EU-CAN NEGOTIATIONS - NOT DEAD YET

C O N F I D E N T I A L QUITO 000482

SIPDIS

TREASURY FOR MEWENS
USTR FOR BENNETT HARMAN

E.O. 12958: DECL: 06/04/2018
TAGS: ECON ETRD EC
SUBJECT: EU-CAN NEGOTIATIONS - NOT DEAD YET

REF: 07 QUITO 1478

Classified By: Jefferson Brown, Reasons 1.4 (b&d)


1. (C) Summary: Andean Community members Bolivia, Colombia,
Ecuador, and Peru had agreed to continue negotiating an
association agreement with the EU as a bloc, but EU
representatives report Bolivia is obstructing progress. The
EU may now allow countries to opt out of the commercial
section of the agreement, an option Ecuador may or may not
take. End Summary.

CONFUSING SIGNALS FROM THE ANDEAN COUNTRIES
--------------


2. (U) On the margins of the EU-Latin America and Caribbean
summit May 17, Andean Community (CAN) ministers met with EU
officials to discuss ongoing negotiations for an association
agreement. According to media reports, during those talks
CAN members took distinctly different approaches. Peru and
Colombia asked the EU to step up the pace of negotiations.
President Correa stated that he would not sign an agreement
that did not improve EU immigration rules for Ecuadorians,
but did not rule out negotiating as a bloc. He also noted
that Ecuador and Bolivia wouldn't agree to "certain
conditions" in a U.S. or EU agreement. A Bolivian government
spokesman stated that the GOB would not negotiate a "free
trade agreement" with the EU.

EU AND ECUADORIAN OFFICIALS CAUTIOUSLY POSITIVE
-------------- --


3. (C) The EC trade officer stationed in Quito characterized
the ongoing EU-CAN negotiations as positive but frustrated by
Bolivian demands for exceptions. For example, the GOB wants
a five-year delay before beginning tariff reductions and
wants to exclude 1,000 tariff lines altogether. The biggest
sticking point is Bolivia's demand that tariff reductions be
linked to their exports and only take place once their
exports to the EU increase by a certain amount, a non-starter
for the EU. The EC official noted that the CAN does not have
a common position on IPR, services, or sustainable
development, which will be discussed in a mini-round to take
place in June.


4. (C) Ecuador's MFA Director General for Integration
Jimenez noted that Ecuador has issues with IPR, government
procurement, and sustainable development, but that IPR is
really the only sticking point. However, he suggested that
Ecuador's broad positions towards the EU negotiations may
still be up in the air, since Pedro Paez, Coordinating
Minister for Economic Policy, is likely to exert greater
control over trade policy relegating the Foreign Ministry to
merely executing trade policy. He reported that the head of
Ecuador's intellectual property institute and IPR negotiator
in the EU talks (and former IPR negotiator in the U.S. FTA
talks) was removed from office because his position on IPR
was too pro-free trade.

OPTION TO OPT OUT OF THE COMMERCIAL AGREEMENT?
-------------- -


5. (C) On May 27, the EU Ambassador to Ecuador and Colombia
announced that a country might be excluded from the
commercial section of the EU-CAN Association Agreement but
still be part of the other two sections of the accord
(political dialogue and cooperation). He emphasized that the
commercial section of the agreement was an "all or nothing"
proposition, and an a la carte approach to the section would
not be permitted. This option was clearly aimed at Bolivia,
and possibly Ecuador. European Trade Commissioner Peter
Mandelson also suggested to EU Parliament members that the
negotiations could be split to put Ecuador and Bolivia on a
slower track.


6. (C) Although this was a surprise to the local EC trade
official, she later confirmed that, to provide additional
flexibility, a country might be able to abstain from the
commercial section of the agreement until conditions permit
it to finish negotiations and participate. However, she
stressed that the EU wants to continue negotiating with the
CAN as a block and ruled out separate agreements by country.
Trade with the CAN is less than 1% of EU trade, so the
agreement is more political than commercial and the key
purpose is to push regional integration, she claimed. She
believes that an agreement is in Ecuador's interests, but the
EU is such a small market for Bolivia that it is not really
commercially interested in the agreement. Bolivia would need
technical assistance and possibly a delay in order to meet
current commitments of the commercial part of the accord, she
asserted.


7. (C) The Executive Director of the Ecuadorian Business
Committee, representing private sector interests, was
pessimistic about Ecuador's commitment to trade negotiations
and considers the EU statement a possible way out of
commercial commitments for the GOE. His group met with the
MFA to seek clarification on whether Ecuador would opt out of
the commercial agreement. Following the meeting, on June 2
the Executive Director reported that he believes Ecuador will
continue negotiating the commercial agreement, but was
uncertain whether the country would be on a fast track like
Colombia and Peru, or a slower track like Bolivia.

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


8. (C) With the most recent statements from the EU, the ball
appears to be back in Ecuador's court as to whether to
continue with the commercial negotiations within the EU-CAN
talks. Opting out of the commercial pillar of the
association agreement would result in a rather hollow
accomplishment for the GOE, since the core of the agreement
is the free trade provisions, with the political and
cooperation pillars serving as nice embellishments. Last
year, Ecuador helped mediate between Colombia/Peru and
Bolivia and helped maintain the appearance of Andean unity.
Now, it must make a decision between the two paths. Correa
may be in the difficult position of being given an "out" and
not wanting to take it.
Jewell