ECUADOR ECON WEEKLY: TARIFF CUTS; EFFECT OF OPEC CUTS;

UNCLAS QUITO 001090 SIPDIS E.O. 12958: N/A TAGS: ECON EPET EFIN ETRD EC SUBJECT: ECUADOR ECON WEEKLY: TARIFF CUTS; EFFECT OF OPEC CUTS; TRADE WITH PERU REFTEL: 07 QUITO 1969 ¶1. (U) The following is a weekly economic update for Ecuador that describes notable developments that are not reported by individual cables. Tariff Cuts for 49 Industrial Inputs -------------- ¶2. (U) On October 30, Ecuador's Council on Foreign Trade and Investment (Comexi) approved a proposal to reduce tariffs to zero on 49 industrial inputs and raw materials. This is the eighth tariff reform since August 2007 (reftel). The objective is to improve national production in the manufacturing, mining, textile, and cement sectors. Products with tariff reductions include fuel for industrial engines; lubricant greases; alcohol sulfates, rubber waste; threads and cords of vulcanized rubber, and fabrics for towel manufacture, among others. Under Secretary for Foreign Trade in the Ministry of Industries, Alexis Valencia, said that the reform would cost the GOE $6.7 million in lost tariff revenue. Effect of OPEC Production Cuts on Ecuador -------------- ¶3. (U) Ecuador rejoined OPEC in October 2007. In October 2008, OPEC decided to cut production given falling petroleum prices. President Correa supported OPEC's decision in his weekly radio address October 25, and said that Ecuador agreed to lower its quota from 520,000 barrels per day (bpd) to 493,000 bpd. Ecuador currently produces around 500,000 bpd between state oil company Petroecuador and private companies, and increasing production has been an administration priority. ¶4. (U) On November 10, Minister of Mines and Petroleum Derlis Palacios announced that Ecuador would ask OPEC for "special treatment" to maintain production if the group institutes additional production cuts, citing Ecuador's marginal producer status and the significant effect cuts would have on Ecuador's budget. On November 15, President Correa stressed that Ecuador would "respect and follow OPEC's decisions," while echoing the Minister's comments that Ecuador would seek exceptions because of its marginal status. Ecuador-Peru Trade Increased following Peace Accord -------------- -------------- ¶5. (U) At the Ecuador and Peru Integration Forum, celebrating the ten year peace agreement between these countries, Alfredo Davalos, Director of the Commercial Office at the Embassy of Ecuador in Lima, stated that trade between Peru and Ecuador had increased by over 500% from 1998 to 2007. Trade had increased from $300 million in 1998 to $1.9 billion in December 2007. Davalos said that trade was expected to reach $2.2 billion by the end of 2008. Petroleum comprises 80 percent of Ecuadorian exports to Peru; other exports include wood products, tuna, shoes, and cleaning products. Imports from Peru are largely petroleum derivative products and cleaning products. Ecuador has a positive trade balance with Peru; last year Ecuador's exports to Peru were $1.5 billion, while Peru's exports to Ecuador were $400 million. HODGES