RESTRICTED
WORLD TRADE
WT/TPR/S/254
10 October 2011
ORGANIZATION
(11-4810)
Trade Policy Review Body
TRADE POLICY REVIEW
Report by the Secretariat
ECUADOR
This report, prepared for the second Trade Policy Review of Ecuador, has been
drawn up by the WTO Secretariat on its own responsibility. The Secretariat has,
as required by the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from Ecuador on its trade policies and
practices.
Any technical questions arising from this report may be addressed to
Mr. Sergios Stamnas (tel: 022/739 5382) or Mr. Carlos Pérez del Castillo
(tel: 022/739 5336).
Document WT/TPR/G/254 contains the policy statement submitted by Ecuador.
Note: This report is subject to restricted circulation and press embargo until the end of the first
session of the meeting of the Trade Policy Review Body on Ecuador.
Ecuador
WT/TPR/S/254
Page iii
CONTENTS
Page
SUMMARY
I.
II.
III.
vii
(1)
ECONOMIC ENVIRONMENT
vii
(2)
TRADE POLICY FRAMEWORK
vii
(3)
TRADE POLICY DEVELOPMENTS
viii
(4)
SECTORAL POLICY DEVELOPMENTS
x
(5)
OUTLOOK
xi
ECONOMIC ENVIRONMENT
1
(1)
OVERVIEW
1
(2)
RECENT ECONOMIC PERFORMANCE
3
(3)
MAIN MACROECONOMIC POLICY DEVELOPMENTS
(i)
Monetary and exchange rate policies
(ii)
Fiscal policy
6
6
7
(4)
STRUCTURAL POLICIES
(i)
Tax reform
(ii)
Labour market reform
7
8
9
(5)
BALANCE OF PAYMENTS
9
(6)
DEVELOPMENTS IN MERCHANDISE TRADE
11
(7)
FOREIGN INVESTMENT
13
TRADE AND FOREIGN INVESTMENT REGIME
17
(1)
OVERVIEW
17
(2)
RECENT CONSTITUTIONAL AND INSTITUTIONAL DEVELOPMENTS
17
(3)
INSTITUTIONALIZATION OF TRANSPARENCY
(i)
Trade policy formulation and evaluation
(ii)
Domestic transparency
(iii)
Transparency in relation to the WTO
19
19
20
22
(4)
TRADE LAWS AND REGULATIONS
22
(5)
TRADE POLICY OBJECTIVES
23
(6)
TRADE AGREEMENTS AND ARRANGEMENTS
(i)
WTO
(ii)
Preferential and regional trade agreements
24
24
26
(7)
TRADE DISPUTES AND CONSULTATIONS
(i)
WTO
(ii)
Other
29
29
29
(8)
FOREIGN INVESTMENT REGIME
30
TRADE POLICIES BY MEASURE
34
(1)
34
OVERVIEW
WT/TPR/S/254
Page iv
Trade Policy Review
Page
IV.
(2)
MEASURES AFFECTING IMPORTS
(i)
Registration and documentation requirements
(ii)
Customs valuation
(iii)
Rules of origin
(iv)
Tariffs
(v)
Other charges affecting imports
(vi)
Import prohibitions, restrictions, and licensing
(vii)
Contingency measures
(viii)
Standards and technical regulations
(ix)
Government procurement
(x)
Local content
36
36
38
39
39
46
47
50
52
56
60
(3)
MEASURES AFFECTING EXPORTS
(i)
Registration and documentation
(ii)
Export levies and reference prices
(iii)
Export prohibitions, licensing, and other restrictions
(iv)
Tax concessions
(v)
Export promotion and marketing support
(vi)
Export finance, insurance, and guarantees
61
61
61
62
63
65
65
(4)
OTHER MEASURES AFFECTING PRODUCTION AND TRADE
(i)
Taxation
(ii)
Other forms of production assistance
(iii)
Competition, price, and consumer protection policy
(iv)
State-owned entities
(v)
Intellectual property rights
66
66
70
73
76
78
TRADE POLICIES BY SECTOR
83
(1)
INTRODUCTION
83
(2)
AGRICULTURE, LIVESTOCK, AND FISHERIES
(i)
Overview
(ii)
Policy framework developments
(iii)
Border measures
(iv)
Domestic support
(v)
Bananas
(vi)
Fisheries
84
84
84
85
86
87
88
(3)
MINING
89
(4)
ENERGY
(i)
Hydrocarbons
(ii)
Electricity
91
91
94
(5)
MANUFACTURING
(i)
Car assembly industry
(ii)
Agri-industry
96
97
98
(6)
SERVICES
(i)
Features and multilateral commitments
(ii)
Policy objectives
(iii)
Financial services
(iv)
Telecommunications and postal services
(v)
Transport
(vi)
Tourism
98
98
99
99
103
104
106
Ecuador
WT/TPR/S/254
Page v
Page
REFERENCES
107
APPENDIX TABLES
111
CHARTS
I.
