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### Viewing cable 06QUITO2705, ECUADOR 2007 NATIONAL TRADE ESTIMATE REPORT

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06QUITO2705 | 2006-11-08 17:20 | 2011-05-02 00:00 | UNCLASSIFIED | Embassy Quito

`

    VZCZCXYZ0002
    OO RUEHWEB

    DE RUEHQT #2705/01 3121720
    ZNR UUUUU ZZH
    O 081720Z NOV 06
    FM AMEMBASSY QUITO
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 5620
    INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6145
    RUEHCV/AMEMBASSY CARACAS PRIORITY 2146
    RUEHLP/AMEMBASSY LA PAZ NOV 0198
    RUEHPE/AMEMBASSY LIMA PRIORITY 1127
    RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 1390
    RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
    RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

` `

    UNCLAS QUITO 002705

    SIPDIS

    SIPDIS

    USTR FOR GLORIA BLUE
    STATE FOR EB/TPP/BTA

    E.O. 12958: N/A
    TAGS: ETRD ECON EFIN EC
    SUBJECT: ECUADOR 2007 NATIONAL TRADE ESTIMATE REPORT
    SUBMISSION

    REF: STATE 136289

     ¶1.  Below is Embassy Quito's submission for the 2007
    National Trade Estimate Report.  A copy of the report has
    been provided to USTR's Michelle Carrillo via email.  The
    report was a collaborative effort between State, the
    Commercial Service, the Foreign Agricultural Service, and AID.

    TRADE SUMMARY
    -------------

    The U.S. goods trade deficit with Ecuador is estimated to be
    ($4.5) billion in 2006, an increase of ($0.7) billion from
    ($3.8) billion in 2005. U.S. goods exports in 2006 are
    estimated to be ($2.5) billion, up (25.8) percent from the
    previous year. Corresponding U.S. imports from Ecuador are
    estimated to be ($7.0) billion, up (20.1) percent. Ecuador is
    currently the (46th) largest export market for U.S. goods.
    (updated numbers to be provided by Washington)

    The stock of U.S. foreign direct investment (FDI) in Ecuador
    in 2005 was $760 million, up from $720 million in 2004. U.S.
    FDI in Ecuador is concentrated largely in the petroleum and
    mining sector.

    Free Trade Area Negotiations
    ----------------------------

    In May 2004, the United States initiated free trade
    negotiations with Colombia, Ecuador, and Peru.  To date, the
    United States has concluded free trade agreements with Peru
    and Colombia.  The United States has significant economic
    ties to the region.  Total two-way goods trade with the
    Andean countries of Peru, Colombia, and Ecuador was
    approximately ($14) billion in 2005.  The stock of U.S.
    foreign direct investment in these countries in 2004 was $7.7
    billion.

    IMPORT POLICIES
    ---------------

    ¶A. Tariffs

    When Ecuador joined the World Trade Organization (WTO) in
    January 1996, it bound most of its tariff rates at 30 percent
    or less, except for agricultural products in the Andean Price
    Band System (ABPS).  Ecuador's average applied MFN tariff
    rate is 11.9 percent.  Ecuador applies a four-tiered
    structure with levels of 5 percent for most raw materials and
    capital goods, 10 percent or 15 percent for intermediate
    goods, and 20 percent for most consumer goods.  A small
    number of products including planting seeds, agricultural
    chemicals, and veterinary products are duty-free.

    As a member of the Andean Community (CAN), Ecuador grants and
    receives exemptions from tariffs (i.e., reduced ad valorem
    tariffs and no application of the Andean Price Band System)
    for products from the other CAN countries (Bolivia, Colombia,
    and Peru).  Currently, these countries have an Andean Free
    Trade Zone and are soon expected to apply Common External
    Tariffs (CET), as stated in CAN Decision 370.  On January 31,
    2006, the CAN trade ministers decided to postpone the entry
    into force of a new CET with a four-tiered structure (percent
    tariff levels of 0, 5, 10, and 20) for one year, until
    January 31, 2007.  Until then, Peru will apply its own tariff
    schedule while Ecuador and Colombia will apply the structure
    permitted by Decision 370.

