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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UNCLAS QUITO 000126

 

SENSITIVE

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PASS TO USTR FOR RHODE, EISSENSTAT, HARMAN

DEPT FOR WHA/AND AND EEB/TPP/MTAA FOR CRAFT

USDOC FOR ITA

TREASURY FOR YUAN

 

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