ECONOMIC ENVIRONMENT
I.1
I.2
Merchandise trade, by product, 2005 and 2010
Merchandise trade, by main origin and destination, 2005 and 2010
III.
TRADE POLICIES AND PRACTICES BY MEASURE
III.1
III.2
III.3
III.4
Frequency distribution of MFN tariff rates, 2005 and 2011
Tariff escalation, by two-digit ISIC industry, 2005 and 2011
Average applied MFN and bound tariff rates, by HS section, 2005 and 2011
Imports controls, 2011
IV.
TRADE POLICIES BY SECTOR
IV.1
Interest rate spread, 2005-10
12
14
41
42
44
49
102
TABLES
I.
ECONOMIC ENVIRONMENT
I.1
I.2
I.3
I.4
Selected macroeconomic indicators, 2005-10
Basic economic indicators, 2005-10
Balance of payments, 2005-10
Foreign direct investment inflows, 2005-10
III.
TRADE POLICIES AND PRACTICES BY MEASURE
III.1
III.2
III.3
III.4
III.5
III.6
Structure of the MFN tariff, 2005 and 2011
Products for which applied MFN tariff rates exceed their bound rates, 2011
Government procurement, 2011
Margins of preference to domestic suppliers, 2011
Structure of tax revenue, 2005-10
ICE rates, by product, 2004 and 2011
IV.
TRADE POLICIES BY SECTOR
IV.1
IV.2
IV.3
IV.4
IV.5
IV.6
IV.7
Banana production, exports, and prices
Oil production, refining, and trade 2005-10
Fuel prices, 2005-10
Electricity, 2005-10
Electricity tariffs, 2011
Telecommunications market, 2006-10
Price caps
1
5
10
15
40
45
58
60
66
68
88
92
94
94
95
103
104
WT/TPR/S/254
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Trade Policy Review
Page
APPENDIX TABLES
I.
ECONOMIC ENVIRONMENT
AI.1
AI.2
AI.3
AI.4
Merchandise exports, by group of products, 2005-10
Merchandise imports, by group of products, 2005-10
Merchandise exports, by trading partner, 2005-10
Merchandise imports, by trading partner, 2005-10
II.
TRADE AND INVESTMENT REGIMES
AII.1
Most recent notifications under the WTO Agreements, 1 January 2005-30 June 2011
III.
TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1
AIII.2
AIII.3
Products subject to tariff quotas, in-quota, and out-of-quota duties, 2011
Preferential tariff treatment, 2011
Products subject to import controls, 2011
113
114
115
116
117
118
119
120
Ecuador
SUMMARY
(1)
ECONOMIC ENVIRONMENT
1.
Ecuador is a small, fairly open,
"dollarized" economy, very much dependent
on oil revenue (for 14%-20% of GDP, more
than half of export earnings and 20%-30% of
government revenues). Thus, the economy
remains vulnerable to external shocks,
including the recent global economic
downturn that began in 2008 and resulted in a
slowdown in growth due in large part to the
sharp reduction in oil export prices and
volumes, which was compounded by a sharp
drop in expatriates' remittances, the second
most important source of foreign currency.
However, Ecuador weathered the crisis well,
and growth rebounded to 3.6% in 2010; it is
predicted to be 5.1% in 2011, mainly due to
higher prices for oil exports and a strong
rebound in domestic demand, especially public
investment in infrastructure projects. As a
result of "dollarization", inflation has remained
relatively low. During the period under
review, urban unemployment fell from 9.3%
to 6.1%. Human development improved and
there has been a slight fall in income
inequality. On the other hand, Ecuador's
productivity is such that it is ranked among the
world's least competitive economies.
2.
With Ecuador's "dollarized" monetary
regime constraining macroeconomic policy
options in responding to external shocks, the
burden has fallen mainly on fiscal policy.
Accordingly, Ecuador's fiscal deficit rose
sharply to 5.1% of GDP in 2009, largely due
to the drop in revenues from oil exports,
increased energy subsidies, and high public
investment in strategic infrastructure projects,
health, education, and social welfare, to
correct long overdue investment in these areas
and pave the way to sustainable growth. As a
result of the increased fiscal deficit, national
saving was insufficient to finance gross
domestic investment.
