Cables from the first term of Ecuadorian President Rafael Correa show how the US sought to defend the interests of US companies in Ecuador, and protect the position of foreign investors in general.
Moves against the power of transnational corporations by Correa's government, first elected in 2006, were seen as attempts to increase control over the economy, which the US government views as the domain of private interests.
The US Embassy in Quito therefore tried to influence Ecuadorian economic policy in conjunction with allies from other embassies and from within the private sector.
In May 2009, Correa announced that Ecuador would withdraw from the World Bank's investment dispute court, the International Centre for Settlement of Investment Disputes (ICSID).
Dominated by Western powers, ICSID provides the means for transnational corporations to directly challenge, and often defeat, the policies of elected governments. ICSID had become deeply resented in Latin America after a series of cases demonstrated its anti-democratic power.
In Argentina, several companies brought ICSID cases against the government over its decision in 2002 to unpeg the peso from the US dollar. Even though the decision had been taken to avoid economic collapse, ICSID ordered Argentina to pay hundreds of millions of dollars in compensation for loss of profits resulting from the peso’s depreciation.
In Bolivia, the Bechtel Corporation brought an ICSID claim against the government for US$50 million it claimed had been lost in relation to the privatisation of water in the city of Cochabamba. Bechtel subsidiary Aguas del Tunari had been forced to close in 2000 after mass protests against its decision to raise water rates by more than 50%.
An international campaign was mounted against the Cochabamba case and in 2005 Bechtel dropped it due to the ongoing negative publicity. In 2007, Bolivia withdrew from ICSID.
According to a July 2009 cable, Ecuador had claims against it at ICSID totalling US$10 billion. Many of those cases had been brought by foreign oil companies challenging the windfall revenue tax introduced by the former Alfredo Palacio administration.
Ecuador’s new constitution reflected popular opposition to ICSID, stating: “Treaties or international instruments where the Ecuadorian State yields its sovereign jurisdiction to international arbitration entities in disputes involving contracts or trade between the State and natural persons or legal entities cannot be entered into.”
Another article stipulates that foreign direct investment should be complementary to state investment.
Correa said the withdrawal from ICSID was needed to liberate Ecuador from “slavery with respect to transnationals, with respect to Washington, with respect to the World Bank”.
Correa also said Ecuador would promote an initiative among the Union of South American Nations (UNASUR) to abandon ICSID. In August 2009, foreign minister Fander Falconi announced that Ecuador would promote the creation of a Latin American regional centre for arbitration as an alternative to ICSID.
Ecuador’s withdrawal from ICSID was closely tied to the Correa government’s decision to terminate 17 bilateral investment treaties, which allowed foreign companies recourse to ICSID.
An October 27 cable reported that Ecuador’s acting foreign minister, Lautaro Pozo, told US Ambassador Heather Hodges that the Ecuadorian government wanted to negotiate new investment treaties that “allow only local or regional dispute arbitration, and align foreign investment with Ecuador's national development plan”.
The cable shows that the US Embassy regarded the decision as the latest in a long list of Ecuadorian transgressions. Under the heading “Bad Timing, Bad Idea”, Hodges listed the “difficult issues” the two countries had been dealing with. These included a new pharmaceutical licensing scheme which threatened the profits of US companies, and Ecuador’s decision not to renew the lease at Manta air base.
The cable reported on what appears to have been a tense meeting between Hodges, Pozo and the foreign ministry's legal advisor, Marco Albuja. According to the cable, the ambassador told the Ecuadorians that they “would find it difficult to explain the decision to Washington”.
Under the heading “They Want it Their Way”, Hodges wrote: “This decision is entirely consistent with the Correa government's desire to have increasing control over all resource flows and over the economy writ large.”
In other words, Correa’s government had offended the US by asserting Ecuadorian sovereignty and rejecting the economic policy dictates of the US.
A later cable reported on a meeting between Falconi, Albuja, and the ambassadors of the countries whose bilateral investment treaties were to be terminated, including France, Germany, Britain and the US.
Albuja told the meeting: “From the GoE's [government of Ecuador] perspective, international arbitration permits legal challenges to Ecuador's public policies in fora outside Ecuador's national jurisdiction, contrary to what is permitted under Ecuador's 2008 Constitution.”
