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Cablegate: Ecuador Econ Weekly: Tariff Cuts; Effect of Opec Cuts;

VZCZCXYZ0011
RR RUEHWEB

DE RUEHQT #1090 3301938
ZNR UUUUU ZZH
R 251938Z NOV 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 9667
INFO RUEHBO/AMEMBASSY BOGOTA 7849
RUEHCV/AMEMBASSY CARACAS 3280
RUEHLP/AMEMBASSY LA PAZ NOV LIMA 2913
RUEHGL/AMCONSUL GUAYAQUIL 3931

UNCLAS QUITO 001090

SIPDIS

E.O. 12958: N/A
TAGS: ECON EPET EFIN ETRD EC
SUBJECT: ECUADOR ECON WEEKLY: TARIFF CUTS; EFFECT OF OPEC CUTS;
TRADE WITH PERU

REFTEL: 07 QUITO 1969

1. (U) The following is a weekly economic update for Ecuador that
describes notable developments that are not reported by individual
cables.

Tariff Cuts for 49 Industrial Inputs
------------------------------------

2. (U) On October 30, Ecuador's Council on Foreign Trade and
Investment (Comexi) approved a proposal to reduce tariffs to zero on
49 industrial inputs and raw materials. This is the eighth tariff
reform since August 2007 (reftel). The objective is to improve
national production in the manufacturing, mining, textile, and
cement sectors. Products with tariff reductions include fuel for
industrial engines; lubricant greases; alcohol sulfates, rubber
waste; threads and cords of vulcanized rubber, and fabrics for towel
manufacture, among others. Under Secretary for Foreign Trade in the
Ministry of Industries, Alexis Valencia, said that the reform would
cost the GOE $6.7 million in lost tariff revenue.

Effect of OPEC Production Cuts on Ecuador
-----------------------------------------

3. (U) Ecuador rejoined OPEC in October 2007. In October 2008, OPEC
decided to cut production given falling petroleum prices. President
Correa supported OPEC's decision in his weekly radio address October
25, and said that Ecuador agreed to lower its quota from 520,000
barrels per day (bpd) to 493,000 bpd. Ecuador currently produces
around 500,000 bpd between state oil company Petroecuador and
private companies, and increasing production has been an
administration priority.

4. (U) On November 10, Minister of Mines and Petroleum Derlis
Palacios announced that Ecuador would ask OPEC for "special
treatment" to maintain production if the group institutes additional
production cuts, citing Ecuador's marginal producer status and the
significant effect cuts would have on Ecuador's budget. On November
15, President Correa stressed that Ecuador would "respect and follow
OPEC's decisions," while echoing the Minister's comments that
Ecuador would seek exceptions because of its marginal status.

Ecuador-Peru Trade Increased following Peace Accord
--------------------------------------------- ------

5. (U) At the Ecuador and Peru Integration Forum, celebrating the
ten year peace agreement between these countries, Alfredo Davalos,
Director of the Commercial Office at the Embassy of Ecuador in Lima,
stated that trade between Peru and Ecuador had increased by over
500% from 1998 to 2007. Trade had increased from $300 million in
1998 to $1.9 billion in December 2007. Davalos said that trade was
expected to reach $2.2 billion by the end of 2008. Petroleum
comprises 80 percent of Ecuadorian exports to Peru; other exports
include wood products, tuna, shoes, and cleaning products. Imports
from Peru are largely petroleum derivative products and cleaning
products. Ecuador has a positive trade balance with Peru; last year
Ecuador's exports to Peru were $1.5 billion, while Peru's exports to
Ecuador were $400 million.

HODGES

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