VZCZCXYZ0004
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