    Ecuador maintains the Andean Price Band System (APBS) on 153
    agricultural products (13 "marker" and 140 "linked" products)
    imported from outside the CAN.  The 13 "marker" products are
    wheat, rice, sugar, barley, white and yellow corn, soybean,
    soybean meal, African palm oil, soy oil, chicken meat, pork
    meat, and powder milk.   The APBS works as a price
    stabilization mechanism whereby the basic (ad-valorem) tariff
    is adjusted (increased or decreased) using a variable levy.
    The variable levy results from the relation between bi-weekly
    reference prices and floor and ceiling prices established by
    the CAN for each marker product.  The price band works to
    maintain protection for domestic industry by keeping tariffs
    high when world prices fall, and drops tariffs when world
    prices rise.

    As part of its WTO accession, Ecuador committed to phase out
    its price band system, starting in January 1996, with a total
    phase out by December 2001. No steps have been taken to
    comply with this commitment. In turn, since Ecuador bound its
    final tariffs for agricultural commodities between 31.5
    percent and 85.5 percent (the same bindings as the ABPS),
    Ecuador argues that the continuity of the APBS is
    WTO-consistent and does not constitute a violation of its
    agreements.    The United States Government has sought
    through the free trade negotiations to eliminate Ecuador's
    tariffs and other barriers to trade in agricultural products,
    while providing reasonable adjustment periods and safeguards
    for producers of import-sensitive agricultural products.

    ¶B. Tariff Rate Quotas

    During the Uruguay Round, Ecuador agreed to establish tariff
    rate quotas (TRQs) for a number of agricultural imports.  In
    May of 2000, Ecuador created a TRQ Committee to administer
    and manage TRQs, which have remained constant and in line
    with WTO commitments since 2001.  However, TRQs are not
    always requested by importers because the tariffs under the
    APBS are sometimes lower than the in-quota TRQ tariffs.  At
    the same time, the TRQ committee is highly politicized and
    sometimes does not approve TRQ requests for certain products
    in order to protect local production (this is common with
    products such as poultry and powdered milk).

    Products subject to TRQs include wheat, corn, sorghum,
    barely, barely malt, soybean meal, powder milk, frozen
    turkeys, and frozen chicken parts.

    ¶C. Non-Tariff Measures

    Ecuador has failed to eliminate several non-tariff barriers
    since its WTO accession.  Importers must register with the
    Central Bank through approved banking institutions to obtain
    import licenses for all products.  Ecuador requires prior
    authorization from the Ministry of Agriculture (MAG) for the
    importation of most agricultural products.  For certain
    sensitive products such as corn, soybean meal, dairy and
    poultry, the Minister himself or a designee must sign the
    authorization.  The MAG argues that the authorization is to
    ensure sanitary standards and tax rules are followed.  In
    reality, authorizations are granted in a discretionary manner
    based on pressures for protection of domestic production.

    Another administrative hurdle agricultural importers must
    overcome is the MAG's use of "Consultative Committees."
    These committees, mainly composed of local producers, often
    advise the MAG against granting import permits to foreign
    suppliers.  The MAG often requires that all local production
    be purchased at high prices before authorizing imports.  If
    these barriers were removed, it is estimated that U.S. corn
    and soybean meal exports could increase by $10-25 million
    each.  The Ministry of Health is required to provide prior
    authorization for processed, canned and packaged products in
    the form of a Sanitary Registration.  In general, the
    bureaucratic procedures that importers must follow in order
    to obtain authorizations continue to be cumbersome,
    protectionist and non-transparent.