This argument held no sway with the US Embassy. The cable concluded that while Ecuador was unlikely to reconsider its decision, “There may be a window of opportunity in which the USG [US government] and like-minded countries can reason with the GoE regarding the negative repercussions that are likely should they follow through with their plan”.
In October 2009, Correa announced that his government would introduce compulsory licensing for patented pharmaceutical products. This allows an individual or a company to use another company’s patent without that company’s permission, thereby allowing the production of generic versions of expensive patented drugs.
Correa’s proposal threatened to cut the profits of US pharmaceutical companies in Ecuador, whose patent monopolies allowed them to dictate prices.
Correa also announced that the public tender system for medicines would be reformed to favour local producers. This was described in a cable as another “significant blow to U.S. pharmaceutical companies”.
The same cable reported that embassy staff met with local representatives of US pharmaceutical companies Pfizer, Merck Sharp and Dohme, Schering-Plough and Wyeth to discuss Correa’s statements.
Hodges reported that US companies were “trying, through well placed contacts, to get a better idea of President Correa's core objectives”.
A week later, another cable reported that the embassy was continuing “to consult with representatives of U.S. pharmaceutical companies and have suggested they present President Correa with data that would help dispel his misperceptions regarding the extent to which wholesale compulsory licensing will yield a substantial increase in local production”.
According to the cable, the French Embassy had told the US that European Union countries, which also stood to lose business in Ecuador under the compulsory licences scheme, were “calling a meeting next week with representatives of Member States to devise a common approach”.
These machinations failed to stop Correa issuing a decree on October 23, 2009, allowing for compulsory licensing. However, the US Embassy continued to work covertly on behalf of pharmaceutical companies.
In February 2010, the embassy was informed by a source at Ecuador’s Intellectual Property Institute that two compulsory licence petitions had been made under the decree.
The embassy passed on the information to one of the affected pharmaceutical companies, US firm Abbott Laboratories, but “asked that they not give attribution to the Embassy when discussing with GoE officials”.
The ambassador also asked Washington to look into whether Ecuador’s new compulsory licensing regulations were compliant with the World Trade Organisation's (WTO) Trade-Related Aspects of Intellectual Property Rights agreement.
Mobile phone manufacturers
In the case of tariffs on mobile phone imports, the US hoped that corporations could directly persuade the Ecuadorian government to change its policy. The tariffs were imposed by the Ecuadorian government in January 2009 to cut Ecuador’s trade deficit.
Instead of terminating the tariffs by January 22, 2010, as the WTO had stipulated, the Ecuadorian government planned to gradually reduce the safeguards over six months.
A cable from February 2010 said the US Embassy had hoped that a visit by “three of the most recognizible companies in the world” would persuade Ecuador to remove the tariffs.
However, the cable reported that representatives from Apple, RIM (Blackberry) and Nokia concluded their three-day visit “with the impression that they have limited to no ability to influence GoE trade and investment decisions”.
The cable reported that the US and Canadian embassies had helped the companies arrange meetings with the Ecuadorian government, after which the representatives concluded that their “arguments were not working with government officials focused on protecting existing local jobs and complying with President Correa's orders to eliminate Ecuador's [balance of payment] deficit”.
In particular, wrote Hodges, the Apple and RIM reps “concluded their visit with the impression that stories of how private individuals and entrepreneurs can get rich writing applications do not resonate with an openly socialist government that regularly calls for wealth redistribution and advocates a much greater government role in the economy”.
The ambassador concluded that, instead of “welcoming these companies with open arms”, Ecuadorian government officials had demonstrated that “the current government is short-term focused and lacks the vision necessary to make sure this country of only 14 million people remains economically competitive in the coming decades”.
“As the companies figured out for themselves, GoE leaders are not looking to unleash the entrepreneurial spirit in Ecuador, rather are more interested in leveling society, protecting what they have, and allowing foreign companies into Ecuador on their terms.”
Since taking office, Correa has doubled spending on education, health and public infrastructure.
In rejecting the economic model the US sought to impose on Ecuador, the Correa government has significantly cut inequality, poverty and unemployment. Moreover, Ecuador’s economy has grown at a rate of two to three times that of the US since the global financial crisis of 2008.
[This is part six of a seven-part series based on about 1000 secret US diplomatic cables published by WikiLeaks, most of which have never been reported on before.]