RESTRICTED  
  
WT/BOP/ R/11 4 
 
31 Augu st 2017 
(17-4584) Page: 1/46 
Committee on Balance -of-Payments Restrictions   
 
  
REPORT ON THE CONSUL TATIONS WITH ECUADOR  
1.  The Committee held consultations with Ecuador on 29 and 30 June , 16 October 2015, and 
17 February 2016 under the Chairmanship of Ambassador Bertrand de Crombrugghe de 
Picquendaele (Belgium), in accordance with the terms of reference of Article XVIII:B of the GATT 
1994 and the Understanding on the Balance -of-Payments Provisions of the GATT 1994. The 
consultations continued on 23 June 2016 and 29 November 2016 under the Chairmanship of 
Ambassador Shameem Assam (Bangla desh)  and on 25 April and 2 1 July 2017 under the 
Chairmanship of Ambassador Tudor Ulianovschi (Moldova) .1 The International Monetary Fund was 
invited to participate in the consultations in accordance  with Article XV:2 of GATT 1994, attending 
the meetings o f 29 and 30 June, and 16 October 2015  and 29 November 2016 . 
1  MEETING OF 29 AND 30  JUNE  2015  
1.1  STATEMENT BY ECUADOR  
2.  The representative of Ecuador stated that Ecuador participated in these consultations with the 
certainty of having meticulously complied with al l the procedures laid down in the multilateral 
regulations, as well as all the technical and legal requirements established for the adoption of a 
measure of this kind. Ecuador was a developing economy with particular characteristics that make 
it a unique a nd exceptional case; account must be taken of those characteristics in order to 
understand the reasons why the country was obliged to adopt this measure. His statement w ould 
address the particularities of a dollarize d economy like that of Ecuador. G iven th e absence of the 
main tools of monetary and exchange rate management, the safeguard measure had been  
adopted as a last resort to underpin the macroeconomic equilibria.  The purpose of the foregoing 
was to establish the necessary basis for these consultation s to address the balance -of-payments 
position and prospects and alternative measures to restore equilibrium, as well as the systems and 
methodology of the measures and their impact.  
3.  He stated that an  economy that could not issue its own money lost its main  monetary and 
exchange rate policy instrument and bec ame much more vulnerable to fluctuations in its foreign 
economic relations. In a dollarized economy, the supply of foreign exchange wa s at the same time 
the supply of money and any adjustments resulting therefrom ha d a direct impact on the real 
economy. With dollarization, liquidity depended  to a large extent on the balance -of-payments 
figures, so that external shocks that cause d rapid and significant changes in the inflow of foreign 
currency into the c ountry seriously disrupted  growth  and employment.  Far from protecting the 
economy from a balance -of-payments crisis, dollarization ma de it more vulnerable to externa l 
shocks. When an economy issued  its own money, although international monetary reserves could 
                                                
1 The Committee had before it the following documents: WT/BOP/S/18 (Background Paper prepared by 
the Secretariat); WT/BOP/N/79, WT/BOP/N/79/Add.1 and WT/BOP/N/79 /Add.2 (Notifications from Ecuad or); 
WT/BOP/N/81;  WT/BOP/N/8 2 and  WT/BOP/N/8 3 (Notification s from Ecuador); WT/BOP/G/ 22 and 
WT/BOP/G/ 22/Corr.1 (Spanish only) (Basic  Document s upplied by Ecuador); WT/BOP/G/23, and WT/BOP/G/24 
(Communication from Ecuador); RD/BOP/2 (Statement by the IMF Re presentative at the Consultation of the 
WTO Committee on Balance -of-Payments Restrictions, 29  June 2015); RD/BOP/6 (Questions submitted by 
Colombia); RD/BOP/7  (Communication from Ecuador: Resolution No. 1784 ); RD/BOP/8 ( Communication from 
Mexico); RD/BOP/9  (presentation from Ecuador); RD/BOP/10 (Questions from the E uropean  Union); 
RD/BOP/11  and RD/BOP/11 /corr.1  (PowerPoint presentation from Ecuador); RD/BOP/ 12 and RD/BOP/1 3 
(Communications from Ecuador); RD/BOP/1 4, RD/BOP/15, RD/BOP/16, and RD/BOP/17 ( Power Point 
presentation s from Ecuador); RD/BOP/19 (Statement by the IMF Representati ve, 29 November  2016); 
RD/BOP/20 ( PowerPoint presentation from Ecuador); RD/BOP/ 21 (Communication from Ecuador); RD/BOP/ 22 
(PowerPoint presentation from Ecuador); and WT/BOP/N/8 4 (Notification from Ecuador) . WT/BOP/ R/114 
 
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  decline, th e risks to the monetary system we re not as great, since in order to satisfy domestic 
demand for local currency, countries c ould always turn to monetary and exchange rate policy. 
