72577 v1 World Trade Indicators 2009/10 Ecuador Trade Brief Trade Policy To combat high food prices, Ecuador reduced import Ecuador took various steps between the early 1990s tariffs on wheat and wheat flour and, in May 2008, it and the mid-2000s toward liberalization of its trade set a ceiling on the domestic price of milk. The regime. However, in the last few years it has government also banned rice exports and made it backtracked. Ecuador‘s latest MFN Tariff Trade easier to obtain agricultural input subsidies.2 In the Restrictiveness Index (TTRI)1 for overall trade was fourth quarter of 2008, as the international price of relatively low at 4.8 percent in 2007, compared to the food declined, the government withdrew subsidies on Latin America and Caribbean (LAC) region and lower- wheat flour. At the end of 2008, to support domestic middle-income countries, which have TTRIs of 7.8 producers in the face of the global economic crisis, the and 8.4 percent, respectively. It ranks 58th out of 125 government increased tariffs on 940 final consumer countries (where 1st is least restrictive). Ecuador‘s goods, (including candy, butter, mobile phones, and barrier for agricultural goods is over twice as high as sunglasses),3 and reduced tariffs on 3,267 tariff lines that for non-agricultural goods, with TTRIs of 12.4 (raw materials and capital equipment not locally and 4.8, respectively (although both are still below produced).4 Faced with stress in the balance of their respective regional averages). The simple average payments due to reduced oil export revenues, the of the MFN applied tariff rate has remained relatively government increased tariffs on 630 tariff lines (8.7 steady in the past several years at 11.3 percent, and percent of total lines) covering a wide range of goods when taking into account the preferences, it is only for one year.5 These safeguard measures included tariff slightly lower at 10.9 percent. The country applies the hikes in the range of 30–35 percent for 75 tariff lines, Andean Price Band System to imports of a number of specific tariffs for 255 products, and quotas on 248 agricultural products, where import duties rise or fall imported goods.6,7 These applied to goods including in response to changes in international prices. Ecuador cars, cloth, liquor, cosmetics and cell phones and were raised its maximum tariff (excluding alcohol and levied equally on all trading partners. Since Ecuador tobacco) by 10 percentage points to 30 percent in has adopted the U.S. dollar as its currency, devaluation 2008. The trade policy space, as measured by the of the currency was not an option to make exports wedge between bound and applied tariffs (the more competitive. In consultation with the WTO, overhang), has remained very low in the past decade Ecuador agreed to convert its quotas to ad valorem and was equal to 10.5 percent in 2008, which is just tariffs in September 2009, and to eliminate the over a third of the average for its regional neighbors. restrictions by January 2010.8 Most recently, in July Ecuador is the 8th largest initiator of safeguards 2008, Ecuador implemented import restrictions on measures in the period of 1995–2008. Regarding the over 1,000 Colombian goods to protect Ecuadorian extent of its commitment to trade liberalization in producers from cheaper Colombian goods resulting services, Ecuador ranked 61st out of 148 countries from the depreciation of the Colombian peso against according to the GATS Commitment Index. the U.S. dollar in real terms (18.5 percent over the period June 2008–June 2009). However, some of these restrictions have been removed and the remaining ones will be phased out in six months.9 In mid-2009 the government eliminated import tariffs on hybrid Unless otherwise indicated, all data are as of August 2009 cars.10 and are drawn from the World Trade Indicators 2009/10 Database. The database, Country Trade Briefs and Trade-at-a-Glance Tables, are available at External Environment http://www.worldbank.org/wti. According to the latest Market Access TTRI11 If using information from this brief, please provide the (including preferences) of 2.9 percent, Ecuador‘s following source citation: World Bank. 2010. ―Ecuador exports face higher tariffs barriers abroad than the Trade Brief.‖ World Trade Indicators 2009/10: Country Trade average LAC and lower-middle-income country Briefs. Washington, DC: World Bank. Available at comparators (which had MA-TTRIs of 2.0 percent http://www.worldbank.org/wti. World Trade Indicators 2009/10 Ecuador Trade Brief and 2.3 percent, respectively). The simple average of Trade Outcomes the rest of the world tariff faced by Ecuador‘s exports has risen from 4 percent in 2006 to 9.5 percent in Ecuador‘s real growth (in constant 2000 U.S. dollars) 2008. When taking into account the level of exports, it in total trade of goods and services rose slightly in is much lower, at 2.4 percent, with its agricultural 2008 to 3.6 percent. After shrinking slightly in 2007, exports facing a much higher barrier (7.8 percent) than real exports grew by 1.5 percent in 2008. Real imports non-agricultural exports (0.6 percent). In the third grew at 5.4 percent in 2008. Both exports and imports quarter of 2008, Ecuador had one anti-dumping are expected to decline