    Ecuador assesses a special consumption tax (ICE) of 32
    percent on imported and domestic spirits.  However, the
    taxable base upon which Ecuador assesses the ICE is arbitrary
    and complicated and differs for domestic and imported
    spirits.  For imported spirits, the ICE is applied to the
    ex-Customs value, which is then marked-up 25 percent (i.e.,
    taxable base = (c.i.f. value   tariff   VAT) marked up by 25
    percent); the ICE is assessed on this inflated value.  In
    contrast, for domestic spirits, the ICE is assessed on the
    ex-factory price, and the 25 percent mark-up, although
    legally required, is not generally applied (i.e., taxable
    base = (ex-factory value   VAT)).  In both cases, the excise
    tax is based on arbitrary values and not on actual
    transaction values.  The U.S. has been addressing Ecuador's
    discriminatory tax policies for imported distilled spirits in
    the free trade negotiations.

    Ecuador also continues to maintain a pre-shipment inspection
    (PSI) regime for imports with an f.o.b. value of more than

    $4,000.  Pre-shipment inspection by an authorized inspection
    company (both before shipment and after specific export
    documentation has been completed at the intended destination)
    results in delays far exceeding the time saved in customs
    clearance.  Customs authorities perform random spot-checks,
    causing further delays.  These practices generally add
    between six and eight weeks to shipping times.  In the free
    trade negotiations with Ecuador, the U.S. government has
    sought to establish transparent and efficient custom
    procedures and specific commitments to expedite the release
    of goods.

    Ecuador maintains bans on the import of used motor vehicles,
    tires, and clothing.

    In December 1999, the MAG, through the Ecuadorian Animal and
    Plant Health Inspection Service (SESA), issued a requirement
    that all importers must present a certificate stating that
    imported agricultural products (plants, animals, their
    products, or byproducts) have not been produced using modern
    biotechnology. This requirement was never enforced in
    practice, but created a playing field for further debate on
    the issue of biotechnology. In November 2002, the President
    issued Executive Decree 3399 creating the National Commission
    for Biosafety as an office of the Ministry of Environment,
    which was in charge of developing technical regulations on
    biosafety and biotechnology.

    In April 2005, the commission proposed a draft "Law of
    Conservation and Sustainable Management of the Biodiversity"
    (Biodiversity Law) that would have served as a framework for
    Ecuador's regulations on biosafety and biotechnology. The
    legislation aimed at providing technical standards and a
    comprehensive regulatory system that would have ensured
    proper control without blocking trade. Congress debated the
    bill twice without consensus, shelved the proposal, and
    approved a controversial Food and Nutrition Security law in
    April 2006. This bill invoked the precautionary principle and
    in practice prohibited the use, handling, trade or import of
    any food products that may have contained organisms derived
    from biotechnology, since Ecuador did not possess appropriate
    institutions to provide proof of their safety.  The
    prohibition stopped large imports of several commodities in
    high demand by the animal feed and cooking oil industry
    (soybean meal and oil) for several weeks. However, due to
    pressure from local industry, Ecuador's Attorney General
    declared this law unenforceable due to technical errors in
    the text.  A health code bill under discussion in Congress in
    November 2006 could reintroduce these provisions.

    The United States is seeking the removal of Ecuador's
    non-tariff measures that impede U.S. exports through the free
    trade negotiations.  The U.S. Embassy has also been working
    closely with local industry and U.S. exporters to remove
    non-tariff barriers.

    STANDARDS, TESTING, LABELING AND CERTIFICATION
    --------------------------------------------- -

    Ecuador's Animal and Plant Health Inspection Service (SESA)
    is responsible for administering Ecuador's sanitary and
    phytosanitary controls.  According to Ecuadorian importers,
    bureaucratic procedures required to obtain clearance still
    appear to discriminate against foreign products.  Ecuador is
    bound by the WTO Agreement on the Application of Sanitary and
    Phytosanitary (SPS) measures, yet denials of SPS
    certification often appear to lack a scientific basis and to
    have been used in a discriminatory fashion to block the
    import of U.S. products that compete with Ecuadorian
    production.  This occurs most often with poultry, turkey and
    pork meats, beef, dairy products, and fresh fruit.  The
    ability to import some products, such as rice, corn,
    soybeans, and soybean meal, depends entirely on the
    discretion of the MAG which will often look to the
    Consultative Committees for advice.