However, in the case of the Ecuad orian economy, as these tools di d not exist, there wa s always a 
risk that, beyond a certain point, negative external shocks c ould affect liquidity levels and weaken 
the real sector.  
4.  The fact that the international reserves of a dollarize d economy we re not solely controlled by 
the Central  Bank,  but also by other agents, meant that the balance of payments adjustment could 
take place through  two mechanisms: (a) a loss of Central Bank reserves to meet working capital 
requirements; or  (b) a drastic liquidity squee ze. In either case, the result  was ultimately a fall in 
the level of production and employment, or a sharp decline in reserves, making the normal 
conduct of domestic and external business transactions impossible.  The constraints imposed by the 
dollarization regime force d the economic a uthorities to use alternative mechanisms to preserve 
fundamental macroeconomic balances.  
5.  The external sect or of the Ecuadorian economy had , in addition, other structural characteristics 
that need ed to be considered.  Ecuador still depend ed on exports of pri mary commodities deriving 
from the exploitation of natural resources, the prices of which we re volatile on international 
markets. This wa s the case for oil, but also for bananas and shrimps, which accounted for 72% of 
total foreign sales in 2014.  Although certain products such as shrimps and mining products  had 
begun to emerge in 2014, the struct ure of Ecuador's exports remained  concentrated on a limited 
number of traditional products. In 2014, 80% of total exports were concentrated on five products: 
oil (5 1%), bananas (10%), shrimps (10%), canned fish (5%) and gold (4%).  Moreover, Ecuador's 
production structure made it dependent on imports of both raw materials and capital goods. In 
2014 imports of raw materials had accounted for some 30% of total imports, compared with 25% 
in the case of capital goods. In other words, more t han half of Ecuadorian imports we re vital to the 
normal development of national productive activity. The remaining 45%  was divided between 
imports of consumer goods (20% of the total) an d oil imports, including fuels (25% of the total).  
6.  Ecuadorian imports ha d shown steady growth over the last five  years (14% on average), with a 
marked increase in imports of consumer goods, both durable and non -durable, as a result of a 
change in the consu mption patterns of the population, due to increased income and purchasing 
power.  The increase in imports  had resulted in an  outflow of foreign currency reflected in both 
payments for goods and freight and insurance payments. An adverse effect on the econom y's 
liquidity would emerge w hen the outflow of forei gn currency to pay for imports wa s not offset by 
an inflow in respect of exports . This effect wa s produced because the balance of payments in 
Ecuador wa s largely determined by the current account balance,  which in turn wa s chiefly 
explained by the balance of goods.  
7.  The international economic environment in late 2014 had negatively affected the performance 
of the economy's external sector and the balance -of-payments figures, owing to lower earnings 
from oil  because of the decline in the international price of crude oil; a decline in exports and 
increase in non -oil imports due to the appreciation of the dollar, and an  increa sed sovereign risk, 
which raised  the cost of credit lines.  Changes in both the price a nd the volume of oil exports ha d 
important repercussions on foreign exchange generation. A decrease of one dollar in the price of 
crude oil, resulted in decline in rev enue of approximately US$77 million for Ecuador.  According to 
estimates for 2015, althoug h the volume of oil exports was expected to  remain at about 
154 million barrels, the fall in the average price to US$40 per barrel (52.5% of the average price 
for 2014) would mean a US$7,010  million decline in the value of oil exports compared with 2014 
(US$13,302  million), so that in 2015 foreign exchange earnings from oil exports would be reduced 
to less than half the value recorded in 2014.  While there would also be a decline in the value of 
imports of deriva tives, this was not expected to  offset the los s of resources from lower ex ports. In 
fact, in net terms, the oil trade balance for 2015 was expected to decline by US$4,149  million 
compared to 2014.  
