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Ecuador pursues trade-preference extension but faces critics in Congress

The Hill, Washington, DC

Ecuador pursues trade-preference extension but faces critics in Congress

By Ian Swanson

12 June 2007

Ecuador is furiously lobbying members of Congress to extend trade preferences, set to run out at the end of the month, that are intended to counter narcotics trafficking.

Extension of the preferences is in doubt because of opposition from Sen. Chuck Grassley (R-Iowa), the ranking member of the Senate Finance Committee. Grassley wants to terminate trade preferences with both Bolivia and Ecuador, a spokeswoman said in an e-mail, because of “bad behavior” on their part.

Ecuador has been embroiled in a dispute with Occidental Petroleum Corp., a Los Angeles-based energy company that accuses Ecuador of seizing its assets and canceling a contract with the company. Occidental has filed a claim against Ecuador in the World Bank’s International Center for Investment Disputes (ICSID) and accused the country of violating an investment treaty with the U.S.

The Occidental fight has divided the business community on the question of preference extension. While companies importing products from Ecuador support extending the preferences, some firms, particularly in the energy sector, are quietly arguing they should not be extended, according to a lobbyist who spoke on background because he was worried the Ecuador government might punish his clients.

Ecuador Foreign Minister Maria Espinosa met last week with House Ways and Means Chairman Charles Rangel (D-N.Y.) and Senate Finance Chairman Max Baucus (D-Mont.), both of whom support extending the preferences. Rangel has introduced legislation extending the preferences for two years with all four Andean nations - Bolivia, Ecuador, Colombia and Peru - but it is not certain whether this legislation could move forward in the Senate, given the opposition from Grassley.

Espinosa said the Occidental dispute is “not an issue” for Ecuador, which she said will wait for a decision by ICSID.

The Office of the U.S. Trade Representative (USTR) has also sent mixed signals on extending the preferences. While publicly calling for a short-term extension, it has also called for an “extensive discussion” with Congress on the long-term trade relationship with Ecuador and Bolivia, whose government is allied with Venezuela President Hugo Chavez. The USTR has also not defined the length of a short-term extension.

Espinosa told The Hill that the preferences, which allow duty-free entry for apparel, cut flowers and other products, support 300,000 jobs in Ecuador. A discontinuation would lead to economic harm, job losses, more emigration to the U.S. and a likely increase in narcotics production, she warned.

Espinosa said Secretary of State Condoleezza Rice offered support for extending the preferences for two years when she met with officials last week in Panama. Business sources who support extending the preferences said this reflects the State Department’s desire to prevent Ecuador and Bolivia from moving further to the orbit of Chavez, who is battling the U.S. for influence in Latin America.

The lobbying effort by Ecuador continues this week with a visit by Finance Minister Mauricio Davalos and National Security Minister Fernando Bustamante. Ecuador has also hired an extensive Washington team to press for an extension of the preferences.

The team includes Tew Cardenas LLP and Chlopak, Leonard, Schechter and Associates, which were hired to improve Ecuador’s image to extend the trade preferences, according to a letter filed last year with the Department of Justice. Tew Cardenas Director Roger Noriega, a former U.S. assistant secretary of state for the Western Hemisphere, signed the letter.

The preferences, first created in 1991 and renewed in 2002 as the Andean Trade Promotion and Drug Eradication Act, are intended to foster economic growth in Ecuador, Bolivia, Colombia and Peru, which all benefit from the preferences. They are also intended to support regional efforts at combating drugs, partly by giving farmers and workers an alternative to coca cultivation.

Another factor in the debate is the trade agreements that Peru and Colombia have negotiated with the U.S. If approved by Congress, these would replace the preferences. But many believe that while the Peru deal could receive a vote later this year, the Colombia deal is controversial among Democrats and its passage is in doubt.

Set to expire at the end of 2006, the preferences were extended for six months in one of the last bills approved by the GOP-held Congress. Written by former Ways and Means Chairman Bill Thomas (R-Calif.), the legislation was intended to create an incentive for Congress to move the trade deals with Peru and Colombia.

Thomas also wanted to move U.S. trade policy in the direction of bilateral trade deals, which provide advantages for U.S. exporters and investors, as opposed to unilateral preference programs. But his bill was criticized by Rep. Sandy Levin (D-Mich.), Rangel’s point man on trade and the current chairman of the Ways and Means trade subcommittee.

For its part, Ecuador does not want to negotiate a free-trade deal with the U.S., according to Espinosa. Rather, it is interested in strengthening the long-term economic relationship and seeks a five-year extension of the preferences.