April 21, 2006

U.S.: Ecuador Oil-Tax Law Violates Treaty

Associated Press
All Associated Press News

QUITO, Ecuador (AP) - A U.S. Embassy spokeswoman said Friday that a newly approved oil-tax law designed to cut into windfall profits of foreign oil producers, like U.S.-based Occidental Petroleum Corp., violates a bilateral investment treaty.

"We are very concerned by the law, not because of the stipulations themselves but because it was imposed in a unilateral manner," spokeswoman Marti Estell told Channel 4 television. "It would appear to be a violation of our bilateral investment treaty."

The treaty, signed in August 1993, was designed for the "encouragement and reciprocal protection of investment," and stipulates that disputes should be settled initially "through consultation and negotiation," and if that does not work, then through an independent arbitrator or the courts.

President Alfredo Palacio’s administration has acknowledged that free trade talks with Washington stalled earlier this month over the new hydrocarbons law, which would give Ecuador’s government a greater share of profits driven by skyrocketing oil prices.

Congress on Wednesday approved the law, which would give the government 50 percent of profits whenever the international oil market exceeds the prices established in existing contracts.

Foreign companies have said the new oil bill is a heavy blow that could lead them to reconsider investment plans.

Blasco Penaherrera, president of a federation representing chambers of commerce and business associations in Ecuador, told Dow Jones News Friday that a suit would be brought to the country’s constitutional court as soon as the new law is printed in the official record, which puts it into effect.

Ecuador produces 535,000 barrels of oil daily, and oil revenues account for 43 percent of the national budget.