Cablegate: Atpdea Still Key to Many Ecuadorian Industries and Jobs

Published: Mon 30 Nov 2009 02:04 PM
DE RUEHQT #1148/01 3341902
R 301404Z NOV 09 ZDS
E.O. 12958: N/A
SUBJECT: ATPDEA Still Key to Many Ecuadorian Industries and Jobs
1. (U) Ecuador has benefitted substantially from the Andean Trade
Preference Act (ATPA) program since its inception in 1991. ATPA
currently provides duty-free access to the U.S. market for
approximately 5,600 Ecuadorian products. According to GoE
estimates, approximately 350,000 jobs are tied to ATPA exports.
Although loss of ATPA privileges would considerably degrade some
key industries, such as cut roses, it appears other industries,
such as fresh mangoes, would retain duty free access through the
General System of Preference (GSP) program or be able to reorient
towards other foreign markets (pineapple). This cable provides a
brief overview of ATPA's impact on Ecuador's economy and key
sectors it influences to inform the debate about renewal/extension.
General Trade Overview
2. (U) As reported in the Fourth Report to Congress on the ATPA
as Amended by the Office of the U.S. Trade Representative, 2008
two-way trade between the United States and Ecuador totaled US
$12.5 billion, resulting in a US $5.5 billion bilateral trade
deficit for the United States. The United States is Ecuador's
largest export market, absorbing approximately 48 percent of
Ecuador's US $18.5 billion in exports in 2008. In 2008, Ecuadorian
exports to the United States were valued at US $9 billion, up from
US $6.1 billion in 2007, largely due to higher oil prices. Crude
oil accounted for 81 percent of Ecuador's 2008 total (both ATPA and
non ATPA) exports to the United States.
3. (U) The United States is also Ecuador's top supplier of
imports, providing 19 percent of its total imports in 2008.
Ecuadorian imports of U.S. products in 2008 totaled US $3.5
billion, up from US $2.9 billion in 2007. Top categories for U.S.
exports to Ecuador were machinery (24 percent of exports),
petroleum products (15 percent), electrical machinery (10 percent),
plastic (9 percent), and paper and paperboard (5 percent).
ATPA Trade Overview
4. (U) According to U.S. International Trade Commission
statistics, Ecuadorian exports under ATPA were a modest US $34.3
million in 1993, the first year in which Ecuador was a program
beneficiary. Ecuador's ATPA exports grew to US $177 million in
2002. Imports under ATPA jumped to US $1.6 billion in 2003, the
year following President Bush's renewal and expansion of ATPA with
the Andean Trade Promotion and Drug Eradication Act (ATPDEA).
ATPDEA added new export products to the preference program,
including petroleum, tuna and textiles and apparel which
contributed substantially to the increase in Ecuador's ATPA
benefits. For the following discussion, ATPA refers to both ATPA
and ATPDEA programs although different products qualify under each
5. (U) In more recent years ATPA exports from Ecuador have
continued to grow. ATPA exports from Ecuador increased 43 percent
between 2007 and 2008, from US $4.6 billion to US $6.6 billion, and
represented 73 percent of Ecuador's total exports to the United
States in 2008. The increase resulted primarily from the 47
percent increase in petroleum-related exports to US $6.2 billion,
which accounted for 94 percent of ATPA entries from Ecuador in
2008. Non-petroleum-related exports under the ATPA from Ecuador
fell 1 percent, from US $378 million in 2007 to US $373 million in
2008. This included exports of cut flowers, the second largest
export under the ATPA from Ecuador, which fell 7 percent to US $133
million. Other important exports under the ATPA from Ecuador in
2008 were tuna (US $74 million), up 8 percent over 2007;
vegetables, including frozen broccoli (US $43 million), up 22
percent; vegetable and fruit preparations (US $28 million), up 22
percent; and fruits, primarily fresh pineapples, fresh mangoes, and
frozen fruits (US $27 million), down 13 percent.
