employees.
    The United States and Colombia, Ecuador, and Peru are seeking to 
consolidate and make permanent a preferential trade relationship 
through the conclusion of a free trade agreement (FTA). Current 
unilateral trade preferences under the Andean Trade Promotion and Drug 
Eradication Act (ATPDEA) expire in December 2006, and the countries 
seek to conclude and implement the FTA before those preferences end to 
provide a seamless transition. An FTA would increase bilateral trade, 
ease unemployment and underemployment, stimulate business, and help to 
create a modern private sector in Colombia.
    The Colombians are eager to conclude the FTA negotiations as 
quickly as possible, and before the political cycle in Colombia begins. 
Colombian elections for the Congress will be held in March 2006, and 
for the President in May 2006. At the same time, Colombia's government 
is finding it politically challenging to agree to a comprehensive FTA, 
particularly regarding agriculture. FTA talks with Colombia are lagging 
behind the other two countries, and it does not appear that Colombia is 
prepared to reduce all tariffs, particularly on sensitive agriculture 
products.
    Colombia's economy has been recovering over the past two years 
despite serious internal armed conflict. The economy continues to 
improve as a result of Uribe government budgets, focused efforts to 
reduce public debt levels, and export-oriented growth. Several 
international financial institutions have praised the economic reforms 
introduced by President Uribe, which include measures to reduce 
government debt to 40% of gross domestic product by 2015. The 
government's economic policy and democratic security strategy have 
fostered a growing sense of confidence in the economy, particularly 
within the private sector.
    Colombia is one of South America's richest sources of natural 
resources (including petroleum, coal, coffee, flowers, fruits, gold, 
and emeralds). Unfortunately, Colombia is also home to decades of 
political-criminal insurrection. For over 40 years, several terrorist 
organized organizations (FARC, AUC, and ELN are the largest three) have 
taken advantage of a lack of state presence in outlying rural areas to 
wage extremely violent campaigns for control of parts of the country. 
Drug trafficking has replaced leftist and rightist ideologies as the 
prime motivators to control the specific regions. The drug trade (coca, 
opium poppy, and some marijuana) and kidnappings are major income 
streams. The Embassy estimates that 3,000-4,000 civilians are killed 
each year as a result of the conflict. In addition, Colombia has the 
world's third largest internally displaced population, after Sudan and 
Congo.
    The United States has aggressively pursued the fight against 
narcotrafficking and terrorism in Colombia by supporting Plan Colombia. 
Plan Colombia was developed by former Colombian President Andres 
Pastrana (1998-2002) and continued under current Colombian President 
Alvaro Uribe as a six-year plan to end Colombia's long armed conflict, 
eliminate drug trafficking, and promote economic and social 
development. The Andean Counterdrug Initiative (ACI) is the primary 
U.S. program that supports Plan Colombia. ACI funding for Plan Colombia 
from FY2000 through FY2005 totals approximately $2.8 billion. In 
addition, Colombia receives assistance from the Foreign Military 
Financing (FMF) program and the Department of Defense's central 
counter-narcotics account. With the inclusion of FMF and DOD 
assistance, the total level of U.S. support to Colombia is $4.5 
billion.
    There has been measurable progress in Colombia's internal security, 
as indicated by decreases in violence and in the eradication of drug 
crops. In 2004, the United States fumigated 160 tons of cocaine and 
seized 325 tons for a total of 485 tons. This was the first time that 
more than half of Colombia's production was prevented from reaching 
market. Unfortunately, despite these efforts, no effect has been seen 
with regard to price and purity of cocaine and heroin in the United 
States.
    The United States Agency for International Development (USAID) has 
a large mission in Colombia with $460 million in funds, $83 million of 
which goes to alternative crop development. Other USAID programs 
include: improving the efficiency and transparency of the justice 
system, strengthening democracy, promoting human rights, and providing 
support for more than 1.4 million Colombians displaced by violence. 
USAID is also strengthening a center to support an estimated 3,000 to 
7,000 children who were forced to serve as child combatants and is 
investigating whether to assist in the demobilization and reintegration 
of adult combatants. Since President Uribe came into power, USAID has 
provided alternative development aid to 38,000 small farm families, 
built 18 justice houses handling over 1,700,000 cases, built 22 oral 
trial courtrooms, and developed over 770 infrastructure projects.

Meeting with Colombian Minister of Agriculture and Rural Development, 
        Dr. Andres Arias
    Minister Arias opened the meeting by confirming that Colombia is 
committed to free trade and must maintain a long-term view. At the same 
time, he said that some issues are very difficult and sensitive, such 
as market access for rice, chicken leg quarters, wheat, and corn, and 
Colombia fears that granting too much market access could create 
instability and increase the terrorist threat in rural areas. Minister 
Arias emphasized the importance of gaining special treatment for 
Colombian agriculture to help rural areas in the fight against drugs 
and terrorism. Minister Arias said that Colombia needs ``real'' access 
to the U.S. market and a clear and agile mechanism for handling 
sanitary and phytosanitary (SPS) issues. Finally, Minister Arias raised 
concerns that the United States has not responded to Colombia's recent 
proposal in agriculture.
    Chairman Thomas responded by noting that there are many countries 
asking for special treatment for different reasons, but any FTA will 
have to fit into the overall framework of what the United States has 
agreed with other countries. For example, the Chile FTA is a good 
indicator of what Congress expects in a free trade agreement. As long 
as Colombia is making proposals that do not fall within the framework 
of what was done previously in other U.S. FTAs, then the United States 
cannot move forward. He also noted that Colombia cannot insist on 
maintaining price bands and then expect U.S. negotiators to engage 
technically. SPS restrictions, he said, have to be based on sound 
science. Chairman Thomas said that delaying the FTA negotiations is not 
to the advantage of Colombia. Colombia has had a window of opportunity 
to negotiate the FTA, but this is closing fast, and Colombia needs to 
show leadership in the negotiations. ATPDEA preferences will not, he 
said, be renewed beyond December 2006 because the U.S.-Colombia 
relationship has evolved and matured. The price of permanent access is 
giving up protections. A good FTA, he said, is mutually beneficial.
    Congresswoman Tubbs Jones asked about support for trade in 
Colombia. Minister Arias responded that there is growing anti-trade and 
anti-American sentiment, and the Government of Colombia is trying to 
stop that movement. She also asked about alternative crops in Colombia. 
Minister Arias responded that it is difficult to start growing new 
crops, and the new crops need to be just as lucrative or there will be 
no incentive to change.
    Congressman Shaw said that sugar will be a difficult issue in the 
FTA negotiations, and he noted that Colombia has an abundance of sugar. 
Mr. Shaw was interested to hear whether Colombia will consider making 
ethanol from sugar. Minister Arias noted that U.S. sensitivities 
regarding sugar are similar to Colombia's sensitivities regarding rice.
    Congressman Weller noted that corn, soy, and livestock are 
important agriculture industries in Illinois, and the FTA would need to 
provide market access for those products. He also noted that Colombia's 
price bands would have to be eliminated as part of an agreement, as 
Chile had done in its FTA with the United States.
    Congressman Nunes asked about Colombia's capacity for value-added 
crops. Minister Arias responded that Colombia successfully exports 
dairy, beef, horticulture, fruits, palm oil, sugar, rubber, and cocoa.

