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### Viewing cable 04QUITO3289, ECUADOR 2005 NATIONAL TRADE ESTIMATE REPORT

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
04QUITO3289 | 2004-12-23 19:53 | 2011-05-02 00:00 | UNCLASSIFIED | Embassy Quito

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    UNCLAS SECTION 01 OF 05 QUITO 003289

    SIPDIS

    FOR USTR G. BLUE AND BENNETT HARMAN AND FOR STATE EB/MTA/MST

    E.O. 12958: N/A
    TAGS: ETRD ECON EFIN EC
    SUBJECT: ECUADOR 2005 NATIONAL TRADE ESTIMATE REPORT
    SUBMISSION

    REF: STATE 240980

    ¶1.  Below is Embassy Quito's submission for the 2005 National
    Trade Estimate Report.  A copy of the report has been
    provided to USTR Bennett Harman via email.  The report was a
    collaborative effort between State, the Commercial Service
    and the Foreign Agricultural Service.

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

    According to US Bureau of Census statistics, the United
    States, trade deficit with Ecuador was $1.3 billion in 2003
    (agricultural trade accounted for $850 million of the
    deficit).  That was an increase of $762 million from the $538
    million deficit in 2002.  U.S. goods exports in 2003 were
    $1.4 billion, down 9.9 percent from the previous year ($1.6
    billion).  Corresponding U.S. imports from Ecuador in 2003
    were $2.7 billion, up 27 percent.  U.S. agricultural imports
    from Ecuador in 2003 were $1.09 billion, a 4% increase from
    2002 ($970 million).  Ecuador is currently the 51st largest
    export market for U.S. goods.

    Ecuadorian Central Bank statistics estimate the stock of
    foreign direct investment (FDI) in Ecuador in 2003 was $1.5
    billion.  U.S. FDI in Ecuador in 2003 is estimated at $204
    million, primarily in the oil sector.

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

    In November 2003, the United States announced its intention
    to begin free trade negotiations with Colombia, Peru, Ecuador
    and Bolivia, the four Andean Trade Preference Act beneficiary
    countries.  The negotiations began on May 18, 2004 with
    Colombia, Ecuador and Peru. The Andeans collectively
    represent a market of about $7.1 billion for U.S. exports in
    2003, and are home to about $4.2 billion in U.S. FDI. The
    negotiation will complement the goal of completing a Free
    Trade Area of the Americas (FTAA).

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

    ¶A. Tariffs

    When Ecuador joined the WTO in January 1996, it bound most of
    its tariff rates at 30 percent or less.  Ecuador's average
    applied tariff rate is 13 percent.  Ecuador applies a
    four-tiered structure with levels of five 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, are
    subject to a tariff rate of zero.  Some agricultural products
    (193), most of which are chemicals and veterinary products,
    are imported duty free.

    As a member of the Andean Community of Nations (CAN), Ecuador
    grants and receives exemptions on tariffs (e.g., reduced ad
    valorem tariffs and no application of the Andean Price Band
    System) for products from the CAN countries (Bolivia,
    Colombia, Ecuador, Peru and Venezuela).  Currently, these
    countries have an Andean Free Trade Zone and apply Common
    External Tariffs (CET), as stated in CAN Decision 370.  There
    is a proposal for a new CET, with a three-tiered structure,
    with levels of 5, 10 and 20 percent tariffs for agricultural
    products.  The proposed structure has not been approved by
    the CAN.

    Ecuador maintains the Andean Price Band System (APBS) on 153
    agricultural products (13 &marker8 and 140 &linked8
    products) imported from outside the CAN.  The 13 &marker8
    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.  Under this system,
    the ad valorem CET are adjusted (increased or reduced)
    according to the relationship between international reference
    prices, established floor and ceiling prices and the
    importation price of the commodity.  Upon accession to the
    WTO, Ecuador bound its ad valorem tariffs (including the
    additional levy from the APBS) for these commodities between
    31.5 and 85.5%.

    As part of its WTO accession, Ecuador committed to phase out
    its WTO-authorized 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.  Instead, Ecuador
    adopted the APBS, which applies the reduced CET to the CAN
    and increased tariffs to other WTO members.  This decision
    did not comply with Ecuador,s commitments to the WTO.
    However, Ecuador maintains that, as the highest rate under
    the APBS us beneath the bound tariff rate, Ecuador,s
    participation in the APBS is WTO-consistent.

    ¶B. 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
    an import license.  In order to get this license, an importer
    must first obtain, inter alia, a tax registration number from
    Ecuador,s Internal Revenue Service (SRI).  Ecuador requires
    prior authorization from various government agencies, e.g.,
    the Ministry of Agriculture (MAG) for importation of most
    commodities, seeds, animals, and plants.  Also, the Ministry
    of Health must give its prior authorization (i.e., sanitary
    registration) before the importation of processed, canned,
    and packed foods as well as food ingredients and beverages,
    cosmetics and pharmaceutical products.  Another
    administrative hurdle agricultural importers must overcome is
    the MAG,s use of &Consultative Committees8 (Committees).
    The 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.

    Ecuador also continues to maintain a preshipment inspection
    (PSI) regime.  Preshipment 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 sometimes perform
    spot-checks, causing further delays.  These practices
    generally add six to eight weeks to shipping times.  The
    following imports are exempt from verification: imports below
    FOB $4000, arms and defense materials, newspapers and printed
    material, traveler,s personal effects, donation to the
    public sector, imports by diplomatic missions, imports by the
    public sector that are financed by international loans,
    imports of gas, fuel, equipment made by the state oil
    company, imports destined for temporary entry, coffins and
    samples with no commercial value.

