VZCZCXYZ0002
OO RUEHWEB

DE RUEHQT #1399/01 1582131
ZNR UUUUU ZZH
O 072131Z JUN 06
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4535
INFO RUEHC/DEPT OF LABOR WASHDC PRIORITY
RUEHBO/AMEMBASSY BOGOTA 5670
RUEHCV/AMEMBASSY CARACAS 1776
RUEHLP/AMEMBASSY LA PAZ JUN LIMA 0641
RUEHGL/AMCONSUL GUAYAQUIL 0599
RUEHGV/USMISSION GENEVA 0337

UNCLAS QUITO 001399 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/AND, WHA/PPC, EB, AND DRL/IL. USDOL FOR CARLOS 
ROMERO. GENEVA FOR JOHN CHAMBERLIN. PLEASE PASS USTR FOR V. 
LOPEZ AND B. HARMON. 
 
E.O. 12958: N/A 
TAGS: ELAB PGOV EC
SUBJECT: CONGRESS PASSES SUBCONTRACTING LAW IMPROVING 
TEMPORARY WORKER BENEFITS; BROADER REFORM AT RISK 
 
 
¶1.  (SBU) Summary:  Congress passed a law on May 30 to 
regulate subcontracting, setting a maximum 50 percent of 
workers that can be hired through this mechanism.  Workers 
can be subcontracted for any function.  Employers must 
provide subcontracted workers with profit sharing and 
contributions to social security and reserve funds, but 
subcontracted workers can be fired at will.  The President 
still must approve the law by June 16 and subcontracting 
companies will likely push for a veto.  Meanwhile, the 
Chamber of Industries has withdrawn its representative from 
the tripartite National Labor Council, setting back prospects 
for tripartite labor code reforms.  End Summary. 
 
Contents of the Law 
------------------- 
 
¶2.  (U) On May 30, Congress passed a subcontracting law to 
regulate this hiring mechanism, superseding an October 2004 
presidential decree on subcontracting which set a maximum 75 
percent for subcontracted workers.  The law passed with 55 
votes from the Democratic Left (ID), UDC, PRE, PSP, 
Pachakutik, MPD and Socialist parties and some independents. 
Banana magnate Alvaro Noboa's PRIAN party and the Social 
Christian Party voted against the law. 
 
¶3.  (U) According to congressional sources, the law sets a 50 
percent cap on the percentage of workers a company can hire 
through subcontracting.  During a company's start-up phase 
(up to 270 days) the 50 percent cap would not be applied. 
The law states that subcontracting can be used for all 
activities of a company, including permanent, occasional, and 
hourly work.  The hiring of persons under 18 years of age as 
subcontracted workers would be prohibited. 
 
¶4.  (U) Subcontracting companies will be required to have a 
minimum of $10,000 capital in order to register with the 
Ministry of Labor.  This is intended to prevent ghost 
companies.  The Ministry of Labor will need to set up a 
special inspections system to regulate subcontracting and 
implement the law.  According to the Ministry of Labor, 1,048 
out of 2,156 subcontracting companies in the country have 
registered with the MOL as required by the 2004 decree. 
(Comment:  We question whether the GOE will be any more 
successful in getting subcontractors to register under the 
proposed system.  End Comment.)  It is estimated that there 
are approximately one million subcontracted workers in 
Ecuador. 
 
Unions Happy, Employers Hope to Block 
------------------------------------- 
 
¶5.  (U) Labor union leader Mesias Tatamuez said he was 
pleased with the passage of the law as it requires that 
subcontracted workers receive their reserve funds, be 
affiliated with social security, and receive company profit 
sharing.  The press reported however that some subcontracting 
company representatives would seek a partial presidential 
veto of the law and would challenge its constitutionality. 
Minister of Labor Galo Chiriboga is expected to argue for the 
law's passage as is. 
 
Alleged Corruption Could Block Law 
---------------------------------- 
 
¶6.  (SBU) In a June 1 meeting, Andres Paez, the president of 
Congress' Labor Commission, told us an atmosphere of 
consensus had prevailed in the tripartite National Labor 
Council during discussions of the law earlier this year. 
Only two articles of the 22 article bill were sent to 
Congress without consensus.  Once in Congress, however, Paez 
alleged subcontracting companies had spent $800,000 to block 
the law.  He expected the same companies to spend up to $1 
million to convince the President to veto the law.  The 
President was presented the law and must make a decision on 
whether to veto it by July 16 before the law can be published 
in the official register. 
 
One Step Forward; One Step Back 
------------------------------- 
 
¶7.  (U) According to June 3 press reports, President of the 
Guayaquil Chamber of Industries Alberto Dassum has withdrawn 
the National Chamber of Industries' representative to the 
National Labor Council.  In a letter to the Ministry of 
Labor, Dassum said he withdrew the representative not over 
the subcontracting law, but rather because the chamber 
disagreed with the Council's decision to raise the minimum 
wage by $10 earlier this year and the recent passage of a law 
to increase the employment of persons with disabilities. 
 
Comment 
------- 
 
¶8.  (SBU) The passage of the subcontracting law strengthens 
benefits and protections for subcontracted workers and 
represents an improvement over the previous decree.  It also 
provides employers with greater flexibility to hire and fire 
temporary workers.  Should President Palacio sign it, 
implementation of the law could prove difficult due to the 
Ministry of Labor's limited resources.  Meanwhile, 
business-labor dialogue and consensus on broader reform is 
now jeopardized by the Chamber of Industries' withdrawal from 
the National Labor Council, and could signal a reluctance by 
business leaders to consider any further labor reforms 
without a real prospect for an FTA with the U.S. 
JEWELL