TED Case Studies

Ecuador Oil Exports

Go to All TED Cases

          CASE NUMBER:          24 
          CASE MNEMONIC:      ECUADOR
          CASE NAME:          Ecuador Oil Exports






A.        IDENTIFICATION

1.        The Issue

     Ecuador produces more oil than it needs for domestic
consumption and thus it is one of the country's leading exports. 
Therefore, any new drilling for oil is not intended to meet local
demand but is intended for export overseas, most likely to Japan
and the United States.  Beneath the surface in eastern Ecuador
and within the Amazon rain forest, a relatively undisturbed and
biologically rich area, are large amounts of oil.  Critics warn
that the habitat could suffer either through the direct spilling
of product and soil contamination or through the opening of the
area to the outside through the building of roads.  It is
believed that the building of an oil industry would have a
severely adverse impact on the environment.  Some argue against
drilling for oil in Ecuador's Amazon area, particularly since the
oil is intended for trade.

2.        Description

     Fifty percent of Ecuador's national budget is funded by oil
earnings and continued oil exploration and production is thought
to be necessary to ensure the countries' well being.  The country
plans to increase production and holds auctions to increase
foreign investment.  Dependence on oil revenue has hindered
Ecuador's environmental enforcement, which in turn has caused
damaging consequences to indigenous tribes living in the Amazon
region and to the environment in the eastern (Oriente) part of
the country.  

     Indigenous tribes of Ecuador are fighting for their lands
and rights, which have been jeopardized for the past 20 years by
oil companies (primarily the U.S. company Texaco and Ecuador's
state-run company Petroecuador) drilling in the Oriente.  Several
Indian tribes, working with American environmental groups and
others, are calling for a moratorium, claiming that drilling has
caused environmental damage and poses health risks.  The tribes
claim that the oil drilling, which included the dumping of oil
and contaminated water into the Amazon basin, has resulted in the
death of thousands of people.  Several tribes are currently suing
the U.S. oil company, Texaco, for $1.5 billion in damages. 
Texaco claims that its exploration, carried out from 1972 until
1990, did not violate any laws, as Ecuador lacked specific
environmental legislation.  The company has offered to contribute
to a $13.5 Oriente cleanup fund.

     Oil earnings fund 50 percent of Ecuador's national budget. 
While the Amazon region provides the region with the majority of
its wealth, it is also the home of indigenous tribes and 300,000
colonists.  The Indians of Ecuador, located in the Amazon region
of Oriente, have joined forces for the past 20 years to resist
oil exploration and demand rights to their ancestral lands.  The
leaders from twenty tribes, including the Quichua, Cofan, Shuar,
Siona, Secoya, Achuar, and Huaorani, have raised national
attention to the land claims and the destruction of the Oriente. 
In June, 1990, the Confederation of Indigenous Nationalities of
the Ecuadorean Andes (CONAIE) and the Confederation of Indian
Organizations of the Ecuadorean Amazon (CONFENIAE) staged
protests to gain title to their lands and have gained the rights
to 3 million acres of land in the Amazon basin.  However, the
government retains rights to minerals, "allowing oil exploration
to continue in consultation with the Indian communities in order
to control environmental damage."1 

     In November, 1993, Indian leaders walked into a New York
Federal court to sue the U.S. firm Texaco for $1 billion in
damages and cleanup costs.  The company retaliated a few weeks
later by suing the Ecuadorean government for $570 million,
claiming a breach of contract.  Texaco says that the claims are
completely unfounded, stating that it was a minor party working
in conjunction with Petroecuador, the state oil corporation and
that it followed "accepted industry practices" and Ecuadorean
laws.

     Ecuador lacked specific environmental legislation until
1990, the same year that Texaco transferred its operations over
to Petroecuador.  Texaco states that it is not responsible for
water pollution, especially since it stopped operating in the
region four years ago.  However, Petroecuador attributes the
pollution to Texaco, stating that the U.S. company did operate in
the region for 18 years.  A report by the Ecuadorean Union of
Popular Health Promoters states, "Petroecuador continues to
employ the environmentally dangerous equipment and practices
inherited from Texaco, including the discharge of toxic wastes
directly into the environment."2  Environmental groups hope that
this case will set a precedent for future U.S. oil companies
operating in Ecuador.

