International and national backlash against new tariffs: Ecuadorian businesses say higher costs will slow investment and hurt the poor

As many business leaders and economists had predicted, Ecuador’s tariff hikes are provoking a backlash.

Chilean fruit growers were the first to protest on Tuesday and their complaint was backed up Wednesday by the Chilean government. Chilean trade officials have demanded “formal consultations” with their Ecuadorian counterparts.

Ecuador Interior Minister José Serrano threatens crack-down on price “gougers.”

According to news sources, Panama and Mexico have also asked for meetings with Ecuadorian officials to discuss the tariffs.

The tariffs, ranging from 5% to 45% on 2,800 imported products were scheduled to go into effect today. Announced Friday, the government said the tariffs are needed to maintain a balance of payment with the country’s trading partners due to the drop of oil prices and a strengthening U.S. dollar, which Ecuador uses as its official currency. According to the Friday announcement, the tariffs will be force for 15 months.

“This is just the beginning of the reaction,” said Roberto Aspiazu, executive director of the private Ecuador Business Committee. “We will be hearing first from foreign governments and there will be retaliation against Ecuador exports if the tariffs are not adjusted. And we have not even heard from the World Trade Organization or the Community of Andean Nations yet. This situation is a long way from being resolved.”

The president of the Chilean fruit growers association Fedefruta expressed “total rejection” of Ecuador’s tariffs. “This is not the first time Ecuador has unilaterally restricted foreign trade and violated agreements,” said Juan Carolus Brown. “We are happy to see that our government has joined the fight.”

Ecuador is imposing a 45% tariff on Chilean fruit imports.

Brown disputed a Twitter statement by Ecuador President Rafael Correa in which Correa said consumers can switch from Chilean to Ecuadorian apples. “Nine of 10 apples bought in Ecuador come from Chile,” Brown said. “Tell me how the local market can fill that shortfall?”

Ecuadorian businesses that depend on foreign imports are also crying foul.

Pablo Arosemena, president of the Guayaquil Chamber of Commerce says the tariffs will have the opposite effect than the one the government predicts of increasing domestic production. “After seeing how the government has mishandled this, who would want to invest in expanding a business now?” he asked.

Arosemena also disputed Correa’s claim that the tariffs are directed primarily at luxury goods and do not harm the country’s poor. “The taxes will have an across-the-board affect and it’s not just the wealthy who are affected. He also said that the poor will be the first to lose jobs if the economy stalls.”

Economist Juan Fernando Carpio says that the tariffs remove choices for consumers. “Again, it is the case of the government deciding what is good for us,” he said.

Carpio added that the tariffs are great news for smugglers. “The smugglers in Huaquillas (near Peru) and Tulcán (near Colombia) should be dancing in the streets and popping the champagne corks,” he said. “They will be the ones who benefit the most.”

Meanwhile, Ecuador’s Interior Minister Jose Serrano announced a crack-down on businesses that try to profit from the tariffs by raising prices of imported products already on the shelves or in inventory. Serrano said his office is advising local governments and national police to prepare to arrest “gougers.”

“If we become aware of speculation anywhere, we will send in the police immediately,” Serrano said. “We will not allow anyone to profit from the situation.”

Serrano said that the new tariffs apply to products that left foreign sea ports and airports yesterday, not to products already in Ecuador or in transit. “For non-perishable items, it could be weeks or longer before the public sees higher prices,” he said. “Anyone repricing merchandise already on hand will be prosecuted.”