    Ecuador has yet to fulfill its notification obligations under
    the WTO SPS Agreement.  The impact of removing this barrier
    would mean an increase of U.S. exports of up to $10 million.

    SESA follows the CAN's "Andean Sanitary Standards."  Some
    standards applicable for third countries are different from

    those applied to CAN members. For example, there can be
    differences in the requirements for CAN and third countries
    for the importation of live animals, animal products, and
    plants and plant by-products.  SESA also requires
    certifications for each product stating that the product is
    safe for human consumption or, in the case of live animals,
    that the animal is healthy and that the country of origin or
    the area of production is free from certain exotic plant or
    animal disease.  Industry sources assert that this process
    has been used unreasonably by SESA to prevent entry of animal
    products - especially poultry - that compete with local
    producers.

    Sanitary registrations are required for imported as well as
    domestic processed food, cosmetics, pesticides,
    pharmaceuticals, and syringes as well as some other consumer
    goods.  However, in a side agreement to its WTO Accession
    Agreement, Ecuador committed to accept the U.S. Certificate
    of Free Sale authorized by the U.S. Food and Drug
    Administration, instead of the Government of Ecuador's
    Sanitary Registration.  In August 2000, the Government of
    Ecuador passed a law (Ley de Promocion Social y Participacion
    Ciudadana, Segunda Parte - also known as Troley II), followed
    by regulations issued in June 2001, to reform the issuance of
    sanitary permits for food products.

    This is a step towards modernizing the issuance of sanitary
    registrations with new regulations that allow the acceptance
    of free sale certificates, require that the government issue
    sanitary permits within 30 days of receipt of a request, and
    reduce the number of documents required to obtain a permit.
    However, it does not appear that these regulations are being
    applied consistently and export losses are estimated to be
    around $5 million.

    U.S. firms report that the Izquieta Perez National Hygiene
    Institute (INHIP - the Ministry of Health's executive arm
    responsible for granting the sanitary registration
    certificate) office in Guayaquil accepts the U.S.
    Certificates of Free Sale, but continues to apply the old
    regime for sanitary permits.  In addition, non-transparent
    bureaucratic procedures and inefficiency have delayed
    issuance beyond 30 days and in some cases have reportedly
    blocked the entry of some imported products from the United
    States.

    U.S. companies have expressed concerns regarding regulations
    issued by Ecuador's public health ministry requiring foreign
    food manufacturers to disclose confidential information such
    as formulas of imported food and pharmaceutical products.
    This requirement appears to go beyond the requirements of the
    Codex Alimentarius Commission on International Standards and
    Labeling.  Pharmaceutical and agrichemical industry sources
    estimate that lost exports due to this problem amount to $10
    million to $25 million.

    The U.S. Foreign Agricultural Service has been facilitating
    SPS training for Ecuadorian officials by providing SPS
    experts for seminars and other training forums.

    GOVERNMENT PROCUREMENT
    ----------------------

    Government procurement is regulated by the 2001 public
    contracting law.  Foreign bidders must be legally represented
    in Ecuador in order to participate in government
    procurements.  The law does not discriminate against U.S. or
    foreign suppliers.  However, bidding for government contracts
    can be cumbersome and relatively non-transparent. A large
    number of government controlled companies are construed to be
    "private" companies (e.g. fixed-line telephony providers,
    electric power generators and distributors, hospitals,
    clinics, and regional development funds), and are not subject
    to Ecuador's rules on government procurement.  This lack of
    transparency can lead to multiple cancellations of bid
    solicitations, unnecessarily adding to the costs of
    submitting bids and opening the process to possible
    manipulation by contracting authorities.

