Richard Lapper in Quito wrote a Financial Times article Oil law may hit Ecuador-US deal (subscription required) that, once again, demonstrates that another South American country is taking a more aggressive stance toward its commodities.
New legislation designed to increase the state’s share of windfall oil revenues by some $600m a year is set to derail Ecuador’s plans to negotiate a trade deal with the US, according to government officials.
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Ecuador began free trade talks with the US two years ago along with Colombia and Peru. Both its neighbours have now agreed pacts with Washington but Ecuador’s negotiations were more protracted and have become even more complicated after the announcement of the new oil plans.
The legislation – designed by Diego Borja, the economy minister – raises the government share of windfall revenues to 50 per cent, compared with an average of 30 per cent today, and would generate additional income of about $600m a year.
Commodities are in short supply and those countries that possess commodities can take and in many situations are taking a more aggressive stance—at least for now. The reality is that companies looking to develop those commodities do not have much choice. There is a dearth of alternative locations.
I am fascinated by the changes that are taking place. That is not to say that I agree with the changes, but rather I am fascinated by how the power has shifted in recent years as the world has begun to experience a shortage in commodities. From this Financial Times article, we learn how Ecuador's new oil law might threaten its potential Free Trade Agreement with the United States. Only a few years ago, this situation would have been very unlikely.
Again, if you have not already read Jim Rogers' book Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market
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