VZCZCXYZ0010
RR RUEHWEB

DE RUEHBO #0317/01 0332123
ZNR UUUUU ZZH
R 022123Z FEB 09
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 6764
INFO RUEHBR/AMEMBASSY BRASILIA 8612
RUEHCV/AMEMBASSY CARACAS 1594
RUEHLP/AMEMBASSY LA PAZ FEB LIMA 6945
RUEHZP/AMEMBASSY PANAMA 2949
RUEHQT/AMEMBASSY QUITO 7649
RUEHSG/AMEMBASSY SANTIAGO 2479
RUEHGL/AMCONSUL GUAYAQUIL 4805
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS BOGOTA 000317 
 
SENSITIVE 
SIPDIS 
 
WHA/EPSC ROONEY 
WHA/AND 
STATE PASS USTR M. CARILLO 
 
E.O. 12958: N/A 
TAGS: ECON ETRD ECIN PREL CO
SUBJECT: WILL COLOMBIA-ECUADOR TRADE DRY UP?:  A VIEW FROM 
THE BORDER 
 
REF: QUITO 60 
 
¶1. (SBU) SUMMARY.  Ecuador's balance of payments safeguard 
measures have left Colombian policymakers and business 
community leaders frustrated and concerned over the future of 
the commercial relationship with their third largest export 
market.  The economic outlook in the border department of 
Narino is bleak, as businesses brace for decreased trade and 
higher unemployment in an area already ravaged by the 
financial pyramid crisis of late 2008.  While the safeguards 
are not directed at any one specific country, they come on 
the heels of increasingly onerous requirements that Ecuador 
placed on Colombians wishing to travel to their southern 
neighbor. This has led many Colombians in the border area to 
view themselves as the victims of a deteriorating 
Colombian-Ecuadorian relationship, an unwelcome development 
as Colombia's other principal markets remain squeezed by the 
global financial crisis.  END SUMMARY. 
 
2008 TRADE IMMUNE FROM DIPLOMATIC SPAT 
-------------------------------------- 
 
¶2. (SBU) Ecuador is Colombia's third largest export market 
(following the U.S. and Venezuela).  Virtually all of 
Colombia's exports to Ecuador are non-traditional, industrial 
goods with higher value-added than the commodities that make 
up the bulk of Colombia's exports to the world.  Principal 
export products include automobiles, medicines, cleaning 
products, household appliances, cosmetics, books and food 
products.  Despite the break in diplomatic relations in March 
2008, following Colombia's bombing of FARC Commander Raul 
Reyes's camp on Ecuador's side of the border, Colombian 
exports to Ecuador increased by 17 percent in the first nine 
months of 2008.  Ecuadorian exports to Colombia showed a 
similar increase.  Laura Martinez, Commercial Director of the 
Colombian-Ecuadorian Chamber of Commerce in Bogota confirmed 
that the GOE had not diminished its trade-related services in 
Colombia as a result of the suspension of formal diplomatic 
relations. 
 
NEW MEASURES WILL HURT COLOMBIAN EXPORTS 
---------------------------------------- 
 
¶3. (SBU) The balance of payments safeguards that Ecuador 
formally announced on January 22 (reftel) apply to 627 tariff 
classifications, including 380 products that Colombia exports 
to Ecuador.  Colombia's Ministry of Trade and Industry 
estimates exports to Ecuador will fall by USD 210 million (15 
percent) in the face of new quotas and tariffs on a range of 
goods, including apparel, shoes, appliances, vehicles, 
cosmetics, ceramics and cleaning products.  The Ministry's 
Director of Economic Integration Alfredo Ramos pointed out 
the double hit that Colombia and other Andean Community (CAN) 
nations will absorb, as they are forced to pay Most Favored 
Nation (MFN) level tariffs, as well as the new tariffs on 
goods that previously entered Ecuador duty-free.  Ramos noted 
that while Colombia's lack of diplomatic relations prevented 
it from discussing the issue with Ecuador directly, Peru 
unsuccessfully lobbied Ecuador to exclude CAN countries from 
the safeguards.  (NOTE: The CAN Secretariat has 30 days from 
Ecuador's notification to receive comments from 
member-countries and rule on the legality of the safeguard 
measures.  Colombia hopes that, despite Ecuador's significant 
trade deficit with Colombia, Ecuador's overall trade surplus 
with CAN countries will justify at least an easing of the 
measures on CAN partners. END NOTE.) 
 