    Ecuador maintains bans on the import of used motor vehicles,
    tires, and clothing.  Ecuador applies a 27 percent markup on
    imported distilled spirits for excise tax purposes.  As
    excise taxes on imports are calculated on CIF value plus
    import duties, the effective rate is higher for imports than
    domestic products.  Ecuador has not equalized the application
    of excise taxes between imported and domestic products.

    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.  In November 2002, the President issued
    Executive Decree 3399 creating the National Commission for
    Biosafety as an office of the Ministry of Environment.  It
    will be responsible for biotechnology-related products and
    regulations issues.  However, no rules have yet been enacted.

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

    National standards are set by the Ecuadorian Norms Institute
    (INEN) of the Ministry of Commerce and generally follow
    international standards.  SESA (an agency of the Ministry of
    Agriculture) 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 must comply with 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 direction.
    SESA follows the &Andean Sanitary Standards8 established
    under the Andean Community of Nations (CAN).  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
    complies with risk analysis and that the country of origin or
    the area of production is free from certain exotic plant or
    animal diseases.

    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 application rules 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 the receipt of the
    request, and reduce the number of documents required to
    obtain a permit.  However, these regulations are not being
    applied consistently.  U.S. firms report that the Izquieta
    Perez National Hygiene Institute (INHIP - the agency
    responsible for registering imported processed food products)
    office in Guayaquil has refused to accept U.S. Certificates
    of Free Sale and 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 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 Internationals Standards and
    Labeling.

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

    Government procurement is regulated by the 1990 public
    contracting law.  Foreign bidders must be legally represented
    in Ecuador.  There is no legal requirement to discriminate
    against U.S. or other foreign suppliers.  Bidding for
    government contracts can be cumbersome and insufficiently
    transparent.  Ecuador is not a signatory to the WTO Agreement
    on Government Procurement.

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

    Ecuador has created a semi-independent agency, the
    Corporation for the Promotion of Exports and Investments
    (Corpei), to promote Ecuadorian exports.  Using a European
    Union loan, Corpei offers matching grants to exporters to
    help fund certain expenses, including international
    promotional events and export certifications.  The individual
    grant amount varies according to the project.

    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.  Enforcement of copyrights remains a
    significant problem, especially concerning sound recordings,
    computer software, and motion pictures.
    Ecuador's current intellectual property regime is provided
    for under its intellectual property rights (IPR) law and
    Andean Pact Decisions 486, 345, and 351.  Ecuador is a member
    of the World Intellectual Property Organization (WIPO) and is
    a member of 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.

    ¶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.  Article 78 of the 1999 Law on Higher
    Education appears 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.

    Government of Ecuador health authorities continued to approve
    the commercialization of new drugs which were the
    bioequivalents of already approved drugs, thereby denying the
    originator companies the exclusive use of their 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.  Also, U.S. companies are concerned that the
    Government of Ecuador is implementing a policy that a company
    that had patented a compound for one use cannot subsequently
    patent a second use of that compound.  This puts Ecuador at
    odds with international norms.

    ¶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 both
    motion pictures and recorded music has reached 95 percent,
    with estimated damage due to music piracy of $50-60 million.
    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.  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 improvements in
    patent protection.  U.S. industry estimates damage due to the
    failure to provide data exclusivity is at least $5 million.

    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.  Foreign
    professionals are subject to national licensing legislation,
    and 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 did 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 Government has also used
    Ecuadorian courts to delay implementation of an arbitral
    award in favor of a U.S. company.
    INVESTMENT BARRIERS
    -------------------

    Ecuador's foreign investment policy is governed largely by
    the national implementing legislation for Andean Pact
    Decisions 291 of 1991 and 292 of 1993.  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.  The U.S.-Ecuador Bilateral
    Investment Treaty (BIT) entered into force in May 1997 and
    includes guarantees regarding national and
    most-favored-nation treatment, prompt, adequate and effective
    compensation for expropriation, freedom to make financial
    transfers, and access to international arbitration.  U.S.
    companies are sometimes reluctant to resolve commercial
    disputes through the Ecuadorian legal system, fearing a
    prolonged process and a lack of impartiality.

    Certain sectors of Ecuador's economy are reserved to the
    state.  All foreign investment in petroleum exploration and
    development in Ecuador 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.
    Several of these companies are involved in a dispute with the
    government of Ecuador regarding the refund of value-added tax
    rebates.  In 2004, one U.S. company won a $75 million
    international arbitration award against the government of
    Ecuador regarding this dispute.  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 and has since
    advocated the nullification of the company,s contract and
    seizure of the company,s considerable assets in Ecuador.

    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.  Foreigners are prohibited from owning land on the
    frontier or coast.

    Appropriate 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 varies widely.  It can
    be difficult to enforce property and concession rights,
    particularly in the 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.  Several U.S. companies have
    also raised concerns about the lack of transparency,
    predictability, and stability in Ecuador,s legal and
    regulatory regime, which increases the risks and adds to the
    cost of doing business in Ecuador.

    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 universal access to information
    technology through funding from international financial
    institutions.
    KENNEY

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