VZCZCXYZ0000
RR RUEHWEB

DE RUEHQT #0601/01 1891326
ZNR UUUUU ZZH
R 071326Z JUL 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 9087
INFO RUEHBO/AMEMBASSY BOGOTA 7637
RUEHCV/AMEMBASSY CARACAS 3095
RUEHLP/AMEMBASSY LA PAZ JUL LIMA 2685
RUEHGL/AMCONSUL GUAYAQUIL 3662
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS QUITO 000601 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR MEWENS 
STATE PASS USITC FOR L.M. SCHLITT 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EC
SUBJECT: RESPONSE TO USITC REQUEST: ECUADOR 2006-2007 ATPA 
INVESTMENT 
 
REFTEL A:  State 59051 
       B:  Quito 2417 
 
¶1.  (U) Following is Post's response to the USITC request for 
information regarding ATPA related investment activity in Ecuador in 
2006 and 2007 (ref a). 
Effect of the ATPA/ATPDEA on Exports 
------------------------------------- 
 
¶2.  (U) Under ATPA, U.S. imports from Ecuador were $5.3 billion in 
2006 and $4.6 billion in 2007.  Over 75% of Ecuador's total exports 
to the U.S. in 2006 and 2007 were under ATPA.  While ATPA's 
provision of duty-free entry to a wide range of Ecuadorian products 
has led to diversification of exports, the country's overall export 
figures in dollar terms remain concentrated in petroleum (92% of 
total ATPA exports).  After petroleum, exports of cut flowers 
represent the largest export from Ecuador under ATPA: $141 million 
in 2006 and over $143 million in 2007.  Following flowers, seafood, 
largely pouched tuna, represents the third largest ATPA export. 
Some less significant products, including broccoli and mangoes, 
experienced significant growth in exports to the U.S. under ATPA 
during 2006 and 2007.  Under ATPA, broccoli exports went from $12 
million in 2005 to $17 million in 2006 and $22 million in 2007; 
mango exports went from $10 million in 2005 to $14.7 million in 2006 
and $15.6 million in 2007. 
Textiles and Apparel 
-------------------- 
 
¶3.  (U) Textile and apparel exports under ATPA are very small, but 
grew in 2007.  According to the Ecuadorian Textile Association 
(AITE), the Ecuadorian textile sector grew for the first time in a 
decade by 6.7% in 2007.  AITE claims that some of the growth can be 
attributed to its work in partnership with customs officials to 
reduce the number of contraband and under-priced textiles entering 
the country, estimated at over $200 million a year. 
 
¶4.  (U) Ecuador's well-organized (but small) textile industry has 
largely dedicated its efforts to supplying fabric to Colombian 
exporters (ref b).  Virtually all Ecuadorian cotton fabrics are 
produced using imported U.S. cotton fiber.  Ecuador's textile 
industry is benefiting from ATPA preferences by supplying fabrics to 
Colombian garment producers, who in turn export to the U.S.  The 
President of AITE noted that Ecuador's textile sector, in the 
absence of ATPA preferences, could be significantly hurt when the 
FTA with Colombia goes into effect. 
 
Tuna 
---- 
 
¶5.  (U) Ecuadorian exports of pouched tuna to the U.S. under ATPA 
have been increasing, but fell in 2007; overall ATPA tuna exports 
continued to grow.  Companies are concerned about the termination of 
ATPA preferences. 
 
¶6.  (SBU) Starkist's Empresa Pesquera Ecuatoriana (EMPESEC) exports 
pouched tuna to the U.S. under ATPA.  The investment amounts below 
represent general investments to maintain business operations and 
facilities.  The last expansion investment of $2 million was made in 
2005, before the reporting period.  EMPESEC S.A. owns facilities in 
Manta and Guayaquil. 
 
