WTO allows Ecuador import restrictions to stand, citing the country’s balance of payment problems

Jun 8, 2009 | 0 comments

World Trade Organization members agreed on Thursday to allow Ecuador to impose temporary import restrictions because of balance of payments problems.

The move was hailed by rich and developing countries as proof that the rules-based trading system umpired by the WTO was working well despite the economic crisis, and that WTO members could tackle the needs of developing countries in difficulties.

Ecuador imposed the import restrictions as well as a series of new taxes on a variety of products in January. Foreign-produced alcoholic beverages, cosmetics, clothing and electronics were hit hardest.

WTO members reached agreement after lengthy consultations in which Ecuador agreed to modify the restrictions and phase them out early if its economy improved, according to a draft report by the WTO's committee on balance of payments restrictions, a copy of which was obtained by Reuters.

"The good thing about this is it shows the WTO works — it gets results," said one Ecuadorean official, who asked not to be named, after the committee meeting. "And the good thing is it's a consensus, no one is imposing anything."

WTO rules allow temporary waivers to trade agreements to countries with balance of payments problems, enabling them to raise tariffs or impose quotas.

This was the first time in 10 years that a WTO member had sought such an exemption, although Bangladesh received one in 2007 in a follow-up to a previous request, trade officials said.

Ecuador introduced its import restrictions in January, raising tariffs and imposing import quotas on a wide range of goods to cut its ballooning trade deficit, forecast this year at an unsustainable $3.97 billion, which Quito says must be cut to $2.69 billion.

The OPEC member has faced particular difficulties because it replaced its sucre currency with the U.S. dollar in 2000.

The measures affected 8.7 percent of imported products, or 23 percent of imports by volume in 2008, and caused problems for trading partners like Colombia, which told the committee its exports to Ecuador had fallen 42 percent, and Chile.

In a series of discussions in April and again this week, Ecuador provided comprehensive information on the state of its economy, backed up by a report from the International Monetary Fund which confirmed that the Latin American oil exporter's external accounts were deterioriating.

Ecuador finally agreed to replace most import quotas — the most restrictive measure, and one which particularly hurt Colombia — with tariffs by Sept. 1.

The world's biggest banana exporter said it would re-assess the measures if its payments position improved and remove then in any case by Jan. 22 next year.

China, which told the committee that Ecuador's measures had affected 40 percent of its exports, praised the result as showing that WTO members could address the problems of developing countries in the crisis.

The agreement on Ecuador contrasted with discussions on Wednesday with Ukraine. Ukraine had imposed a 13 percent import surcharge on a wide range of goods, but offered to withdraw them on everything except refrigerators and motor vehicles.

The committee decided to hold further consultations on Ukraine, June 23 and 25.

Ukraine's selective targeting of products runs counter to the balance of payments rules, which support restrictions across-the-board rather than on individual industries.

"There is no way that can be justified in the balance of payments agreement," said one diplomat from a rich WTO member.

Credit: by Jonathan Lynn, Reuters News Service


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