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BOARD OF ADVISORS

Thursday, June 13, 2013

FEATURED Q&A

What Does the ATPDEA Mean for Ecuador and the U.S.?

Diego Arria Director, Columbus Group Genaro Arriagada Nonresident Senior Fellow, Inter-American Dialogue Joyce Chang Global Head of Emerging Markets Research, JPMorgan Chase & Co. W. Bowman Cutter Former Partner, E.M. Warburg Pincus Dirk Donath Managing Director, Eton Park Capital Management Jane Eddy Managing Director, Corporate & Govt.

Ratings Group, Standard & Poor's

James R. Jones Co-chair, Manatt Jones Global Strategies LLC Craig A. Kelly Director, Americas International Gov't Relations Exxon Mobil John Maisto Director, U.S. Education Finance Group Nicolás Mariscal Chairman, Grupo Marhnos Thomas F. McLarty III President, McLarty Associates Carlos Paz-Soldan Partner, DTB Associates, LLP Beatrice Rangel Director, AMLA Consulting LLC

Marlene Fernández Corporate Vice José Antonio Ríos President for Chief Executive Officer, Government Relations, Vadium Technology Inc. Arcos Dorados Gustavo Roosen Peter Hakim Chairman of the Board, President Emeritus, Envases Venezolanos Inter-American Dialogue Andrés Rozental President, Donna Hrinak Rozental & Asociados President, and Senior Fellow, Boeing Brazil Brookings Institution Jon Huenemann Everett Santos Vice President, President, U.S. & Int'l Affairs, DALEC LLC Philip Morris Int'l Shelly Shetty Head, Latin America Sovereign Ratings, Fitch Inc.-Start Content-

Copyright © 2013, Inter-American Dialogue

Ecuador's government in May launched its "Keep Trade Going" campaign, a public relations initiative aimed at swaying U.S. lawmakers to support renewing trade preferences under the Andean Trade Promotion and Drug Eradication Act (ATPDEA) that are set to expire July 31.

Will the campaign succeed by that deadline? Why is the Ecuadorean government so invested in renewing the trade preferences? What is at stake for Ecuadorean and U.S. interests if they are not renewed?

Did ATPDEA make any progress toward its stated goal of providing jobs and other economic alternatives to cocaine production?

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Nathalie Cely, Ecuador's ambassador to the United States: "'Keep Trade Going' is an effort to bring about awareness to U.S. consumers, including lawmakers, that the great mutual economic and security benefits Ecuador and the United States receive from the ATPDEA are being threatened. There is much at stake for both our countries. For more than two decades, the ATPDEA has proven to be a cost-effective tool to creating thousands of jobs in Ecuador—many for women heads of households in industries such as farming and agriculture. Why is this in the strategic interests of the United States? By opening up lucrative employment options outside of the Latin American drug trade, the ATPDEA is helping to ensure Ecuador remains a non-drug

producing country, and in turn keeping American neighborhoods safer. As noted in the most recent U.S. International Trade Commission report on the program, Ecuador has had 'better-than-expected results' in reducing illicit drug activities by generating employment and income opportunities. Of note, as a result of the efforts and investments of the government of Ecuador, the country is practically free of coca crops. In the United States, the trade facilitated by the ATPDEA has likewise supported thousands of jobs—from Continued on page 3

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Brazil Scraps Currency Derivatives Tax as Real Falls In order to stem the drop in Brazil's currency, the government has eliminated a currency derivatives tax that was put in place two years ago. Finance Minister Guido Mantega said that the so-called IOF tax no longer is needed. See story on page 2.

File Photo: Brazilian Government.

Inside This Issue FEATURED Q&A: What Does the ATPDEA Mean for Ecuador and the U.S.? .........1

Guatemala's Ríos Montt Moved From Hospital to House Arrest.............................2

Mayoral Candidate From Mexico's Chihuahua State Found Dead...............................2

U.S. Court Confirms $96 Mn Award for Chevron in Ecuador Case ..................2

Brazil Scraps Currency Derivatives Tax as Real Drops ............................2

Barrick Releases 18-Month Plan for Chile Mine Project ..................................3 Page 1 of 4

Inter-American Dialogue’s Latin America Advisor

NEWS BRIEFS Guatemala's Ríos Montt Moved From Hospital to House Arrest

Former Guatemalan dictator Efraín Ríos Montt was released to house arrest Wednesday from a military hospital where he has been serving time since last month for genocide and crimes against humanity, according to the Associated Press.

Guatemala's Constitutional Court overturned the conviction shortly after Ríos Montt began serving his sentence and ordered the trial to restart from where it was on April 19. The trial has not yet been restarted.

U.S. Court Confirms $96 Mn Award for Chevron in Ecuador Case

A U.S. district judge in Washington has confirmed a $96.35 million award for Chevron in a case against Ecuador, The Wall Street Journal reported Wednesday. An international tribunal in The Hague awarded the sum to the oil company for alleged violations of the Bilateral Investment Treaty between the United States and Ecuador. Ecuador has sought to have the case thrown out, arguing that The Hague does not have jurisdiction. The case is separate from Ecuador's long-running multi-billion-dollar pollution case against Chevron.

