US embassy cable - 05QUITO1629

UNCLAS SECTION 01 OF 02 QUITO 001629 
 
SIPDIS 
 
DEPT FOR WHA/AND 
DEPT FOR EB 
DEPT PASS USTR FOR B HARMAN 
 
E.O. 12985: N/A 
TAGS: ETRD, ECON, PGOV, ELAB, EINV, EC 
SUBJECT: CODEL THOMAS DELIVERS TOUGH MESSAGE ON TRADE 
 
Ref: Quito 1611 
 
1.  Summary:  In meetings with Ecuadorian Members of 
Congress, Minister of Trade, AmCham members and President 
(reported reftel) Codel Thomas delivered a tough message on 
trade and the FTA, stating clearly that the current ATPDEA 
benefits will not be renewed, that the U.S. will have no 
qualms about concluding an FTA with only those Andean 
countries which can meet the requirements (by implication, 
without Ecuador), and that the final agreement will not be 
substantially changed from those agreements already 
concluded with other countries.  Chairman Thomas also told 
his hosts that for a seamless transition from ATPDEA 
benefits to the FTA the agreement must be concluded by the 
end of 2005.  The Codel's hosts reacted in quite different 
ways to this message.  End Summary. 
 
Minister of Trade Molestina 
--------------------------- 
 
2.  The Minister of Trade seemed least surprised by Chairman 
Thomas' message.  Accompanied by two Vice Ministers, the 
Ecuadorian FTA Agricultural negotiator, and various other 
staff members, Molestina was the most forthcoming we have 
ever heard him, stating definitively that the FTA will 
benefit Ecuador and that the GOE is committed to completing 
negotiations.  He said that all the outstanding issues can 
be resolved and that he saw no reason why the agreement 
could not be concluded by the end of the year.  His 
Agriculture negotiator, Manuel Chiriboga, said that progress 
was being made in the Agriculture negotiations now and that 
he agreed that the negotiations could be concluded this 
year.  Codel members raised commercial disputes and 
Molestina replied that he had established an office in his 
ministry to follow commercial disputes full time and that he 
expected to resolve them. 
 
Congress 
-------- 
 
3.  The Codel's message was not well received by members of 
the Ecuadorian Congress.  President of Congress Wilfredo 
Lucero (Democratic Left or ID) was accompanied by 
Congressional deputies Guillermo Landazuri (former Pres. of 
Congress and ID national president), Jorge Sanchez (ID), 
Andres Paez (Chair of the Labor Committee-ID), Alfredo 
Serrano (Chair of the International Affairs Committee-Social 
Christian Party), and Sandra Palacios Jaramillo 
(Pachakutik).  The deputies all argued that Ecuador should 
be given special treatment in the negotiations given its 
poverty and the asymmetry between the huge U.S. market and 
the small Ecuadorian market.  Ecuador's producers needed 
continued protection, they said, and tariffs should be 
phased out only slowly.  Representative Shaw noted that he 
hears the same arguments in the U.S.  Deputies also referred 
to geopolitical factors such as the base in Manta as 
warranting special treatment for Ecuador, but were cautioned 
by Chairman Thomas "not to overplay that card." 
 
4.  Chairman Thomas pointed out that substantial changes in 
the model that has been agreed to with Chile, Central 
America, and others would not be possible.  He noted that 
Ecuador also needs labor reform, and to resolve commercial 
disputes with U.S. companies, and that any expropriation of 
U.S. assets would rule out a free trade agreement. 
Representative Weller pointed out the benefits of free trade 
and inquired about the Ecuadorian view of incursions into 
Ecuadorian territory by Colombian narco-terrorists.  Time 
constraints limited a substantive response to the latter 
question, but Lucero indicated that the GOE was not 
interested in becoming involved in the Colombian conflict, 
and said he did not believe the FARC was interested in 
operating out of Ecuador. 
 
AmCham Describes a Bleak Investment Climate 
------------------------------------------- 
 
5.  The AmCham U.S. Business Steering Committee provided the 
Codel with a very downbeat assessment of the business 
climate in Ecuador, noting that little investment is 
currently taking place as a result of pervasive lack of rule 
of law and respect for contracts.  Committee members 
described the problems their businesses face in Ecuador, 
ranging from inconsistent and changing regulatory 
environments, to tens of millions of dollars in unpaid state 
debts, to the threat of outright expropriation.  In response 
to Chairman Thomas' question why the U.S. should sign an 
agreement with a country which does not respect the 
agreements it has already signed, U.S. businesspeople 
expressed hope that the agreement would give the U.S. and 
others the leverage necessary to change the investment 
climate. 
 
Comment 
------- 
 
6.  The visit by Codel Thomas was extremely effective in 
delivering a crucial core message to the Ecuadorian 
government.  Many Ecuadorians have continued to hold to a 
hope that ATPDEA will be extended if the FTA is not 
concluded.  Codel Thomas burst that fantasy once and for 
all, and we expect to see a significant effect on Ecuadorian 
seriousness about the FTA as a result.  The messages 
regarding the possibility of going forward with only one 
partner and regarding the impossibility of fundamental 
changes from the agreements previously reached with other 
countries were also important wake-up calls for the 
Ecuadorians. 
 
Herbert