VZCZCXYZ0000
RR RUEHWEB

DE RUEHQT #0096/01 0271527
ZNR UUUUU ZZH
R 271526Z JAN 10
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 0693
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBJ/AMEMBASSY BEIJING 0011
RUEHBO/AMEMBASSY BOGOTA
RUEHCV/AMEMBASSY CARACAS
RUEHGL/AMCONSUL GUAYAQUIL
RUEHLP/AMEMBASSY LA PAZ
RUEHPE/AMEMBASSY LIMA
RUEHQT/AMEMBASSY QUITO
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC

UNCLAS QUITO 000096 
 
SENSITIVE 
SIPDIS 
PASS USTR FOR RHODE, EISSENSTAT, AND HARMAN 
DEPT FOR EEB/TPP/MTAA FOR CRAFT 
USDOC FOR ITA 
TREASURY FOR YUAN 
 
E.O. 12958: N/A 
TAGS: ETRD ECON WTRO USTR EC
SUBJECT: GoE Response to Demarche on Balance of Payments Safeguard 
Measures 
 
REF: STATE 6165; 09 QUITO 060; 09 QUITO 509 
 
¶1.    (SBU)  Summary.  In response to ref A demarche on balance of 
payments (BoP) safeguards, GoE officials assured Emboffs the 
government will publish by February 6 a  schedule for the 
progressive reduction of the safeguards, leading to their total 
elimination in six months.  Our interlocutors argued that immediate 
elimination of the safeguards could produce a surge in the level of 
imports and reverse a tenuous improvement in the country's balance 
of payments situation.  However, a more likely justification for 
continuing the safeguards beyond the January 22, 2010 one-year 
anniversary (ref B), is the GoE's interest in buying time while it 
develops a plan for providing some form of protection for sensitive 
sectors that have flourished under the safeguards.  The GoE appears 
to have concluded that it will suffer minimal repercussions for the 
temporary continuation of the safeguards.  End Summary. 
 
¶2.     (SBU)  On January 25, Emboffs delivered ref A points on 
Ecuador's balance of payments (BoP) safeguards in separate meetings 
to Technical Secretary of the Coordinating Ministry for Production 
Mauricio Pena and Secretary of Ecuador's Trade and Investment 
Council (COMEXI) Ruben Moran, who also is currently Under Secretary 
of Trade and Investment in the Ministry of Industries and 
Productivity.  The Embassy will also request a meeting for the 
Ambassador to raise demarche points with Coordinating Minister for 
Production Nathalie Cely, who presides over COMEXI as President 
Correa's representative to the council. 
 
¶3.    (SBU)  According to both Pena and Moran, the GoE plans to 
eliminate the safeguards in six months, claiming this is the 
timeframe established in COMEXI Resolution 533.   The six months 
would run from the publication date of Resolution 533, or January 
15, 2010.  Pena said a COMEXI decision on a schedule for the 
progressive reduction/elimination of the safeguards had been 
delayed due to a request by Minister Cely for additional technical 
details.  Nonetheless, Pena assured Emboffs that a final decision 
would be taken by COMEXI next week.  Moran confirmed this.  Pena 
and Moran claim the GoE intends to be as transparent as possible 
with publication of the schedule, despite the potential disruption 
to trade that may result from importers delaying orders as they 
wait for application of a lower safeguard tariff according to the 
schedule. 
 
¶4.   (SBU)  While Pena and Moran acknowledged improvement in 
Ecuador's balance of payments situation by the end of 2009, they 
argued the improvement was tenuous and that the safeguards must be 
eliminated gradually to avoid a sharp increase in imports and a 
return of balance of payment problems.  Neither expressed concern 
that continuation of the safeguards represented a breach of the GoE 
commitment within the WTO BoP Committee to eliminate the safeguards 
within one-year from their application. 
 
¶5.   (SBU)  Pena and Moran confirmed the GoE's intention to provide 
some form of future protection for sensitive sectors, currently 
identified as footwear and textile sectors, once the general 
safeguards are eliminated.  While emphasizing the GoE has only just 
begun to study potential measures, Pena said any measures adopted 
will be: sector specific; WTO compliant; and temporary.  Moran also 
suggested the measures might be specific to origin, citing imports 
from China as the main problem, and that raising sector specific 
tariffs to their bound rates could be a possible first step. 
 
Comment 
 
¶6.   (SBU)  We suspect the GoE's plan to gradually reduce the 
safeguards is principally driven by an interest in devising some 
form of protection for sensitive sectors before the safeguards' 
final elimination.  Essentially, the six-month schedule will buy 
the GoE the time needed to formulate and justify some form of 
protection for the footwear and textile sectors.   Moran admitted 
that import levels during the first several months of the year, 
when the safeguards will be highest, are typically among the lowest 
of the year, undercutting claims that imports would likely surge 
 
 
without the safeguards. 
HODGES