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Ecuador, ATPDEA and Chevron

Ecuador's amazing ATPDEA hypocracy and how Newsweek got its facts wrong.


Ecuador's government - which routinely attacks U.S. companies - wants the United States to renew a preferential trade system, which gives Ecuadorian exporters duty-free access to the U.S. market for some 5,000 products. It recently sent its security minister Gustavo Larrea to argue its case in Washington, D.C. 

"Minister Larrea would do well to dedicate his efforts to shoring up the rule of law rather than conducting a charm offensive," argues John Murphy, the vice president of international affairs at the U.S. Chamber of Commerce. "Concerns about the rule of law in Ecuador pose a real threat to any continuation of these benefits for Ecuador," he wrote in a recent commentary.


Murphy is right. It seems amazingly hypocritical to violate U.S. companies' contracts in Ecuador on the one hand and then expect that the United States will reward Ecuador with preferential treatment under the Andean Trade Promotion and Drug Eradication Act (ATPDEA). The act will expire at the end of the year unless the U.S. Congress approves an extension (as it done on previous occasions).

U.S. energy companies like Occidental, Duke Energy, Murphy Exploration and Production Company International and Burlington Resources have sued Ecuador at The World Bank’s International Centre for Settlement of Investment Disputes (ICSID). Meanwhile, Chevron has also sued Ecuador through a U.N. procedure.

In all cases, the U.S. companies say that Ecuador has breached their contracts. And that violates the ATPDEA. "A country may not qualify as a beneficiary if its government expropriates property belonging to a U.S. citizen or corporation or if it takes steps to repudiate or nullify any existing contract or agreement with a U.S. citizen or corporation," Murphy points out.


The attacks against U.S. companies has had a price. Ecuador's total foreign direct investments as a percent of GDP last year was a mere 0.5 percent, according to Latin Business Chronicle analysis of FDI data from the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) and GDP data from the International Monetary Fund (IMF).  Only Venezuela has worse record in Latin America.

Chevron points out that it would like Ecuador to keep the benefits in place, but do so it would have to respect its contracts. "Chevron is seeking an outcome that would allow for the continuation of the trade benefits currently enjoyed by Ecuador," says Chevron media relations advisor Kent Robertson.  "We do, however, believe that the Republic of Ecuador has taken steps "to repudiate or nullify" existing contracts between itself and Chevron. This is a key aspect of the ATPA."

It is important to emphasize that withdrawing ATPDEA benefits for Ecuador is not the same as imposing any kind of sanctions. Ecuadorian firms can continue exporting to the United States without the ATPDEA. However, they won't longer be in a privileged group that can do so duty-free. By excluding Ecuador from ATPDEA benefits, the United States would send a loud and clear message that the bullying of U.S. companies has to stop.


Meanwhile, Newsweek recently published a story by its investigative reporter Michael Isikoff on the environmental lawsuit in Ecuador against Chevron - a lawsuit that Latin Business Chronicle has argued is wrong and misguided.  "This spring, events for Chevron took an ominous turn when a court-appointed expert recommended Chevron be required to pay between $8 billion and $16 billion to clean up the rain forest," he wrote. "Although it was not the final verdict, the figures sent shock waves through Chevron's corporate boardroom in San Ramon, Calif., and forced the company for the first time to disclose the issue to its shareholders."

First of all, a negative report by the court-appointed expert, Richard Cabrera, was expected by Chevron for a long time. They had long made it clear their distrust for him.  "The work he's doing is without scientific merit," Ricardo Reis Veiga, managing counsel for Chevron Latin America, told Latin Business Chronicle in a report we published August 13, 2007 - some eight months before the Cabrera verdict. "If the process continues like this, it will become a judicial farce. We don't see this as a serious process."

Second, there's the question of when shareholders were informed about the lawsuit. We don't know exactly what Isikoff refers to when he writes "the issue," but presume he's referring to the lawsuit. If that's the case, Chevron had kept their shareholders in the loop about the issue long before the Cabrera verdict, contrary to what Isikoff claims.

"Chevron has disclosed the case to shareholders in five consecutive proxy statements, discussed it at five annual stockholder meetings, developed a corporate website specific to the case (http://www.texaco.com/ecuador) and issued numerous news releases on the matter," Robertson says. "The writer’s statement that this year’s court report “forced the company for the first time to disclose the issue to shareholders” is wrong."


The lawsuit against Chevron has been going on since 1993, first in the United States (where it was dismissed in 2002), then in Ecuador. So this is hardly news to Chevron's shareholders.

Isikoff quotes Steven Donziger, a lawyer involved in the lawsuit against Chevron, but failed to quote any Chevron officials for their side of the story. Instead, he quotes "one Chevron lobbyist who asked not to be identified."

"Comments in a Newsweek article attributed to an unnamed lobbyist working for Chevron do not reflect our company's views regarding the Ecuador case," Robertson says. "They were not approved by the company and will not be tolerated.  This issue is an unfortunate distraction from the key facts in dispute in this case -- the fact that the pollution in Ecuadorian rainforest is the admitted responsibility of Petroecuador, and the fact that the government of Ecuador is not respecting contract sanctity or providing a fair judicial review of a case that is not supported by evidence."


Isikoff also seems to imply that Chevron's only hope now is that the U.S. Trade Representative's Office asks Ecuador to stop the lawsuit in return for an extension of the ATPDEA.  "Chevron is not asking the U.S. or Ecuadorian governments to intervene in the Lago Agrio suit," Robertson says.  "That sort of interference, in anyone's favor, is highly inappropriate."  In fact,

Chevron has denounced the Ecuadorian government's interference in the case. There has been growing pressure on the courts from Ecuador's authoritarian and leftist president Rafael Correa, who has publicly sided with the plaintiffs in their case against Chevron.

Isikoff also argues that a presidential victory by Senator Barack Obama, the presumptive Democratic candidate, would change the course of Chevron's fate since he had written a 2006 letter to the USTR asking it not to intervene in any way in the Ecuador lawsuit. "So now the prospect of an Obama presidency has given additional urgency to Chevron's plea for help in Washington," Isikoff writes. "Waiting until next year could leave the oil giant at the mercy of a judge in the Amazon jungle."

Sounds dramatic and reads well, but it hardly deals with the true facts. Chevron has made it clear that they are using all legal recourses against the lawsuit, starting with the court in Ecuador that's handling the case. Should Chevron lose the trial, it will appeal within Ecuador first and then internationally, Veiga told Latin Business Chronicle in August last year.


Then there's Chevron's legal case, which is quite convincing. First, neither the plaintiffs nor Cabrera have presented any evidence of Chevron's wrongdoing. Instead they have used samples from areas where Chevron (Texaco) never even operated or scientifically flawed samples from the correct areas. Second, fact is Chevron has not had its fair day in court in Ecuador, which is why the company as far back as October last year asked a superior Ecuador court to dismiss the lawsuit.

So in the end, no matter what Obama or Chevron lobbyists say or do, the fact is that the lawsuit against Chevron deserves to be dropped immediately. And, as we have stated before, if the issue is environmental damage the target should be Petroecuador, not Chevron.

Meanwhile, U.S. lawmakers would do well to deny Ecuador any ATPDEA extension until it starts respecting the rule of law, especially for U.S. companies that have invested in the country.

 © Copyright Latin Business Chronicle

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