US cancels Ecuador FTA talks because of broken contract

The Bush administration said it had broken off negotiations on a free-trade agreement (FTA) with Ecuador following the South American government's decision to annul an operating contract with Occidental Petroleum Corp.

"We are very disappointed at the decision of Ecuador, which appears to constitute a seizure of assets of a US company," Neena Moorjani, a spokeswoman for the Office of the US Trade Representative, said in a statement on Tuesday. "At this time no further [free trade agreement] discussions are scheduled."

On Monday, Ecuador canceled Occidental's operating contracts after a dispute that had stretched over a number of years. The government of Ecuador claimed that the oil company had broken the terms of its contract.

Ecuadorean Alfredo Palacio sent troops to guard oil facilities, but officials said the cancelation of Occidental's operating contracts and the seizure of its assets did not mean Ecuador was nationalizing its oil industry.

Ecuador concern about the US action to break off trade talks.

The country's top government spokesman, Enrique Proano, told said that his country "laments deeply the declaration by the United States ... that a sovereign decision by Ecuador should have influenced the continuity of trade relations and especially negotiation" of the free-trade pact.

The US started negotiating free trade deals with Ecuador, Peru and Colombia in May 2004.

The negotiations with Peru concluded in December and an agreement with Colombia was reached in February, although Congress has yet to approve those two measures.

"For a country to attract investment, and certainly to be a prospective FTA partner of the United States, it must obey the rule of law with respect to foreign investors," Moorjani said. "Free-trade agreements are based on fundamental principles that both parties will respect the rule of law."

Ecuadorean officials have said Occidental must hand over all its assets in the country without any cost to the state oil company, Petroleos del Ecuador.

Manuel Chiriboga, Ecuador's chief negotiator, had said the talks were at an impasse over an oil tax law passed by Ecuador on the windfall profits of foreign crude oil producers operating in the country. He said in a televised interview last week that the US had not responded to an appeal from Ecuador to restart the talks before last Monday.