The consequent
saving-investment gap was reflected in
Ecuador's current account, which shifted from
a surplus to a small deficit in 2009 and a larger
WT/TPR/S/254
Page vii
deficit, of 3.3% GDP, in 2010.
The
Government responded by restricting certain
imports through safeguard measures from
22 January 2009 to 23 July 2010.
3.
The EU remains Ecuador's main
non-oil export market, and the United States
its main supplier. From 2009, FDI inflows
dropped considerably, mainly as a result of the
increasingly uncertain investment climate
owing to major policy and constitutional
changes. A wide-ranging Organic Code of
Production, Trade and Investment, passed in
2010, streamlined the legal framework
governing, inter alia, foreign direct
investment, which now provides for national
treatment to foreign investors under certain
conditions and additional guarantees involving
investment contracts.
The FDI regime
remains, in principle non-discriminatory,
except for investment in "strategic" sectors and
certain other areas (e.g. fisheries, media,
extractive activities, and maritime transport)
representing about 50% of GDP, where the
Government retains certain exclusive rights.
(2)
TRADE POLICY FRAMEWORK
4.
Ecuador is in the process of
thoroughly redesigning its economic and
social development strategy, with a view to,
inter alia, diversifying the economy and
making it more inclusive. During the period
under
review,
it
undertook
major
constitutional amendments and related
institutional
changes,
with
potentially
far-reaching implications for the roles of trade
and FDI in this strategy. These constitutional
amendments provide for, inter alia, greater
state involvement in, and/or control of,
"strategic" sectors of the economy and
envisage an increasingly inward-looking trade
regime, with greater emphasis, for example, on
certain pre-defined priority sectors and some
selective import substitution activities. The
2008 Constitution has frequently been the
source of litigation, controversy and investor
concern in numerous areas, both at home and
abroad, possibly to the detriment of FDI.
Ways to enhance total factor productivity, and
WT/TPR/S/254
Page viii
thereby improve Ecuador's international
competitiveness, as well as product and market
diversification have also become important
features of economic policy.
5.
Despite new constitutional provisions
focused on regionalism, Ecuador, a beneficiary
of WTO trade-related technical assistance,
recognizes that multilateral trade rules provide
a certain degree of security and predictability,
and used WTO Dispute Settlement procedures
to defend its trade interests during the period
under review.
Its regional integration
objectives have increasingly been based more
on political or social criteria rather than
conventional economic priorities. Following a
recent pragmatic policy shift, Ecuador
envisages concluding its trade negotiations
with the EU without further delay, and
negotiating more comprehensive agreements
for development covering several policy areas
rather than just trade. Such agreements are
now being negotiated (for example with
Turkey) or explored (for example, China,
Korea (Rep. of), Gulf Cooperation Council
countries, and EFTA).
6.
New legislation was passed in several
trade and trade-related areas (e.g. production,
trade, investment, government procurement,
SPS, hydrocarbons, mining), but no
comprehensive regulatory reform has been
undertaken to streamline or simplify the
existing legal framework consisting of
different types of national legal instruments,
and several Andean Community regulations
(e.g. on customs valuation, reference prices,
rules of origin, contingency measures,
standards,
SPS,
competition
policy,
intellectual
property
rights).
As
comprehensive
legislation
implementing
constitutional and institutional changes is in
the process of being passed or implemented,
no evaluation of their impact is available at
present.
Streamlining business creation,
investment, and customs clearance procedures
has been a priority.
7.
Action has been taken to improve and
institutionalize transparency, and consequently
Trade Policy Review
fight corruption, a concern and a challenge in
Ecuador. Despite some improvement since its
last TPR, Ecuador's WTO notification record
has been characterized by irregular
submissions or long periods without
submission in several areas;
improved
notifications are envisaged with the technical
support of the WTO Secretariat.
(3)
TRADE POLICY DEVELOPMENTS
8.
The tariff remains one of Ecuador's
main trade policy instruments and an
important source of tax revenue (13.3% of
total tax revenue). As a result of customs
tariff reforms (including the adoption of the
HS 2007 tariff nomenclature) and changes in
the type, level, and distribution of duty rates,
the average applied MFN tariff rate dropped
from 11.4% in 2005 to 9.3% in 2011.