8.  It was important to add that the performance of non -oil exports , which were expected to post a 
lower grow th rate of just 3% in 2015 compared to 2014 , would not help mitigate the decline in oil 
exports.  This could  be explained by the unfavourable international price trends for Ecuador's main 
export products, and the lack of any signs of recovery in the short t erm. All in all, total exports 
were expected to decline by about 26% in 2015 compared with 2014, on account of the fall in oil 
exports and the weak growth of non -oil exports.  WT/BOP/ R/114 
 
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  9.  The decline in crude oil prices as from the second half of 2014 had also affected  Ecuador's 
sovereign risk status. An immediate con sequence of the increased risk wa s a rise in the cost of 
credit lines on the international market, which even further hamper ed the task of external 
adjustment.  
10.  The aggregate effects of th e international lan dscape, combined with the unique specificities of 
the Ecuadorian economy, create d a difficult scenario for 2015. Forecasts for 2015 pointed to a 
US$2,009  million reduction in international reserves and a US$2,404  million trade deficit , figures 
which did  not guarantee the country's externa l sustainability and which implied  a decrease in the 
amount of dollars available in the economy to effect transactions and ordinary payments. For  this 
reason, the Government had  seen the need to safeguard the dollarized eco nomy's l iquidity and, at 
the same time strengthen the economy 's external position and guarantee the  monetary regime 's 
medium - and long -term sustainability.  
11.  Although the adverse economic effects of external shocks c ould be addressed by cyclical 
public polic y measures, a definitive solution w ould not be achieved solely through the 
implementation of such measures, but through medium - and long -term strategies aimed basically 
at transforming Ecuador's  economic structure in order to strengthen its external positi on against 
shocks that might occur on the international market.  Accordingly, Ecuador's public policy 
interventions pursue d a twofold ob jective: on the one hand, they we re directed to laying the 
groundwork for necessary structural changes in the production sector and society; and at the 
same time they s ought  to achieve fundamental macroeconomic balances so as to allow for n ormal 
economic activity. This task  was complicated by h aving as its setting a dollarized economy in 
which unfavourable economic trends ha d to be faced without the benefit of all the monetary tools 
needed to restore its external accounts balance.  
12.  Given the sharp balance -of-payments deteriora tion, the immediate public policy objective had 
been to avoid an adjustment in the economy's real sect or and optimize the use of the existing 
liquidity to maintain the levels of production and employment, and to minimize the costs of 
adjustment for the most vulnerable sectors. This had been achieved through the implementation of 
measures that served princi pally to recycle domestic liquidity, while creating incentives for 
productive activities to promote a positive net flow of foreign exchange.  The Government, together 
with the main private banks, had established in April  2015 a programme of incentives for t he 
construction of social housing, with the aim of maintaining levels of production and employment 
and providing l iquidity support to the economy . As a supplementary measure, the use of electronic 
money had been  promo ted seeking  to enable the population to  use alternative means of payment 
backed by the Central Bank of Ecuador. In addition, in March  2015, rules for improved monitoring 
of foreign currency outflows from Ecuador had been adopted .  
13.  To deal with the sharp decline in income from oil exports, the G overnment had revised its 
programme of public expenditure, seekin g not to halt investments that were in their final phase 
and we re essential to achieving the planned structural changes. In order to implement this 
adjustment, capital expenditure had been reduced by US$840  million in January  2015. In addition, 
in March  2015, the salaries of all senior public officials had been reduced by between 5% and 
10%. In April the Inter -Institutional Committee for Prioritizing Public Investment  had been 
established to f urther improve the efficiency of resources earmarked for public investment.  