     Many of the indigenous tribes in the Amazon region that once
numbered in the thousands have been reduced to the hundreds as a
result of the pollution generated by oil exploration and other
assaults.  Water contamination has led to increased risks of
cancer, abortion, dermatitis, fungal infection, headaches, and
nausea.  Their drinking, bathing, and fishing water contain
toxins much higher than the safety limits set by the U.S.
Environmental Protection Agency.  Unlined waste pits provide a
major source of pollution.  They contain a toxic mixture created
by the oil production and separation process.  Today,
environmental regulations require these toxic by-products to be
injected deep underground.  However, the Ecuadorean Union of
Popular Health Promoters has found that Petroecuador does not
follow these guidelines and continues to release the toxic wastes
directly into the environment.  

     The oil companies that drilled in the rain forest were
responsible for "felling thousands of acres of trees, dynamiting
the earth, spilling vast amounts of oil, destroying habitats, and
fouling rivers."3  This destruction has limited resources
available to the tribes living in the Amazon (see BRAZIL case). 
Fish have died from water pollution and the game the tribes once
hunted have retreated deeper into the jungle as a result of the
deforestation.  The Rainforest Action Network found that Texaco
alone spilled 17 million gallons of crude oil, abandoned hundreds
of unlined toxic waste ponds, and constructed oil roads that
opened more than 2.5 million acres of the forest to colonization. 
Ecuador's rain forests are being cut down by oil companies and
settlers at a rate of approximately 340,000 hectares a year.  The
wood is used for construction, roads, fuel, and furniture.

     Indigenous groups are calling for a 15-year moratorium on
oil drilling, which would include repairing the environment, the
receipt of 1 percent of the oil profits, and all companies paying
an indemnification.  However, Ecuador is the second largest
producer of oil in Latin America, after Venezuela, and oil
revenues form half of its gross national product.  Due to
Ecuador's dependance on foreign capital, it has exerted little
environmental control and has encouraged oil exploration.  In
January, 1994, the government began a seventh round of bids for
3.2 million hectares in the Amazon region.  Ecuador has withdrawn
from OPEC, as it plans to increase its national oil production by
one third by 1997.  It is currently holding auctions to attract 
foreign investment and to construct a new $600 million pipeline
and road that will lead into an unspoiled section of the Amazon
in anticipation of the increased production.  The Indians have
responded with threats to seize oil wells and in their fight took
over the Energy and Mines Ministry on January 24, 1994 to
pressure the government.  They now demand that the new pipeline
be built using air transport rather than using a new road.  The
government claims to be sensitive to their needs, stating they
will respect strict environmental standards.  However, it claims
the oil exploitation is necessary for the country.

     The Dallas based Maxus Energy Corporation is constructing an
underground pipeline that will pass through the territory of the
Huaorani and Quichua tribes and the Yasuni Park in the Oriente. 
The corporation claims it has respected the Indian, their rights,
and the environment in its work.  It has made agreements with
each tribe and has offered them schools and teaching materials. 
The firm plans to invest $60 million in environmental protection. 
The members of CONAIE, however, believe an agreement should have
been signed with the Indians.  They argue Maxus is not
contributing enough to the tribes and the environment, in
exchange for the deforestation and pollution it creates.  The
indigenous leaders feel Maxus has divided their people with
implicit and explicit bribes of various types.  Some have been
given food, money, and clothes in exchange for the use of their
land.

3.        Related Cases

     COLOMOIL case
     OGONI case
     TOBAGO case
     EXXON case
     SELLA case
     SHETLAND case

     Keyword Clusters         

     (1): Trade Product            = OIL
     (2): Bio-geography            = TROPical
     (3): Environmental Problem    = DEFORestation

4.        Draft Author:  Angela G. Armstrong and Marlon Vallejo

B.        LEGAL Clusters

5.        Discourse and Status:  DISagreement and INPROGress

     The Texaco case has been filed, but has not yet been heard. 
The $1.5 billion suit, based on common law, was filed under the
Alien Tort Victims Act, that allows non-U.S. citizens to file for
injuries caused by U.S. entities.  Ecuadorean Indians sued Texaco
for damages on November 30, 1993, claiming Texaco released more
than 3,000 gallons of crude oil into the environment.  The OAS
Human Rights Commission is currently investigating damage claims. 
Texaco has also filed a suit against Petroecuador, citing breach
of contract.  Private groups are involved to the extent they are
arranging debt-for-nature swaps to protect the areas.