Whereas the average applied MFN tariff for
industrial imports dropped from 10.6% to
7.6%, that for agricultural products rose from
16.7% to 19.6%. Some 53.5% of applied
MFN tariff rates are currently in the range of
zero to 5%, up from 38.7% in 2005. Peak
ad valorem rates (affecting meat offal, rice,
and milk and milk cream) remained
unchanged. The structure of tariff rates has
become more complex and dispersed with the
increase in the number of ad valorem rates,
and the adoption of compound duties; the
tariff now involves 17 ad valorem, and
10 compound rates. Some 95% of tariff rates
are ad valorem, which contributes to the
transparency of the tariff. On the other hand,
ad valorem equivalents of non-ad valorem
rates, which in general tend to conceal
relatively high tariff rates, were not available.
The fact that all tariff lines are bound imparts a
high degree of predictability to the tariff.
However, the simple average of bound MFN
rates (21%) is considerably higher than the
average applied MFN rate (9.3%), providing
the authorities with substantial scope for
increasing applied MFN tariff rates within
bindings, as was the case during the review
period. Furthermore, 19 ten-digit lines exceed
the bound rates by 5 to 15 percentage points, a
problem to be corrected upon completion of
Ecuador
the HS 2002 transposition of binding
commitments, hopefully this year. The use of
compound rates on items bound on an ad
valorem basis, and the non-submission of their
ad valorem equivalents (AVEs) casts doubt on
whether these rates are within their binding
levels.
9.
Computerized customs clearance and
other modernization efforts were undertaken to
facilitate trade by, inter alia, reducing physical
inspections, and instead focusing on import
risk assessment; the pre-shipment inspection
regime was eliminated as of 2008. Imports
have been subject to a so-called "redeemable
quota" (until end 2010), a contribution to the
Children's Development Fund, and a tax on
foreign exchange flight, all levied on
ad valorem basis.
10.
Import prohibitions and restrictions
affect numerous items but slightly less than in
2005; they apply mainly for human, animal or
plant life or health, the environment, safety, or
security reasons. In addition to institutional
changes in the area of standards, new
mandatory
conformity
assessment
requirements, consisting of test reports and
certificates of conformity for industrial
products were introduced in 2007. The share
of national standards that are identical to
international standards stands at 3.6%. No
new mutual recognition agreements (MRAs), a
trade facilitation measure, were signed during
the review period; some of the few existing
MRAs expired and were not renewed. New
legislation was passed to ensure more flexible
and user-friendly management of the entire
Codex Alimentarius legislation, and to
regulate biotechnology.
11.
A safeguard measure against imports
of windshields other than those from
developing countries except for Colombia
(September 2010), and safeguard measures for
balance-of-payments purposes were taken
during the review period, in the form of
quantitative restrictions and tariff surcharges.
WT/TPR/S/254
Page ix
12.
Major legislative, procedural and
institutional changes were implemented in
2008 with a view to improving the
transparency and efficiency of Ecuador's
public procurement regime; as from 2009, all
government-controlled companies have been
subject to the new rules.
New online
procurement procedures were introduced, but
special procedures continue to be used most
often; open calls for tendering are the second
most frequently used procurement method.
Emphasis was placed on using government
procurement as an instrument of industrial
policy, and a series of preferences for local
suppliers, depending on local content and
company size, were adopted.
13.
To ensure domestic supplies and
encourage domestic processing, temporary
export prohibitions (on rice) and quantitative
restrictions (on exports of waste and scrap of
certain ferrous and non-ferrous metals) are
being used; temporary export surveillance
also affects leather and furs. Exports of
bananas and coffee remain subject to industry
levies; exports (and production) of banana and
plantains, cocoa, coffee, shrimp, and fish
products continue to be subject to minimum
reference or support prices paid to producers
by buyers.
Ecuador has maintained
drawbacks, maquila (until 2010), free zones
(until 2010), and a special economic
development zone (as from 2010) that offer
various tax concessions, including exemptions
from income tax.
14.
To promote investment in domestic
production activities for various purposes, in
December 2010 three classes of tax incentives
(general, sectoral, for depressed areas),
including income tax holidays, were
introduced for new investment in priority and
selected import-substitution sectors, as well as
for small and medium-sized enterprises;
non-tax incentives, involving concessional
loans and grants, are also available.
Domestically produced milk and canned tuna,
scad, sardine, and trout remain subject to a
zero rate of value-added tax (IVA), which is
largely collected on imports; corrective action
WT/TPR/S/254
Page x
is envisaged when revising other tax-related
matters.
15.
Several articles of the 2008
Constitution restrict competition by favouring
state control or intervention in strategic
activities, thereby reversing past limited
privatization efforts.
As a result, state
involvement in the production and trade of
certain goods and services remains significant
and in certain areas (e.g. mining,
pharmaceuticals) is being strengthened.