    Ecuador is not a signatory to the WTO Agreement on Government
    Procurement.  In the free trade negotiations with Ecuador,
    the U.S. Government has been seeking reciprocal opportunities

    for U.S. companies to bid on Ecuadorian government
    procurement.  If the government procurement process was made
    more transparent and less cumbersome, exports by U.S.
    companies could increase by $50 million to $100 million.

    EXPORT SUBSIDIES
    ----------------

    Ecuador has created a semi-independent agency, the
    Corporation for the Promotion of Exports and Investments
    (Corpei), to promote Ecuadorian exports.  The agency is
    funded in part by fees on imports and exports, as well as
    grants from multilateral and bilateral organizations.  Corpei
    supports promotional export-related activities such as market
    studies, international promotional events, and feasibility
    studies.

    INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
    ---------------------------------------------

    In 1998, Ecuador enacted a comprehensive law that
    significantly improved the legal basis for protecting
    intellectual property including patents, trademarks and
    copyrights.  The intellectual property law provides greater
    protection for intellectual property; however, it is
    deficient in a number of areas and the law is not being
    adequately enforced.

    Ecuador's current intellectual property regime is provided
    for under its IPR law and Andean Pact Decisions 345, 351, and
    ¶486.  Ecuador is a member of the World Intellectual Property
    Organization (WIPO), the WIPO Copyright Treaty, and the WIPO
    Performances and Phonograms Treaty.  Furthermore, Ecuador has
    ratified the Berne Convention for the Protection of Literary
    and Artistic Works, the Geneva Phonograms Convention, the
    Paris Convention for the Protection of Industrial Property,
    and the WIPO Patent Cooperation Treaty.

    The United States has been negotiating IPR provisions in the
    free trade negotiations with Ecuador to improve protection
    and strengthen enforcement of IPR.  The U.S. Government is
    seeking to address specific U.S. industry concerns related to
    the protection and enforcement of copyrights and related
    rights, patents, proprietary data for pharmaceutical and
    agricultural products, trademarks and geographical
    indications.  In addition, the U.S. Embassy is working with
    Ecuadorian counterparts to resolve issues in the IPR arena
    and to facilitate IPR enforcement training for local
    officials.

    ¶A. Copyrights

    The Government of Ecuador, through the National Copyright
    Office's Strategic Plan against Piracy, has committed to take
    action to reduce the levels of copyright piracy, including
    implementation and enforcement of its 1998 Copyright Law.
    However, enforcement of copyrights remains a significant
    problem, especially concerning sound recordings, computer
    software, and motion pictures.  The Government of Ecuador has
    taken no action to clarify Article 78 of the 1999 Law on
    Higher Education, which could be interpreted to permit
    software copyright violations by educational institutions.

    ¶B. Patents and Trademarks

    Ecuador's 1998 IPR law provided an improved legal basis for
    protecting patents, trademarks, and trade secrets.  However,
    concerns remain regarding several provisions, including a
    working requirement for patents, compulsory licensing, and
    the lack of enforcement in the protection of test data.  U.S.
    companies are also concerned that the Ecuadorian government
    does not provide patent protection to new uses of previously
    known or patented products.

    Government of Ecuador health authorities continue to approve
    the commercialization of new drugs that are the bioequivalent
    of patented drugs, thereby denying the originator companies
    protection against unfair competition for their
    pharmaceutical test data. In effect, the Government of
    Ecuador is allowing the test data of registered drugs from
    originator companies to be used by others seeking approval
    for their own pirate version of the same product.