Meeting with Colombian Minister of Commerce, Industry, and Tourism 
        Jorge H. Botero, Colombia's Chief Negotiator for the Free Trade 
        Agreement Hernando Gomez, and Colombia's Vice Minister for 
        Foreign Trade Eduardo Munoz
    Minister Botero began the meeting by thanking the delegation for 
the unilateral preferences provided under the Andean Trade Promotion 
and Drug Eradication Act (ATPDEA). The positive results from ATPDEA 
have been significant. Minister Botero also stated that he sees an FTA 
as a cornerstone for the U.S.-Colombian relationship, and it has 
political significance as well as commercial meaning. Colombia is 
anxiously watching the outcome of U.S. Congressional consideration of 
the Dominican Republic-Central America Free Trade Agreement (CAFTA). 
While CAFTA is still pending, it is difficult for the Andean FTA 
negotiations to move forward, he said, particularly on agriculture, 
sanitary and phytosanitary measures, and intellectual property rights. 
Once the CAFTA is approved, Colombia hopes that the Andean FTA 
negotiations can move forward expeditiously and conclude by the end of 
the year. Botero said it is his hope that the FTA talks can conclude by 
the end of October, at the latest.
    Minister Botero also noted that, just as in the United States, 
Colombia has to be mindful of its political process and negotiate a 
deal that could pass in its Congress. Botero stated his belief that 
while Colombia has demonstrated political will to move the agreement 
forward, he has not seen comparable will on the part of U.S. 
negotiators due to the CAFTA approval process. Botero, like Minister 
Arias, pointed out that the United States has yet to respond to many 
offers on the table. He said that until Colombia sees U.S. engagement, 
it is difficult to put anything but the most conservative offers on the 
table. Botero also said that Colombian agriculture must have ``real 
access'' to the U.S. market, including some movement toward an SPS 
permanent committee.
    Chairman Thomas committed that he would obtain a response from the 
U.S. negotiators on Colombia's proposals. At the same time, he 
commented that it is difficult to move forward in the negotiations if 
Colombia is not offering real market access. For example, the United 
States sent 2.2 million tons of corn to Colombia last year, but 
Colombia's latest proposal offered a tariff rate quota of only a small 
fraction of that level. Chairman Thomas also said that the best window 
of opportunity for negotiating an Andean FTA was really in late 2003 
and early 2004. After a tough CAFTA fight, he explained, it is 
difficult to imagine much support for pushing through the Andean FTA, 
with its similarities to CAFTA on sugar, textiles, labor, and 
agriculture. As a result, the Andean agreement will likely need to be 
better in these areas.
    Chairman Thomas also noted that ATPDEA is a temporary grant from 
Congress to the Andean countries. It would be wise, he said, for 
Colombia to conclude an FTA in time for its benefits to replace ATPDEA 
benefits when they expire in December 2006. Otherwise, it would be very 
difficult for Congress to renew ATPDEA if it sees that Colombia is 
unwilling to open its market to U.S. exports, particularly if Congress 
turns its focus to other regions of the world such as the Middle East, 
which have shown great interest in concluding comprehensive trade 
agreements. For example, an FTA with Bahrain is awaiting 
implementation, and trade negotiations are ongoing with Oman and the 
United Arab Emirates. Egypt has also introduced several economic 
reforms which improve its prospects for an FTA with the United States. 
The Chairman reiterated that the Andean FTA must follow the template 
established by the United States in previously concluded FTAs to 
maximize Congressional support, and holding out for more will not 
produce gains, only delay.
    FTA chief negotiator Gomez added that Colombia is worried about the 
timetable and the lack of U.S. responses. He and Botero stated that 
Colombia is looking for pragmatic solutions to the remaining issues, 
but both sides have to engage to achieve results. The key is a balanced 
agreement where both sides see positive benefits. Gomez added that 
Colombia understands it has to open up its market on many products, but 
in some areas of agriculture, Colombia has to ensure the survival of 
some domestic production to maintain populations in the rural sector. 
Otherwise, he believes that increasing instability and insecurity will 
result.
    Congresswoman Tubbs Jones noted that the FTA should have a strong 
labor chapter and raised concerns about the deaths of labor leaders in 
Colombia. Vice Minister Munoz said that Colombia has tried to include 
unions in the FTA process, but unions in Colombia are opposed to the 
FTA, both philosophically and practically, even with the inclusion of a 
strong labor chapter. He said unions represent a tiny and declining 
portion of the Colombian workforce--mostly in large corporations and 
the government. Minister Botero responded that Colombia is trying to 
stop all crimes and murders, including those of labor leaders. He also 
noted that crime in Colombia is declining.
    The delegation noted that sugar is sensitive in both Colombia and 
the United States, and the discussion turned to the potential of 
agriculture production, particularly value-added production, in both 
Colombia and the United States. The participants agreed that any trade 
deal has to be beneficial for all parties.
Meeting with Members of the Colombian American Chamber of Commerce
    The delegation met with representatives of the American business 
community in Colombia to discuss the Colombian business climate and the 
ongoing FTA negotiations. Representatives of the insurance, consumer 
product, manufacturing, accounting, legal services, and energy sectors 
were among those present at the meeting. The business community 
expressed strong support for an FTA and emphasized its hope that the 
negotiations would result in an expeditious and successful conclusion 
of a comprehensive free trade agreement. They agreed that the signing 
of an FTA requires a satisfactory agricultural agreement which will 
need to balance Colombia's sensitivities and U.S. priorities on a 
handful of agricultural products. Business representatives underscored 
the great economic progress that has taken place in Colombia under 
President Uribe, and they expressed confidence in the Uribe 
Administration's economic policies to attract more investment and 
economic opportunity in Colombia. They noted that, unlike Ecuador and 
Peru, Colombia has already resolved its outstanding investment 
disputes--thanks to the personal and persistent dedication of President 
Uribe. They said that Colombia's market holds the greatest potential in 
the region for American businesses.
Meeting with Colombian President Alvaro Uribe, Minister of Agriculture 
        and Rural Development Andres Arias, Minister of Commerce, 
        Industry, and Tourism Jorge H. Botero, and Colombian Ambassador 
        to the United States Luis Alberto Moreno
    President Uribe welcomed the delegation and thanked them for their 
efforts to support Colombia, including through passage of trade 
preferences. The President said he would like to conclude a free trade 
agreement, but he argued that there is an important link between 
agricultural employment and security so that Colombia needs additional 
flexibility to protect a basic group of products (corn, chicken leg 
quarters, rice, beans, and sorghum) in an FTA. The rural sector is also 
important because a quarter of the Colombian population lives in rural 
areas. President Uribe said that he understands that a bilateral FTA 
cannot hinder the United States' ability to use domestic supports for 
agriculture, but the agreement should then provide countries some 
mechanism to offset the distortionary effects of those subsidies. 
President Uribe proposed a tool that would be applied to a handful of 
very sensitive products for which the United States provides domestic 
supports.
    President Uribe made a geopolitical argument about the importance 
of the FTA, stating that Colombia is a strong supporter of the United 
States, while Brazil is trying to supplant American leadership in South 
America and Venezuela is trying to buy a leadership role with 
inexpensive oil. The President also emphasized that instability in the 
region would increase if the United States were unable to conclude an 
FTA with as strong an ally as Colombia. With so many political 
uncertainties in the region, President Uribe said, a positive American 
presence is critical.
    Chairman Thomas said that he is very concerned about the pace of 
the FTA negotiations, noting that the ATPDEA will expire in December 
2006 but there is a real possibility that there will not be an FTA in 
force to replace ATPDEA benefits. He emphasized that Colombia is a very 
important friend and ally of the United States, and he does not want to 
see this happen. Therefore, it is critical that Colombia show 
leadership in the negotiations and work with U.S. negotiators to 
conclude a comprehensive and commercially meaningful trade agreement 
that benefits all parties. On domestic supports, Chairman Thomas 
responded that the U.S. Congress simply would not approve offset 
mechanisms, but he pledged to work with Colombia to find solutions 
within the existing framework created by previous agreements.
    Congresswoman Tubbs Jones raised concern regarding labor violence 
in Colombia. President Uribe responded that security for everyone, 
including labor leaders, is a cornerstone of his administration. The 
President said that when he took power in 2002, 161 labor leaders were 
killed and 400 (of 1,096) mayors could not exercise their duties 
because of guerilla threats. Today, there might be one or two mayors 
that are having security problems, and the Colombian government is 
doing everything in its power to eliminate these problems. The 
President added that this year, five labor leaders have been killed, 
and that is five too many. Uribe's goal is to eliminate violence and 
stop all assassinations--against labor leaders, against mayors, and 
against the civilian population.
    Other Members asked President Uribe about implementation of the 
peace and justice law. The President responded that 12,700 members of 
terrorist groups have turned themselves in, of which 55 percent were 
from paramilitary groups and 45 percent guerillas. The President 
defended the law, stating that this time there would be penalties and 
no amnesty. Moreover, those who are solely narcotraffickers would not 
have any benefits under the law, and those who commit human rights 
abuses would have to serve sentences and would have no amnesty or 
pardon. The President also stated that extradition would be permitted 
under the law.

