COLOMBIA ANALYZING ECUADOR'S REVISED TRADE

UNCLAS BOGOTA 002587 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EFIN ETRD CO SUBJECT: COLOMBIA ANALYZING ECUADOR'S REVISED TRADE RESTRICTIONS ¶1. (SBU) SUMMARY: Ecuador reduced the number of emergency tariffs on Colombian products (from 1346 to about 660 items) on August 12 in response to two Andean Community (CAN) resolutions and high-level bilateral negotiations. Trade Minister Plata stated he would continue to pursue bilateral negotiations to remove all import tariffs on Colombian products as quickly as possible, without resorting to judicial mechanisms. Colombian pundits and business leaders believe political motivations lie behind Ecuador's actions and are concerned about the impact of the emergency measures on Colombian exports. End Summary. ¶2. (U) On July 10, Ecuador adopted a one-year, emergency currency safeguard against Colombian imports spanning 1346 products. Ecuador argued that Colombia's Central Bank took measures that devalued the Colombian Peso, adversely affecting Ecuador's dollar-denominated economy. The Ecuadorian emergency safeguard eliminated the Andean Community duty-free treatment and applied tariffs to Colombia imports similar to those on products from non-CAN countries. The measure applied a 20 to 30 percent tariff on most (approximately 80 percent) of Colombian products entering Ecuador. ¶3. (U) The Andean Community's General Secretariat reviewed Ecuador's actions, and on August 8 issued resolution 1250. It ruled that the Colombian-Ecuadorian currency exchange rate had adversely affected competitiveness conditions. The General Secretariat determined that the Colombian Peso had devalued 18.5 percent, which made Colombia's exports significantly cheaper and Ecuador's products more expensive. Resolution 1250 also authorized Ecuador to impose temporary "corrective measures" that could remain in force until these competitive conditions normalized. However, there were no specifics in the resolution to explain the "corrective measures." Trade Minister Plata stated he is seeking clarification. ¶4. (U) The Andean Community also issued resolution 1251, which determined that Ecuador's currency safeguard measures constituted a tariff, and as such were to be removed within 15 days of the resolution's publication. Plata argued that the two resolutions appear contradictory and the Andean Community needs to provide additional information. ¶5. (U) In the meantime, Ecuador's recent removal of tariffs on certain products will benefit Colombia's meat, vegetable, oil, and dairy sectors. Ecuador's Minister of Production, Nathalie Cely, claimed that their objective is to remove additional tariffs as trade levels approach those of 2007. In 2008, Ecuador imported USD 1.48 billion worth of Colombian goods and services -- an increase of 18.5 percent compared to 2007 figures. Ecuador attributed this trade increase largely to the devaluation of Colombia's currency. ¶6. (SBU) Several business leaders told Emboffs that the safeguards are politically motivated, and they are concerned about continued restrictions on Colombian exports to Venezuela and Ecuador -- respectively Colombia's second and third largest export markets. A prominent bank official expected the trade spat between Ecuador and Colombia to continue in different forms until the next Colombian President is elected next year. Brownfield