The Bush administration said Tuesday it had broken off negotiations on a free trade agreement 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 U.S. company," Neena Moorjani, a spokeswoman for the Office of the U.S. Trade Representative, said in a statement. "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 Los Angeles-based oil company had broken the terms of its contract.
Moorjani said the administration would seek an immediate clarification of Ecuador's action "including whether it intends to fully compensate the company as required under our bilateral investment treaty."
The United States 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."
Ecuadorian government 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.
Chiriboga said in a televised interview last week that the United States had not responded to an appeal from Ecuador to restart the talks before May 15.
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