Foreign Trade Minister Diego Aulestia travels to Geneva this week to explain to the World Trade Organization (WTO) why Ecuador extended surcharges on imports for another year. In 2015, the WTO allowed the surcharges on the condition that they end this month.
The WTO’s decision on the surcharge extension, which went into affect April 29, has implications for Ecuador’s trade talks with the European Union (EU) as well as for businesses within the country that rely on imports.
In a letter to the WTO, the trade ministry justified the extension based on the economic emergency created by the April 16 earthquake. “The earthquake will force the country to use significant resources for reconstruction and support to those affected,” it said. The letter also cites continued weakness in the oil market and a strong U.S. dollar as reasons for the government’s decision.
A business association which opposes the extension says that the decision to extend the surcharges was made in March, prior to the earthquake, based on low oil prices and the strong dollar. Roberto Aspiazu, director of the Ecuadorian Business Committee, also argues that removing the surcharges would help businesses recover from the recession and, ultimately, provide more tax revenue than the surcharges. “We have proof that higher taxes do not produce the revenue the government forecasts,” he says. “It’s time to take another approach.”
The new round of surcharges ordered April 29 have a top rate of 40%, down slightly from the 45% applied in 2015, and reduces the number of imported products that are taxed.
The WTO’s ruling could have an impact on Ecuador’s negotiations with the EU, representatives of which objected to the trade surcharge extension when it was announced. The EU said it would wait for the WTO decision and expects Ecuador to abide by it.
The EU is also concerned about other issues, including Ecuador’s lack of enforcement of intellectual property law. Its negotiators cited cases where government institutions use illegal copies of computer software and the fact that most movie and music DVDs sold in the country are pirated.