6.        Forum and Scope:  ECUADor and UNILATeral

     Specific Ecuadorean environmental legislation was enacted in
1990.  This is the same year Texaco withdrew its operations from
the region.

7.        Decision Breadth:  1 (Ecuador)

8.        Legal Standing:  LAW

     The government agreed to more specific environmental
legislation in 1990 and amended its Hydrocarbon Law, putting
legislation in place to increase oil exploration.  In April 1993,
the Ecuadorean government agreed to grant 3 million acres in the
Amazon basin to the Indians.  The government, however, retains
mineral rights in the region.  Numerous agreements were made
between Indian tribes and oil companies and concessions made in
exchange for their use of the land.  Lawyers for the Ecuadorean
tribes are seeking a ruling that Texaco should have abided by
U.S. environmental protection norms and legislation in its
Oriente operations.  

C.        GEOGRAPHIC Clusters

9.        Geographic Locations

     a.   Geographic Domain : South America [SAMER]
     b.   Geographic Site   : AMAZON
     c.   Geographic Impact : ECUADor

10.       Sub-National Factors:  YES

     The Ecuadorean Indians are protesting against the country's
lenient environmental policies on oil exploration that promote
the destruction of their lands.

11.       Type of Habitat:  TROPical

D.        TRADE Clusters

12.       Type of Measure:  Regulatory Standard [REGSTD] 

     Oil companies exploring the Amazon basin are expected to
work in accordance with Ecuadorean laws, but the argument has
been made that they should also abide by home country rules.  

13.       Direct vs. Indirect Impacts:  INDirect

14.       Relation of Measure to Environmental Impact

     a.  Directly Related     :  YES  OIL 
     b.  Indirectly Related   :  YES  WOOD
     c.  Not Related          :  NO
     d.  Process Related      :  YES  HABITat Loss

     Trade (investment) measures and environmental regulations
are related to the process of oil exploration.  Roads created to
facilitate the exploration process were covered with oil to
decrease the amount of dust in the air.  This dust had caused
respiratory problems for many Indians.  However, the oil on the
roads also caused them harm.  Because most Indians walk barefoot,
the oil (which can only be remove, ironically, with gasoline)
causes rashes and cancer.

15.       Trade Product Identification:  OIL

16.       Economic Data

     Ecuador currently produces 370,000 barrels of oil a day.  It
plans to increase production to 400,000 barrels a day in 1995. 
Half of the Ecuadorean gross national product comes from oil
exploration.  More than 40 percent of Ecuador's exports in 1990
were oil and derivatives.  Ecuador produced 14,936 thousand
metric tons of oil in 1990 and $1.5 billion came from petroleum
exports in 1993.

17.       Impact of Measure on Trade Competitiveness: NA

     The cost of increased environmental protection would
severely limit the revenue Ecuador earns from its oil exports,
especially with over 30 percent of employment in this sector.  

18.       Industry Sector:  OIL

19.       Exporter and Importer:  ECUADor and USA

     Ecuador exports 14,936 thousand metric tons of oil per year
(1990), with the United States as the leading importer.  Some
exports also go to Europe and Asia.

E.        ENVIRONMENT Clusters

20.       Environmental Problem Type:  HABITat Destruction

     The exploration for oil has created numerous environmental
problems of all types in the Amazon region.  The Amazon basin in
Ecuador has the greatest number of plant species of any South
American country.  The Sierra highlands have been almost
completely deforested.  Also, the Oriente is a species rich
jungle with numerous mammals in danger of extinction.  Oil that
was placed on roads to cut dust has flowed into rivers.  Oil
waste in the past was placed in holes in the ground that
contaminated the forests and the rivers.  "Ecuadorian officials
estimate that ruptures to the major pipeline alone have
discharged more than 16.8 million gallons of oil into the Amazon
over the past eighteen years (compared to the 10.8 million-gallon
Exxon Valdez spill).  Production pits produce 4.3 million gallons
of toxic waste and treatment chemicals."