                                ECUADOR

Country Team Briefing with Charge Kevin Herbert, Economic Officer Larry 
        Memmott, and other U.S. Embassy Staff
    Charge Kevin Herbert and representatives of the Embassy staff 
provided a broad overview of the political, economic, and security 
challenges facing Ecuador. With a population of approximately 13 
million, Ecuador's GDP in 2003 was $26.5 billion with exports making up 
40 percent. Top exports from Ecuador include petroleum, bananas, 
shrimp, cut flowers, and tourism. In spite of Ecuador's petroleum and 
other natural resources, 70 percent of the population lives below the 
poverty line.
    The Charge and country team outlined U.S. policy priorities and 
actions in five areas: (1) democracy, (2) economic development, (3) 
combating narcotrafficking, (4) fighting terrorism, and (5) promoting 
regional stability. On democracy, the Charge noted that over the last 
several years, governance in Ecuador has been under siege with 
frequently changing presidential administrations undermining the 
ability of basic government institutions to move forward. The new 
Palacio Administration does not have strong political backing and has 
not yet voiced a consistent ideological approach. In particular, the 
new administration's early comments on the FTA, a U.S.-funded facility 
at Manta that monitors drug trafficking, and Plan Colombia have all 
raised concern. The Embassy is working to engage the new government 
further to clarify its position on these issues.
    On economic development, President Palacio has emphasized social 
spending, and there is heavy pressure to waive government spending 
controls. Bondholders have shown concern about the economic direction 
of the country, and Ecuador risks losing foreign investment. Questions 
remain as to whether the new Administration will be able to conclude 
the FTA negotiations and what position it will take on key issues. Most 
U.S. companies operating in Ecuador have disputes with the government, 
including Occidental Petroleum, the country's largest investor, which 
has been threatened with expropriation. The U.S. Embassy continues to 
press the Government of Ecuador to resolve its investment disputes 
expeditiously. Labor reform is another important issue, and while the 
new Labor Minister is committed to reform, it is unclear whether he 
will have the ability to advance new measures. On the FTA, some 
government officials have indicated that Ecuador should conclude an 
agreement but then reevaluate whether it is in the best interests of 
the country to ratify it. Yet the Embassy believes that Ecuador will 
feel pressure to move quickly if Colombia and Peru appear to be moving 
forward in an FTA without Ecuador.
    On combating illicit drugs, Ecuador is challenged by its location 
between the world's two largest narcotics producers and is a major 
transshipment point. U.S. efforts have focused on improving border and 
port enforcement capabilities and providing assistance and training to 
the Ecuadorian police and military.
    Combating terrorism is another priority area, and Ecuador's alien 
smuggling industry (which funnels large numbers of illegal immigrants 
into the United States) has been a focus of U.S. efforts, with special 
attention on aliens from the Middle East and China. Immigration has a 
large domestic impact in Ecuador, as there are 2 million Ecuadorians 
living in the United States, 80 percent illegally. Ecuadorians living 
abroad provided over $1.52 billion in remittances to Ecuador in 2003, 
and remittances are the third largest source of income.
    Finally, promoting regional stability has been a key U.S. interest, 
especially given the ongoing conflict in Colombia. Narcoterrorists 
frequently transit Ecuador's Northern provinces, and Colombian 
migration creates the potential for individuals and combatants to 
attempt to seek a safe haven in Ecuador. One of the Embassy's key 
messages to the Palacio Administration is to urge cooperation with 
Colombia to implement Plan Colombia.
    In terms of U.S. development assistance, USAID briefed on the broad 
range of its efforts, including work to strengthen government 
institutions and justice reforms, provide infrastructure in the border 
regions, build economic opportunities with programs such as micro-
finance and trade capacity building, and support biodiversity 
conservation. The Peace Corps program in Ecuador is one of the oldest 
and largest in the world with over 120 volunteers in country and 
remains an important part of U.S. engagement with Ecuador.
    In response to Chairman Thomas' question about the social and 
economic makeup of Ecuador and how it impacts the government, the 
Charge indicated that a small group, fewer than 20 families, owns most 
of the land in Ecuador, and that this group makes up most of the 
political elite of the country. Congressman Weller inquired about the 
new government's position on the conflict in Colombia, and the Embassy 
team indicated that Ecuador had a strong desire to avoid having the 
conflict spread across its borders and has worked closely with the U.S. 
Government on counter-drug and counterterrorism efforts.

Meeting with Ecuadorian President of Congress Wilfrido Lucero and Other 
        Representatives of the Ecuadorian Congress
    The President of Congress, Wilfrido Lucero, opened the meeting by 
welcoming the U.S. delegation. Chairman Thomas noted that the United 
States had just celebrated Independence Day and that there has been 
recent movement in the area of free trade, including the recent passage 
of CAFTA in the Senate. The next round of negotiations for the Andean 
FTA in Miami offers an opportunity to continue to build momentum. The 
current Andean preference program is designed to give access to U.S. 
markets in order to promote reforms, and Chairman Thomas noted that the 
delegation appreciates Ecuador's effort to help in the fight against 
terror and drug trafficking. He noted, however, that like other trade 
preference programs, the Andean preference program is not intended to 
be permanent, and these benefits will expire in December 2006.
    The Chairman added that his goal is to move from this preference 
program to a more permanent relationship through a free trade 
agreement. The primary mission of the delegation is to determine how 
important Ecuador believes it is to have permanent access to the U.S. 
market, which can be achieved only by reaching agreement on a 
comprehensive FTA, including the key provisions which the United States 
requires in all FTAs. All previously concluded FTAs have uniform 
standards, such as in labor, agriculture, and sanitary and 
phytosanitary standards. He emphasized that if the negotiators do not 
move with some degree of alacrity, there will be no seamless transition 
to an FTA. The Chairman stressed the importance of engagement by the 
Ecuadorian Congress on the FTA, noting that Ecuador's legislative 
branch cannot afford to wait on the side while the agreement is driven 
forward and then decide at the end it was not worth the trip. On the 
U.S. side, he emphasized that the U.S. Congress is the entity that 
would say yes or no to an agreement, while the Congress delegates to 
USTR the responsibility to negotiate only. The Chairman noted that the 
new USTR Robert Portman comes from the Ways and Means Committee. 
Perhaps more than any recent time, the Administration and the Congress 
are closely linked in advancing a common agenda, but time is short and 
the negotiators need to move quickly. The United States is willing to 
move forward with all the countries of the region, or with one or two 
of the countries, depending on whether a country is willing to take the 
steps necessary to conclude a comprehensive FTA.
    Guillermo Landazuri, the President of the Democratic Left party, 
emphasized that the United States is Ecuador's most important trading 
partner, with an important trade surplus. Yet it would be a mistake to 
see the FTA under the lens of a commercial relationship only. There 
will be sectors that win and sectors that lose from an FTA, and 
Ecuador's market is not of great significance for the United States. 
For this reason, the geopolitical aspects loom large, such as Ecuador's 
agreement to host a base to monitor counter-narcotics activity at Manta 
and other efforts along its border with Colombia. Turning to the 
business relationship, Deputy Landazuri said he recognizes that every 
country has a right to support its companies, and that the U.S. 
Government has the right to subsidize agriculture. Yet Ecuador is a 
poor country and cannot support subsidies, so it needs quotas and price 
bands to protect its internal production. He believes that the United 
States should be willing to discuss subsidies in the context of the 
negotiations, and this would help make progress possible.
    Chairman Thomas responded that there is no question of Ecuador's 
strategic importance in efforts such as those against narco-terrorism. 
He said that despite the size of Ecuador's economy, imports from 
Ecuador do have an impact on U.S. interests; for example cut flowers 
will hurt U.S. producers. In addition, Ecuador's efforts on human 
rights, labor, intellectual property rights, and protection of investor 
rights are extremely important for U.S. consideration of the FTA. 
Chairman Shaw noted that Deputy Landazuri's statement on the need to 
protect agriculture is one that he hears from U.S. Members of Congress, 
showing the universal nature of politics and the issues involved in 
pushing forward new trade agreements.
    Alfredo Serrano, a deputy from the Social Christian Party who 
serves as the President of the International Affairs Commission of the 
Ecuadorian Congress, noted that the World Trade Organization (WTO) 
calls for differential treatment of developed and developing nations, 
and he said similar differential treatment should be granted in an FTA. 
He believes that an FTA is not necessarily a good or bad thing, and the 
Ecuadorian Congress will have to look at the final product and make a 
decision whether it would benefit Ecuador. He also said he believes it 
would be a very serious issue if an FTA is signed with Peru and 
Colombia, yet Ecuador is not included.
    Chairman Thomas responded that he is very well aware of the WTO's 
Doha Agenda, and he hopes that all the nations involved would make 
strong efforts to ensure that it remains on track. On the Andean FTA, 
he stressed that it is up to the Andean nations to work together 
towards a common position, and while there is a profound respect for 
the geopolitical situation facing the Andean countries, negotiators 
should not overplay the issue. Free trade agreements are negotiated to 
be mutually beneficial. There are difficult issues to resolve such as 
intellectual property rights and labor, but they are not 
insurmountable. Failure to conclude an FTA may be more damaging to 
Ecuador's economy than to the U.S. economy, he said, but it would be a 
sad, missed opportunity for both nations if it does not succeed.
    Deputy Andreas Paez of the Democratic Left noted that he had been 
appointed by the Ecuadorian Congress to visit the U.S. Congress to 
address what he believes are misunderstandings about labor law and 
policy in Ecuador. He cited labor law reforms of the 1990s as being 
progressive modernization efforts that have been followed up with new 
procedures. For example in July 2004, new procedures reduced the trial 
time from three years to three months to protect labor rights and 
provide full access to the court system. He highlighted labor as an 
area where there should be mutual cooperation, and he requested aid, 
even if only in the form of used equipment, to build on a $1.3 million 
program USAID funded last year.
    Chairman Thomas thanked Deputy Paez for his comments on labor, 
which he noted is very important to both the U.S. majority and minority 
parties. He commented that the amount of aid cited as needed for labor 
capacity building seemed small compared with Ecuador's large oil 
revenue, but he stated that the United States should explore this 
issue. Labor is an area in which Ecuador needs to show results as the 
FTA process advances, he emphasized.
    Deputy Jorge Sanchez of the Democratic Left noted that FTA comes at 
a very difficult time for Ecuador with the impact of a new monetary 
system and dollarization, which has increased production costs. After 
expressing concern about the expiration of ATPDEA preferences, he added 
that Ecuadorian markets could collapse if U.S. agricultural exports are 
allowed to come into Ecuador in sensitive sectors. He suggested that 
Ecuador be allowed to keep protection on these areas, perhaps based on 
the productivity of different Ecuadorian groups, with reductions in 
tariffs if the groups become more competitive.
    Congressman Weller expressed his belief that Ecuador has so much 
potential and has a great opportunity for development, while 
recognizing that political uncertainties make it difficult to move 
forward. He encouraged Ecuador to look at Chile's performance following 
its FTA with the United States. Chile also had a price band system 
prior to the FTA but has done quite well after removing it under the 
agreement. Finally, Congressman Weller stressed the importance of 
border issues, particularly along Ecuador's border with Colombia.
    President Wilfrido Lucero made closing remarks for the Ecuadorian 
legislators. He said that the FTA is difficult for Ecuador because 
Ecuador has to deal with the great asymmetry between the political, 
economic, and social realities of the two nations and a fear by 
Ecuador's people that they may be absorbed by the FTA. In particular, 
he highlighted agricultural subsidies, where he believes Ecuador is 
negotiating from a position of weakness when dealing with the United 
States or Europe, as these nations have the ability to subsidize crops. 
He also highlighted labor as a sensitive issue, raising questions as to 
how the FTA could impact the implementation of local laws. He stressed 
his fundamental belief in the government working to satisfy basic human 
rights, including providing education and work for people. Finally, he 
stressed the great pressure that the people of Ecuador experience as a 
result of problems nearby in Colombia. While there is great sympathy 
for their sister nation, there is also a desire to make sure that the 
problem does not spread throughout the region.