14.  To deal with the unfavourable external financing access scenario , the G overnment  had sought 
to diversify the sources of financing, and measures had been taken to facilitate the col lection of 
tax arrears. Ecuador had  made two bond placements on the international market, one in March 
and the other in May  2015, each amounting to US$750  million for a term of five years, at rates of 
10.5% in the first instance and 8.5% in the second, for  the purpose of financing p lanned 
investment expenditure . Additionally, b etween December  2014 and January  2015, the Finance 
Minister had negotiated major lines of credit with multilateral organizations and  friendly 
governments . Lastly, in April  2015, the N ational Assembly had approved the Organic Law on the 
Remission of Interest, Fines and Surcharges, which provided  for the elimination of interest and 
fines for arrears in the pa yment of taxes and created  an incentive for Ecuadorians to meet their 
overdue ta x obligations , so as to help make greater short -term liquidity available . 
15.  Finally, as part of the measures adopted to improve the trade balance, incentives fully 
consistent with international standards had been established to promote production. With the 
approval, in December  2014, of the Organic Law on Production Incentives and Prevention of Tax WT/BOP/ R/114 
 
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  Fraud, additional benefits had been provided for the development of productive activities and 
special advantages had been introduced to promote investment in strat egic sectors of the 
Ecuadorian economy and endow them with long -term tax stability. In March, the foreign trade 
duty drawback system had been consolidated in accordance with international standards. 
Additional controls had also been implemented to reduce s muggling, and prevent  additional and 
illegal outflows of foreign currency, which might further adversely affect the Ecuadorian economy.  
16.  Faced with the lack of traditional monetary and exchange tools for the management of 
external balances, and given the un ique and special characteristics of the country's dollarized 
economy, the Gov ernment of Ecuador had  used all the means at its disposal in an innovative and 
timely manner to cope with the prevailing economic circumstances. However, in view of the 
serious ef fects of the external situation, all these efforts had prove n insufficient to contain the slide 
in the country's foreign exchange earnings. It had been in these circumstances that Ecuador had 
found itself obliged to implement a temporary balance -of-payment s safe guard measure, as a last 
resort . 
17.  Ecuador wa s aware that the only way to reduce its economy's vulnerability to external shoc ks 
on the international market wa s to bring about a profound change in the economic structure of the 
country; to that end, Ecua dor's public poli cy had  been directed towards implementing actions 
aimed at securing a definitive solution to its structural problems . One of the se actions had been  in 
the electricity sector, where Ecuador wa s currently building eight hydroelectric power s tations, 
which w ould come on stream  in 2016 . Thanks to these power stations, 90% of all electricity 
generated in Ecuador would  come from renewa ble sources, in this case water , thereby reducing 
energy costs by 50%  and helping increase Ecuador's competitiven ess. These power stations w ould 
also have a major impact on the external accounts of the economy by enabling some 
US$400  million to be saved annually through the reduction of fuel imports  for thermo -electric 
generation  and an additional US$500  million thro ugh the reduction of liquefied petroleum gas 
(LPG) imports. This w ould contribute to strengthen  Ecuador's  external position.  
18.  Furthermore, th e Government was implement ing national s trategies  to chang e the production 
matrix and reduce poverty, to achieve a m ore diversified, dynamic, sustainable and inclus ive 
economy. T he achievement of the medium -term objectives established in those strategies w ould 
only be possible if the Government used  all the instruments at its disposal to make essential 
macroeconomic adj ustments in the short term.  With respect to  industrial policy, the Government 
was seeking to implement plans and policies aimed at realizing the maximum potential of basic 
industries, intermediate industries and agro -industry.  It was expected that by 2015,  intermediate 
and final industries, could potentially generate income of US$5,800  million and create 12,000 jobs 
based on the establishment of 38 factories, and that they could have an export capacity of 
US$4,190  million. Similarly, the agro-industry could  potentially generate US$8,727  million in 
income and create 80,000  jobs in 84  factories, with an export capacity of US$2,280  million.  
Ecuador wa s working steadily to implement the above -mentioned plans and programmes, in an 
effort to restore equilibrium in  its balance of payments on a sound and lasting basis.  
19.  It wa s important to point out that the  safeguard measure adopted formed  part of a range of 
short-term policies underpinning the long -term measures designed to improve the structural 
situation of the no n-petroleum trade balance, reduce the external sector's dependence on oil in the 
medium term, and improve the liquidity of the economy in order to restore Ecuador's 
balance -of-payments equilibrium on a sound and lasting basis.  