    Confidential chemical formulae and descriptions of

    SIPDIS
    manufacturing processes have illegally found their way into
    the hands of competitor companies.  The right of patent
    holders to defend their patents is threatened in a case
    before an appellate court as of November 2006, where
    asserting patent rights is alleged to constitute an illegal
    competitive practice.  In the context of an FTA or through
    separate legislation, the U.S. Government supports Ecuadorian
    efforts to strengthen data confidentiality and the ability to
    defend a patent, as well as against such reliance by another
    on an innovator's test data.

    ¶C. Enforcement

    There continues to be an active local trade in pirated audio
    and video recordings, computer software and counterfeit brand
    name apparel.  The International Intellectual Property
    Alliance estimates that piracy levels in Ecuador for recorded
    music have reached 90 percent, with total estimated damage
    due to piracy of $37.8 million in 2005.  At times, judges in
    IPR cases, before issuing a preliminary injunction, demand a
    guaranty and evidentiary requirements that exceed legal
    requirements and in effect limit the ability of rights
    holders to enforce their rights.  Ecuador has made no
    progress in establishing the specialized IPR courts required
    by Ecuador's 1998 IPR law.  The national police and the
    customs service are responsible for carrying out IPR
    enforcement, but do not always enforce court orders.  Some
    local pharmaceutical companies produce or import pirated
    drugs and have sought to block compliance with Ecuador's
    Intellectual Property law and improvements in patent
    protection.  U.S. industry estimates damage due to the
    failure to provide data exclusivity is at least $5 million.
    The U.S. Government has been supporting provisions to enhance
    enforcement of IPR in Ecuador in the free trade negotiations.

    SERVICES BARRIERS
    -----------------

    Ecuador has ratified the WTO Agreement on Financial Services.
     The 1993 Equity Markets Law and the 1994 General Financial
    Institutions Law significantly opened markets in financial
    services and provided for national treatment of foreign
    suppliers.  Foreign professionals are subject to national
    licensing requirements. The Superintendent of Banks must
    certify accountants.

    In the area of basic telecommunications, Ecuador only
    subscribed to WTO commitments for domestic cellular services.
     It did not make market access or national treatment
    commitments for a range of other domestic and international
    telecommunications services, such as voice telephony and
    data.  In addition, Ecuador does not adhere to the
    pro-competitive regulatory commitments of the WTO Reference
    Paper.  Several U.S. telecommunications companies have had
    their international circuits disconnected without proper
    notice of alleged infractions.

    The U.S. Government has been seeking in the free trade
    negotiations with Ecuador greater access for U.S. providers
    of cross-border services to the Ecuadorian market, including
    in the areas of financial and telecommunications services.

    INVESTMENT BARRIERS
    -------------------

    Ecuador's foreign investment policy is governed largely by
    the national implementing legislation for Andean Pact
    Decisions 291 and 292 of 1991.  Under Ecuadorian law, foreign
    investors are accorded the same rights of establishment as
    Ecuadorian private investors, may own up to 100 percent of
    enterprises in most sectors without prior government
    approval, and face the same tax regime.  There are no
    controls or limits on transfers of profits or capital.  In
    disputes, U.S. companies have resorted to local courts or
    alternate dispute resolution mechanisms such as the Chambers
    of Commerce; others have pursued international commercial
    dispute resolution mechanisms as provided for in their
    contracts or under the U.S.-Ecuador Bilateral Investment
    Treaty (BIT) as a way to gain maximum impartiality.

    The U.S.-Ecuador Bilateral Investment Treaty (BIT), which
    entered into force in May 1997, includes obligations relating
    to national and most-favored-nation treatment; prompt,
    adequate and effective compensation for expropriation; the
    freedom to make investment-related transfers; and access to
    binding international arbitration of investment disputes.
    These and other core provisions of the BIT would also be
    included in the investment chapter of a free trade agreement
    between the U.S. and Ecuador.

