GOE DEFENDS LEGALITY OF OXY SEIZURE

C O N F I D E N T I A L QUITO 001274 SIPDIS SIPDIS E.O. 12958: DECL: 05/24/2016 TAGS: ETRD PGOV PREL EC SUBJECT: GOE DEFENDS LEGALITY OF OXY SEIZURE REF: QUITO 1216 Classified By: PolOff Rosemary Macray for reasons 1.4 (b&d) ¶1. (C) Summary: WHA Principal Deputy Assistant Secretary Charles Shapiro on May 16 told FM Francisco Carrion the USG was disappointed by the GOE's decision to cancel Occidental Petroleum's contract, a violation of the bilateral investment treaty that would have a chilling effect on FTA talks. Carrion defended the decision as the application of Ecuador's sovereign right and law, and insisted that FTA negotiations resume. PDAS Shapiro made public remarks after the private meeting, expressing USG disappointment, which was widely interpreted as signaling the end of FTA negotiations. Ecuadorian business leaders independently decried the decision as the death knell for an FTA, formally broke their relations with the GOE and threatened legal action against the president. End Summary. ¶2. (SBU) On May 16, PDAS Shapiro met in Guayaquil with presidential aspirant Leon Roldos (Movement for Democracy and Ethics Network, supported by the Democratic Left (ID) party), outgoing Guayaquil Chamber of Commerce President Eduardo Maruri and incoming President Maria Gloria Alarcon, and Guayaquil Mayor Jaime Nebot. In Quito later the same day, he met with presidential candidate Cynthia Viteri of the Christian Socialist Party (PSC) and concluded the visit with the call on the Foreign Minister. He was accompanied to the meeting by Ambassador Jewell and ConOff (notetaker). FM Carrion was joined by VFM Diego Ribadeneira. "Oxy Never Took Us Seriously" -------------- ¶3. (C) When PDAS Shapiro expressed disappointment with the GOE decision to cancel Oxy,s contract, Carrion responded with a phrase he would repeat five times during the hour-long meeting: "Oxy never took us (or GOE proposals or the possibility of caducity) seriously." Carrion claimed he had personally worked hard to find a way out, but an alternative legal solution was not possible under Ecuadorian law. He blamed the decision to cancel the contract on Oxy,s lack of responsiveness to GOE proposals and said Oxy did not even have any negotiators in Ecuador. The Ambassador pointed out that President Palacio had told her the only channel for negotiations was through U.S. attorney Al Cardenas, who is physically in the United States; Oxy,s leadership was in the U.S. for an annual shareholders meeting. Carrion claimed 
that the door for negotiation had always been open. Shapiro told Carrion the door may have been open, but Ecuador had clearly now closed it. Carrion, saying &perhaps I am being naive,8 hoped the Oxy decision would not affect the possibility of continued FTA negotiations. Shapiro Outlines Possible Repercussions -------------- ¶4. (C) Shapiro told Carrion that the USG would not "freeze" broader relations with Ecuador over the Oxy decision, but that negotiations on an FTA were unlikely to resume. The USG prioritizes its negotiating efforts on countries where the negotiations are likely to be successful and approved by the U.S. Congress. Andean Trade Promotion and Drug Eradication Act (ATPDEA) authorization will terminate in December 2006 and renewal is unlikely. Oxy expects to take the GOE to arbitration under the terms of the Ecuador-U.S. Bilateral Investment Treaty (BIT). Carrion said the GOE had considered this but believed Oxy had violated Ecuadorian law. He expressed hope that the USG would respect Ecuador's sovereign rights and domestic law. Ambassador Jewell responded that even if Oxy were found to have violated the law as alleged, the cancellation of the contract and seizure of assets was a highly disproportionate response; and the GOE had not fully considered a negotiated settlement, as provided for in Ecuador's law. Carrion repeated that applying the law against Oxy was the GOE's only legal alternative. "We Are Not Venezuela or Bolivia" -------------- ¶5. (C) Carrion stated that Oxy,s case was unique and based on a violation of Ecuadorian law, and thus bore no resemblance to moves by the governments of Venezuela and Bolivia. The Ambassador noted that there were some striking similarities. Carrion said that negotiations over the implementation of the new hydrocarbon law were soon to begin with another U.S. oil company, City Oriente. The Ambassador emphasized that the USG is most concerned about GOE violation of the sanctity of contracts and its obligations to respect the rights of U.S. investors under the BIT. Public Statement and Reaction -------------- ¶6. (U) In a press encounter following his meeting with Carrion, Shapiro said that the USG was still working through the details of the declaration of caducity. He repeated USG "disappointment" over Ecuador's Oxy decision, which "appeared to confiscate the property of a U.S. company." He pointed out that in order to attract investment--and jobs that come with it--nations must obey the rules that apply to foreign investments. "Free trade agreements are based on the fundamental principle that both parties respect the rules," he said. He noted further that no date had been set to resume FTA negotiations. Shapiro told journalists that the United States would continue to maintain a dialogue with Ecuador over these issues and that Oxy could seek remedy under the BIT. ¶7. (U) In its public statement, the MFA on May 17 repeated that the Oxy matter was strictly judicial in character, involving "a sovereign state that follows the law and a private company that has broken it. It is not a conflict between countries." Caducity has not resulted in "expropriation or nationalization of the Occidental investment," the statement said. "The Ecuadorian government trusts the United States will take into account that this process is judicial and will not cut off FTA negotiations, which are strictly commercial in nature." ¶8. (C) All of PDAS Shapiro's meetings in Guayaquil and Quito touched on the Oxy seizure with some parties more interested than others in its implications. Guayaquil Chamber leaders said the move reflected Palacio's intentions all along. Roldos appeared uninterested and especially unconcerned about its economic effect in the Sierra Region. Nebot was solely focused on Guayaquil. Comment -------------- ¶9. (C) PDAS Shapiro's visit was timely. He delivered a hard private message to the GOE after its disastrous decision on Oxy. His public remarks were also highly effective, while never explicitly closing the door to a future FTA. The media reported his words faithfully, but interpreted the message as more definitive. As the economic consequences begin to sink in, more Ecuadorians will realize the costs of poor leadership and the lack of national consensus and political comity. No political parties or movements, and few business leaders came out publicly in support of a negotiated solution with Oxy. Until the Oxy decision dashed realistic hopes for an FTA in the short to medium term, few here vocally supported the opportunities represented by an FTA with the U.S. All the people PDAS Shapiro met with were more interested in their party, their city, their region, than they were in the overall good of the country. Palacio has no support in the congress, balked in the face of populist pressure and gave into his own basic instincts. Bad advisors? Certainly. Lack of political will? Without question. But above all there is a lack of national consensus and comity. JEWELL