Name of company:  EMPESEC S.A. 
2006 and/or 2007 investment amount:  An average of 800,000 in each 
year 
New or expansion investment:  Neither 
Located in free trade zone?  No 
Type of product to be exported:  Tuna (canned and pouched) 
Estimated value of exports to the United States:  $100 million over 
the last three years 
Would project have been launched in the absence of ATPA/ATPDEA 
preferences?  No 
Does firm use inputs of U.S., U.S. Virgin Islands, Puerto Rico, 
Caribbean (CBERA), or other ATPA beneficiary origin as inputs for 
ATPA eligible goods?  No 
 
Flowers 
------- 
 
¶7.  (U) Ecuadorian flower exports to the U.S. under ATPA have had a 
steady upward trend for many years, with an increase of 107% over 
the last ten years.  According to the Association of Flower 
Producers and Exporters of Ecuador (EXPOFLORES), investment and 
 
production in the flower sector increased by 10% in 2006. 
 
¶8.  (U) The primary market for Ecuadorian flower exports is the 
United States.  According to companies within the sector, exports of 
flowers to the U.S. account for 57% of their total flower exports, 
the majority of which are under ATPA.  Roses are the primary ATPA 
flower export to the U.S.  Exports of other cut flowers and fresh 
Gypsophilia under ATPA are small but are growing significantly. 
However, the U.S. share of Ecuador's flower export market is 
falling, and companies in the sector anticipate a further decline. 
According to a major flower exporter in Ecuador, the lack of 
long-term certainty for trade preferences with the U.S. and the 
stronger euro, which has more than compensated for higher European 
transportation costs, has led many Ecuadorian growers to redirect 
their exports to Europe. 
 
¶9.  (U) Many rose growers within the sector are growing varieties 
especially for the European and Russian markets.  Businesses within 
Ecuador's flower sector participated in the 2006 and 2007 
International Flower Exhibition in Moscow, which is often touted as 
the "Road to the Russian Market."  The International Flower 
Exhibition in Moscow is visited annually by over 50,000 individuals 
and 15,000 businesses from Eastern Europe. 
 
¶10.  (U) In 2006, Dole Fresh Flowers, a subsidiary of the U.S.-based 
Dole Foods, closed its cut flower operations in Ecuador as a result 
of "worldwide restructuring decisions, the highly fragmented and 
competitive market, and growing competition from African and Asian 
countries." 
 
Other Agriculture 
----------------- 
 
¶11.  (U) Broccoli exports under ATPA increased significantly in 2006 
and 2007.  In FY2007, USAID/Ecuador provided grants and training in 
the amount of $1 million to eight small farming enterprises in 
Ecuador's northern border provinces.  As a result, 1,000 Ecuadorian 
farmers were trained in agricultural and post-harvest best 
practices, contributing to their productivity and improved product 
quality.  Participant farmers currently export 100% of their 
production, which includes cacao, coffee, and broccoli.  However, a 
major broccoli exporter has said that without ATPA broccoli exports 
would not be competitive in the U.S. market. 
 
Foreign Direct Investment 
------------------------- 
 
¶12.  (U) According to the Central Bank of Ecuador, the net flow of 
foreign direct investment (FDI) into Ecuador was $270.7 million in 
2006 and $178.5 million in 2007.  (Note:  the Ecuadorian Central 
Bank recently changed its FDI methodology; current data lists FDI 
inflow net of outflows while past data was gross inflows. 
Therefore, this information is not compatible with reported FDI data 
from previous cables.)  The principal sectors to benefit from FDI 
were the petroleum, manufacturing and services sectors.  The flow of 
U.S. direct investment into Ecuador was negative $160 million in 
2006 and $79 million in 2007.  Ecuador's FDI inflow from Europe 
totaled $83.8 million in 2006 and $211.5 million in 2007, from the 
Andean Community totaled $13.7 million in 2006 and $35.5 million in 
2007, and from China totaled $12 million in 2006 and $60.5 million 
in 2007.  Below is a breakdown by sector of FDI inflows for 2006 and 
¶2007. 
 