20.  Despite the Government's effo rts, it had  not been possible to prevent a sharp deterioration in 
the balance -of-payments situation, caused by the above -mentioned economic climate combined 
with the vulnerability of the dollarized economy.  Article XVIII:B.8 of the GATT recognized that 
developing countries tend to experience balance -of-payments difficulties arising mainly from 
efforts to expand their internal markets as well as from the instability in their terms of trade, and 
that was precisely Ecuador's situation.  It wa s relevant to recal l that the balance -of-payments 
safeguard measure adopted by Ecua dor followed  the interpretative guidelines formulated by the 
Panel and confirmed by the Appellate Body in India – Quantitative Restrictions  (WT/DS90/AB/R). 
Among the relevant criteria, both bo dies had agree d in their interpretation that the provisions of 
Article XVIII of the GATT were based on recognition of the specific needs of developing countries in 
relation to measures taken for balance -of-payments purposes. Accordingly, and in the light o f 
those interpretations, the provisions of Article XVIII of the GATT 19 94 we re reflected, with regard 
to balance -of-payments restrictions adopted by WTO developing country Members, in binding legal WT/BOP/ R/114 
 
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  texts which recognize d and endorse d the principle of speci al and differential treatment 
contemplated for developing countries with regard to balance -of-payments measures. 
Consequently, the degree of rigour required under Article XVIII:B wa s clearly different in nature 
and purpose from the conditions and degree of  rigour of Article XII:2(a) of the GATT 1994 which, 
according to the reading and interpretation by the Panel and the Appellate Body in t he 
above -mentioned case, applied  solely and exclusively to the developed country Members of the 
WTO.  
21.  Thus, pursuant to A rticle XVIII:B of the GATT 1994, developing countries were entitled to 
apply the measure in question in order to forestall the threat of, or to stop, a serious decline in 
their monetary reserves; bu t the same article also provided that the measure could  be taken in 
order to safeguard the external financial position and ensure an adequate level of reserves for the 
implementation of the programme of economic development, which in the case of Ecuador , as a 
dollarized economy, meant  maintaining an adequate liqu idity level.  
22.  In this context, and being aware that this measure must be applied as an exceptional tool of 
last resort, Ecuador had  been obliged to adopt a safeguard in order to restrict the general level of 
imports and thus protect the country's balance -of-payments situation, under the provisions of 
Article XVIII:B of  the GATT 1994; this measure had  been applied in accordance with the terms of 
Resolution No.  011-2015, published in the Supplement to Official Journal No.  456 of 
11 March  2015, of the Foreign T rade Committee (COMEX) in its capacity as the authority 
competent to approve Ecuador's public policies on trade, as provided in notification document 
WT/BOP/N/79.  This entirely relevant and legitimate measure ha d been applied to avoid a major 
balance -of-payments problem for Ecuador in an international situation which  had undermined the 
country's main sources of foreign currency, seriously affecting its economy.  
23.  The measure, as Members w ould have observed, consisted  in establishing, for a period of up 
to 15  months, a temporary, non -discriminatory, ad valorem  tariff surcharge of 5%, 15%, 25% and 
45%, calculated on the basis of the c.i.f. value of imports, as set out by tariff line in the Annex to 
the above -mentioned COMEX Resolution No.  011-2015. It covers 2,9 55 ten -digit tariff subheadings 
equivalent to 38% of a universe of 7,581 subheadings, which in c.i.f. value terms represented  
31% of total im ports for 2014. This surcharge wa s applied in addition to the tariffs that were 
currently in force, in accordance w ith Ecuador's Tariff and the bilateral and regional trade 
agreements to whi ch Ecuador wa s a party.  
24.  In determining the tariff levels applied under the measure, priority had been given to imports 
of goods that we re essential in an economic situation such as the one facing Ecuador and in 
accordance with paragraph 4 of the Understanding on the Balance -of-Payments Provisions of the 
General Agreement on Tariffs and Trade 1994. The measure excluded  "essential products " on the 
one hand, which satisfied  the basic co nsumption needs of the Ecuadorian population and, on the 
other, capital goods and basic inputs indispensable to production, and likewise t ook account of the 
exclusions laid down in Article 2 of COMEX Resolution No.  011-2015.  
