CHARGE MEETING WITH NEW ECONOMY MINISTER RODAS

C O N F I D E N T I A L QUITO 001924

SIPDIS

SIPDIS

TREASURY FOR SGOOCH
USTR FOR BENNETT HARMAN

E.O. 12958: DECL: 08/04/2016
TAGS: ECON ETRD PGOV PREL
SUBJECT: CHARGE MEETING WITH NEW ECONOMY MINISTER RODAS

Classified By: Charge d'Affaires Jefferson T. Brown, Reasons 1.4 (b) an
d (d).


1. (C) Summary: The Charge met with Ecuador's new Minister
of Economy and Finance Armando Rodas August 3. The
atmosphere was quite positive. Choosing to speak English and
proud to note his Fulbright study in the U.S., Rodas seemed
genuinely committed to improving the bilateral economic
relationship, and sought to distance himself from what he
described as his predecessor's more "left" posture. He
defended the GOE's hydrocarbon law and Oxy decision as
legally valid, but sought to put them behind us. He pledged
to resolve outstanding commercial disputes with two U.S.
energy companies, and pushed for the renewal of ATPDEA
benefits. He said he would accompany President Palacio to
President Uribe's inauguration Monday, August 7, in Bogota
and participate in the USG bilat (requested with Secretary
Gutierrez). End Summary.



2. (C) In addressing the hydrocarbon law, Rodas said the
government had developed several approaches and that the one
eventually put forward, while not what he had favored, was
essentially the same as the U.S. "windfall profits tax"
enacted under President Carter or being considered currently
in the U.S. House. The Charge pushed back, noting that
Ecuador's law applied to gross revenues rather than profits,
and therefore was quite different. Rodas said five or six
companies had already renegotiated their contracts to comply
with the law, so that it clearly was not that excessive.
Asked about the pending constitutional challenges to the law,
Rodas thought it would be "politically impossible" for the
court to declare the law unconstitutional, particularly with
elections approaching. The Charge noted that ultimately it
will be the affected U.S. companies, particularly City
Oriente, that will decide whether or not to seek redress
under the U.S.-Ecuador bilateral investment treaty (BIT). He
said that if the GOE could reach a mutually satisfactory
accommodation with City Oriente, it could potentially help
mitigate the issue as a thorn in bilateral relations. With
respect to the Oxy case, the Charge said that the GOE could
send a positive signal by naming an arbiter in the recently
registered international arbitration process, and committing
themselves to respect the outcome. Rodas replied that the
GOE would name an arbitrator in the case shortly.


3. (C) Rodas also expressed his personal commitment to
resolving the Machala Power and Duke Energy issues regardless
of what occurs with the electricity law currently under
debate in the congress (septel). If the law passes, as he
hoped, it will provide the means for liquidating the
companies' outstanding debts. If it fails, he pledges to
make an initial payment to each company and sign an agreement
for a schedule of future payments.


4. (C) Pushing hard for ATPDEA renewal, Rodas underscored
the potential loss of jobs and increase in poverty if the
program is not renewed, and emphasized Ecuador's cooperation
on counter-narcotics issues. The GOE plans to show facts and
figures to bolster their case in Monday's requested meeting
with the USG on the margins of Uribe's inauguration. The
Charge explained that ATPDEA extension will be determined by
Congress, not the executive branch, and our current sense is
that key Congressional players are viewing the decision more
within the context of trade rather than counter-narcotics
(CN) policy. In that regard, Ecuador damaged its image in
Washington as a good faith partner in the trade arena with
its actions in recent months. ATPDEA was conceived as a
temporary program to be replaced by an FTA. The Charge
suggested that Ecuador would be best served by maintaining
focus on the FTA agenda; resolving outstanding commercial
disputes and clearing away as many of the other issues that
were pending in the context of that process. In an ideal
scenario, GOE progress could restore a positive environment
for the potential resumption of FTA talks during the very
narrow window of time that will exist between Ecuador's
October elections and the expiration of Fast Track Authority
in the U.S. Congress.
BROWN