RESENTMENT ON THE BORDER OVER "PERSONAL PROBLEM" 
--------------------------------------------- --- 
 
¶4. (SBU) Econoff traveled to the towns of Pasto and Ipiales 
in the border department of Narino to examine the practical 
impact of the measures and gauge the mood in the wake of the 
political and economic turbulence.  Local political and 
business leaders stressed the negative impact the safeguard 
measures would have on the local economy, particularly on 
 
transport/logistics companies, customs brokers, "braceros" 
(who physically carry merchandise across the border) and 
others who support the bilateral flow of commerce.  Roughly 
80 percent of Colombia's exports to Ecuador travel by land, 
the lion's share of which enters Ecuador via the Rumichaca 
bridge at Ipiales.  National Tax and Customs Directorate 
(DIAN) Ipiales Regional Director Laureano Gomez said he 
expected export numbers for January to decline significantly 
and that smuggling in both directions across the porous 
border would increase.  (NOTE: Narino is already suffering 
the effects of the financial pyramid crisis of late 2008. 
Unofficial estimates put the number of Narinenses who had 
money invested in pyramid schemes at over 90 percent. 
Narino's unemployment rate of over 15 percent is five points 
higher than the national average and is sure to increase with 
the slowdown in trade with Ecuador. END NOTE) 
 
¶5. (U) In December, Ecuador reinstated a requirement that 
Colombians entering Ecuador present proof they have no 
criminal history.  In January, Ecuador imposed a further 
requirement that this document have an apostille from the 
MFA.  Add to these measures stricter enforcement of yellow 
fever vaccination verification, and what Ipialenses describe 
as "harassment" of cars with Colombian license plates driving 
into the interior of Ecuador, and the result is a 30-50 
percent decrease in Colombians crossing the border, according 
to press reports. 
 
¶6. (SBU) Many blame worsening Colombian-Ecuadorian relations 
on personal enmity between Presidents Uribe and Correa, 
though local political and security officials have told us 
that their technical-level counterparts in Ecuador remain 
ready to cooperate.  Deputy Mayor of Ipiales Dario Pantoja 
noted that at the height of the diplomatic crisis last March, 
communities in Ipiales on the Colombian side and Tulcan on 
the Ecuadorian side of the border joined in a march for peace 
"to show that the crisis was not between the peoples of the 
two countries; we need each other."  President Uribe was well 
received in Narino on January 25 when he announced the 
creation of a "Unified Southern Command," which would bring 
27,000 additional troops to the border region.  In a nod to 
the department's economic woes, Uribe also announced his 
intention to create free trade zones in Pasto, Ipiales and 
Tumaco, which would serve to attract investment through lower 
tax rates. 
 
COMMENT: MORE BAD NEWS FOR EXPORTERS 
------------------------------------ 
 
¶7. (SBU) Ecuador's safeguard measures come at a worrying time 
for Colombian exporters, who are already dealing with a 
downturn in the U.S. and decreased demand from oil-rich 
Venezuela.  The measures will hit particularly hard the 
border department of Narino, which has already been battered 
worse than any other region by the pyramid scandal.  While 
not aimed specifically at Colombia, the measures add a layer 
of tension to already tense bilateral relations.  Most 
Colombian analysts view the measures as legal under the CAN 
and WTO, leaving the diplomatic approach as Colombia's only 
recourse if it is to avoid a sharp decrease in exports to its 
third largest trading partner. 
BROWNFIELD