Bolivia-Chile Maritime Case Opens in World Court

The International Court of Justice met with representatives from Chile and Bolivia on Wednesday to begin proceedings in a maritime dispute by setting a timeline for a trial, The Santiago Times reported. Bolivia lost access to the sea to Chile through the War of the Pacific and the signing of the Treaty of Peace and Friendship in 1904 and Bolivia claims it has a right to access to the sea.

Copyright © 2013, Inter-American Dialogue

Thursday, June 13, 2013

Political News

Economic News

Mayoral Candidate From Mexico's Chihuahua State Found Dead

Brazil Scraps Currency Derivatives Tax as Real Drops

A mayoral candidate from a town in the Mexican state of Chihuahua has been found dead after being missing since Monday, BBC News reported. Jaime Orozco reportedly had been abducted from his home in Guadalupe y Calvo. His body, riddled with bullets, was discovered in a nearby field, officials said Wednesday.

Orozco, a member of Mexico's governing Institutional Revolutionary Party, or PRI,

With Brazil's currency at a four-year low against the U.S. dollar, the country's government has eliminated a currency derivatives tax that was put in place two years ago, Bloomberg News reported Wednesday. The government implemented the so-called IOF tax in July 2011 in an effort to stem the then-appreciating currency. But now, the declining currency has led the government to eliminate it. "With the dollar strengthening, it doesn’t make sense to keep this obstacle in place," Finance Minister Guido Mantega told reporters in Brasília. Brazil is unwinding capital controls that it started establishing in 2010 amid economic policies elsewhere that Mantega described as a "currency war." The U.S. dollar has since strengthened against other major currencies amid expectations that the U.S. Federal Reserve will scale back its program of buying bonds. "I don't know if this is enough to regain the FX market's trust, because they change the rules of the game all the time," Andre Perfeito, chief economist at Gradual Investimentos in São Paulo told Bloomberg News in a phone interview in reaction to Brazil's announcement. "They cut the IOF now, but if winds change in the near-future they might put it back.

But it is a good step in the right direction." A weakening real could harm Brazil's moves to rein in inflation, Rousseff which is currently at File Photo: Brazilian the high end of the Government. central bank's target range of 2.5 percent to 6.5 percent. The government's decision to scrap the IOF tax came after it eliminated a tax on foreign bond purchases last week. The real has slumped 5 percent against the dollar over the past three weeks. Also on Wednesday, Brazilian President Dilma Roussseff announced a new program to offer $8.7 billion in low-interest loans to

At least two dozen mayors have been killed in Mexico since December 2006.

was running for mayor in the upcoming July 7 elections. "We are carrying out an investigation. We will solve this crime and find those responsible for it," said Chihuahua Gov. César Duarte. At least two dozen mayors have been killed in Mexico since former President Felipe Calderón took office in December 2006 and deployed the military to fight the country's drug cartels. Also on Wednesday, Mexican authorities announced that they had rescued 58 migrants who had apparently been abducted and held in a house in the neighboring state of Sonora, also along the U.S. border. Fifty-one of the migrants are from Guatemala, six are from India and one is from El Salvador. The migrants were rescued from a home in the border city of Nogales. Authorities detained a 43year-old man who had been guarding the house. Last week, authorities rescued 165 migrants who were being held for ransom in a house in the northern Mexican state of Tamaulipas. The migrants had been forced to live in squalid conditions for two or three weeks while their captors allegedly tried to extort money from their families, officials said.

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Thursday, June 13, 2013

Inter-American Dialogue’s Latin America Advisor

help low-income residents buy furniture and appliances, the Associated Press reported. The loans will go to people enrolled in a low-income housing program. The program is a government effort to boost demand amid a slumping economy. Rousseff said lower middleclass Brazilians have little access to credit, adding that she hopes they will now start borrowing money and buying goods. The new program will provide loans of as much as $2,500 to households at 5 percent annual interest, which is well below the country's typical lending rates.

Company News Barrick Releases 18-Month Plan for Chile Mine Project Canada's Barrick Gold said Wednesday that it will construct water infrastructure needed to meet Chilean environmental rules at its Pascua-Lama project by December of next year, Reuters reported.

In May, Chile's environmental regulator halted construction of the $8.5 billion project and slapped Barrick with a $16 million fine, citing environmental violations. On Wednesday, the Toronto-based company said its plan addressed the environmental concerns. "The work program

Chile's environmental regulator halted the project last month.

contemplates an estimated timeline of approximately 18 months to complete all works associated with the water management system in Chile," said Barrick spokesman Andy Lloyd. "However, these estimates are subject to review by Chilean regulatory authorities." The Chilean regulator said later Wednesday that the company still had not provided all the needed details for its plan to be approved. The regulator gave Barrick three working days to provide additional information on how it will avoid water pollution and other environmental damage.

