Business leaders complain that new import restrictions and taxes will hurt Ecuador businesses and consumers

Jun 24, 2012

New government taxes and restrictions on imports will mean higher prices on some items at the check-out counter and leaders of Ecuador´s major business organizations are cyring foul.

The measures announced June 15 by the government´s Committee of Foreign Trade (COMEX), mean that prices of imported cars, cell phones, appliances, liquor, electronic equipment and dozens of other items, are headed higher. Although Ecuadorian production minister Santiago Leon says the restrictions were necessary to protect Ecuadorian producers, the environment and the health of Ecuadorians, business leaders say they will only hurt businesses and consumers.

The biggest impact will be felt by buyers of cell phones and cars and trucks. The measures reduce cell phone imports from 3 million to 2 million units per year and imports of new cars and trucks by 30%. The government also announced it will no longer allow cell phones to be mailed into the country and that border and airport police will only allow travelers to bring in cell phones that have been purchased and activated in Ecuador, and say they will work with local carriers to make it impossible to activate cell phones not purchased in Ecuador. Exceptions will be made for cell phone brought in by tourists, a government spokeman says, although these phones will not work in Ecuador.

The additional tax on imported alcholic beverages will be a flat 1% on each bottle with an additional tax of 25 cents applied to each percentage of alcoholic content. In other words, imported rum with an alcohol conent of 40% (80 proof) will be taxed an additional $10.

Critics claim that the environmental concern over disposing of hazardous waste, particularly cell phones and other electronic equipment is bogus, since the government has established no dispoal or recycling standards.

The real motivation behind the new restrictions, according to some business experts, is the fear that the drop in oil prices will adversely affect government growth plans. Ramiro Crespo, Quito journalist and financial analyst, says that oil revenue, which amounts to 40% of the government budget, will probably keep failling. “The barrel price has dropped below $79, the level budgeted for the year as an average.” As a result, spending by the Correa government, he says, could require high levels of deficit spending.

Crespo and others say the new restrictions will shave about $300 million annually from Ecuador´s trade deficit. They also point out that, unlike most other countries, Ecuador cannot print its own money since it uses the U.S. dollar as its currency.

Cordovez Felipe, president of the Ecuadorian Liquor Association, says that new taxes will increase prices and stimulate the contraband market since the price of alcoholic beverages will be much higher than in neighboring Peru and Colombia. “The government has already doubled the price of liquor in the last five years so this just makes the situation worse. It will hurt businesses and restaurants as well as punish the customer. Look for a lot more bootlegging.”

While acknowledging that the new restrictions will reduce overall imports and help improve the country's trade balance deficit, Leon, emphasized that the primary reason for the Comex actions is to protect the environment and the health of Ecuadorians. "What do you do with old cell phones, computers and cars? The waste is not healthy."

Other imports affected by the new rules include textile products, cameras, computers, televisions, and some cereal and pasta.

The customs police said that they would begin using a more rigorous screening process for travelers entering Ecuador by mid-July.

Photo caption: President Rafael Correa defended new trade restrictions during a Saturday news conference.

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