Quito – Ecuadorian Foreign Minister Francisco Carrion admitted Monday that relations with the United States are “damaged” after recent decisions taken by Ecuador with regard to its hydrocarbon resources.
“I believe that relations (with the United States) are damaged, but they will go on,” Carrion told the daily Expreso, referring to the recent Ecuadorian decision to rescind the contract with U.S.-based oil company Occidental Petroleum (Oxy) for breaking conditions of the agreement.
Quito moved to cancel Occidental Petroleum’s contract because the California-based firm transferred assets without informing the relevant authorities in Quito.
Occidental sold 40 percent of its concession to the Canadian company EnCana, which in turn later peddled that stake to a Chinese oil consortium.
Carrion said that the decision taken with regard to Oxy was “legal and correct,” while the U.S. company reported that it had filed a complaint against Ecuador before an arbitration court in the United States demanding more than $1 billion in compensation for the loss of its concessions and investments in the Ecuadorian Amazon.
Ecuador’s decision had the added effect of undermining the free trade agreement that Quito and Washington have been negotiating since 2004.
U.S. officials originally suspended negotiations to show unhappiness with Ecuador’s imposition of a windfall-profits tax on foreign oil companies as part of its Hydrocarbons Law reform.
Talks became even more deadlocked with the judgment against Oxy, to such a point that many in the Ecuadorian business community pronounced the trade pact dead.
Ecuador, Peru and Colombia began to negotiate the trade accord jointly with the United States in 2004, but Lima signed on last December and Bogota followed suit in February.
Earlier this month the U.S. government announced that it would not continue negotiating a free trade treaty with Ecuador in response to cancellation of the Oxy contract.
“We are very disappointed at the decision of Ecuador, which appears to constitute a seizure of assets of a U.S. company,” the Office of the U.S. Trade Representative said in a statement. “At this time no further (free trade agreement) discussions are scheduled.” Spokeswoman Neena Moorjani said Washington will move quickly to determine “whether it (Ecuador) intends to fully compensate the company as required under our bilateral investment treaty.” For a country to attract investment, and especially to be a possible partner to a free trade treaty, it must obey the law in that it must respect foreign investment, said Moorjani in a communique.
Free trade pacts are based on the basic principles that the two parties will respect the law, she said.