Meeting with Ecuador's Minister of Trade, Industrialization, Fisheries 
        and Competitiveness, Dr. Oswaldo Molestina
    Chairman Thomas opened the meeting by emphasizing the delegation's 
mission to energize the Andean FTA negotiations. He stressed that the 
existing Andean trade preferences will expire in December 2006, and now 
is the time to move toward a more permanent trading relationship. He 
noted that the U.S. Administration and Congress are completely united 
in their desire to advance this FTA and that the U.S. Government is 
willing to do so with all, some, or one of the Andean countries.
    Minister Molestina thanked Chairman Thomas for his remarks and 
expressed a strong belief that the FTA is a benefit to both Ecuador and 
the United States. He said the day before, he had presented a report to 
the Ecuadorian Congress on the progress on the FTA and pledged that the 
Palacio Administration would work to keep it on track. He cited the 
fact that Ecuador sent the former Deputy Secretary of the United 
Nations to negotiate at the recent bilateral discussions on agriculture 
as a sign of the importance that Ecuador places on the FTA. Minister 
Molestina noted that he recently traveled to the United States, where 
he met with senior officials throughout the U.S. Government, to stress 
Ecuador's commitment. He foresees another trip to the United States 
when the FTA negotiations are further along, and he expressed concern 
that U.S. Congressional consideration of CAFTA might delay discussions 
of key issues such as agriculture and intellectual property. Minister 
Molestina recognizes that the existing trade preferences have allowed 
Ecuador and the United States to deepen their relationship, and he 
knows that unilateral preferences would not be renewed. He said that it 
is his government's desire to embody these preferences in an FTA that 
is of much greater scope. He stressed that while there are many issues 
outstanding, among the most important for Ecuador are those related to 
agriculture, and he is disappointed that agriculture is not on the 
agenda in more detail for the next negotiating round in Miami. While he 
anticipates the need for another round of negotiations in the United 
States, he expressed optimism that obstacles can be overcome and the 
negotiations concluded then.
    Chairman Shaw noted that Minister Molestina's tone conveys an 
optimism and understanding that was missing from the meeting with 
Ecuador's Congress, and many of the representatives in that meeting did 
not appear to see the need to maintain access to the U.S. market. Given 
this situation, it is clear that Ecuador would proceed with sensitivity 
to domestic concerns, and the commitment expressed by Minister 
Molestina is important to conclude an FTA.
    Congressman Weller also expressed concern regarding the tone taken 
by Ecuador's Congressional representatives, noting that trade 
agreements are a give and take for both sides, and everyone should work 
together to compete against nations such as China. He added that the 
treatment of investors in Ecuador is a very important issue, citing 
Occidental Petroleum's investment of over $1 billion in Ecuador and 
ongoing concerns regarding threatened expropriation. Treatment of 
companies such as Occidental impacts the constituents of U.S. 
Congressman and Senators who support free trade and can have a serious 
impact on the U.S. ability to conclude an FTA, he emphasized.
    Minister Molestina thanked the Members for their frank comments and 
noted that in his two months in office, Ecuador has moved to address 
investment concerns by creating a special unit to deal with 
international commercial disputes. He also pointed out that Ecuador has 
signed a bilateral investment treaty with the United States--which he 
noted other nations in Latin America have been hesitant to do--that 
provides additional protections for U.S. investors. The Ecuadorian 
government has been holding meetings with these companies to resolve 
the disputes. While expressing that there may be limits as to how far 
certain of the disputes can be moved by his Ministry (because under 
Ecuador's governmental system several of the disputes are under 
processes within other governmental units such as the Attorney 
General's office), he stated that the U.S. delegation should be assured 
that Ecuador intends to demonstrate progress and resolve the disputes 
as quickly as possible.
    Chairman Thomas noted that he sees many obstacles that must be 
overcome to move quickly on an FTA, including the difficulty in 
maintaining continuity in the negotiations when governments change. 
Labor is a key issue, and while Ecuador has signed core International 
Labor Organization conventions, there can be a distinction between 
paper and practice, and the U.S. Congress will be looking for real 
world results. Standardization of FTAs, so that they are comprehensive 
and contain core language, is another important point, and overall 
standardization on key issues is critical to efforts in the World Trade 
Organization. He further noted that agriculture is an important area 
for both Ecuador and the United States, as imports such as cut flowers 
and livestock will compete with U.S. interests. He concluded that 
despite these issues, the differences between the United States and 
Ecuador pale in comparison to those that the United States and Ecuador 
have with China, and they are not insurmountable.
    Congressman Nunes stressed the importance of agriculture to his 
district and asked the Minister to describe the most sensitive areas in 
the agriculture negotiations. In response, Minister Molestina noted 
that Ecuador's offers to the United States have been delayed by 
political events in Ecuador, but Ecuador has submitted offers and has 
received counteroffers in various areas. Key products of concern for 
Ecuador are rice, cattle, milk and dairy, and corn. Congressman Nunes 
added that Ecuador is not a major producer of sugar and does not appear 
to raise the same level of concern as the CAFTA did with U.S. sugar 
producers.
    Chairman Thomas urged Minister Molestina to find creative solutions 
to the banded tariff system and mechanisms for phasing out existing 
protections. He stressed that the United States is under a tight 
timeframe with the expiration of Trade Promotion Authority, and 
negotiators need to move quickly between now and 2006, which is the 
window for action.
    Manuel Chiriboga, the lead agriculture negotiator for Ecuador, 
added that the range of agriculture grown in Ecuador and the Andean 
region is much wider than Central America, and, in fact, the Andean 
countries produce virtually everything that the United States does, as 
well as some other items. He stated that he could foresee moving away 
from the price band mechanism, but there would need to be a transition. 
In addition, he suggested that the negotiators explore a special 
agricultural safeguard and consider how this might be used to address 
sensitive issues. He noted that Ecuador has put on the table items such 
as wheat and soy where Ecuador is looking for access to the United 
States and, just as sugar is sensitive for the United States, rice is 
sensitive for Ecuador. Overall, he remains confident that an agreement 
can be reached. While hesitant to set a conclusion date, Mr. Chiriboga 
indicated that he believes that an agreement could be reached by 
December 2005.
    Cristian Espinoza, an Ecuadorian official involved in the FTA 
negotiations, asked the delegation to pay special attention to two 
issues. First, concerning tuna, which he described as particularly 
sensitive for Ecuador, he hopes that through the FTA negotiations 
Ecuador would be able to achieve benefits beyond those available under 
existing preference programs, which only apply to tuna caught on flag 
vessels of Andean countries and the United States, and he cited more 
favorable treatment that the United States has provided to Mexico and 
Costa Rica. Secondly, he stressed the importance of U.S. trade capacity 
building assistance to Ecuador, such as programs provided by USAID in 
helping with Ecuador's development. Chairman Thomas responded that he 
has worked closely on the issue of tuna in the current trade preference 
programs, and he would review this issue with an eye towards not only 
the immediate impact of preferences but in terms of how the issue is 
likely to develop moving forward.
    In closing, Minister Molestina thanked the delegation for their 
useful exchanges. Chairman Thomas said that he is encouraged by the 
optimism and commitment shown in the meeting, concluding that a primary 
goal of the delegation's visit is to encourage Ecuadorian negotiators 
to move forward.

