WILL COLOMBIA-ECUADOR TRADE DRY UP?: A VIEW FROM

UNCLAS BOGOTA 000317

SENSITIVE
SIPDIS

WHA/EPSC ROONEY
WHA/AND
STATE PASS USTR M. CARILLO

E.O. 12958: N/A
TAGS: ECON ETRD ECIN PREL CO
SUBJECT: WILL COLOMBIA-ECUADOR TRADE DRY UP?: A VIEW FROM
THE BORDER

REF: QUITO 60


1. (SBU) SUMMARY. Ecuador's balance of payments safeguard
measures have left Colombian policymakers and business
community leaders frustrated and concerned over the future of
the commercial relationship with their third largest export
market. The economic outlook in the border department of
Narino is bleak, as businesses brace for decreased trade and
higher unemployment in an area already ravaged by the
financial pyramid crisis of late 2008. While the safeguards
are not directed at any one specific country, they come on
the heels of increasingly onerous requirements that Ecuador
placed on Colombians wishing to travel to their southern
neighbor. This has led many Colombians in the border area to
view themselves as the victims of a deteriorating
Colombian-Ecuadorian relationship, an unwelcome development
as Colombia's other principal markets remain squeezed by the
global financial crisis. END SUMMARY.

2008 TRADE IMMUNE FROM DIPLOMATIC SPAT
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2. (SBU) Ecuador is Colombia's third largest export market
(following the U.S. and Venezuela). Virtually all of
Colombia's exports to Ecuador are non-traditional, industrial
goods with higher value-added than the commodities that make
up the bulk of Colombia's exports to the world. Principal
export products include automobiles, medicines, cleaning
products, household appliances, cosmetics, books and food
products. Despite the break in diplomatic relations in March
2008, following Colombia's bombing of FARC Commander Raul
Reyes's camp on Ecuador's side of the border, Colombian
exports to Ecuador increased by 17 percent in the first nine
months of 2008. Ecuadorian exports to Colombia showed a
similar increase. Laura Martinez, Commercial Director of the
Colombian-Ecuadorian Chamber of Commerce in Bogota confirmed
that the GOE had not diminished its trade-related services in
Colombia as a result of the suspension of formal diplomatic
relations.

NEW MEASURES WILL HURT COLOMBIAN EXPORTS
--------------


3. (SBU) The balance of payments safeguards that Ecuador
formally announced on January 22 (reftel) apply to 627 tariff
classifications, including 380 products that Colombia exports
to Ecuador. Colombia's Ministry of Trade and Industry
estimates exports to Ecuador will fall by USD 210 million (15
percent) in the face of new quotas and tariffs on a range of
goods, including apparel, shoes, appliances, vehicles,
cosmetics, ceramics and cleaning products. The Ministry's
Director of Economic Integration Alfredo Ramos pointed out
the double hit that Colombia and other Andean Community (CAN)
nations will absorb, as they are forced to pay Most Favored
Nation (MFN) level tariffs, as well as the new tariffs on
goods that previously entered Ecuador duty-free. Ramos noted
that while Colombia's lack of diplomatic relations prevented
it from discussing the issue with Ecuador directly, Peru
unsuccessfully lobbied Ecuador to exclude CAN countries from
the safeguards. (NOTE: The CAN Secretariat has 30 days from
Ecuador's notification to receive comments from
member-countries and rule on the legality of the safeguard
measures. Colombia hopes that, despite Ecuador's significant
trade deficit with Colombia, Ecuador's overall trade surplus
with CAN countries will justify at least an easing of the
measures on CAN partners. END NOTE.)

RESENTMENT ON THE BORDER OVER "PERSONAL PROBLEM"
-------------- ---


4. (SBU) Econoff traveled to the towns of Pasto and Ipiales
in the border department of Narino to examine the practical
impact of the measures and gauge the mood in the wake of the
political and economic turbulence. Local political and
business leaders stressed the negative impact the safeguard
measures would have on the local economy, particularly on

transport/logistics companies, customs brokers, "braceros"
(who physically carry merchandise across the border) and
others who support the bilateral flow of commerce. Roughly
80 percent of Colombia's exports to Ecuador travel by land,
the lion's share of which enters Ecuador via the Rumichaca
bridge at Ipiales. National Tax and Customs Directorate
(DIAN) Ipiales Regional Director Laureano Gomez said he
expected export numbers for January to decline significantly
and that smuggling in both directions across the porous
border would increase. (NOTE: Narino is already suffering
the effects of the financial pyramid crisis of late 2008.
Unofficial estimates put the number of Narinenses who had
money invested in pyramid schemes at over 90 percent.
Narino's unemployment rate of over 15 percent is five points
higher than the national average and is sure to increase with
the slowdown in trade with Ecuador. END NOTE)


5. (U) In December, Ecuador reinstated a requirement that
Colombians entering Ecuador present proof they have no
criminal history. In January, Ecuador imposed a further
requirement that this document have an apostille from the
MFA. Add to these measures stricter enforcement of yellow
fever vaccination verification, and what Ipialenses describe
as "harassment" of cars with Colombian license plates driving
into the interior of Ecuador, and the result is a 30-50
percent decrease in Colombians crossing the border, according
to press reports.


6. (SBU) Many blame worsening Colombian-Ecuadorian relations
on personal enmity between Presidents Uribe and Correa,
though local political and security officials have told us
that their technical-level counterparts in Ecuador remain
ready to cooperate. Deputy Mayor of Ipiales Dario Pantoja
noted that at the height of the diplomatic crisis last March,
communities in Ipiales on the Colombian side and Tulcan on
the Ecuadorian side of the border joined in a march for peace
"to show that the crisis was not between the peoples of the
two countries; we need each other." President Uribe was well
received in Narino on January 25 when he announced the
creation of a "Unified Southern Command," which would bring
27,000 additional troops to the border region. In a nod to
the department's economic woes, Uribe also announced his
intention to create free trade zones in Pasto, Ipiales and
Tumaco, which would serve to attract investment through lower
tax rates.

COMMENT: MORE BAD NEWS FOR EXPORTERS
--------------


7. (SBU) Ecuador's safeguard measures come at a worrying time
for Colombian exporters, who are already dealing with a
downturn in the U.S. and decreased demand from oil-rich
Venezuela. The measures will hit particularly hard the
border department of Narino, which has already been battered
worse than any other region by the pyramid scandal. While
not aimed specifically at Colombia, the measures add a layer
of tension to already tense bilateral relations. Most
Colombian analysts view the measures as legal under the CAN
and WTO, leaving the diplomatic approach as Colombia's only
recourse if it is to avoid a sharp decrease in exports to its
third largest trading partner.
BROWNFIELD