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Cablegate: Goe Response to Demarche On Balance of Payments Safeguard

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DE RUEHQT #0096/01 0271527
ZNR UUUUU ZZH
R 271526Z JAN 10
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 0693
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBJ/AMEMBASSY BEIJING 0011
RUEHBO/AMEMBASSY BOGOTA
RUEHCV/AMEMBASSY CARACAS
RUEHGL/AMCONSUL GUAYAQUIL
RUEHLP/AMEMBASSY LA PAZ
RUEHPE/AMEMBASSY LIMA
RUEHQT/AMEMBASSY QUITO
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC

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

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