Meeting with Members of the Ecuador-U.S. Chamber of Commerce Executive 
        Committee
    The President of the Ecuador-United States Chamber of Commerce, 
Mauricio Robalino, welcomed the delegation and opened with a 
presentation on the challenges facing U.S. businesses operating in 
Ecuador. Major U.S. investors are operating in the energy, 
pharmaceuticals, water, flowers, and consumer products and sales 
sectors. While Ecuador's advantages of a dollarized economy, low 
inflation, relatively non-violent society, and rich natural resources 
were cited, the company representatives described deep, systemic 
problems that threaten Ecuador's commercial environment and the 
prospects of future investments. Serious problems with the rule of law, 
including political interference in judicial decisions, ineffective law 
enforcement and little respect for contracts, force companies to rely 
on international arbitration. In addition, government control of key 
sectors such as energy and communications, fragmented government 
processes, corruption, and constantly shifting governments make Ecuador 
an extraordinarily difficult commercial environment.
    In addition to these overall concerns, representatives from key 
industry sectors provided details on the specific problems they 
encountered. In the petroleum sector, the constant change of energy 
ministers, with six since 1993 alone, along with the lack of respect 
for contracts was cited as leading to a decline in state oil company's 
output and discouraging much-needed new investment. In electricity, 
companies experience problems related to non-payment and discriminatory 
treatment, and Ecuador is likely to face an electricity shortfall in 
the fall that would lead it to rely on imported energy. Pharmaceutical 
representatives noted that while Ecuador has an excellent intellectual 
property rights (IPR) law, enforcement is weak, and copy-cat companies, 
many of whom are based outside of Ecuador, have launched an aggressive 
anti-FTA, anti-IPR campaign. In addition, a U.S. company that obtained 
a water concession has been unable to obtain financing because its 
contract is not being honored by the Ecuadorian government. Yet this 
same company is then subjected to government fines when the lack of 
financing makes it impossible for the company to meet the contract's 
performance requirements. Other representatives cited instances where 
their companies were approached by judges requesting bribes or 
subjected to judicial proceeding without notice or the chance to 
represent themselves. While the group supports the FTA as a way to 
promote reforms and as a means to protect the rights of U.S. companies 
operating in Ecuador, many representatives expressed concern about 
whether the Ecuadorian government would honor its FTA commitments.
    Chairman Thomas thanked the group for its presentation. He noted 
that in the delegation's meetings with deputies from Ecuador's 
Congress, it seems as though the deputies are weighing whether they 
really want access to the U.S. market and investment. The meeting with 
Trade Minister Molestina was much more encouraging, and his team 
appears to be moving towards solutions. The Chairman added that in many 
cases it seems as if there are legal or regulatory provisions that are 
good on paper but have no effective enforcement or implementation. 
Given the wide array of problems the companies described, the Chairman 
asked what had led the companies to invest in Ecuador. Many of the 
business leaders replied that their companies are in Ecuador because 
they have been in the country for a very long time and had entered into 
long term contracts when the business climate was more promising. 
Others noted the great natural resources that Ecuador possesses, 
ranging from oil to an ideal growing climate for crops such as bananas.
    Chairman Shaw inquired whether there are impediments to companies 
pulling out of Ecuador and whether Ecuador is likely to enact policies 
similar to those in Venezuela under President Chavez. Business 
representatives responded that while there was conflicting rhetoric in 
the first days of the Palacio government, they generally do not believe 
that the Ecuadorian government is moving toward policies similar to 
those of President Chavez, and, instead, the new government has been 
reaching out to the business community.
    Congressman Weller asked whether, given the billions of dollars in 
investment the group represents, the companies act collectively to 
address their concerns, while Congresswoman Tubbs Jones asked if this 
group is reaching out to other business groups to address these issues. 
The Chamber representative responded that in terms of collective 
action, the companies have worked to coordinate efforts on disputes. 
The Chamber is also reaching out to other foreign investors and 
business groups to coordinate efforts, such as a chamber of commerce 
focused on industrial companies in Ecuador. Yet, Ecuador has not yet 
shown a high level commitment within the government to resolve the 
disputes.
    Congresswoman Tubbs Jones noted that many business leaders cite the 
constant turnover in governments as a problem and wondered whether 
there is a contingent of career civil servants retained between 
administrations to maintain continuity. The business leaders replied 
that almost all key decision makers, down to the middle levels, tend to 
shift with the change in government, making it difficult to predict 
behavior or know with whom to deal on various issues.
    Chairman Thomas inquired whether, given the constant change in 
governments and the previous track record, the United States could 
expect commitments reached in individual contracts or FTA negotiations 
to be honored. Members of the business community agreed that honoring 
commitments is a major problem. One representative noted that when his 
company cited the U.S.-Ecuador Bilateral Investment Treaty (BIT) 
commitments as supporting its rights, Ecuadorian officials began 
looking for ways to get out of the BIT rather than try to address the 
company's concerns.
    Congressman Nunes emphasized that the delegation has heard many 
different opinions on the direction that President Palacio and the new 
government are likely to take and asked for opinions. Many of the 
business leaders responded that are heartened by the new President's 
explicit statement that he would adhere to Ecuador's international 
commitments and by the recent greater access to government officials. 
They believe the President is generally independent and less beholden 
to traditional political interests, but at the same time he is dealing 
with many of these issues for the first time. In addition, some 
problems reside in offices that the President does not directly 
control. While the FTA would not solve all of the problems cited, the 
business representatives believe that the FTA would bolster and 
strengthen reforms while giving them more leverage and tools for 
protecting their rights. In closing, Chairman Thomas thanked the group 
for their frank and lively discussion, noting that they gave the 
delegation a vivid description of the difficulties they face while 
doing business in Ecuador.