Copyright © 2013, Inter-American Dialogue

Featured Q&A Continued from page 1 shipping and logistics to small businesses such as florists and wedding planners—while providing affordable products that U.S. consumers have come to enjoy such as roses, mangoes, tuna and broccoli. All of these great benefits for both Ecuador and the United States are not accidents—they are the result of close, targeted cooperation through programs like the ATPDEA. So, why end this mutually beneficial and successful program? We shouldn't and that's why the goal of our campaign is to encourage the public to visit www.keeptradegoing.com and tell Congress to renew the ATPDEA before its expiration on July 31, or else much of the progress we've seen will come to a halt. Renewal will allow us to continue this important economic and security cooperation and, ultimately, launch negotiations for a new bilateral trade program that can further deepen the continued partnership between the United States and Ecuador."

Daniela Chacón Arias, political analyst at Profitas in Quito: "The Ecuadorean government has been sending mixed signals regarding ATPDEA and its importance in the country's economy. President Rafael Correa has said numerous times that the trade preferences under ATPDEA are granted for Ecuador's efforts in fighting drug trafficking, and since Ecuador has fulfilled its part of the deal, so should the United States. In addition, he has said that ATPDEA is not as important as trade with the European Union and that its expiration would only mean a few million dollars a year in import tariffs, which can be supplemented by the government. Despite these statements, the government is realizing that closing its borders to trade and failing to open new markets is hindering Ecuador's growth. In Correa's third term, he has stressed the importance of commercial agreements, not free-trade agreements, with the European Union and Mercosur and has recently joined the Pacific Alliance as an observer. The

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private sector has been asking the government to sign a more permanent type of trade agreement with the United States to not repeat this process every year. They are not only worried about losing trade preferences under ATPDEA but losing competitiveness to Colombia and Peru, which have already signed trade agreements. Even though Correa has underscored the importance of commercial agreements, it is unlikely that the government will move toward signing a free-trade agreement with the United States as it fundamentally opposes such scheme. It would seem that Ecuador will continue to fight every year for the renewal of ATPDEA and trade will only keep going at the mercy of the United States Congress."

Ramiro Crespo, president of Analytica Securities in Quito: "I have no illusions regarding the likelihood that Congress will extend ATPDEA benefits. However, it would be wise for legislators to ponder the situation very carefully. To remove access to the U.S. market would punish hard-working Ecuadoreans of all income levels. Entrepreneurs would be pushed into the arms of a bloated, interventionist administration that is already offering subsidies. Working-class Ecuadoreans, meanwhile, will likely be put out of work and could be tempted to participate in the illicit drug trade. For all its recent ideological posturing, Ecuador has been a reliable partner in the anti-narcotics fight. The ATPDEA has not directly created alternative jobs to those in the illegal narcotics industry, but it has helped transform parts of Ecuador, particularly in the Andes, by providing reliable market access. It has been instrumental in securing capital-intensive investment that contributed to making Ecuador a world leader in broccoli, cut flowers and tuna exports. Congress should also understand that ending the ATPDEA will cost U.S. jobs among importers, retailers and in freight. Of course, reliable free trade should be the real goal of commer-

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Inter-American Dialogue’s Latin America Advisor

Thursday, June 13, 2013 -End Content-

Featured Q&A Continued from page 3 cial policies, for which the ATPDEA is still just a stopgap measure. Ambassador Nathalie Cely's campaign for the ATPDEA needs much more support from her boss, Foreign Minister Ricardo Patiño, who instead has undermined it by criticizing U.S. Ambassador Adam Namm. At least it puts Cely in the running to head the new commerce ministry, which the president is splitting off from the foreign ministry."

Rene G. Ortiz, president of the Asociación Nacional de Empresarios in Ecuador, former secretary general of OPEC and former Ecuadorean minister of energy and mines: "It is never too late to retake what, for many businessmen, was a lost political battle. In April 2005, Ecuador was close to finishing its own free-trade agreement with the United States.

Nevertheless, Ecuador was so lucky to have two negotiating partners, Colombia and Peru. For the U.S. Congress, the only alternative was to periodically extend the Andean Trade Promotion and Drug

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Latin America Advisor Eradication Act (ATPDEA) deadline to all three together. Probably, that could also be interpreted as keeping the negotiating door open so that Ecuador might come in. Dollarization in Ecuador is more popular than Rafael Correa, according to polls. Inflow of dollars can only land in Quito via robust and growing foreign trade (including oil export earnings), via foreign direct investment, external debt and remittances. All four have either been neglected or have declining numbers over the last six years of Correa's government.

Better understanding of the size of Ecuador-U.S. trade, the favorable trade balance, the losses if the ATPDEA disappears, along with local businessmen's appeals to the government, have led to hope. There are also hundreds of businesses, jobs and gains in the United States."

The Advisor welcomes reactions to the Q&A above. Readers can write editor Gene Kuleta at gkuleta@thedialogue.org with comments.

is published every business day by the Inter-American Dialogue, Copyright © 2013 Erik Brand General Manager, Publishing ebrand@thedialogue.org Gene Kuleta Editor gkuleta@thedialogue.org Megan Cook Reporter, Assistant Editor mcook@thedialogue.org

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