News and Analysis • Volume 13 • Number 2 • June 2009

7 - Ecuador Gets Waiver on Import Curbs

The WTO balance-of-payments committee and Ecuador have reached a compromise on Ecuador’s import restrictions after two rounds of consultations

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In January, Ecuador announced a series of stiff import restrictions on 630 tariff lines, affecting 8.7 percent of its ‘tariff universe’, or 23 percent of the volume of imports. Duties were raised on 369 tariff lines and quota restrictions imposed on 271 others for a one-year period. They cover products ranging from processed foods and shoes to cars, mobile phones and sunglasses, as well as many other goods that can be manufactured in Ecuador. These are among the most drastic import curbs taken by any government in the wake of the economic meltdown, but Ecuador insists that they are necessary to balance its widening current account and trade deficits.

GATT Article XVIII allows developing countries to impose temporary import controls to “forestall the imminent threat of, or to stop, a serious decline in its monetary reserves; or, in the case of [Member] with very low monetary reserves, to achieve a reasonable rate of increase in its reserves.” The measures must be notified to the WTO, and the country imposing them must hold consultations with other Members in the Committee on Balance-of-Payments Restrictions.

The committee met in April to consider Ecuador’s request for a one-year waiver for the measures adopted in January, but failed to reach agreement. A number of sources indicated that the reluctance to grant the waiver was largely attributable to the fear that other, perhaps much bigger, countries would be tempted to follow Ecuador’s example and request balance-of-payment waivers for protectionist measures.

Lengthy consultations in early June, however, produced a compromise.

No Disagreement on Balance of Payment Problems

Members did not dispute that Ecuador was indeed experiencing balance-of-payment difficulties. In its WTO notification, Ecuador said its trade deficit was likely to rise to US$3.5 billion by the end of the year (WT/BOP/N/65/Rev.1).

The IMF confirmed that Ecuador’s external environment had deteriorated sharply since August 2008, and projected a further deterioration of external accounts until 2010.

However, the US, Canada and the EU said in April that Ecuador should have tried other means, such as spending cuts, to balance its budget before instituting import quotas. Barring outright embargoes, quotas are the most trade-restricting way of controlling imports.

Members most affected by the import curbs - Colombia, Panama, the EU and South Korea - also complained that the measures targeted particular products and sectors of export interest to them. Colombia, hit particularly hard by the quotas, had seen its exports drop by 42 percent.

In June, Ecuador made a major concession: it consented to convert most of the import quotas into tariffs by 1 September. It also promised to reassess the measures and to terminate them early if its balance-of-payment situation improves.

Had the committee not accepted this compromise, Ecuador would have been vulnerable to dispute settlement challenges. In practice, however, the threat was remote since WTO disputes proceed at a leisurely pace and the import controls were to be lifted in January 2010 in any case.

Members Applaud

Members expressed satisfaction at the result. They said it showed that the WTO system was working well despite the economic crisis: consensus could be forged through negotiations rather than by imposing conditions. China, whose exports to Ecuador have fallen by nearly a half due to the import curbs, was also pleased with the outcome, in particular because it demonstrated that the WTO could address the problems of developing countries in the crisis.