VZCZCXYZ0007
RR RUEHWEB

DE RUEHQT #0604/01 1981700
ZNR UUUUU ZZH
R 171700Z JUL 09
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 0642
INFO RUEHBO/AMEMBASSY BOGOTA 8269
RUEHCV/AMEMBASSY CARACAS 3640
RUEHLP/AMEMBASSY LA PAZ JUL LIMA 3316
RUEHGL/AMCONSUL GUAYAQUIL 4490
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS QUITO 000604 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR ECON EC
SUBJECT: GOE SURPRISES EMBASSY WITH PROPOSAL FOR NEW AVIATION 
AGREEMENT 
 
Ref.  A) QUITO 175 
 
¶1.  (SBU) SUMMARY: GOE officials at the Ministry of Foreign Affairs 
(MFA) surprised the Ambassador with a proposal for a new aviation 
agreement on July 14.  The Ambassador promised to share the proposal 
with Washington aviation colleagues.  She cautioned that the USG 
still favors Open Skies agreements, but promised that the proposal 
would receive careful consideration.  The MFA also informed the 
Ambassador that it has recommended that the GOE tax authority honor 
the existing aviation agreement.  This development might finally end 
a dispute over the taxation of U.S. airlines' remittances that began 
in December 2007. End Summary. 
 
¶2.  (SBU) The GOE Ministry of Foreign Affairs (MFA) requested a 
meeting with the Ambassador on July 14 to deliver a proposal for a 
new U.S.-Ecuadorian aviation agreement.  The Ambassador and EconOff 
met that afternoon with MFA Undersecretary for Sovereignty Claudia 
Donoso and other GOE officials to receive the proposal.  In the 
meeting, the Ambassador expressed thanks for the GOE efforts and 
said that the USG was also interested in modernizing its aviation 
agreement with Ecuador.  She expressed surprise at the apparent 
shift in GOE attitudes, since the Embassy had not received any 
advance notice that a proposal was even in the works, and previously 
the GOE had shown limited interest in a new aviation agreement. 
[Note: The Embassy arranged a digital videoconference (DVC) in 
August 2008, in which USG aviation officials expressed an interest 
in signing a new agreement with Ecuador.  At the time the GOE 
expressed reservations that the "Open Skies" model preferred by the 
USG would expose Ecuadorian carriers to unmanageable competition. 
Follow-up Embassy requests to the GOE for information about what it 
could accept in a new aviation agreement have gone unanswered. End 
Note.] 
 
¶3.  (SBU) The Ambassador cautioned the GOE officials in the meeting 
that the USG still prefers an Open Skies model, and that technical 
decisions about the U.S. position will be made in Washington.  She 
promised that the Embassy would help facilitate a dialogue between 
the GOE and US aviation authorities, however, and expressed hope 
that a mutually satisfactory agreement could be achieved.  The 
Ecuadorians appeared to be prepared for this response, stressing 
that they had "gone very far" toward meeting U.S. desires in their 
proposal, but acknowledging as well that it was "a first step." 
They expressed hope that Ecuadorian and US aviation officials could 
discuss this issue directly via DVC or meetings. 
 
¶4.  (SBU) U/S Donoso expressed interest in discussing the aviation 
proposal in the upcoming U.S.-Ecuadorian Bilateral Dialogue, which 
is expected to be re-launched this fall.  The Ambassador suggested 
that the Bilateral Dialogue was not an appropriate venue for 
negotiations due to the technical nature and the expected lengthy 
timeframe of the negotiations.   She mentioned, however, that a 
discussion of commitments to a new aviation agreement could be a 
positive item for the Bilateral Dialogue. 
 
¶5.  (SBU) The Ambassador noted that until we are able to negotiate a 
new agreement, both sides will have to depend upon the existing 
accord, which was signed in 1986.  She expressed a strong desire to 
see the GOE respect its terms, particularly with regard to the GOE 
taxation of remittances of U.S. carriers.  This practice began in 
December 2007, and has resulted in US carriers paying hundreds of 
thousands of dollars in taxes that are expressly prohibited in the 
current agreement (reftel).  The tax was initially .5%, but was 
raised to 1% in December 2008.  There were press reports on July 14 
that the GOE plans to double the tax to 2%, which would place an 
increased burden on U.S. carriers. 
 
¶6.  (SBU) The GOE officials responded that the MFA has issued a 
recommendation to the GOE tax authorities to honor the existing 
agreement.  While never referring to the agreement as "valid," the 
MFA's lawyer told the Ambassador that the agreement had been signed 
"in good faith," and that the two countries had used it to establish 
a "long commercial relationship."  The implication seemed very much 
to be that the agreement was at least provisionally valid.  This 
news was an additional surprise, since EconOffs have been 
unsuccessfully pressing the GOE to end the taxation for over a year, 
and recently have not been able even to meet with GOE officials to 
discuss the matter.  The MFA previously told EconOffs that they 
could not recognize the validity of the 1986 agreement, since it had 
never been ratified by Ecuador's Congress and no diplomatic notes 
were exchanged affirming its validity.  EconOffs are now following 
up with the Ecuadorian tax agency to see if it will follow through 
on its earlier pledge to stop the taxation if it received MFA 
approval.  The MFA officials urged us to submit a request for 
extension of the existing agreement, which they said would provide 
 
additional evidence that both sides are acting as if the agreement 
is in effect. 
 
COMMENT 
------- 
 
¶7.  (SBU) EmbOffs are puzzled by the dramatic shifts by the GOE. 
The first indication of changes came on June 4th, when the Director 
of the GOE's National Aviation Council, Guillermo Bernal, approached 
the Ambassador at a reception and expressed a desire to begin 
negotiating a new aviation agreement as soon as possible.  EconOffs 
have since followed up with him, asking him to send us details about 
what kind of agreement would be acceptable to the GOE.  We did not 
receive any indication that a proposal was being formulated, 
however.  In previous conversations, Bernal has told EconOff that an 
Open Skies agreement was "impossible" for Ecuador, but he expressed 
a strong desire for a more open and liberal agreement than the 1986 
accord. 
 
¶8.  (SBU) EconOff has asked industry contacts if they can explain 
the GOE's changed behavior.  One possible motive may lie in rumors 
that the GOE plans to "de-militarize" the ownership of TAME, the 
Ecuadorian national carrier.  TAME is currently prohibited from 
providing service to the U.S. due to its being owned by the 
Ecuadorian Air Force.  Converting the airline to a civilian 
ownership structure would likely remove this obstacle.  This may be 
creating interest in expanding access to the U.S. market and 
improving relations with the U.S. on aviation matters. 
 
¶9. (U) The Embassy has sent the proposal to EEB's Office of Aviation 
Negotiations (EEB/TRA/AN) and the Department of Transportation.  We 
would appreciate an assessment of the GOE proposal and, if possible, 
points on ways in which we can continue discussions with the GOE on 
this positive development. 
 
HODGES