SUBJECT: ECUADOR LOOKING TO TERMINATE INVESTMENT

C O N F I D E N T I A L QUITO 000197

SIPDIS

SIPDIS

E.O. 12958: DECL: 02/28/2018
TAGS: EINV ECON EC
SUBJECT: SUBJECT: ECUADOR LOOKING TO TERMINATE INVESTMENT
TREATIES WITH SMALL INVESTMENT PARTNERS ON MUTUALLY AGREED
TERMS

REF: A. 07 QUITO 1045

B. 07 QUITO 2626

Classified By: Classified by DCM Jefferson Brown. Reason: 1.4 b and d
.


1. (C) Summary. Ecuador will attempt to negotiate early
termination of its bilateral investment treaties (BITs) with
nine small countries, according to the Foreign Ministry's
Under Secretary for Trade. In the interim, all of Ecuador's
BITs remain in force. In response to the Foreign Minister's
statement that Ecuador wants to renegotiate its BITs with
larger partners, including the United States, he said that
Ecuador is not ready since it is still working on its new
model BIT. End summary.


2. (U) On January 30, a news article reported that Foreign
Minister Maria Isabel Salvador said that Ecuador denounced
its bilateral investment treaties (BITs) with nine minor
investing partners: Romania, Cuba, El Salvador, Honduras,
Guatemala, Nicaragua, Dominican Republic, Paraguay and
Uruguay. The article also reported that Ecuador was planning
to renegotiate its BITs with major investing partners,
including with the United States.


3. (C) EconCouns reviewed the article with Mentor
Villagomez, Under Secretary for Trade at the Foreign
Ministery. Villagomez made three points. One, all of
Ecuador's BITs remain in force. Two, Ecuador had notified
the nine smaller BIT partners that it wants to discuss the
status of the BITs with its partners. Three, it is premature
to discuss renegotiating BITs with Ecuador's larger
investment partners, including with the United States, since
Ecuador has not yet finalized its new model BIT.


4. (C) Villagomez said that in reviewing its BITs, it was
apparent that BITs are only a small element in attracting
investment, since investment decisions are based on a wide
array of factors. He noted, for example, that Colombia has
fewer BITs than Ecuador but is attracting more foreign
investment. As a result, Ecuador does not see any benefits
in maintaining BITs with small investment partners.


5. (C) Villagomez clarified that with the nine identified
BITs, Ecuador plans to explore with its partners whether they
will mutually agree to terminate the BITs early. Villagomez
stressed that if the BITs are terminated, the GOE would
continue to respect any protections that remain in force
after termination.


6. (C) Villagomez did not speculate much on the key elements
of Ecuador's forthcoming "model BIT," but he did suggest that
Ecuador would probably want to make use of the new
arbitration forum that Ecuador hopes to establish in South
America. He said that Ecuador is in initial discussions with
other South American countries about establishing a regional
arbitration body.

Comment
--------------


7. (C) Ecuador has been conducting an interagency review of
its BITs for several years, a process that began before the
Correa Administration took office. The process received
public attention in May, 2007, when then-Foreign Minister
Espinosa publicly stated that Ecuador would terminate its BIT
with the U.S., then clarified that the BIT would remain in
force while the GOE reviewed all of its BITs (reftel a). The
review seemed to be on a backburner for a while, but we
understand that the process was revived in December, when
President Correa asked for an update (reftel b). We now seem
to be seeing the beginning of the second phase of the review
process.


8. (C) Although our Foreign Ministry contacts have not said
so explicitly, our impression is that they are not
enthusiastic about attempting to change Ecuador's BITs,
believing that the efforts will not go far and could send


negative messages about Ecuador's investment climate.
However, the Correa administration has reservations about
submitting to international arbitration (most notably the
World Bank's ICSID process, which they believe is biased
toward developed countries),and all of Ecuador's BITs
include international arbitration provisions. Our view is
that the Correa Administration believes that it needs to do
something about the BITs, and the Foreign Ministry is
attempting to carry out its instructions in a careful,
pragmatic manner. The issue of revising Ecuador's BITs will
continue to come up, but we expect it will be a slow-moving
process, especially since the GOE's hoped-for regional
arbitration body does not yet exist as a functioning
alternative to current options.
JEWELL