6. (U) Ecuador estimates that ATPA has generated 350,000 local
jobs in an employed population of 6.15 million people (both rural
and urban) meaning approximately 6.15 percent of employment in
Ecuador is influenced by ATPA. Anecdotal information suggests that
the total number of ATPA related jobs has likely fallen in 2009 due
to decreasing ATPA exports in response to the global economic
Key ATPA Industries
7. (U) Below are synopses of key Ecuadorian industries that
benefit from ATPA. Unless otherwise noted, values of ATPA exports
are taken from the United States International Trade Commission
(USITC). Statistics on Ecuador's overall exports and other foreign
markets are taken from Ecuador's Central Bank data.
ATPA Exports in 2008
1) Petroleum
US $6.2 billion
2) Flowers US
$133.0 million
3) Tuna
US $83.0 million
4) Broccoli
US $20.9 million
5) Plywood
US $17.4 million
6) Pineapple
US $12.6 million
7) Mangos
US $11.5 million
8) Textiles and Apparel US
$10.5 million
9) Aluminum
US $6.8 million
8. (SBU) In 2008, Ecuador exported a total of 127.3 million
barrels of oil, 62 percent of which were destined for the United
States. Other leading export markets were Peru (14 percent), Chile
(13 percent), Panama (3.6 percent) and China (3.2 percent). Oil
remains Ecuador's largest export under ATPA. In 2008, petroleum
products accounted for US $6.2 billion of Ecuador's total US $6.6
billion in ATPA exports. Petroleum exports under ATPA for 2009 have
decreased, down to US $1.4 billion from January through August
compared to US $4.6 billion in the same period in 2008. Although
oil extraction is concentrated in the rural northeast of Ecuador
where steady employment is scarce, it provides relatively few jobs
for unskilled laborers given that it is a capital intensive
industry. Without the ATPA program, Ecuadorian oil exports to the
U.S. would face a US 5-10 cent per barrel tariff. At current oil
prices for Ecuadorian crude of around US $70 per barrel (Ecuador's
Oriente 30 trades at a US $5 - 15 discount per barrel from the West
Texas Intermediate price due to high sulfur content), the
prospective U.S. tariff is a mere 0.07 percent to 0.14 percent.
Petroleum exports are not eligible for duty-free treatment under
the GSP program.
9. (U) ATPA has driven the Ecuadorian flower industry's rapid
growth to one of the world's leading exporters. Historically, the
U.S. has been the major consumer of Ecuadorians flowers. From
2006-2008, the U.S. accounted for 64 percent of Ecuador's flower
exports. Under ATPA, Ecuador's flower cultivation has grown from
286 hectares in 1991 to 6,000 hectares in 2008. According to GOE
statistics, Ecuador's total flower exports increased from US $34
million in 1992 to US $633 million in 2008. Despite these
successes, the industry has recently fallen on hard times and is
facing tight profit margins. The U.S. imported US $133 million in
Ecuadorian flowers under ATPA in 2008, 57 percent of which were
roses. This represented a noticeable decline from 2007 (US $143
million) and 2006 (US $141 million). Figures for January through
August suggest a decline of 8.4 percent in 2009 from the same
period in 2008. According to Central Bank of Ecuador (CBE)
year-on-end data for 2009, the U.S. accounts for 43 percent of
Ecuador's rose exports, followed by Russia at 20 percent, Holland
at 15 percent, and Italy at 3 percent.
10. (U) Challenges to Ecuador's flower industry include
increasing labor and transportation costs, and foreign competition
(especially from Colombia, the world's largest flower exporter, and
new players such as Kenya). Ecuador's use of the U.S. dollar and
an increase in the minimum wage in 2007 have made Ecuador less
competitive by saddling it with the highest labor costs of any
flower producing developing nation. The monthly compensation
package for a flower worker is over US $400. An additional
increase in the minimum wage, a Correa initiative, would force most
farms to reduce their work force. Industry analysts estimate that
15,000 jobs have been lost this year and that 30 percent of farms
are loss making, staying open only to avoid separation payments to
their workforce if they were to close. Ecuador's Social Security
Administration estimates that the flower industry employs 115,000
workers, although industry analysts put the number closer to
80,000. Flower production is concentrated in the mountainous
provinces of Pichincha and Cotopaxi along the roads to Quito. The
majority of workers come from rural villages or small towns. Sixty
percent of flower workers are women. Ecuador's rose exports are
not eligible for duty-free treatment under the current GSP program.
