Imports, Investments on the Chopping Block in Ecuador

EspañolFalling oil prices have prompted Ecuador’s central government to open 2015 with three reforms, to shield the nation from what President Rafael Correa has described as “a difficult year.”

Trade Barriers for Colombia, Peru

On Monday, the Committee on Foreign Trade (Comex) issued a resolution through which “safeguards” will be imposed on trade with Ecuador’s neighbors. That includes an additional 21 percent ad valorem tax on 3,098 Colombian items that already face tariffs on entry, and 7 percent on 2,339 items imported from Peru.

The resolution, passed on Thursday, December 29, informs the General Secretariat of the Andean Community of Nations (CAN) of the “emergency corrective measures.” These are being implemented, the resolution reads, due to altered conditions of competition, “caused by currency devaluations of the Colombian peso and the Peruvian sol,” which could have adverse effects on the Ecuadorian economy.

The decision, emergency and temporary in nature, draws authority from the Cartagena Agreement, which in Article 98 stipulates that “if a currency devaluation made by one of the Member Countries alters the normal conditions of competition, the country that considers itself to be adversely affected may bring the case before the General Secretariat.”

According to the administrative procedures of the CAN, the General Secretariat must review the processes and legal actions between its member nations — Bolivia, Colombia, Ecuador, and Peru. Their statement is set for January 9, when the institution returns for the new year.

The reactions from neighboring countries, however, have been immediate. According to the Colombian Ministry of Commerce, Industry, and Tourism (MinComercio), the safeguards “go against the spirit of dialogue and joint work that has characterized the business relationship between the two nations.” In addition, it “ignores the fact that Ecuador and Colombia have complementary production structures.”

Bruce Mac Master, president of the National Business Association of Colombia (ANDI), dismisses the decision as an “arbitrary measure” that “violates the rules of the World Trade Organization.” He expects “a strong reaction” from the Colombian government.

“Colombia cannot remain silent about the absurd exchange rate safeguard of 21 percent set by Ecuador.”

In the same vein, Magali Silva, head of the Peruvian Ministry of Foreign Trade and Tourism (MINCETUR), asserts that the country’s exports do not harm the Ecuadorian economy, and that the action taken by Ecuador “will generate greater difficulties than those already overcome by Peruvian exports since late 2013.”

“The large number of technical regulations and conformity-assessment procedures have become unjustified barriers to trade … demanding requirements and procedures beyond the commitments made by Ecuador in CAN,” she said.

Both Colombian and Peruvian authorities have assured that they will ask the General Secretariat of the CAN to stop any measures that might jeopardize commercial trade in the region.

Get Your Cars while You Can

Comex also announced a reduction to the quota on vehicle imports. The measure, that cut imports by up to 57 percent, will take place until December 31, 2015.

This resolution substitutes for an earlier measure against vehicle imports, taken back in 2012, and affects both cars and spare parts for their assembly. Comex is even imposing a quota on the import of hybrid or electric vehicles, setting a limit of 1,000 units or a total value of US$25 million.

2015 Ecuador’s Year of Austerity?

Finally, Minister of Finance Fausto Herrera has announced that the General State Budget (PGE) will have to be cut by $1.42 billion this year. Out of this, $839.8 million come from investment costs and $580 million from operating expenditures. Thus, the general budget for 2015 will be $34.9 billion.

Furthermore, he asserted that Correa’s administration knows how to deal with external shocks, applying counter-cyclical measures, and always protecting the neediest.

As a further precaution, both Herrera and President Correa have traveled to China to seek new financing lines to get through likely fiscal ruts in coming years.

Walter Spurrier, one of Ecuador’s most prominent economic analysts, has come out in favor of this course of action. During an interview with local broadcaster Notimundo, Spurrier said that “facing the critical situation that the government has to deal with, no single measure is sufficient to face the fall in oil prices by half.”

“Cuts in public spending, tax increases, and obtaining external financing with the president’s visit to China are necessary. The problem must be attacked on all fronts.”

Edited by Fergus Hodgson.

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