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December 14th, 2011 WW Staff | NikeLeaks Cables: North and South America
 

Sporting Goods Sales of Nike and Avia Products in Ecuador Fall Due to BoP Safeguards

     
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Reference ID: 10QUITO126    
Created: 2010-02-02 14:01   
Released: 2011-08-30 01:44      
Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY    
Origin: Embassy Quito
                 

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E.O. 12958: N/A
TAGS: ETRD ECON USTR WTRO EC
SUBJECT: Sporting Goods Sales of Nike and Avia Products in Ecuador
Fall Due to BoP Safeguards
 
REF: QUITO 96
 
¶1.   (SBU)   Summary.  Less than a week after an information
technology delegation met with GoE officials to encourage them to
dismantle balance of payments safeguards that have been in place
since January 2009 (septel), representatives of Nike and a local
sporting goods retailer met with the Embassy's Senior Commercial
Officer (SCO) to detail the negative repercussions of the
safeguards on their sector.  Sales of Nike products fell
significantly over the past year, and the prospect of continuing
safeguards is increasingly problematic.  Similar quality products
are not manufactured in Ecuador, and according to local footwear
producers, domestic industry is not pressing the GoE for
protection.   End Summary.
 
¶2.   (SBU)   On January 22, SCO met with Rodrigo Rivadeneira,
 
General Manager for Marathon Sports, and Margarita Ormaza, Manager
for Nike brands in Ecuador.  Rivadeneira asked for the meeting to
discuss the negative impact on Marathon/Nike sales due to the
balance of payments safeguards (tariff surcharges) the GoE has had
in place since January 22, 2009 (reftel and previous).  Marathon is
a major sporting goods retailer operating 34 stores throughout
Ecuador.  Overall, Ecuador imports about one million pairs of
athletic shoes per year, with a value of almost $40 million.
 
¶3.   (SBU)   According to Rivadeneira, sales of Nike products in
Marathon outlets fell substantially over the past year as a result
of the balance of payments safeguards  --  equipment fell by 8%;
apparel by 18%; and footwear by 10%.  In addition, the safeguards
increased Marathon's tax burden by $4.8 million due to the import
tariff surcharges.  Rivadeneira claimed the damage to Nike sales
would have been worse were it not for Marathon's ability to place
and promote Nike products at its various retail outlets, noting
that another U.S. brand, Avia, had seen sales decrease by 50%.
Rivadeneira said Marathon had not cut employment, per an agreement
signed with the GoE last year, but that extension of the safeguards
beyond the one-year anniversary was increasingly problematic.   He
also claimed the safeguards have been pushing imports into the grey
market, with deleterious effects on Marathon, though not as much on
suppliers (i.e., Nike).
 
¶4.   (SBU)    Marathon, through its subsidiary, Equinox, locally
manufactures Nike cotton tee shirts for regional export as well as
fleece and polo shirts for the local market.  Due to the lack of
local expertise and technical capabilities, Nike does not
manufacture footwear or "performance" attire locally.  Local
production of athletic shoes is basically non-existent.  Local
manufacturing of footwear is characterized as a semi-industrial
cottage industry focused mostly on artisanal, leather products.
Although GoE interlocutors have told Emboffs the government is
considering some form of protection specifically for footwear,
during a recent visit by Rivadeneira and Ormaza to the city of
Ambato, Ecuador, center of Ecuadorian footwear production, local
producers denied they were pressing the government for protection.
 
 
¶5.   (SBU)    According to Rivadeneira, Marathon is now taking a
more aggressive stance against the safeguards.  It is forming a
trade association for athletic apparel and footwear to unite and
magnify the voice of local distributors.  Marathon has expressed
its concern with the Coordinating Ministry for Production in person
and in writing.  Due to the GOE's stated desire of increasing local
footwear production, Marathon has also discussed the possibility of
working with local footwear manufacturers on a joint venture, or
introducing some lines of locally-manufactured footwear into
Marathon's retail outlets in an effort to gain relief from the
safeguards.  In a conversation with Minister for Sports Sandra
Vela, she mentioned to Marathon that the GOE was considering
establishing a factory to manufacture sporting goods with Iranian
financing.
 
¶6.   (SBU)    Comment.  While import dependent businesses by and
large were willing to wait out the one year the safeguards were
supposed to last, as in the case of Marathon, we expect they will
become increasingly vocal in their criticism of the measures as
their bottom line calculations continue to suffer.  However,
 
 
despite practical arguments that the safeguards have produced
significant negative consequences -- higher consumer prices,
increased smuggling, and lost tax revenue --  the government
appears set in its present course to eliminate the safeguards only
gradually over a six month period.
HODGES
 
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