Elimination of ATPA would prompt a number of Ecuador's rose farms
to close. Ecuadorian growers have indicated that it would be very
difficult to transition to other flower varieties that are eligible
for duty-free treatment under the GSP program, such as carnations,
given Colombia's lower wage bill and established dominance in the
11. (U) Seafood exports (including crab and other crustaceans)
are Ecuador's second largest overall (including non-ATPA covered
fish) export to the U.S. after petroleum products. Ecuador's total
world fish exports in 2008 were US $1 billion, with tuna accounting
for 75 percent. ATPA benefits "pouch tuna" and packaged bulk tuna
exports, which are Ecuador's third largest export to the U.S. under
ATPA after petroleum and flowers. Pouch tuna is a crucial export
product for the overall competitiveness of the Ecuadorian tuna
industry because it has the highest value-added of all tuna
exported by Ecuador and thus helps determine the prices of other
qualities of tuna. In 2008, Ecuador exported US $83 million worth
of pouch tuna under ATPA. However, in the first half of 2009,
Ecuador's tuna exports to the U.S. decreased precipitously to US
$40.4 million (January through August), versus US $72 million for
the same period in 2008. The largest providers of pouch tuna to
the United States are Thailand and the Philippines, which together
hold about 63 percent of the U.S. pouch tuna market.
12. (U) Employment in the tuna industry is concentrated in the
coastal regions, with 60 percent of the tuna industry located in
Manta, 25 percent in Posorja, and the remainder in Guayaquil. The
tuna sector provides 31,000 direct and 58,000 indirect jobs. The
Manta Chamber of Commerce estimates that approximately 90 percent
of the Manta economy depends upon industrial and small scale
fishing. Tuna processing is labor intensive as machines are not
practical for skinning and processing fish. The vulnerability of
employees is high with few substitute jobs available for tuna
workers in an industry downturn. The majority of factory workers
are women. Pouch tuna exports from Ecuador would not be eligible
to enter the United States duty-free under the GSP program.
13. (U) The U.S. is the largest consumer of Ecuadorian broccoli.
In 2008, the U.S. imported US $20.9 million in Ecuadorian broccoli
under ATPA, down from US $22.4 million in 2007. However,
year-to-date ATPA exports for 2009 of US $14.7 million (versus US
$13.4 million in 2008) indicate Ecuadorian broccoli exports under
ATPA may be rebounding. According to Central Bank statistics,
total Ecuadorian exports of broccoli were US $56.9 million in 2008,
up from US $38.9 million in 2005. CBE statistics indicate that
exports to the United States under ATPA represented about 37
percent of Ecuador's total broccoli exports. If ATPA preferences
were eliminated, exports of frozen broccoli to the United States
would face an ad-valorem tariff of 14.9 percent. Mexico and
Guatemala are seen as potential substitute suppliers to the U.S.
The U.S. market is particularly important for Ecuadorian producers
as it absorbs broccoli stalks which are not in high demand in other
foreign markets.
14. (U) Currently Ecuador has 3,500 hectares under broccoli
cultivation, with 80 percent of farms located in the mountainous
Cotopaxi province near Quito. Value added is contributed by the
individual quick frozen process. Broccoli is exported as
"conventionally grown" as well as "organic" in packages containing
florets with stalks included, florets pieces with stalk cubes, or
stalks alone. The sector employs 2,000 farm workers with an
additional 2,000 full-time jobs in processing and 4,000 indirect
jobs in transportation and services. Broccoli exports from Ecuador
are not currently eligible for duty-free treatment under the GSP
15. (U) Ecuador is the ninth largest supplier of plywood to the
U.S. market, far behind leaders China, Canada, Russia and Brazil.
Industry contacts indicate that the U.S. remains the major export
market for Ecuadorian plywood at 75 percent of total exports. Other
consumers include Mexico (15 percent), Venezuela (5 percent) and
Colombia (3 percent). Ecuador's plywood ATPA exports totaled US
$17.4 million in 2008, up from US $15 million in 2007. January
through August 2009, exports of Ecuadorian plywood entering the
United States under ATPA were down 1.5 percent versus the same
period in 2008. Ecuador's five main plywood companies produce
about 144,000 cubic meters yearly with a value of US $24 million.