    In early 2005, Ecuador's Congress modified the Arbitration
    and Mediation Law to prohibit international arbitration of
    investment disputes if the national interest could be
    affected.  Depending on how it is interpreted and applied,
    this modification of Ecuador's law could conflict with
    Ecuador's standing consent to binding arbitration under the
    U.S.-Ecuador BIT and under the investment chapter of a free
    trade agreement.  At a minimum, the new law could create
    confusion among investors regarding their arbitration rights
    and may also reinforce negative impressions among investors
    of Ecuador's commitment to international arbitration.

    Certain sectors of Ecuador's economy are reserved to the
    state.  All foreign investment in petroleum exploration and
    development must be carried out under contract with the state
    oil company.  U.S. and other foreign oil companies produce
    oil in Ecuador under such contracts.  Foreign investment in
    domestic fishing operations, with exceptions, is limited to
    49 percent of equity.  Foreign companies cannot own more than
    25 percent equity in broadcast stations, and foreigners are
    prohibited from owning land on the borders or the coast.

    Several oil companies are involved in a dispute with the
    government of Ecuador relating to the refund of value-added
    taxes.  In 2004, one of the disputing U.S. companies won a
    $75 million international arbitration award against the
    government of Ecuador.  The government has requested a
    judicial review of the arbitration award.  After notice of
    the award, Ecuador's solicitor general (Procurador General)
    initiated an investigation of the company for allegedly
    transferring assets to another foreign company without
    obtaining the required government authorization. The
    Ecuadorian government has since nullified the company's
    contract and seized the company's considerable assets in
    Ecuador.  The U.S. company has initiated arbitration
    proceedings under the BIT.

    In 2006 Ecuador amended its hydrocarbons law, unilaterally
    modifying the terms of oil production sharing contracts in a
    manner that appears to violate the BIT.  As a result, at
    least one U.S. company faces bankruptcy and is attempting to
    negotiate a change to their concession contract that would
    permit them to continue operating and investing in Ecuador
    (they have also initiated arbitration proceedings as allowed
    by their contract).

    U.S. investors in the electricity sector face problems of
    chronic underpayment, due in part to government-regulated
    prices and the inability to cut off consumers that do not pay
    their bills; government subsidies only partially offset these
    losses and are not available to all firms.  A 2006
    electricity reform law attempts to address some of the
    problems plaguing the sector but the problem of underpayment
    has not been resolved.  U.S. firms in this sector are also
    pursuing international arbitration, although simultaneously
    attempting to negotiate settlements with the Government of
    Ecuador.

    Effective compensation for expropriation is provided for in
    Ecuadorian law but is often difficult to obtain.  The extent
    to which foreign and domestic investors receive prompt,
    adequate, and effective compensation for expropriations
    varies widely.  It can be difficult to enforce property and
    concession rights, particularly in the real property,
    agriculture, oil, and mining sectors.

    Foreign oil, energy, and telecommunications companies, among
    others, have often had difficulties resolving contract issues
    with state or local partners.  The transparency and stability
    of the country's investment regime are significantly weakened
    by the existence of numerous investment-related laws that
    overlap or that appear to have mutually inconsistent

    provisions.  This judicial complexity increases the risks and
    costs of doing business in Ecuador.

    The U.S. Government has worked with the Government of Ecuador
    both before and in parallel with the free trade negotiations
    to ensure a fair resolution of U.S. investor disputes,
    consistent with Ecuadorian law.

    ELECTRONIC COMMERCE
    -------------------

    Ecuador passed an electronic commerce law in April 2002 that
    makes the use of electronic signatures in business
    transactions on the Internet legally binding and makes
    digital theft a crime.  Ecuador has initiated a program for
    e-government services and to promote public access to
    information technology through funding from international
    financial institutions.  The U.S. has been seeking in the
    free trade negotiations with Ecuador to include rules
    prohibiting duties on and discrimination against digital
    products, such as computer programs, videos, images, and
    sound recordings, based on where they are made or the
    nationality of the firms or persons making them.
    JEWELL

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