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Cablegate: Foreign Minister Espinosa Positive On Bit, Economic

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OO RUEHWEB

DE RUEHQT #1464/01 1761929
ZNR UUUUU ZZH
O 251929Z JUN 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7291
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6737
RUEHBR/AMEMBASSY BRASILIA PRIORITY 3759
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 0743
RUEHCV/AMEMBASSY CARACAS PRIORITY 2591
RUEHLP/AMEMBASSY LA PAZ JUN 0635
RUEHPE/AMEMBASSY LIMA PRIORITY 1744
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 2232
RUEHSG/AMEMBASSY SANTIAGO PRIORITY 3058
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 2496
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 001464

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR SGOOCH
USTR FOR BENNETT HARMAN

E.O. 12958: N/A
TAGS: ECON ETRD EFIN EC
SUBJECT: FOREIGN MINISTER ESPINOSA POSITIVE ON BIT, ECONOMIC
DIALOGUE; PULLED BACK ON OXY ARBITRATION COMMENTS

REF. A. Quito 1045

B. Salazar-Edwards e-mail 6/19/07

1. (SBU) Summary: In an interview with El Comercio newspaper on
June 21, Foreign Minister Espinosa made several forward-leaning
statements regarding economic relations with the United States.
Espinosa explained that the GOE would not withdraw from its
bilateral investment treaty (BIT) with the U.S. but is reviewing all
of its BITs, would accept the results of the Occidental Petroleum
(Oxy) arbitration case "come what may", and is interested in
exploring a long-term commercial accord with the U.S (even though it
is not ready to sign an FTA). President Correa walked back from
Espinosa's Oxy comments in the following days, stressing that the
GOE continues to reject the arbitration tribunal's jurisdiction over
the case. End Summary.

U.S.-Ecuador Bilateral Investment Treaty
----------------------------------------

2. (U) Espinosa noted in her interview that she had previously
"used the wrong words" when she stated publicly that the GOE would
denounce or withdraw from the U.S.-Ecuador Bilateral Investment
Treaty. Rather than denouncing the treaty, she reaffirmed the GOE's
position that it is planning to begin a bilateral process to reform
all of the country's bilateral investment treaties (ref A).

Oxy
---

3. (U) When asked whether Ecuador would accept the results of
arbitration in the Occidental arbitration case, Espinosa responded
that it would, "come what may." She said that the arbitration is a
legitimate process, and Ecuador will exercise its legitimate right
to argue that Oxy did not respect its contract. She noted that the
arbitration is independent of what the GOE thinks about the tribunal
(the World Bank's International Center for the Settlement of
Investment Disputes, ICSID), and that it would be irresponsible for
Ecuador not to defend itself.

4. (SBU) In the following days, however, both President Correa and
Ecuador's Procurador General (solicitor general) walked back
Espinosa's statement. A Foreign Ministry press statement noted that
only the President and the Procurador have authority to make
declarations about the arbitration process. Correa announced that
there had been no change in position and that the GOE continues to
reject ICSID's jurisdiction over the Oxy case. Correa attributed
Espinosa's comments to a misunderstanding by the interviewing
reporters. He further pointed to the fact that Ecuador had not
appointed an arbiter as proof of Ecuador's rejection of the arbitral
process. Correa did not specifically say what the GOE would do
should they lose their argument with respect to ICSID jurisdiction
and ultimately (upon conclusion of the multi-year arbitral process)
be faced with a negative decision requiring some kind of
compensatory action.

Economic Dialogue
-----------------

5. (SBU) When asked whether a short-term ATPA extension would put
pressure on Ecuador to negotiate a broader trade arrangement,
Espinosa responded that although Ecuador would not sign an FTA with
the U.S., she acknowledged that the U.S. is Ecuador's most important
trading partner and suggested that Ecuador is interested in a
long-term commercial framework with the U.S. that would provide
trade preferences. She acknowledged that there currently is no
model for such a long-term commercial deal, but said that the GOE is
considering starting a dialogue with the USG on economic issues
which could explore a "long-term system of preferences." Embassy
Quito responded to press inquiries with Washington's cleared
guidance (ref B), confirming the possibility of an economic
dialogue, but did not address the question of a long-term framework.


6. (SBU) Comment: Having recently returned from her ATPA lobbying
effort, Espinosa continued to attempt to put a positive spin on
bilateral economic relations while also responding to private sector
concerns about the possible eventual loss of ATPA benefits. She
apparently exceeded her mandate regarding the GOE's posture on the

Oxy arbitration case. President Correa and her own ministry
subsequently walked back her comment by focusing instead on the
GOE's legal tactic of challenging ICSID's jurisdiction over the
case. And while the positive tone is welcome, Espinosa also was
reaching rather far in suggesting that the still-to-be launched
Economic Dialogue might be able to develop a new model for long-term
trade preferences, which could raise private sector expectations for
what a dialogue could achieve. End Comment.

JEWELL

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