Ecuador's plywood industry is mainly concentrated in Esmeraldas
Province (an area of elevated narcotics activity along Ecuador's
northern border) and employs about 2,000 unskilled workers directly
and 8,000 indirectly. Local plywood production has been negatively
affected by labor and tax reforms implemented by the GOE, which
according to industry players have reduced previous profit margins
of 50 percent to 7 - 10 percent. The GOE's proposed tax reform and
a possible increase in minimum wage could reduce profitability
further. Ecuador's exports of plywood are eligible for duty-free
treatment under the GSP program.
16. (U) The United States is the leading export market for
Ecuadorian pineapple, accounting for 33 percent of Ecuadorian
pineapple exports in 2008. The majority of Ecuadorian pineapple
(98 percent) enters under ATPA. Spain is the second largest
importer of Ecuadorian pineapple at 19 percent of exports, followed
by Belgium at 15 percent. Total Ecuadorian exports of pineapples
amounted to US $36.6 million in 2008, up from US $30.9 million in
2005. Ecuador's ATPA exports continue to grow. ATPA 2008 pineapple
exports totaled US $12.6 million, up from US $11.4 million in 2007.
The positive trend appears to be continuing in 2009 with ATPA
exports January through August totaling US $8.9 million compared to
US $6.6 million in 2008.
17. (U) The elimination of ATPA benefits would result in a modest
tariff of 1.1 cents/Kg which, although it would reduce profits,
would not likely destroy Ecuador's pineapple industry. Costa Rica
and Honduras are potential substitute suppliers to the U.S. if ATPA
is terminated. Ecuador has 3,300 hectares of pineapple, located
mainly in the central, landlocked provinces of Los Rios and Santo
Domingo de Los Tsachilas. Plantations farming the super sweet
variety pineapples marketed to the U.S. employ 1.02 persons per
hectare. Analysts estimate the pineapple sector provides
approximately 3,366 direct farming jobs, 26,500 temporary jobs in
packaging and processing and 5,900 indirect jobs in services,
management, and transportation. Ecuador's pineapple exports are
eligible for duty-free entry into the United States under the GSP
program. Additionally, high demand for pineapple on the world
market means the Ecuadorian industry would likely survive the loss
of ATPA privileges.
18. (U) The United States is the leading export market for
Ecuadorian fresh mangos with 75 percent of Ecuadorian mangos
entering under ATPA. Some processed mango products do not qualify
under ATPA. In 2008, ATPA exports of mangos from Ecuador totaled
US $11.5 million, down from US $15.6 million in 2007. Figures for
January through August 2009 indicate mango exports have decreased
by 37 percent versus the same period in 2008. Ecuador's overall
export of mangoes was US $15.8 million in 2008, down from US $17.8
million in 2005. The United States accounts for about 73 percent
of Ecuador's total mango exports. The second largest importer of
Ecuadorian mangos is Canada (9 percent) followed by Colombia (6
19. (U) Currently, Ecuador has 7,000 hectares of mango under
cultivation, up from 5,500 hectares in 2005. Farms are located
mainly in the coastal province of Guayas (90 percent) and central
province of Los Rios (10 percent). Products include fresh mangos,
mango puree, individual quick frozen (IQF) cubes, and dried mango.
Fresh mangos are exported as conventionally grown or organic.
Ecuador has five hydrothermal treatment plants that ensure the
elimination of fruit flies and allow mangos to meet phytosanitary
regulations. This procedure shortens shelf life and, analysts say,
would complicate transport to more distant markets, like Europe.
Mango cultivation employs three workers per hectare and estimates
are that the sector provides 21,000 direct farming jobs, 3,000
temporary jobs in processing and packaging, and 7,200 indirect jobs
in services, management, fertilizing, and transportation. Mangos
from Ecuador would be eligible for duty-free treatment under the
GSP program if ATPA ended. Ecuador's competitors for the U.S.
mango market include Mexico, which has a similar growing season and
duty-free status under NAFTA, Peru and Brazil.