Meeting with Ecuadorian President, Dr. Alfredo Palacio
    President Palacio welcomed the delegation, and expressed his desire 
to establish a strong relationship with the United States. He sees the 
people of the United States as the brothers and sisters of the people 
of Ecuador.
    Chairman Thomas said that while it is cliche to say that ``we are 
from the United States and we are here to help,'' that is part of the 
delegation's mission--to help advance the FTA. He noted that he is 
impressed by Minister Molestina, and if he is representative of 
President Palacio's Cabinet, the President has established an excellent 
team. Chairman Thomas stated that the delegation believes it is 
important to come to Ecuador to personally deliver the message that 
time is short and that the current trade preference programs, which 
have helped Ecuador, will soon expire and will not be renewed. The 
desire of the Chairman is to transition to an FTA as soon as possible, 
and he will seek to do so in a spirit of compromise, but it is 
important to recognize that the negotiations must meet the standards 
necessary for an FTA. The delegation seeks to help and work with 
Ecuador to advance these issues, and sometimes it is those who are 
thrust into responsibility rather than those who seek it who are most 
able to get things done. President Palacio thanked Chairman Thomas for 
his comments and stated that Ecuador and the United States need to work 
together to resolve differences.
    Congresswoman Tubbs Jones noted that the President's training in 
the United States gives him a familiarity with America and an ability 
to build stronger ties. President Palacio agreed, noting that the time 
he spent in the United States, including during his educational 
training, gives him a strong appreciation for the importance of the 
bilateral relationship.
    Chairman Shaw noted that expanding free trade will be important to 
all of the Americas, and in listening to Ecuador's deputies, he heard 
many of the same arguments about protecting or shielding particular 
sensitive industries that he has heard in the U.S. Congress. While it 
would not be easy for either country to push forward with an FTA, he 
believes strongly in leading the way.
    Congressman Weller, noting his work as the Vice Chair of the 
Western Hemisphere Subcommittee of the International Relations 
Committee, stated that one of the two countries' common values is 
democracy. He asked for clarification and thoughts from the President 
on recent comments from Ecuador's Foreign Minister that indicate that 
Ecuador is neutral in the ongoing conflict within Colombia. President 
Palacio said he does not believe that the people of Ecuador should 
refer to the conflict in Colombia as a ``civil war'' because this 
implies that there are two equally democratic sides. He stated that 
those who oppose the current government of Colombia are not democratic; 
they are paramilitaries and narco-traffickers. When the Foreign 
Minister spoke of neutrality, the President indicated that he was not 
speaking of treating the groups in Colombia as two equally democratic 
sides. Ecuador has a policy of not intervening in Colombia, and this is 
the policy to which the Foreign Minister was referring. Nevertheless, 
the Ecuadorian government opposes terrorism and narco-terrorism. The 
President stated that he remains very concerned about Ecuador's 
Northern Border and when individuals have been killed in border 
clashes, he has mourned with President Uribe and offered to send senior 
military officials to work with the Colombians. Ecuador has eight 
thousand men along the border to help stop infiltration, and the border 
is an issue of on-going concern.
    Congressman Nunes noted that the delegation has heard deep concerns 
expressed from the business community about making any future 
investment in Ecuador. He asked the President to reflect on this and to 
describe what is being done to address investment disputes. President 
Palacio said the question raises many underlying political and economic 
issues. For a long time Ecuador had problems that eroded its democratic 
institutions. These problems have a much longer history than the last 
two years, but some of them worsened during that time, and it became 
difficult for the executive branch to govern other than to survive over 
short periods of time. It is now time to strengthen democratic 
institutions in a way that is more responsive to the people. Ecuador is 
moving toward a more representative democracy, he said, and the people 
want more direct information on policies such as how oil revenue is 
spent, social security, and the FTA. Oil revenue provides billions to 
Ecuador's economy but not in a way that allows the country to develop, 
as it is simply exported with no value added. The budget remains 
billions of dollars in debt. Subtracting oil revenues, economic growth 
is minimal and non-oil production is tiny. To reverse this trend, 
President Palacio believes that Ecuador must have a social policy that 
invests in heath, medicine, and social protection. President Palacio 
stated that he became Vice President for one reason, to promote 
universal health insurance, although budget tightening has made this 
difficult. As President he has pledged to continue to work to build 
democratic institutions and improve Ecuador's social policy. President 
Palacio said he has the advantage of being independent, and he does not 
answer to any special political interests.
    In closing, Chairman Thomas stated that the members of the 
delegation leave Ecuador feeling better about the prospects for moving 
forward. The United States itself has great resources, but all 
democracies know that people are the greatest resource. Knowledge and 
transparency are critical for democracy, and those that oppose 
democracy know this, which is why they strive to limit knowledge and 
transparency. The FTA will help build the economy, and President 
Palacio's plans can help plant the seeds of development. Chairman 
Thomas concluded that he hopes these seeds will grow so that tomorrow 
will be better and Ecuador's people, many of whom have sought 
opportunities in foreign lands, will experience stable democracy and 
economic opportunity in Ecuador.

FUNDEPORTE Peace Corps Site Visit (Congresswoman Tubbs Jones and Spouse 
        Program)
    Congresswoman Tubbs Jones and the spouses visited FUNDEPORTE, a 
Peace Corps site in southern Quito. During the visit, Ms. Claire 
Lederman, a volunteer at FUNDEPORTE and a constituent in Congresswoman 
Tubbs Jones' district in Ohio, briefed the group on the extreme poverty 
that exists in many areas of Quito and the foundation's efforts to 
provide assistance to at-risk youth in the area. Ms. Lederman stated 
that FUNDEPORTE is a foundation that provides traditional schooling and 
sports training to over 400 at-risk children, many of whom lived or 
worked on the streets prior to participating in the program. The 
organization emphasizes the use of sports as a tool to increase self-
esteem and life skills.

                                  PERU

Country Team Briefing with U.S. Ambassador J. Curtis Struble and U.S. 
        Embassy Staff
    Ambassador Struble gave the delegation a briefing on the political 
and economic issues currently facing Peru. The Ambassador began by 
discussing the fluctuation in Peru's GDP over the past 25 years. He 
noted that GDP growth has been strong under President Toledo, reaching 
4.8 percent in 2004. However, there has been very little progress in 
alleviating poverty in the country. More than 50 percent of the 
Peruvian population lives in poverty, including more than 20 percent 
who live in extreme poverty.
    The Ambassador noted that political institutions in Peru need 
strengthening. There are 27 political parties, most of which have a 
very limited presence. Additionally, there is little public confidence 
in the government. Recent polls indicate that public support in Lima 
for the President, Prime Minister, Congress, and the Judiciary is below 
20 percent.
    With respect to trade, the Ambassador stated that Peru has 
benefited more than any other country from the provisions of the Andean 
Trade Preference Act and the Andean Trade Promotion and Drug 
Eradication Act (ATPDEA). Peru's exports to the United States have 
grown from $716 million in 1993, when it first became eligible for ATPA 
benefits, to $3.587 billion in 2004. According to Ambassador Struble, 
the economic growth generated by such exports has contributed to 
broader political and public support in Peru for a free trade agreement 
(FTA) with the United States than in other countries in the region. For 
example, a recent DATUM International poll suggests that 64 percent of 
Peruvians are in favor of an FTA with the United States, while only 24 
percent are opposed.
    Ambassador Struble stated U.S. exports to Peru exceeded $2 billion 
in 2004. Leading exports included nuclear reactor supplies, boilers, 
machinery parts, electronic machinery, and plastics. According to the 
Ambassador, U.S. exports of mining equipment, machinery, information 
technology, electronic equipment, cotton, corn, rice, deciduous fruit, 
and soybeans would increase if an FTA with Peru is concluded.
    The Ambassador stated that an important benefit of an FTA with Peru 
is that it would provide greater protections for U.S. investors in the 
region. In 2004, total U.S. foreign direct investment in the country 
reached $10 billion (current value).
    Ambassador Struble noted that in order to remain eligible for 
ATPDEA benefits, the Peruvian government committed in 2002 to resolving 
nine outstanding commercial disputes involving U.S. companies. However, 
four of the nine disputes remain. The Ambassador stated that he has 
emphasized to the Government of Peru that the remaining cases must be 
resolved before the United States will conclude an FTA with Peru.
    Ambassador Struble also noted that an FTA with Peru would help 
promote protection for intellectual property rights, which remains a 
serious problem in the country. In 2004, IPR losses totaled almost $200 
million, with pharmaceutical losses of $63 million and optical disc 
losses of $118 million. He noted that an FTA will combat optical disc 
piracy and ensure data and patent protections for medicines. Ambassador 
Struble said that Peruvian negotiators understand the importance of 
intellectual property rights protections in the FTA, but at the same 
time, he said that some government officials are concerned about the 
inclusion in the FTA of data protections for data relied on in 
obtaining marketing approvals for drugs. He indicated that these 
concerns were fueled by recent studies by two government agencies that 
suggested that the price of medicines could increase under an FTA.
    For Peru, agriculture is a sensitive issue in the negotiations. 
According to the Ambassador, producers of dairy, rice, sugar, meat, 
poultry, corn, wheat, and cotton in Peru are pressuring the Government 
of Peru not to fully eliminate tariffs on their products. However, Peru 
does not produce enough of these products to satisfy domestic demand, 
and most Peruvian imports of these products (except cotton and wheat) 
come from countries other than the United States such as Bolivia and 
Argentina.
    Finally, the Ambassador discussed coca production in Peru. The 
country is the second largest cocaine producer in the world and 
received $114 million in counter-narcotics assistance from the United 
States in 2004. Approximately 80 percent of the coca leaf harvested in 
Peru goes to narco-trafficking, with the rest being used for industrial 
or traditional purposes. Peru exports 120 metric tons of coca leaf 
annually to satisfy world demand for licit coca. Meanwhile, an 
estimated 43,760 metric tons of coca goes to narco-trafficking each 
year. The United States and Peru cooperate on counter-narcotics 
objectives, and there is a four-prong approach to the problem: promote 
alternative development, interdict to reduce flow of illegal drugs from 
Peru, eradicate illegal coca, and promote prevention and treatment 
programs. The Ambassador noted that all eradication efforts in Peru are 
done by hand as it is illegal in Peru to spray chemicals to kill coca.
    Ambassador Struble noted that one of the difficulties in combating 
illicit coca production and trafficking is the Peruvian public's 
perception of coca growth. According to a recent poll, 44 percent of 
Peruvians believe coca is good, primarily because it generates revenue 
and is a traditional crop.

