US-ECUADOR: Chevron Fails in Effort to Lift Trade Benefits

By Jim Lobe*

WASHINGTON, Jul 2 (IPS) - In the latest in a string of setbacks that could cost the U.S. oil giant Chevron billions of dollars in damages, President Barack Obama decided this week to extend trade preferences for Ecuadorean exports for another six months under the 1991 Andean Trade Preferences Act (ATPA).

Chevron, which is waiting for an Ecuadorean judge to rule on a pending 27-billion-dollar class-action environmental lawsuit, conducted a high-powered lobbying campaign to persuade the Obama administration to cancel the preferences as a way of exerting leverage over the government of President Rafael Correa to settle the case on favourable terms.

But, while he suggested Washington was concerned about a possible "politicisation" of the case, Obama stated in a message to Congress that Ecuador had not violated any legal requirements that would render it ineligible for ATPA benefits.

"Concerns have been raised that statements by top Ecuadorian officials in favor of the plaintiffs have politicized the proceedings," the message, which was prepared by the Office of the U.S. Trade Representative's (USTR). "The U.S. Government has encouraged Ecuadorian government officials to refrain from commenting on ongoing judicial cases."

While Chevron offered no public reaction to the extension, major business groups of which it is a member welcomed the wording of the report, claiming that it signaled growing concern here about Ecuador's treatment of foreign investors.

"We welcome the increased scrutiny of Ecuador's eligibility going forward," said Myron Brilliant, senior vice president for international affairs at the U.S. Chamber of Commerce, who claimed that U.S. investors "have faced an increasingly hostile environment in Ecuador and Bolivia".

Bolivia has been denied ATPA benefits since the administration of U.S. President George W. Bush determined late last year that that it was not cooperating adequately with Washington's counter-drug efforts, a condition for eligibility.

Obama determined that La Paz has continued to fall short on that front and extended its suspension from the programme, drawing a sharp protest from President Evo Morales who accused the U.S. president acting like a "boss" toward Latin American countries.

"With much respect, I want to tell President Obama: while in the United States the faces of the leaders have changed, the policies of the empire have not changed," he said.

Obama's decision to extend Ecuador's benefits until at least the end of the year marks another reversal for Chevron in what the New York Times recently called "the world's largest environmental lawsuit".

Earlier in the week, the U.S. Supreme Court announced that it would not overturn a federal judge's ruling that Chevron could not compel Petroecuador, the state company that partnered with Chevron in the affected area, to join negotiations to settle the lawsuit because the two companies had never formally signed a joint operating agreement.

The case was first filed in the U.S. federal court in 1993 on behalf of 30,000 mostly indigenous residents of the Lago Agrio region of the Ecuadorean Amazon where Texaco, which was acquired by Chevron in 2001, had operated continuously from the 1960s until 1992. For much of that period, it worked in partnership with Petroecuador, which took over all of Texaco's operations in the region when the U.S. oil giant left.

The plaintiffs claim that Texaco dumped more than 70 billion litres of toxic liquids, left some 910 waste pits filled with toxic sludge, and flared millions of cubic metres of toxic gases – poisoning the environment in one of the most biologically diverse areas in South America and creating serious health problems, including an unusually high incidence of cancer, for people in the region.

Apparently concerned that U.S. courts would be more sympathetic to the plaintiffs' case, Texaco persuaded Judge Jed Rakoff to have the case transferred to Ecuador, then ruled by a conservative government eager for foreign investment, in 2002 on the condition that the company waive certain defences, such as the expiration of the statute of limitations, and ensure that any judgement would be enforceable in the U.S.

Chevron has long argued that the damages cited by the plaintiffs are exaggerated and that, in any case, Texaco extinguished its obligations when it carried out a 40-million- dollar environmental remediation project as part of a 1995 agreement with the Ecuadorean government that covered 37.5 percent of the well sites and waste pits in the concession area.

The remaining sites were to be cleaned up by Petroecuador, according to Chevron.

But the plaintiffs, who are backed by a number of local and international green groups, have argued that Chevron, having drilled all of the original sites, also remains responsible for Petroecuador's portion, as well as for the continuing health and other impacts of its operations that are not covered by the 1995 agreement.

Ecuadorean officials, including Nunez himself, have indeed openly expressed sympathy for the plaintiffs' case, and President Correa has called the damages caused by the company's operations a "crime against humanity".

Chevron and its lobbyists, including former USTRs Mickey Kantor and Carla Hills, have used those statements to press the company's case both in Congress and with the administration that it can no longer get a fair trial in Ecuador and that trade preferences should be denied unless the government intervened to stop it.

That effort has also included the production and distribution of a 14-minute video by the company to counter a negative report by CBS' "60 Minutes" public-affairs programme that is viewed weekly by some 12 million people. The company's sponsorship of the video, which purports to be objective journalism and is narrated by a well-known former CNN reporter, was exposed by the Times and appears to have backfired.

"Chevron's lobbying effort was based on the theory that Ecuador's president could be forced to violate his country's Constitution by interfering in a private litigation," said Steven Donziger, one of the plaintiffs' legal advisers. "By engaging in these heavy-handed tactics reminiscent of the worst days of Uncle Sam, Chevron has damaged its own image and that of other U.S. investors in Latin America."

Several Democratic lawmakers have also tried to counter Chevron's lobbying efforts. In a letter to USTR Ron Kirk last week, four senators urged him to "allow the legal proceedings in Ecuador to take their course with any undue intervention from the U.S. government."

Similarly, Reps. Jim McGovern and Joe Sestak wrote a letter to Kirk in which they called on him not to "interfere in this judicial matter, particularly when this case involves environmental, health and human rights issues that have regional, and even global, importance."

Kirk and the Obama administration appear for now to be following that advice, although Chevron does not lack for powerful friends in Congress, which will likely have to vote on whether to extend ATPA before it expires at the end of the year.

*Jim Lobe's blog on U.S. foreign policy can be read at http://www.ips.org/blog/jimlobe/.