Although new tariffs on more than a third of Ecuador’s imported goods go into effect on Wednesday, some economists say that they may not last long.
According to the government, 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. The tariffs on 2,800 imported products will range from 5% to 45% and will be in effect for 15 months, the government says.
“My prediction is that these taxes will be denied by the World Trade Organization,” says Quito economist Roberto Vasquez. “Under the rules, the government can go ahead and impose the tariffs while the case is reviewed by the WTO, but I would put the chances that they will be approved at much less than 50-50,” he said. He added: “The bad news is that these reviews take three to four months before a decision is made.”
On Saturday, Vice President Jorge Glas, defended the tariffs, saying Ecuador has the right to protect its economy and that many consumer items are exempted from the new taxes. “We have been careful in protecting our most vulnerable citizens and many consumer goods are not being taxed for this reason. We ask our citizens to understand that we have been forced to make this decision due to international economic conditions beyond our control,” he said.
The tariffs that will affect Ecuadorians the most will be imported food items, many of which will be taxed at the 45% rate. Glas insists there are local substitutes. “The shelves will not be empty and this will be a boost for local production,” he said.
It could be up to two months before the public feels the full impact of the tariffs as inventories on non-perishable goods are depleted.
Vasquez, who consults several international shipping companies, says that almost all Ecuadorians will be affected by the new tariffs. “There are no alternatives for many of the products that will be taxed and people cannot live without some of the more expensive items, like car and truck tires.” He also suggests that the additional 25% tax on imported alcoholic beverages, already the most expensive in South America due to import taxes, will be a bonanza for smugglers.
Former Quito economics professor Alejandro Moreno also believes the tariffs will not stand. “If fewer imports were taxed at lower rates I think the WTO might approve, but I don’t see this standing. Besides the WTO, the Community of Andean Nations (CAN) will also rule on the legitimacy of the tariffs, and I believe that they also will object,” he said.
Moreno says he believes the new tariffs will meet the same fate as those Ecuador attempted to impose on imports from Peru and Colombia last month. CAN, of which Ecuador is a member with Bolivia, Colombia and Peru, ruled that the tariffs were a violation of the organization’s trade rules. Ecuador lifted the tariffs days after they were imposed.
“Apparently, the government did not learn anything from that experience,” Moreno said.
Even before the WTO and CAN rule on the tariff, Moreno believes many rates will be reduced. “Once other countries begin to complain and threaten to retaliate, the government will begin to negotiate,” he says. “The tariffs you see in Friday’s press release will change.”
Glas, who was sitting in for President Rafael Correa at Saturday’s weekly national television broadcast, said that Ecuador had to protect the amount of dollars in the country. “We cannot have continued outflow of dollars,” he said. “We have notified the World Trade Organization of our decision and we believe we are within our rights to impose the tariffs.”
Patricio Rivera, Minister for Economic Policy, said that care has been taken to protect manufacturing in the country. “We are not taxing raw materials necessary for domestic production. We do not want to affect domestic employment.”
Rivera added: “It is amazing what I am hearing from our opponents. This is not the end of the world. It is a difficult situation and we are addressing it,” he said.
To see the government list of imports affected by the new tariffs, click here.