Public enterprises benefit from the same
tax-free status available to public sector
bodies, which includes income tax exemption
and zero-rating for IVA (i.e. reimbursement of
taxes levied on the purchase of local or
imported inputs of goods and services). As
from 2007, Ecuador intensified price controls
for several sensitive consumer items, fuels,
and public utilities; implementing this policy
required the use of subsidies. Action was also
taken to improve consumer protection.
16.
Legislation
on
protection
of
intellectual property rights was reinforced
under the 2008 Constitution, particularly
relating to ancestral knowledge and
biodiversity, and is undergoing substantial
reform.
Registration procedures and
enforcement action were also improved.
Despite intentions to issue compulsory
licences for numerous pharmaceuticals and
agrichemicals, only one such licence has been
issued (April 2010) so far.
(4)
SECTORAL POLICY DEVELOPMENTS
17.
Despite
its
relatively
modest
contribution to GDP (6.6%), agriculture
(including fisheries) accounts for about a third
of employment, so that labour productivity in
the sector is roughly one sixth of the level in
the rest of the economy. At the same time,
compared to other sectors, agriculture is a
major recipient of budgetary assistance in the
form of preferential loans for training,
technology transfer, crop diversification, and
infrastructure projects. The average applied
MFN tariff rate for the sector has increased,
Trade Policy Review
while such protection in manufacturing has
been reduced. Certain agricultural products
remain subject to peak tariff rates and variable
import levies under the Andean Community's
price band system applied to agricultural items
originating in non-Andean Community
countries. Tariff-rate quotas tied to domestic
absorption requirements for 17 agricultural
items have not been used because of lower
applied MFN rates and increases in the world
prices of the items concerned. No special
safeguard measures were used during the
period under review. Ecuador remains the
world's largest banana exporter and a leading
producer; the signing of the Geneva
Agreement on Trade in Bananas (May 2010)
improved its export prospects to the EU
market.
18.
New mining and hydrocarbons laws
changed the nature of contracts with
private-sector companies (from shareholders
to services providers), thereby requiring the
renegotiation or termination of these contracts.
Hydrocarbons, one of several "strategic"
sectors, remains a key activity, accounting for
more than half of merchandise exports despite
the sharp decline of its contribution to GDP;
two state firms remain the dominant players in
all hydrocarbons operations. Despite being an
important oil exporter, Ecuador's import
dependency on refined products has increased,
but action is being taken to expand its refining
capacity. Refined oil prices are subsidized at a
considerable budgetary cost. State control and
involvement in mining, another "strategic"
sector, was increased by, inter alia, creating a
national mining company; the required quota
on the number of Ecuadorian workers was
reduced. Reforms were undertaken to improve
the efficiency of state firms' operations in the
electricity market, which is dominated by a
government-controlled enterprise and remains
import-dependent in periods of drought.
Electricity tariffs are cross-subsidized.
19.
The manufacturing sector plays a
relatively modest role in the economy and in
merchandise exports. While the average MFN
tariff rate applied to the sector has declined,
Ecuador
the redistribution of rates has resulted in more
pronounced tariff escalation.
Budgetary
assistance for manufacturing remains low. A
programme under the Automotive Policy of
the Andean Community remained in place
during the period under review; a support
programme for replacing aging public
transport vehicles was also implemented, and
tariff protection for passenger motor vehicles
was reinforced.
20.
The services sector is by far the largest
contributor to GDP accounting for 56.5% in
2010. Ecuador's limited GATS commitments
remain unchanged. Some access limitations
on foreign investment and other restrictions
apply to basic telecommunications, radio
services, maritime transport, and airports. The
State maintains a dominant position in
fixed-line telecoms, another "strategic" sector;
price caps for telecom services are in place.
Cabotage and transportation of hydrocarbons
are reserved to vessels flying the Ecuadorian
flag, and transportation of hydrocarbons to a
WT/TPR/S/254
Page xi
state-owned firm; preferential kerosene prices
are reserved for aircraft registered in Ecuador.
Tax incentives for new tourism projects were
suspended in 2010.
(5)
OUTLOOK
21.
Ecuador's economic growth is
expected to remain relatively strong, albeit
vulnerable to external economic shocks.
Nonetheless, its long-term prosperity depends
on its success in improving the total factor
productivity of its enterprises and thus their
international competitiveness, and thereby
diversify its economy. It remains to be seen
whether Ecuador's unorthodox policies, such
as state intervention and selective import
substitution, together with regional trade
liberalization are the most effective means to
accomplish its economic and social objectives.
A stable, predictable, and transparent trade and
trade-related legal and institutional framework
could be the key to success.