Meeting with First Vice President of Congress, Natale Aprimo
    The First Vice President of the Peruvian Congress Natale Aprimo 
opened the meeting by noting the importance of the Andean FTA. He 
stated that the FTA is not a panacea but is a positive step. He noted 
that agriculture and pharmaceuticals are areas of difficulty for Peru 
in the negotiations. He expressed hope that U.S. and Peruvian 
negotiators could find common ground on these issues to foster support 
for the agreement.
    Mr. Aprimo informed the delegation that although the Peruvian 
constitution gives primary authority for negotiating trade agreements 
to the executive branch of the government, the Peruvian Congress has 
the power to approve or disapprove the agreement. He noted that 
representatives from the Congress have been present during each of the 
rounds of FTA negotiations. Mr. Aprimo stated that while he is not a 
supporter of President Toledo, the FTA is a national issue.
    Mr. Aprimo thanked the U.S. delegation for the support of the 
United States in fighting against coca production and in helping to 
promote alternative crops.
    Chairman Thomas responded by stating that working with Peru on 
programs to combat narco-trafficking is in the best interests of the 
United States. With regard to the Andean FTA, Chairman Thomas 
emphasized that the rapid conclusion of the negotiations is critical. 
He stated that he does not expect Congress to extend ATPDEA unilateral 
benefits to the Andean countries. Additionally, Chairman Thomas stated 
that passage of the agreement in both Peru and the United States is 
likely to become more difficult as the April 2006 presidential and 
congressional elections in Peru and November 2006 congressional 
elections in the United States approach.
    Chairman Thomas and Chairman Shaw also noted that Peru is in a 
position to play a leadership role in the FTA negotiations and can work 
with Colombia and Ecuador to create greater momentum in the ongoing 
talks.

Meeting with Peruvian Congressional Leaders (Luis Iberico, Rosa 
        Yanarico, Fabiola Morales, Jorge Mera Ramirez, and Mercedes 
        Cabanillas)
    Peruvian Congressman Luis Iberico opened the meeting by 
acknowledging the cooperative relationship between the United States 
and Peru and thanking the United States for providing ATPDEA trade 
benefits to Peru. ATPDEA has provided great benefits and opportunities 
for Peru, including for poor peasants who found new opportunities in 
modern agriculture. The success of ATPDEA shows the potential of an FTA 
in promoting alternatives to growing coca. Congressman Iberico stated 
that he believes an FTA with the United States is important for reasons 
beyond trade, including security. At the same time, he noted that the 
agreement is likely to meet some opposition and that some farming 
sectors already are mobilizing against it.
    Chairman Thomas remarked that he traveled to the region because he 
believes it is important for him to convey his expectation that the 
U.S. Congress will not extend the ATPDEA benefits when they expire in 
December 2006. He said the Andean nations are important U.S. allies, 
and he doesn't want to see ATPDEA expire without an FTA to replace it. 
He also expressed hope that Peru will play more of a leadership role in 
the Andean FTA negotiations, working with Colombia and Ecuador to move 
the talks forward.
    Peruvian Congresswoman Rosa Yanarico expressed her support for the 
FTA. She said she represents very poor regions in Peru, and her 
constituents need opportunities. Some of her constituents have 
emigrated to the United States, and she would instead like to create 
jobs for them at home. She also emphasized that it will be important 
that officials in Peru and the United States work to educate their 
populations about the agreement.
    Peruvian Congresswoman Fabiola Morales and others stated that they 
are excited by the prospect of an FTA with the United States. In 
particular, Congresswoman Morales hopes the agreement would bring 
additional foreign investment and jobs to the country to encourage 
Peruvian youth and professionals to stay in Peru. She also believes an 
FTA will help Peru to improve education, health, and tourism.
    Congresswoman Tubbs Jones noted that the promotion of adequate 
labor standards and their effective enforcement by Peru would be 
important factors in securing support for the Andean FTA among many of 
her colleagues in Congress, and she urged the Peruvian Congress to 
focus on these issues, noting that she is ``not so sure'' she supports 
an FTA.

