CODEL THOMAS DELIVERS TOUGH MESSAGE ON TRADE

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
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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