Textiles and Apparel
20. (U) In 2008, Ecuador exported US $10.5 million in yarn,
thread, cloths, and finished clothing to the United States under
ATPA, accounting for approximately 85 percent of total textile
exports to the United States from Ecuador. The United States is
one of Ecuador's major textile consumers, accounting for
approximately eight percent of Ecuador's total textile exports in
2008. Other top export markets are Colombia (US $42 million in
2008) and Peru (US $8 million). Local producers have commented
that uncertainty about the continuation of ATPA has forced them to
reduce inventories and withhold investment. Ecuadorian ATPA
textile exports for January through August 2009 were US $4.7
million, down from US $6.8 million in the same period in 2008.
21. (U) Textile producers estimate the sector provides 28,000
direct jobs and 112,000 indirect jobs. Rough estimates from
industry studies indicate that textile exports to the U.S. under
ATPA provide 2,000 of the sector's direct hire jobs and
approximately 8,000 of the indirect jobs. More difficult to assess
is the sizeable number of Ecuadorian jobs tied to the production of
thread, yarn and cloth that are exported to Colombia and Peru for
inclusion in finished products exported from those countries to the
United States under ATPA. Elimination of ATPA or removal of
Ecuador from ATPA would pose significant problems for the textile
and apparel sectors in Colombia and Peru, which are able to
"accumulate" Ecuadorian inputs toward the 35% local origin rule
under ATPA. Local producers estimate that in 2008, US $7.5
million worth of Ecuadorian textiles exported to Peru and Colombia
were used as inputs for clothing which later entered the United
States under ATPA. Ecuador's ATPA textile and apparel production
also directly benefits U.S. cotton growers; all of the sector's
cotton imports, valued at US $19.5 million in 2008, come from the
United States. Ecuador's textile production is primarily
concentrated in urban areas such as Quito, Guayaquil, Cuenca,
Ambato, Otavalo and Atuntaqui, with participation by indigenous
groups in these last two locations. Ecuador's textile and apparel
exports would not be eligible for duty-free treatment under the GSP
22. (U) Ecuador's ATPA exports of aluminum "profiles" (aluminum
shaped and angled for construction and decoration purposes) to the
U.S. have been hit hard by the global crisis. ATPA exempts
Ecuadorian aluminum from a 5 percent import tariff. Local
manufacturers have indicated that the loss of ATPA benefits could
surrender Ecuador's U.S. market share to China and Canada.
However, aluminum profiles could also enter the United States
duty-free under the GSP program.
23. (U) Ecuador's ATPA aluminum profile exports increased
drastically during the housing boom in the U.S. from US $6.7
million in 2004 to a peak of US $21.9 million in 2006. The U.S.
subprime mortgage crisis and a decline in international aluminum
prices reduced ATPA exports to US $10.7 million in 2007 and US $6.8
million in 2008. ATPA exports for 2009 continue the downward trend
with exports January through August totaling US $2.9 million versus
US $4.7 million in 2008. Aluminum profile production is labor
intensive. Ecuador's sole aluminum profile exporter to the U.S.,
which hired 700 employees during the boom years of 2003-2006, has
laid off 200 employees in the past two years due to decreased
24. (SBU) ATPA has been pivotal in providing over 350,000
Ecuadorians with jobs and the opportunity to escape poverty and/or
the allure of illicit activities. The duty-free access provided by
ATPA has been crucial in enabling certain covered products from
Ecuador to compete in the U.S. marketplace, given their very low
profit margins. ATPA has produced concrete economic gains in
Ecuador but, without a sustained program, it will be difficult to
maintain, let alone expand, on these gains. Recent GoE policy
announcements on compulsory licensing and possible termination of
bilateral investment treaties, including with the United States,
have raised concerns about the Ecuadorian government's intentions
regarding our bilateral commercial relations, but support of and
appreciation for the ATPA among the Ecuadorian population remains
very high. Should ATPA be terminated or Ecuador be exempted from
the program, we would lose an important, positive element in our
relationship with the Ecuadorian people.
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