GoE Response to Demarche on Balance of Payments Safeguard

UNCLAS QUITO 000096 SENSITIVE SIPDIS PASS USTR FOR RHODE, EISSENSTAT, AND HARMAN DEPT FOR EEB/TPP/MTAA FOR CRAFT USDOC FOR ITA TREASURY FOR YUAN E.O. 12958: N/A TAGS: ETRD ECON WTRO USTR EC SUBJECT: GoE Response to Demarche on Balance of Payments Safeguard Measures REF: STATE 6165; 09 QUITO 060; 09 QUITO 509 ¶1. (SBU) Summary. In response to ref A demarche on balance of payments (BoP) safeguards, GoE officials assured Emboffs the government will publish by February 6 a schedule for the progressive reduction of the safeguards, leading to their total elimination in six months. Our interlocutors argued that immediate elimination of the safeguards could produce a surge in the level of imports and reverse a tenuous improvement in the country's balance of payments situation. However, a more likely justification for continuing the safeguards beyond the January 22, 2010 one-year anniversary (ref B),is the GoE's interest in buying time while it develops a plan for providing some form of protection for sensitive sectors that have flourished under the safeguards. The GoE appears to have concluded that it will suffer minimal repercussions for the temporary continuation of the safeguards. End Summary. ¶2. (SBU) On January 25, Emboffs delivered ref A points on Ecuador's balance of payments (BoP) safeguards in separate meetings to Technical Secretary of the Coordinating Ministry for Production Mauricio Pena and Secretary of Ecuador's Trade and Investment Council (COMEXI) Ruben Moran, who also is currently Under Secretary of Trade and Investment in the Ministry of Industries and Productivity. The Embassy will also request a meeting for the Ambassador to raise demarche points with Coordinating Minister for Production Nathalie Cely, who presides over COMEXI as President Correa's representative to the council. ¶3. (SBU) According to both Pena and Moran, the GoE plans to eliminate the safeguards in six months, claiming this is the timeframe established in COMEXI Resolution 533. The six months would run from the publication date of Resolution 533, or January 15, 2010. Pena said a COMEXI decision on a schedule for the progressive reduction/elimination of the safeguards had been delayed due to a request by Minister Cely for additional technical details. Nonetheless, Pena assured Emboffs that a final decision would be taken by COMEXI next week. Moran confirmed this. Pena and Moran claim the GoE intends to be as transparent as possible with publication of the schedule, despite the potential disruption to trade that may result from importers delaying orders as they wait for application of a lower safeguard tariff according to the schedule. ¶4. (SBU) While Pena and Moran acknowledged improvement in Ecuador's balance of payments situation by the end of 2009, they argued the improvement was tenuous and that the safeguards must be eliminated gradually to avoid a sharp increase in imports and a return of balance of payment problems. Neither expressed concern that continuation of the safeguards represented a breach of the GoE commitment within the WTO BoP Committee to eliminate the safeguards within one-year from their application. ¶5. (SBU) Pena and Moran confirmed the GoE's intention to provide some form of future protection for sensitive sectors, currently identified as footwear and textile sectors, once the general safeguards are eliminated. While emphasizing the GoE has only just begun to study potential measures, Pena said any measures adopted will be: sector specific; WTO compliant; and temporary. Moran also suggested the measures might be specific to origin, citing imports from China as the main problem, and that raising sector specific tariffs to their bound rates could be a possible first step. Comment ¶6. (SBU) We suspect the GoE's plan to gradually reduce the safeguards is principally driven by an interest in devising some form of protection for sensitive sectors before the safeguards' final elimination. Essentially, the six-month schedule will buy the GoE the time needed to formulate and justify some form of protection for the footwear and textile sectors. Moran admitted that import levels during the first several months of the year, when the safeguards will be highest, are typically among the lowest of the year, undercutting claims that imports would likely surge without the safeguards. HODGES