GOE EXTENDS BOP SAFEGUARDS BY SIX MONTHS, ELIMINATES

UNCLAS QUITO 000162 SENSITIVE SIPDIS DEPT FOR WHA/AND AND EEB/TPP/MTAA FOR CRAFT PASS TO USTR FOR HARMAN, RHODE,EISSENSTAT, AND SHACKLEFORD TREASURY FOR YUAN USDOC FOR ITA E.O. 12958: N/A TAGS: ETRD ECON WTRO USTR EC SUBJECT: GOE EXTENDS BOP SAFEGUARDS BY SIX MONTHS, ELIMINATES EXCHANGE RATE SAFEGUARDS ON COLOMBIAN PRODUCTS REF: QUITO 96; QUITO 53; 09 QUITO 509; QUITO 102; 09 QUITO 1026 ¶1. (SBU) Summary. Embassy has confirmed that Ecuador's Foreign Trade and Investment Council (COMEXI) has developed a definitive schedule to eliminate the balance of payments (BoP) safeguards within six months. The safeguards were supposed to be eliminated by their one year anniversary on January 23, 2010. Following a 10% reduction in the safeguards on January 23, COMEXI has now decided the BoP safeguards will be reduced by 30% every two months until their final elimination on July 23. Publication of the COMEXI decision, bringing it into force, is expected within one to two weeks. Separate protective measures for the footwear and textile sectors are still in the works. In line with a previously announced timeline, COMEXI also decided to eliminate exchange rate safeguards, that had been in place since July 2009, on a final group of 236 Colombian products. Neither of these COMEXI decisions has been published yet on its website. End Summary. ¶2. (SBU) Ecuador's Foreign Trade and Investment Council (COMEXI) passed a resolution on February 3 that establishes a schedule for reducing existing balance of payments (BoP) safeguards every two months until their final elimination on July 23, 2010. The safeguards were put into place January 22, 2009 and were supposed to be eliminated after one year (Refs A, B and C). COMEXI's February resolution confirms the GoE's intention to continue the safeguards for an additional six months (Ref D). The February 3 COMEXI decision has not been published yet, but Econoff confirmed the content with officials at the Ministry of Foreign Affairs (MFA) and Ministry of Industries and Productivity (MIPRO). COMEXI decisions are usually published within one to two weeks. ¶3. (SBU) On January 23, 2010, the safeguards were reduced by an initial 10%, as per COMEXI Resolution 533, published on January 15. According to the February 3 COMEXI decision, the safeguards will be reduced by an additional 30% on March 23, another 30% on May 23, and a final 30% on July 23. As an example, if the surcharge under the GoE's balance of payments measure had been a 12% ad valorem tariff, as of January 23, that tariff became 10.8%. On March 23, the tariff would be reduced to 7.2%; on May 23 it would be reduced to 3.6%; and on July 23 the tariff would be eliminated. Specific tariffs would be reduced in a similar fashion. ¶4. (SBU) Contacts at the MFA and MIPRO also confirmed that COMEXI is devising separate protective measures for the footwear and textile sectors. For now, these products remain within the group of 627 products affected by the BoP safeguard measure. However, press reports state that COMEXI has decided to apply a 10% ad valorem plus $6 specific tariff to footwear. We cannot confirm at this time the level of import protection the GoE plans to apply to the footwear and textile sectors or the timing for these new measures, but suspect they will come into force before final elimination of the BoP safeguards. ¶5. (U) Separately, local press has reported that COMEXI also approved elimination of exchange rate safeguards for a final group of 236 imports from Colombia. Under this safeguard measure, certain imports from Colombia were subject to the BoP safeguard measure on top of the MFN tariff rate, rather than the Andean Community preferential tariff rate of zero. The safeguards were initially imposed on 1,346 products in July 2009. The number of covered products was reduced to 666 in August 2009. A further 319 products were removed from the safeguards in October, and an additional 111 in December. This latest COMEXI decision is in line with the policy and timeline previously announced by the GoE for elimination of safeguards on Colombian products (Ref E and previous). The safeguards have had deleterious effects on a number U.S. companies, including some producing chocolate products and pet food. Comment ¶6. (SBU) The GoE is expecting to encounter criticism at the next WTO Balance of Payments Committee meeting. However, comments by our MFA interlocutor lead us to conclude that the GoE believes the establishment of an elimination schedule will help to dampen the criticism and help Ecuador avoid any specific action against it within the WTO. HODGES