New tax on imports could ignite trade war with Colombia and Peru; Ecuador says currency devaluations and low oil prices are to blame

Ecuador says that devaluations in Colombian and Peruvian currency, coupled with dropping oil prices and a strong U.S. dollar, mandate increased taxes on imports from those nations to maintain trade equality.

Walter Spurrier, economic analyst, supports government trade tax.

Ecuador’s Committee on Foreign Trade (Comex) ordered the tax on Monday which amounts to 21% on 3,098 Colombian products and 7% on 2,339 Peruvian products.

The Comex action was sent to the General Secretariat of the Andean Community of Nations (CAN), with the justification that extraordinary circumstances require “emergency corrective measures.” Comex says the additional taxes are required because of an altered competitive situation “caused by currency devaluations of the Colombian peso and the Peruvian sol.”

Ecuador, Colombia and Peru, along with Bolivia, make up the CAN trade organization.

Colombia’s government rejected Eucador’s new tax, calling it “surprising and inconsiderate.”

“The Government of Colombia emphatically rejects this measure and regrets that there was no consultation by the Ecuadorian government before it was adopted,” the Colombian trade office said.

Peruvian trade officials issued a similar statement and said they would appeal to the CAN General Secretariat.

Bruce MacMaster, president of the National Business Association of Colombia (ANDI), also dismissed Ecuador’s decision, calling it an “arbitrary measure” that “violates the rules not only of CAN but of the World Trade Organization.”

Walter Spurrier, an Ecuadorian economic analyst who is frequently at odds with government policy, says this time he favors the Comex action. “Ecuador is facing a critical situation that the government is forced to deal with,” Spurrier said. “No single measure is sufficient to face the fall in oil prices by half but the new tax on imports is one of them.”

He added: “Cuts in public spending, tax increases, and obtaining external financing with the president’s visit to China are necessary. The problem must be attacked on all fronts.”