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RR RUEHWEB

DE RUEHQT #0126/01 0331402
ZNR UUUUU ZZH
R 021401Z FEB 10
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 0898
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
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 000126 
 
SENSITIVE 
SIPDIS 
PASS TO USTR FOR RHODE, EISSENSTAT, HARMAN 
DEPT FOR WHA/AND AND EEB/TPP/MTAA FOR CRAFT 
USDOC FOR ITA 
TREASURY FOR YUAN 
 
E.O. 12958: N/A 
TAGS: ETRD ECON USTR WTRO EC
SUBJECT: Sporting Goods Sales of Nike and Avia Products in Ecuador 
Fall Due to BoP Safeguards 
 
REF: QUITO 96 
 
¶1.   (SBU)   Summary.  Less than a week after an information 
technology delegation met with GoE officials to encourage them to 
dismantle balance of payments safeguards that have been in place 
since January 2009 (septel), representatives of Nike and a local 
sporting goods retailer met with the Embassy's Senior Commercial 
Officer (SCO) to detail the negative repercussions of the 
safeguards on their sector.  Sales of Nike products fell 
significantly over the past year, and the prospect of continuing 
safeguards is increasingly problematic.  Similar quality products 
are not manufactured in Ecuador, and according to local footwear 
producers, domestic industry is not pressing the GoE for 
protection.   End Summary. 
 
¶2.   (SBU)   On January 22, SCO met with Rodrigo Rivadeneira, 
 
General Manager for Marathon Sports, and Margarita Ormaza, Manager 
for Nike brands in Ecuador.  Rivadeneira asked for the meeting to 
discuss the negative impact on Marathon/Nike sales due to the 
balance of payments safeguards (tariff surcharges) the GoE has had 
in place since January 22, 2009 (reftel and previous).  Marathon is 
a major sporting goods retailer operating 34 stores throughout 
Ecuador.  Overall, Ecuador imports about one million pairs of 
athletic shoes per year, with a value of almost $40 million. 
 
¶3.   (SBU)   According to Rivadeneira, sales of Nike products in 
Marathon outlets fell substantially over the past year as a result 
of the balance of payments safeguards  --  equipment fell by 8%; 
apparel by 18%; and footwear by 10%.  In addition, the safeguards 
increased Marathon's tax burden by $4.8 million due to the import 
tariff surcharges.  Rivadeneira claimed the damage to Nike sales 
would have been worse were it not for Marathon's ability to place 
and promote Nike products at its various retail outlets, noting 
that another U.S. brand, Avia, had seen sales decrease by 50%. 
Rivadeneira said Marathon had not cut employment, per an agreement 
signed with the GoE last year, but that extension of the safeguards 
beyond the one-year anniversary was increasingly problematic.   He 
also claimed the safeguards have been pushing imports into the grey 
market, with deleterious effects on Marathon, though not as much on 
suppliers (i.e., Nike). 
 
¶4.   (SBU)    Marathon, through its subsidiary, Equinox, locally 
manufactures Nike cotton tee shirts for regional export as well as 
fleece and polo shirts for the local market.  Due to the lack of 
local expertise and technical capabilities, Nike does not 
manufacture footwear or "performance" attire locally.  Local 
production of athletic shoes is basically non-existent.  Local 
manufacturing of footwear is characterized as a semi-industrial 
cottage industry focused mostly on artisanal, leather products. 
Although GoE interlocutors have told Emboffs the government is 
considering some form of protection specifically for footwear, 
during a recent visit by Rivadeneira and Ormaza to the city of 
Ambato, Ecuador, center of Ecuadorian footwear production, local 
producers denied they were pressing the government for protection. 
 
 
¶5.   (SBU)    According to Rivadeneira, Marathon is now taking a 
more aggressive stance against the safeguards.  It is forming a 
trade association for athletic apparel and footwear to unite and 
magnify the voice of local distributors.  Marathon has expressed 
its concern with the Coordinating Ministry for Production in person 
and in writing.  Due to the GOE's stated desire of increasing local 
footwear production, Marathon has also discussed the possibility of 
working with local footwear manufacturers on a joint venture, or 
introducing some lines of locally-manufactured footwear into 
Marathon's retail outlets in an effort to gain relief from the 
safeguards.  In a conversation with Minister for Sports Sandra 
Vela, she mentioned to Marathon that the GOE was considering 
establishing a factory to manufacture sporting goods with Iranian 
financing. 
 
¶6.   (SBU)    Comment.  While import dependent businesses by and 
large were willing to wait out the one year the safeguards were 
supposed to last, as in the case of Marathon, we expect they will 
become increasingly vocal in their criticism of the measures as 
their bottom line calculations continue to suffer.  However, 
 
 
despite practical arguments that the safeguards have produced 
significant negative consequences -- higher consumer prices, 
increased smuggling, and lost tax revenue --  the government 
appears set in its present course to eliminate the safeguards only 
gradually over a six month period. 
HODGES