MIXED VIEWS: AMERICAN BUSINESSES WITH DIFFERENT

C O N F I D E N T I A L QUITO 002208

SIPDIS

SIPDIS

USTR FOR B.HARMAN

E.O. 12958: DECL: 09/27/2017
TAGS: ECON EINV ETRD EPET EFIN EAIR BEXP EC
SUBJECT: MIXED VIEWS: AMERICAN BUSINESSES WITH DIFFERENT
PERSPECTIVES ON ECUADOR

REF: A. QUITO 2167

B. QUITO 1794

C. QUITO 1655

Classified By: Classified by DCM Jefferson Brown. Reason: 1.4 B and D
.


1. (C) Summary. At an AmCham meeting, U.S. companies in
heavily regulated industries noted a number of ongoing
problems, but a textile company stressed that lightly
regulated industries have fared much better. Several
companies said they have good relations with the Correa
Administration, which sees them as a source of employment,
and one added that the GOE has reduced corruption in
government procurement. A couple of companies are concerned
about possible price controls and higher excise taxes. An
auto company criticized the political opportunism behind the
Correa Administration's decisions to eliminate taxes and
duties for new taxis and allow taxis to use unsafe liquid
propane gas. End summary.


2. (C) The Ecuadorian-American Chamber of Commerce of Quito
hosted a meeting on September 14 of its U.S. Business
Committee, where U.S. members of the AmCham share in
confidence their views on recent developments in Ecuador.
The Senior Commercial Officer and EconCouns attended for the
Embassy.


3. (C) Bob Moss, the AmCham President, said that he and the
Executive Director of the AmCham, Bernardo Traversari were
committed to continued efforts to to lobby for renewal of the
Andean Trade Preference Act (ATPA),and they in fact made a
trip to Washington for that purpose the week following our
meeting. Traversari added that he had talked to Vice
Minister for Trade Antonio Ruales, who assured him that the
GOE also intends to lobby for ATPA extension, but would do so
closer to its expiration date.


4. (C) The local manager for General Motors made several
observations. He said that his company's relations with the
government of Ecuador have generally been good, and the GOE
sees his company primarily as a source of employment. He
said that GM had been in close discussions with the GOE in
recent days over a government decision to allow taxis to be
purchased and/or imported tax free. He said that his company
would benefit from the policy, but said it was a purely
political decision that had been made with "less than six
minutes of economic analysis," and criticized the longer-term
implications of the government foregoing millions of dollars
of tax revenue for a purely political decision. He also
criticized the GOE plan to support and subsidize a new
program for taxis in Guayaquil to run on liquid propane gas
(LPG),saying it is the most dangerous fuel that could be
used (some U.S. fleets run on natural gas, which he said is
safer than LPG). The GM manager added that vehicle sales in
Ecuador began to drop appreciably about four months
previously; he attributed much of the decline to a drop in
financing given uncertainty in the banking sector (ref c).


5. (C) Jeff Sheedy, a U.S. businessman who operates a
textile company and several other businesses, stressed that
while regulated industries have encountered problems in
Ecuador, to date the business climate for unregulated
industries has been good. He said that his textile company
is planning to continue investing, but added much of its
investment would be in labor-saving equipment out of concern
that the upcoming Constituent Assembly might impose more
stringent labor rules. He added that the Correa government
has placed a priority on clean procurement practices, opening
the door for his company to do business with the GOE;
previously, government procurement had been too corrupt for
his company to participate.


6. (C) Citibank said that the Correa administration sought
tight controls over the banking sector, which had they been
imposed would have placed the banking sector at risk.
Congress walked back the proposed controls, but the Correa
administration has said that it would use the upcoming
Constituent Assembly to seek stronger controls.


7. (C) Two pharmaceutical companies, Abbott and Pfizer,
focused their comments on price controls, and said that
prices have been frozen in Ecuador for several years.


8. (C) City Oriente, a petroleum production company, said
that it is waiting for confirmation that the government is

willing to renegotiate its contract on mutually acceptable
terms. Since the prior government passed a revenue-sharing
requirement in April of 2006, neither the previous nor the
current government has initiated any meaningful contract
discussions.


9. (C) Philip Morris echoed General Motors in saying that it
has had generally good relations with the Correa
administration, which also sees the company as an employer.
The Philip Morris representative said that he is concerned
about tax changes that have been proposed by the government,
since if the government does reduce the value-added tax, it
would partially offset the foregone revenue by increasing
excise taxes, including on cigarettes.


10. (C) The manager for Hill's Floral noted the importance
of ATPA renewal for the flower industry. He went on to say,
however, that the U.S. flower market has begun to stagnate,
so Russia now represents an increasingly important market for
his company.


11. (C) The Hill's Floral representative also complained
that the Ecuadorian flower industry is at a competitive
disadvantage given the high operating cost for the Quito
airport (ref a). The general manager for Marriott Hotels
chimed in to say that his hotel has lost some package
business to Guayaquil because of the high departure fees at
the Quito airport.


12. (C) After the meeting, the manager of Machala Power, a
U.S.-owned electricity company, told EconCouns that he chose
not to burden his colleagues at the event with complaints
about the electricity sector. He requested a meeting with
the Ambassador to explain recent developments and will meet
her on September 28.


13. (SBU) Kimberly Clark, a paper and consumer goods company
had not been able to attend the meeting. However, in an
earlier meeting with EconCouns, the Kimberly Clark manager
said that business in Ecuador has been relatively good (13%
growth) and consumer demand for its products remains strong.
However, he said that Kimberly Clark's branches in Peru and
Colombia are growing at a much faster rate (over 30%). He
said that his company is nervous that the GOE may attempt to
impose price controls on its products, which are in the basic
consumer basket, given GOE efforts to limit price increases
for other basic goods (ref b). He said that his company will
conclude an on-going investment project, but does not plan to
initiate any new investment.


14. (C) Comment. The mixed messages we heard from U.S.
companies reflects the broader uncertainty regarding
Ecuador's economic climate. On the broader economic front,
the Correa administration has sent mixed signals as to the
direction of economic policy, which has hampered investment,
but consumer demand and confidence appear to be relatively
strong. Reflecting that division, the unregulated industries
are doing relatively well and are guardedly upbeat about the
business climate and their relations with the Correa
administration, although they too have some concerns. The
regulated industries naturally depend more on government
decisions, and they remain frustrated with the lack of a
clear policy direction. (Most of the problems in the
regulated sectors predate the Correa administration, with the
notable exception of the banking industry. For the most part
the Correa administration has not aggravated those problems,
but nor has it taken meaningful steps to resolve the
problems).
JEWELL