in real terms in 2009, by 3.8 investigation initiated against it by Brazil. The currency and 4.8 percent, respectively. of Ecuador is the U.S. dollar, which was adopted as legal tender in 2000. Its real effective exchange rate Ecuador has substantial petroleum reserves and, as depreciated by 2.1 percent in 2008, increasing the such, oil accounts for half of total merchandise competitiveness of Ecuadorian exporters. exports, followed by bananas, cut flowers, shrimp, cacao, and coffee. Nominal exports grew by an Ecuador is part of the Andean Community of Nations estimated 27.7 percent in 2008 (despite a 20.3 percent (CAN) free trade area, along with Bolivia, Peru, and decline in the fourth quarter).15 Almost half of Colombia. The Andean Trade Partnership and Drug Ecuador‘s total exports go to the United States; other Eradication Agreement (ATPDEA), which granted key trading partners are Peru and Chile. With these some preferential access to the U.S. market has been countries experiencing slower growth, exports are extended through the end of 2009. Negotiations for a expected to shrink by 23.9 percent in 2009. Already in free trade agreement (FTA) with the United States the first half of 2009 exports decreased by 41.6 began in 2004. However, these stalled after Ecuador percent year-on-year. Ecuador top imports are cancelled the contract of Occidental Petroleum and industrial materials, fuels and lubricants, and nationalized foreign-owned oil fields.12 Restarting FTA nondurable consumer goods. In 2008, imports rose by talks with the United States is not on the agenda of the 32.7 percent, largely due to rising commodity prices. current government. As a member of CAN, Ecuador However, in the first half of 2009, imports contracted has been engaged in recent FTA talks with the EU and by 14.5 percent. Remittances from Ecuadorians living Canada.13 EU negotiations with Colombia and Peru in the United States and Spain are very important. have progressed significantly further than those with Total remittances (including worker remittances, Ecuador and Bolivia. Ecuador also joined República compensation of employees, and migrant capital Bolivariana de Venezuela‘s ALBA (Bolivarian transfers) amounted to 6.1 percent of GDP in 2008, Alternative for the Americas) initiative, an alternative down from 6.8 percent in 2007. Net FDI inflows were integration mechanism. low at 0.4 percent of GDP in 2007. Behind the Border Constraints Notes In terms of the conduciveness of its institutional 1. TTRI calculates the equivalent uniform tariff that environment to business, Ecuador ranked 138th out of would keep domestic welfare constant. It is weighted by 183 countries in the 2010 Ease of Doing Business import shares and import demand elasticity. index. The Logistics Performance Index, a measure of 2. FAO, 2009. the ease of trade facilitation, rates Ecuador at 2.6 on a 3. WTO, March 2009. scale from 1 to 5 with 5 being the highest 4. World Bank PREM Trade Group, January 2009. performance. This is compared with 2.57 for the LAC 5. World Bank PREM Trade Group, April 2009. region and 2.47 for countries in the lower-middle- 6. WTO, March 2009. income group. It ranked 70th in the world and 9th in 7. Puentes Quicenal 6(1), 27 January 2009. the LAC region (with Chile leading the regional 8. Puentes Quincenal 6(11), 16 June 2009. group). The area in which it performed the best was 9. Wall Street Journal, August 10, 2009. domestic transportation costs, and timeliness of 10. World Trade Organization, July 2009 shipments and it needs most improvement in 11. MA-TTRI calculates the equivalent uniform tariff of increasing the efficiency and effectiveness of customs trading partners that would keep their level of imports procedures. In late 2008, the government approved a constant. It is weighted by import values and import program that would provide exporters with easier demand elasticities of trading partners. access to credit.14 12. Puentes Quincenal 6(10), 3 July 2009. Ecuador Trade Brief World Trade Indicators 2009/10 13. SICE, 2009. Sensibilidades.‖ Puentes Quicenal 6(12). July 20, 2009. 14. World Bank PREM Trade Group, January 2009. . 15. All quarterly data is from IMF, 2009. ———. June 16, 2009. ―OMC Accepta Restricciones Co- merciales De Ecuador.‖ Puentes Quicenal 6(11). July 20, 2009. . Antidumpingpublishing.com June 15 2009. Global Trade ———. June 30, 2009. ―ALBA Summa Tres Nuenos Protection Report. 7 Aug. 2009. . news/puentesquincenal/49828/>. Economist, The. July 2, 2009. ―Conservation in Ecuador; World Bank PREM Trade Group. April 21, 2009. Trees or Oil.‖ 20 July 2009. . Group, June 26, 2009. . ments to Reduce the Impact of Soaring Prices (As of ———. January 14, 2009. ―The World Bank, Update on 15 December 2008).‖ FAO. 26 June 2009. . Finance.‖ The World Bank Group. June 26, 2009. Puentes Quicenal. January 27, 2009. ―Ecuador Restringe . 6(1). July 20, 2009. . ―Report to the TPRB from the Director-General on ———. April 21, 2009. ―Mientras Can Intenta the Financial and Economic Crisis and Trade- Replantearse, Ecuador Apela Resolucion Y Amenaza Related Developments.‖ WTO. June 26, 2009 Con Irse.‖ Puentes Quicenal 6(7). July 20, 2009 . ?refID=105582>. ———. June 30, 2009. ―IV Ronda Andinos-UE No Logra Cerrar Todas Las Mesas; Ecuador Mantiene