U.S.-Ecuador Memorandum of Consultations signed on June 4, 2010

June 4, 2010


Delegations representing the governments of the United States of America and the Republic of Ecuador met on June 3-4, 2010, in Washington, D.C., to discuss further liberalization of the air services relationship between the two countries. The consultations took place in a cordial and constructive atmosphere, reflecting the relations between the two countries. Delegation lists are appended at Appendix A.

The delegations reached agreement, ad referendum, on modifications to the Annexes to the Air Transport Agreement between the Government of the United States of America and the Government of the Republic of Ecuador, signed at Washington, D.C., on September 26, 1986 (“the Agreement”). The text of the modifications is set out in a draft protocol to modify the Annexes to the Agreement, which is appended at Appendix B. The delegations intend to submit the draft protocol to their respective governments for signature.

Both delegations affirmed their understanding that nothing in the draft protocol amending the Annexes grants cabotage rights.

Regarding Annex III – cooperative marketing arrangements, both delegations understand that code-sharing between designated airline(s) of one Party and designated airline(s) of the other Party shall be subject to capacity and frequency constraints applicable to the respective Parties. The delegations also noted that Annex III does not confer any route or capacity rights on third-country airlines beyond those already available to such airlines as a matter of bilateral relations between a Party and that third country.

The U.S. delegation raised its desire to include surface operations under Annex III – cooperative marketing arrangements. The Ecuadorian delegation stated that the Ecuadorian authorities would look favorably on proposals for such operations, but that they have not formulated a comprehensive policy in this area.

The U.S. delegation sought Ecuador’s assistance on two ongoing tax issues: tax on remittance of local revenues and tax on fuel. With respect to remittances, the U.S. delegation noted that the taxation of remittances was inconsistent with Article 8(4) of the Agreement, and that the U.S. does not tax remittances by Ecuadorian airlines. The Ecuadorian delegation responded that, due to its legislation, it does not have the authority to implement Article 8(4) of the Agreement, as it had never been ratified by the Ecuadorian National Assembly. The Ecuadorian delegation encouraged the U.S. delegation to continue to work through the U.S. Embassy to pursue a resolution with the proper Ecuadorian authorities.

The U.S. delegation outlined its concern that Ecuador imposes a tax on fuel uplifted by U.S. airlines in Ecuador in connection with their international services. The U.S. noted that both the Chicago Convention and the U.S.-Ecuador Air Transport Agreement call for exemption from national taxes on fuel, based on reciprocity. In connection with the reciprocity standard, U.S. law requires a review of Ecuador’s current exemption from the U.S. excise tax on fuel. The U.S. review process was outlined for the Ecuadorian delegation, and the U.S. noted that, should it be determined that Ecuador does tax fuel uplifted by U.S. airlines, U.S. law requires a change in the exemption status of Ecuadorian airlines.

In response, the Ecuadorian delegation acknowledged U.S. concerns and stated that it is currently reviewing the fuel tax situation, with a view to finding a solution. The U.S. delegation took note of this information and said that it looks forward to any additional information Ecuador might provide.

For the Delegation of the
United States of America
 For the Delegation of the
Republic of Ecuador
Timothy P. RocheCapt. Guillermo Bernal Serpa

June 4, 2010