June 24, 2013

June 24, 2013 | Commentary on Economy, Global Economy

Time to End Trade Preferences for Ecuador

The July 31 deadline for renewing the Andean Trade Promotion and Drug Eradication Act (ATPDEA) is fast approaching. Congress first enacted ATPDEA more than 20 years ago to help four Andean countries — Bolivia, Colombia, Ecuador, and Peru — fight the illicit drug trade by expanding legitimate economic activities.

Today, thanks to recently signed free-trade agreements with the U.S., Colombia and Peru no longer need the ATPDEA. And Bolivia and Ecuador no longer deserve it.

In 2008, Bolivian president Evo Morales kicked out the American ambassador and the Drug Enforcement Administration (DEA). Recently, he threw out the U.S. Agency for International Development, demonstrating beyond a doubt that the 2009 decision to deny Bolivia ATPDEA benefits was correct.

That leaves Ecuador. There, President Rafael Correa’s contempt for the rule of law gives Congress all the justification it needs to lump Ecuador into the same category as Bolivia. It no longer meets the ATPDEA’s eligibility criteria.

Like Morales, Correa ended cooperation with DEA, and the State Department’s International Narcotics Control Strategy Report notes a simultaneous rise in the presence of “Mexican, Colombian, Russian, and Chinese transnational criminal organizations” in Ecuador. But Correa did far more than merely abandon the field to illegal drug producers and traffickers.

Upon his election in 2006, Correa began laying the groundwork for “21st Century Socialism” in Ecuador, following the playbook of his political mentor, Venezuela’s Hugo Chávez. Ecuador has seen rising class warfare, polarization, and intolerance of dissent ever since.

Under Correa, Ecuador also has been hostile to foreign investors — especially Americans. Since 2008 it has defaulted on $3.2 billion of sovereign debt, cancelled bilateral investment treaties (BIT) with several countries, and withdrawn from the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).

Last year an ICSID arbitration panel in The Hague ordered Ecuador to pay Occidental Petroleum nearly $1.8 billion for assets it had expropriated in violation of the U.S.-Ecuador BIT. Two other oil companies — a subsidiary of U.S.-based ConocoPhillips and Perenco, a French oil company — have similar ICSID cases pending against Ecuador. Both had assets confiscated in 2009.

Meanwhile, Ecuador’s government has encouraged a “jackpot justice”-style class-action lawsuit by U.S.-based environmental activists against Chevron. In 2011 an Ecuadorian provincial court, relying on highly dubious evidence, issued a $19 billion judgment against the oil giant. The Correa government then let these “Lago Agrio” plaintiffs launch legal actions to seize Chevron assets in Canada and Argentina as a means of collecting the award. This directly violates a decision by The Hague’s Permanent Court of Arbitration.

According to ATPDEA’s mandatory eligibility criteria, “The President shall not designate any country if [it] has nationalized, expropriated or otherwise seized ownership or control of property owned by a United States citizen [or if] such country fails to act in good faith in recognizing as binding or in enforcing arbitral awards in favor of United States citizens . . .”

The Correa regime’s actions provide plenty of justification for removing Ecuador’s trade preferences under the ATPDEA. Indeed, Ecuador’s behavior has been so egregious, Washington should also deny benefits available under another U.S. law, the Generalized System of Preferences (GSP) program.

Rafael Correa has demonstrated a blatant disregard for international standards of justice. That kind of conduct may not be surprising from a man who seeks to don the mantle of Chávez, but it should not be rewarded with trade preferences.

— James M. Roberts is research fellow for economic freedom and growth in The Heritage Foundation’s Center for International Trade and Economics.

About the Author

James M. Roberts Research Fellow For Economic Freedom and Growth
Center for Trade and Economics (CTE)

First appeared in National Review Online