25.  The measure in question was not  discriminatory, and it had  therefore been extended to 
regional trade in the context of the integration agreements maintained by Ecuador. Thus, the 
measure ha d been the subject of appropriate analysis in the Andean Community: the General 
Secretariat of the  Community had assessed the urgency of its application and had confirmed its 
relevance in the light of the existence of a disequilibrium in Ecuador's balance of payments, thus 
authorizing its application to trade within the subregion, as recognized in Reso lution No.  1784 of 
1 June 2015.  
26.  Ecuador had undergone sustained economi c growth in recent years and had  achieved 
important milestones, which had to  not only be preserved but also taken further in order to 
successfully promote a plan of economic, social, pa rticipative and sustainable development, to 
which all Ecuadorians ha d a legitimate right. Accordingly, despite the limitations imposed by its 
dollarized status, Ecuador ha d made significant advances, including  achieving an average 4.5% 
growth between 2012 and 2014,  and investing, d uring the period 2007 -14, more than 2.5 times as 
much in public infrastructure (as a percentage of G DP) as during the period 2000 -06. The creation 
of this infrastructure w ould serve to increase the competitiveness of domestic prod uction and 
boost private investment.  WT/BOP/ R/114 
 
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  27.  The recovery of real wages, coupled with a slowdown in the growth of prices, had made it 
possible for the first time in 32 years, as from 2014, for the monthly family income of Ecuadorians 
to cover 100% of the basic fam ily basket.  Unemployment had been brought down to the lowest 
level in the country's history. The national unemployment rate had dropped from 5% in 
December  2007 to 3.8% in December  2014. The urban unemployment rate had fa llen from 5% in 
2007 to 4.5% in 201 4. Between 2007 and 2014, poverty measured by income had fallen from 
36.7% to 22.5%, while extreme poverty had been reduced from 16.9% to 7.7%.  Inequality 
reduction had  been more rapid than the re gional average, since growth had  benefited the poorest 
perso ns; Ecuador's Gini coefficient, measuring income inequality, had fallen by eig ht points 
between 2007 and 2014 . Ecuador also had  the region's highest level of investment in high er 
education as a share of GDP . These achievements ha d been recognized at intern ational level, and 
Ecuador d id not wish to jeopardize them, but on the contrary to build upon them.  
28.  In conclusion, Ecuador wished  the following points to be considered: (a) the application of t he 
measure by Ecuador represented a special case, as it wa s a c ountry with a small, open and 
dollarized economy, highly vulnerable to any external shocks which arise, mainly on account of the 
lack of the main tool of exchange rate and monetary policy for r eacting to such shocks; and 
(b) the application of a proportion al and temporary measure, as a result of a rigorous technical  
and legal analysis, constituted  a legitimate exercise under Article XVIII:B of the GATT 1994, since 
it was a strictly necessary measure available to developing Members in order to address a 
disequilibrium in their balance of payments.  
29.  Ecuador's balance of payments disequilibrium and the difficult economic situation faced by  it, 
had been demonstrated not only by means of the arguments put forward by Ecuador's delegation 
but also in the report subm itted by the International Monetary Fund, which had comprehensively 
endorsed this situation and the measures adopted by Ecuador. Moreover, this disequilibrium had 
also been recognized and accepted by the General Secretariat of the Andean Community – as 
confirmed in Resolution No.  1784. Therefore, Ecuador's delegation was confident that these 
consultations w ould have a positive outcome, since Ecuador had adopted the measure in strict 
compliance with the rules and procedures established for that purpose both at the multilateral 
level and at the regional and subregional level, while seeking the satisfactory implementation of 
the development programmes and policies  in place . 
30.  The full opening statement by the representative of Ecuador is attached (Annex 1 ). 
1.2  STATE MENT BY THE IMF2 
31.  The representative of the IMF  stated that Ecuador's macroeconomic situation was 
deteriorating. The sharp drop in oil prices in late 2014 had complicated the economic policy tasks 
of the Ecuadorean authorities. The decline in oil prices —from US$93 a barrel in the first 
nine months of 2014 to US$60 in the last quarter, and to US$42 in February 2015 had sharply 
undercut Ecuador's available resources. As a fully dollarized economy with very limited buffers, 
Ecuador had to adjust rapidly to exte rnal shocks, given the absence of monetary or exchange rate 
policy to cushion the impact.  