Meeting with President Alejandro Toledo, Foreign Affairs Minister 
        Manuel Rodriguez, Finance Minister Pedro Pablo Kuczynski, Trade 
        Minister Alfredo Ferrero, Production Minister David Lemor, 
        Peru's Chief FTA Negotiator Pablo de la Flor, Foreign Ministry 
        Undersecretary for the Americas Pablo Portugal, FTA Coordinator 
        Eduardo Ferreyros, Peru's Ambassador to Spain Fernando Olivera, 
        Peru's Ambassador to the United States Eduardo Ferrero, and 
        Congressman Luis Iberico
    President Toledo opened the meeting by stating that Peru is in a 
state of transition. After 10 years of dictatorship and corruption, the 
country is making progress, both socially and economically. President 
Toledo stated that part of the country's current strength comes from 
its diversity and policy of social inclusion, noting that he is the 
first democratically-elected president of indigenous background in 500 
years.
    President Toledo stated that one of the most pressing questions for 
Peru today is how can it best benefit from globalization--both in terms 
of spreading the benefits of globalization to all the people of Peru 
and maintaining respect for Peru's diversity. President Toledo cited a 
troubling survey in which 54 percent of the Latin American population 
said it would prefer an authoritarian regime over a democratic one if 
that regime could ensure economic growth, showing that Latin Americans 
are desperate for jobs. President Toledo believes that trade is 
synonymous with jobs, and this is why he wants to conclude an FTA with 
the United States as quickly as possible.
    Chairman Thomas stated that he believes the United States and its 
neighbors should work to ensure that the democratically elected nations 
of the Western Hemisphere, and not just China, prosper in the 21st 
century. He stated that knowledge and transparency in business and 
government are critical for such prosperity. Chairman Thomas also 
emphasized that Peru's ATPDEA benefits will end in December 2006, and 
therefore it is important to replace the unilateral program with a 
quality, permanent free trade agreement.
    President Toledo noted that Peru has experienced 47 months of 
sustained economic growth, and in 2004, its GDP grew by 4.5 percent. 
However, he stated that 23 percent of the country's population 
continues to live in extreme poverty, earning less than $1 per day. As 
one of sixteen children, seven of whom died before their first 
birthday, President Toledo emphasized that he feels strongly about 
helping the nation's poor.
    President Toledo stated that trade is linked with job growth and 
the fight against narco-trafficking in Peru. He urged his Minister of 
Trade to conclude the FTA with the United States by the end of 
September and asked for the delegation's help in meeting this goal. 
President Toledo expressed concern that the longer the delay in 
concluding an agreement, the more politicized the issue would become. 
President Toledo also noted that he would not be President after July 
2006, so he could sow the seeds of Peru's future development only by 
promoting the FTA and other pro-growth economic policies.
    Chairman Thomas welcomed President Toledo's ambitious goal of 
concluding the FTA in September. Chairman Thomas stated that the United 
States is prepared to conclude an FTA with any Andean country with 
which it can come to agreement, although it would prefer that the final 
agreement include at least Colombia, Peru, and Ecuador. He noted that 
based on his conversations with President Toledo and other officials in 
Peru, Peru appeared much more prepared to conclude an FTA with the 
United States than either Colombia or Ecuador. Chairman Thomas asked 
President Toledo to urge Colombia and Ecuador to move more quickly to 
bring the negotiations to a conclusion.
    President Toledo responded that he would do everything he could to 
work with Colombia and Ecuador to conclude a cohesive Andean FTA. He 
also noted that if a broader Andean FTA is not possible, Peru is 
prepared to sign a U.S.-Peru FTA.
    Congresswoman Tubbs Jones stated that her biggest concern is labor 
conditions in Peru. She urged President Toledo to bear in mind that the 
views of many Democratic Members of Congress concerning an FTA with 
Peru would be heavily influenced by the country's labor laws and the 
labor provisions included in the FTA.
    Chairman Shaw noted that U.S. and Andean negotiators would soon be 
meeting in Miami for the 11th round of trade negotiations. He urged 
President Toledo to work with the other Andean countries so that they 
could speak with one voice during the talks, which would help the 
negotiations progress more rapidly.
    Congressman Weller congratulated President Toledo on Peru's 
economic growth and the completion of the Camisea liquefied natural gas 
export plant. He expressed support and appreciation for the help of 
Peruvian troops in Haiti, as well as Peru's cooperation with the 
International Law Enforcement Academy to strengthen the effort against 
narco-trafficking and criminal gangs.
    Finance Minister Kuczynski stated that the Government of Peru is 
trying to spread the message that Peru is moving forward and wants to 
maintain this momentum. The FTA is a key element of this strategy and 
the fight against poverty. He stated that Peru has doubled its exports 
in the last four years and created thousands of new jobs. Minister 
Kuczynski stated that ATPDEA benefits are not sufficient to secure 
future growth, and Peru is looking to the FTA as a way to better foster 
investment and security.
    Minister Kuczynski also stated that Peru has high labor standards, 
despite a decline in the size of the formal workforce and labor union 
participation during the Fujimori government. The Minister stated that 
the Toledo government is focusing on increasing the number of formal 
jobs; currently more than 60 percent of workers operate in the informal 
economy. Minister Kuczynski stated that the ATPDEA program has helped 
to promote more jobs in the formal economy, and he cited the example of 
one agricultural facility, the Campo Sol operation, which he visited in 
the northern city of Trujillo. The facility has hired an additional 
6,000 workers in the last year, each of whom receives social security 
and pension benefits.
    Peru's Chief FTA Negotiator Pablo de la Flor stated that Peru would 
like to conclude the FTA in September, but some difficult issues, 
particularly related to agriculture, still need to be resolved. He 
noted that Peru has only a few sensitive agricultural products: corn, 
rice, chicken hind-quarters, and certain dairy products. He indicated 
that Peru would need flexibility in these areas in the FTA.
    Chairman Thomas responded by stating that with its favorable 
climate and ability to grow a wide variety of crops, Peru should focus 
on specialty market products with high value in the marketplace. He 
pointed to the sale of specialty coffees, which have grown dramatically 
in the United States, as an example of a niche market.

Meeting with American Chamber of Commerce of Peru (Am Cham Peru)
    The delegation met with representatives of Am Cham Peru to learn 
about challenges facing U.S. companies operating in Peru. The Am Cham 
representatives highlighted the unpredictable judicial system and 
constantly changing rules for doing business in the country. The 
company representatives noted that an FTA with Peru would bring an 
improved investment climate, among other opportunities.
    Chairman Thomas thanked the representatives of Am Cham for 
providing useful information to U.S. policymakers about the investment 
environment in Peru and urged their continued assistance as the FTA 
negotiations proceed.

Visit to Iquitos and Briefing by Howell Howard, Deputy Economic 
        Counselor of U.S. Embassy in Peru, Regarding Peru's Environment
    The delegation traveled to Iquitos on the Amazon River in Peru's 
northeastern jungle area to view the massive volume of timber logged in 
Peru's forests that is transported through Iquitos, the U.S. Naval 
Medical Research Center, PetroPeru's oil refinery, and Peruvian Naval 
and Police riverine bases along a 40 kilometer stretch of river, part 
of a vast area where the Government of Peru has limited resources and 
capacity to patrol.
    During the visit, Mr. Howard briefed the delegation about the 
environmental and economic issues facing the region. Mr. Howard told 
the delegation that Peru's forests cover 60 percent of the country. 
Eighty-three percent of Peru's forests are tropical and are some of the 
most biodiverse areas in the world. Peru is home to 10 percent of the 
world's plant species, nearly one-fifth of the world's bird species and 
the most varieties of fish of any nation.
    Mr. Howard explained that Peru faces several threats to its 
biodiversity and lacks the capacity to implement stronger environmental 
protections. Environmental government authorities in Peru are weak, 
have very limited budgets, and have little influence in regions outside 
of Lima.
    According to Mr. Howard, the most serious threat to Peru's 
biodiversity is deforestation, which is occurring at a rate of 250,000 
hectares annually. Thirteen percent of the country's tropical forests 
have been deforested. Coca cultivation, urban development, agriculture, 
and logging are the major causes of such deforestation. Mr. Howard 
stated that the vast majority of logging in the region, including an 
estimated 80 percent of mahogany logging, is illegal.
    Mr. Howard said that other environmental problems facing Peru 
include heavy urban air and water pollution, limited water supplies in 
Peru's major coastal cities due to receding snowpacks in the Andean 
mountains, ocean pollution, and overfishing. The Governments of Peru 
and the United States are working together to address Peru's 
environmental problems through aid for capacity building, sustainable 
development, combating illegal logging, and forest concessions, and 
through the eventual implementation of an FTA.
    According to Mr. Howard, Iquitos and the surrounding region known 
as the Loreto Department could benefit from an FTA with the United 
States because the agreement would promote exports of agricultural 
goods and forest products from the area. The primary products harvested 
in the region include timber, pijuayo (an Amazon palm), beans, yucca, 
and fish.
    The delegation learned about U.S. Government assistance to the 
Loreto Department through the U.S. Agency for International Development 
(USAID). USAID commitments to Loreto for 2002-2008 amount to 
approximately $16 million. USAID supports several programs in Peru to 
limit coca cultivation; promote additional licit economic opportunities 
for marginalized populations, conservation and the sustainable 
management of natural resources; and improve the capacity of Peruvian 
institutions to enforce existing environmental laws and policies.
    USAID also supports the Peru-Ecuador Border Development Program, 
which helps to improve the quality of life for more than 50,000 
indigenous people living along the Peru-Ecuador border by promoting 
more productive agricultural practices, healthy practices such as 
boiling water, the establishment of additional medical facilities, and 
increased knowledge of human rights, among other things.
    The delegation was also briefed on other USAID programs in the 
region, including the provision of food for pregnant women and children 
pursuant to the P.L. 480 Title II Food Security Program. USAID figures 
indicate that the agency has distributed 513 metric tons of food under 
this program. Additionally, USAID supports the Parks in Peril Program 
in Loreto to promote the protection and appropriate management of 
natural resources in Pacaya Samiria National Reserve; and the 
Certificacion y Desarrollo Forestal (CEDEFOR) Project, which provides 
technical assistance to logging interests and government entities 
regarding the bidding process leading to grants of forest concessions, 
boundary demarcation, land tenure issues, and forest management.
    Finally, the delegation observed the U.S. Naval Medical Research 
Facility, which was established in Iquitos in 1983, to conduct research 
on infectious diseases that affect human health in Central and South 
America. Mr. Howard stated that the Center is particularly important 
for researching diseases affecting military personnel stationed in the 
region.
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