21.       Name, Type, and Diversity of Species 

     Name:          Tropical Hardwoods
     Type:          Plant/Angiospermae/Dicots
     Diversity:     6,421 higher plants per 10,000 km/sq
                    (Ecuador)

     These are tropical rain forests and therefore the bio-
diversity of the area is among the highest of any place in the
world.  The forests of this area are not as diverse nor do they
have as high a degree of endemism as Old World tropical rain
forests.  Bio-diversity for seed plant species in Brazil is
perhaps comparable.  The Amazon jungle houses 12,000 species of
plants and numerous birds, fish, reptiles, insects, and mammals. 
The tapir, howler monkey, jaguar, harpy eagle, capybara and other
animals are endangered species.

22.       Resource Impact and Effect:  MEDium and PRODuct

     Deforestation in the Oriente has threatened the extinction
of many plants, and the pollution created by the oil exploration
process has led to the deaths of numerous animals and people. 
Birds important to the forest's biological diversity are fleeing
from the road areas and faster growing species of trees are
hindering hardwood growth.  Full regeneration will not occur for
years.  Thin topsoil makes it difficult to re-establish plant
cover.

23.       Urgency and Lifetime:  MEDium and 100s of years

     The rain forest is being destroyed at an annual rate of
approximately 2.6 percent.  If this destruction rate continues,
the "forest cover" will be gone in 40 years.

24.       Substitutes:  Conservation [CONSV]

VI.       OTHER Factors

25.       Culture:  YES

     The Indians' culture has been jeopardized since the European
invasions, when they were forced into slavery on haciendas. 
Today, their culture is again in jeopardy, as their homeland in
the Amazon basin is being threatened by oil exploration.  Today,
members of CONAIE are fighting the state's claim that Ecuador is
one culture.  They state that the country is multinational with
different cultures on the coast and the Sierra.  It is also
working to retain all the individual indigenous languages of the
Amazon region.  The Manta-Huancavilca tribe in the Costa region
now speaks Spanish instead of their native tongue.

26.       Trans-Border:  YES

     Pollution created in the oil exploration process has entered
the Amazon region in other South American countries.

27.       Rights:  YES

     Indian federations are fighting for their human rights and
their land.  Political power has long been held by the white
aristocracy from Europe and the mestizos.  Indians were not
allowed to form groups at community levels until 1973.  Indian
groups are now demanding constitutional status.  In April, 1993,
when land was awarded to the indigenous people, the government
still retained rights over the minerals of the region.  Today,
the Indian groups are fighting for their rights by suing Texaco
for damages, taking over the Ministry of Mines and Energy, and
demanding a moratorium where they would also have a say in the
oil exploration of their lands.

28.       Relevant Literature

Brooke, James.  "Pollution of Water Tied to Oil in Ecuador."
     The New York Times (March 1994): 11.
Hidrobo, Jorge A.  Power and Industrialization in Ecuador. 
     Boulder: Westview Press, 1992.
Holmstrom, David.  "Ecuador Indians Fight for Forests."  The
     Christian Science Monitor (June 1993): 9.
Holmstrom, David.  "Ecuador's Oriente."  The Christian Science
     Monitor (February 1994): 10.
Holmstrom, David.  "Volatile Mix: Oil and Indians."  The
     Christian Science Monitor (June 1993): 10.
Jones, Gregg.  "When Worlds Collide; On Delicate Ground Maxus
     Trying to Reach Oil Without Destroying Rainforest Tribe." 
     The Dallas Morning News (March 1994): 1H.
Kennedy, Jr., Robert F.  "Amazon Crude."  The Amicus Journal 
     (Spring 1991): 24-32.
Martz, John D.  Politics and Petroleum in Ecuador.  New
     Brunswick: Transaction Books, 1987.

                          References

1.   David Holmstrom, "Ecuador Indians Fight for Forests," The
Christian Science Monitor (June 16, 1993), 9.

2.   James Brooke, "Pollution of Water Tied to Oil in Ecuador,"
The New York Times (March 22, 1993, 11.

3.   Holmstrom, "Volatile Mix," 10.