32.  Prior to the oil price shock, macroeconomic conditions had been relatively positive. High oil 
prices had generated windfall income that had been used to boost public  spending and growth, 
while limiting current account deficits. Growth had averaged over 5% in the period 2010 –13, and 
slowed to 3.8% in 2014 on account of less buoyant domestic demand. Inflation had increased to 
3.6% in 2014. Fiscal policy had been expansi onary, with an important investment programme 
aimed at improving Ecuador's medium -term energy balance. The ove rall fiscal position of the 
non-financial public sector (NFPS) had changed from balance in 2011 to a deficit of 3.5% of GDP in 
2012–14, despite co ntinued improvements in tax collection and buoyant oil prices. The non -oil 
fiscal deficit had averaged about 8% of GDP in 2012 –14. This deterioration mostly reflected large 
increases in capital spending aimed at improving infrastructure, diversifying energ y production, 
and reducing poverty and income inequality. Accordingly, NFPS debt had risen from 18.5% of GDP 
in 2011 to 30% in 2014. Gross financing needs had reached 8.5% of GDP in 2014, covered mainly 
with external borrowing.  
                                                
2 The complete statement can be found in Annex 3.  WT/BOP/ R/114 
 
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  33.  External current account de ficits had remained small through 2014. Net oil exports had 
dropped by nearly 2% of GDP in 2014, despite volume growth of 10%. This had been offset by a 
strong performance of non -oil exports and a significant decline in non -oil imports, which contained 
the current account deficit to 0.6% of GDP. The non -oil current account deficit was about 7.5% of 
GDP in 2014.  
34.  He noted that growth was declining and the balance of payments need was large. The sharp 
decline in oil prices, coupled with a sizable real apprecia tion, was significantly worsening Ecuador 's 
balance of payments. Exports were projected to drop by nearly 6% of GDP in 2015. The non -oil 
trade balance was expected to worsen by about 1% of GDP. The worsening outlook was tightening 
access to international f inancing. In June 2014, Ecuador's US$2 billion issuance of a 10 year global 
bond had been oversubscribed, with a spread of 530 basis points over U.S. Treasuries. However, 
in March 2015, the government had paid a spread of 900 bps for  a US$750 million issua nce of 
5 year maturity, which was reopened in May for another US$750 million. Taking into account the 
planned fiscal adjustment, public sector gross financing need s were projected to reach 
US$10  billion (about 10% of GDP) in 2015. Ecuador 's international r eserves, already low, had 
declined in late 2014 and early 2015. Since the oil price decline, official net international reserves 
had fallen by almost 10 % year-on-year to March 2015, to about US$3.7 billion, equivalent to only 
1.6 months of imports.  
35.  In res ponse to the strong external and fiscal pressures, the authorities ha d significantly 
tightened fiscal policy and introduce d temporary import surcharges. They had  taken offsetting 
(pro-cyclical) fisca l measures; in net terms these we re intended to bring the  deficit down to about 
0.3% of GDP below the 2014 outturn. The 2015 budget had been revised to include cuts in current 
and capital expenditure by 3 .5% of GDP. The tax regime had been amended in December 2014, 
with an expected net impact of 1 % percent of GD P in additional revenues  in 2015 . On 
6 March  2015, the authorities had i mposed differentiat ed import surcharges on about 30 % of 
imports, as "ba lance of payments safeguards". They had announced an intention to remove these 
surcharges in 15 months, and expec ted a negative effect on imports of about US$1.3 billion in 
2015 and US$0.9 billion in 2016. The sizable expenditure cut, together with the import surcharges  
and plans to promote exports, wa s expected to contribute significantly to the balance of payments 
adjustment, since part of government spending  —especially investment — was imported.  
36.  The policy response wa s expected to bring significant fiscal and external adjustment. But, 
despite this  significant adjustment, and even if all financing needs we re met, IMF staff projected  a 
decline in international reserves of US$350 million.  
