Ecuador Abandons “Safeguard” Currency Controls for Array of Tariffs
Español The “safeguard” measures applied by the Ecuadorian governments to products from Peru and Colombia — serving to artificially maintain prices of goods from the neighboring countries in order to protect domestic industries — are to be scrapped, the Ministry of Foreign Trade announced on Thursday, February 5.
According to Minister Francisco Rivadeneira, the exchange safeguards imposed by Ecuador, particularly designed to prevent fluctuations in Peruvian and Colombian currencies undercutting Ecuador’s dollar-based economy, will be retired by no later than February 27.
However, during his weekly Citizen Link televised broadcast on Saturday, February 7, President Rafael Correa indicated that Ecuador will replace the safeguards with other multilateral tariff measures, falling under World Trade Organization (WTO) provisions, to continue to shelter domestic production from foreign manufacturers
Correa also suggested that similar modifications to Ecuador’s import/export balance with the rest of the world would take effect before the end of the month.
“We have problems in the balance of payments due to the collapse of oil prices; the US dollar has appreciated, and our neighbors’ currencies are depreciating. It’s absurd; I cannot stand idly by,” Correa told viewers.
Moreover, he argued that if Ecuador had its own currency — the Andean country adopted the dollar in 2000 — the country’s economic situation would be better: “We would not do any of this if we had control of our own exchange rate. If Colombia and Peru devalued … we would do the same, to avoid problems in the external sector.”
“Hopefully the young students of economics will understand this, the real economics, to avoid being victims of such innovations as eliminating the national currency,” he added.
Measures Roundly Rejected
The safeguard measures had previously proved unpopular both with Ecuador’s neighbors and domestic critics. On February 6, the General Secretariat of the Andean Community of Nations (CAN) — a body of which Ecuador, Peru, and Colombia are all part — issued Resolution #1762, denying Quito authorization to implement the measures under CAN procedure.
“The General Secretariat’s analysis found insufficient evidence to verify the existence of a disturbance to the conditions of competition, as a result of the depreciation of the currencies of Colombia and Peru,” the resolution read.
“We recommend to the government of Ecuador to establish mechanisms for returning the payment made by the companies affected,” it continued, referring to the tariffs that foreign firms had to pay to export their products to Ecuador.
However, Correa’s government rejected CAN’s authority to decide on the legality of the measures in a statement, arguing that it “exceeds the powers conferred to it by the [founding] Cartagena Agreement.”
— Fernando Alvarado E (@FAlvaradoE) February 8, 2015
“Fernando Alvarado, national secretary of communication: #Ecuador rejects statement of the CAN General Secretariat.”
“Andean norms and jurisprudence recognize the right of Ecuador to protect its economy against currency depreciation made by other members of the CAN that alter the conditions of competition,” read the official statement issued by Ecuadorian government.
“Given these circumstances, Ecuador has decided to challenge Resolution #1762 through the appropriate channels, and ratifies the agreement between the governments of member countries to favor diplomatic mechanisms and dialogue for resolving differences,” it continued.
Meanwhile, industry and commerce figures from the three countries also indicated their opposition to the safeguards. Francisco Alarcón, head of the Guayaquil Chamber of Commerce, told local broadcaster Ecuavisa that economic mismanagement rather than dollarization resulted in such “emergency measures” being taken annually.
“Dollarization in Ecuador has been mistreated with fiscal deficits, and with very aggressive fiscal management, which is what leads to these problems … it is not a problem in itself,” he stated.
Representatives of the major chambers of commerce in Colombia, Ecuador, and Peru also gathered in Quito to evaluate the negative effects the exchange safeguards could have on trade between their three countries, and jointly signed the Declaration for Andean Trade Unit to promote regional commerce.
The business leaders welcomed the government’s decision to eliminate exchange safeguards, yet registered concern over possible new tariffs.
“Congratulations to the government of Rafael Correa: they’ve recognized this was a mistake and hopefully this will never be repeated, and serve as a lesson to keep serious foreign trade policies,” said Blasco Peñaherrera Solah, president of Quito’s Chamber of Commerce.
La decisión de iniciar una guerra comercial con Colombia y Perú es la confirmación del fracaso del gobierno de Correa http://t.co/CTJlJ7UlKp
— Blasco Peñaherrera Solah (@blasco_p) January 16, 2015
“The decision to start a trade war with Colombia and Peru is the confirmation of the failure of Correa’s government.”
Long Term Losses?
According to a report released by Ecuadorian National Customs Service Senae, rather than decreasing, Ecuador’s imports from Colombia and Peru increased in January by 7 percent and 9 percent respectively.
Imports of goods from Colombia were worth approximately US$138.6 million in revenue, with those from Peru worth $65.3 million. The revenue of the exchange safeguard alone was of $14.1 million.
Villacreces told the PanAm Post that the exchange safeguard not only punishes the imported products from those countries, but makes Ecuadorian commodities and capital goods used by local industries more expensive.
“The result is an increase of our domestic production, harming local consumers as they have to pay more for products with the same or inferior quality,” he argued.
“Such measures also generate discomfort in the affected countries, who may take similar actions as a form of retaliation, affecting our exports.”
Finally, Villacreses suggested that genuine competitiveness and the resulting export growth “will not be achieved through devaluation.”
“When we had [former national currency] the sucre, we had large devaluations, which obviously did not make us the export champion of the region. Competitiveness is achieved by doing things better, taking advantage of the scarce resources and investing in technology and capital,” he concluded.
Edited by Laurie Blair.