Net Flows of Foreign Direct Investment by Sector, 2006 and 2007 
(In Thousands of Dollars) 
 
Sector                                        2006         2007 
 
Agriculture, Forestry, Hunting, Fishing        47,314    21,864 
Oil, Mining, Quarrying                      116,618  -128,121 
Manufacturing Industry                       90,163    79,066 
Electricity, Gas and Water                   6,930    15,685 
Construction                                  8,449    -5,974 
Commerce                                      32,303    71,652 
Transport, Warehousing, Communications        83,324   -28,666 
Company Services                            89,360   139,120 
Community, Social, Personal Services        29,495    13,835 
 
Total         270,720   178,462 
 
Source: Central Bank of Ecuador 
 
Industry Concerns about Trade Issues 
------------------------------------ 
 
¶13.  (SBU) The various short-term ATPA extensions during 2006-2008 
had an effect on ATPA-related investment in Ecuador.  Starkist's 
Empresa Pesquera Ecuatoriana S.A. noted that investment would have 
likely been greater than the $800,000 annual maintenance investment 
in 2006 and 2007 if ATPA preferences were secured for a period of 
three to four years at a time.  Some tuna processing companies in 
Ecuador have discussed moving their operations from Ecuador to Peru 
when the FTA with Peru goes into effect.  Within the flower sector, 
Europe's share of Ecuador's exports continued to rise in 2006 and 
2007, while the U.S. share continued to decline.  There is a concern 
among companies in the flower sector that a ratified FTA with 
Colombia will have a negative impact on ATPA-related investment in 
Ecuador.  Furthermore, an FTA with Colombia could position Ecuador's 
textile sector even further behind its Andean neighbors in terms of 
growth and development.  The Ecuadorian textile industry has 
expressed concern that if Colombia has an FTA with the U.S., 
Ecuadorian inputs into Colombian products for export to the U.S. 
would not count toward accumulation for origin purposes and this 
significant market for Ecuador would likely disappear. 
 
Domestic Programs that support ATPA/ATPDEA 
------------------------------------------ 
 
¶14.  (U) CORPEI manages the following programs and associations 
designed to promote investment and exports: 
 
a.  Association of Coastal Horticulture Producers (ASHOFRUCO):  This 
association was created with the help of CORPEI to reactivate melon 
exports to the U.S., an ATPA-eligible product.  Approved by 
Ecuador's Ministry of Agriculture in July 2007 and in compliance 
with the U.S. Animal and Plant Health Inspection Service (APHIS), 
one of the first goals of the association is to reach agreement on 
the cultivation, harvesting, and export of melons to the U.S.  A 
$2.5 million dollar agreement between CORPEI and APHIS would ensure 
compliance with export requirements in this sector. 
 
b.  Identifying successful investment and promotion programs in 
concert with the United Nations Industrial Development Organization 
(UNIDO):  CORPEI, in collaboration with UNIDO, created an Investment 
Promotion Department and an evaluation system for investment 
projects.  In 2006, the software tool COMFAR was used to generate a 
portfolio of investment projects to be promoted through CORPEI's 
offices. 
 
c.  Expoecuador Program:  Expoecuador is a cooperation program 
between Ecuador and the European Community to promote small 
industries with export potential.  In 2007, the European Union 
through the Expoecuador Program donated equipment and materials to 
Ecuador's National Fishing Institute. 
 
d.  Sustainable BioTrade National Programme-Ecuador (PNBSE):  This 
is a program of Ecuador's Ministry of the Environment in 
coordination with CORPEI and the non-governmental organization 
EcoCiencia.  Its objectives are to combine poverty alleviation with 
biodiversity conservation.  Initiatives supported by PNBSE include 
technical assistance and capacity building for cocoa and cereal 
projects (some cocoa products are ATPA-eligible). 
 
Impact of ATPA on alternative development 
----------------------------------------- 
 
¶15.  (U) The ATPA has played an important role in providing 
Ecuadorians with jobs, through the growth of licit agricultural 
industries, thus deterring them from becoming involved in growing 
narcotics crops.  According to the Ecuadorian government, ATPA has 
generated approximately 350,000 jobs in Ecuador.  A study by CORPEI 
maintains that the ATPA has led to 70,000 direct jobs in the cut 
flower industry, 50,000 direct jobs in the tuna industry, and 20,000 
direct jobs in the broccoli sector. There are over 50,000 employees 
in the Ecuadorian textile industry, and a majority of textile 
workers within the sector have employment as a result of the ATPA. 
USAID/Ecuador has invested over $18 million in activities geared 
toward the northern and southern borders of Ecuador to create 
business opportunities for families to obtain jobs in the legal 
sectors of the local economy. 
 
JEWELL