37.  In 2016, the energy balance for Ecuador was  expected to improve. The authorities ha d 
indicated that they we re committed to maintaining the 2016 fiscal deficit to the original target  of 
about 2 .5% of GDP , and the debt within the 40 % of GDP ceiling. They we re confident that at 
current oil price projections they c ould achieve this while removing the import surcharges — if 
necessary by further delays in investment program mes, which would also alleviate the balance of 
payments need. A projected recovery of international oil prices and increase in the domestic 
production of energy  as the alternat ive energy development project wa s completed should improve 
the fiscal balance by over 1 % of GDP and reduce oil dependence. Thus, the authorities ' policy 
plans aim ed at achieving a full adjustment to the fiscal impact of the external shocks, even after 
the removal of the tariff measures. Taking into account the additional fiscal adjustment, IMF staff 
project ed that both the current account deficit and reserves should improve slightly despite the 
removal of the import surcharges.  
1.3  DISCUSSION IN THE COMMITTEE  
38.  On 2 April 2015, Ecuador notified the WTO (WTO documents WT/BOP/N/79 , 
WT/BOP/N/79/Add.1  and WT/BO P/N/79/Add.2 ) that on 11 March 2015 it had introduced a 
temporary tariff surcharge for a period of up to 15 months in order to regulate the general level of 
imports and thereby resolve Ecuador's critical balance -of-payments problems.  
39.  Ecuador notified the measure pursuant to Article XVIII, Section B of the GATT 1994 and the 
Understanding on the Balance -of-Payments Provisions of the GATT 1994. The general tariff 
surcharge was described in Resolution No. 011 -2015 issued by the Foreign Trade Committee 
(COMEX).   WT/BOP/ R/114 
 
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  40.  Ecuador stated that the notified measure did not exceed what was necessary to address 
Ecuador's balance of payments disequilibrium, expected to amount to between US$2 billion and 
US$2.4 billion in 2015. Ecuador noted that, since the second half of 2014, the international 
environment had been unfavourable to its economy due to lower international oil prices, the 
decline in remittances from Ecuadorian residents abroad and the appreciation of the U .S. dollar, 
among other factors, and that this had deteriorat ed its balance -of-payments position.  
41.  In its notification, Ecuador stated that the tariff surcharge was applied on 2,955 10 -digit 
subheadings, or 38% of a total of 7,581 tariff lines, which in monetary terms amounted to 31% of 
imports recorded in 2014. The  surcharge was applied at ad valorem  rates of 5%, 15%, 25% and 
45%, calculated on the basis of the c.i.f. value of imports as indicated for each tariff line in the 
Annex to Resol ution No. 011 -2015. The measure was applied on all trading partners, except th e 
Plurinational State of Bolivia and Paraguay (less developed countries in the Latin American 
Integration Association ( LAIA)). 
42.  Ecuador provided a list of tariff lines for which the bound rate was exceeded by the tariff 
surcharge, stating, in each case, by how much it was exceeded. Ecuador stated that it would 
monitor and assess the application of the measure on a quarterly basis; it would relax the measure 
as the balance -of-payments improved and eliminate it when it was no longer necessary.  
1.3.1   Balance -of-paym ents position and prospects; alternative measures to restore 
equilibrium  
43.  Several Members acknowledged Ecuador 's balance -of-payments difficulties. It was noted that 
Ecuador's level of foreign exchange reserves was low and had been falling due partly to lowe r oil 
prices. It was also noted that, as a dollarized economy, Ecuador had no independent monetary 
policy, and hence, had fewer policy instruments to deal with a balance -of-payments crisis.  As a 
consequence of the appreciation of the U .S. dollar, Ecuador's  exports had lost competitiveness. 
This had been compounded by the depreciation of the currencies of Ecuador's main regional 
trading partner s, which had resulted in a real exchange rate appreciation for Ecuador. It was also 
noted that Ecuador had been subj ect to the effect of external shocks. Ecuador's dependence on 
remittances from workers abroad was also referred to, as well as the fact that these had been 
falling. It was also noted that Ecuador's borrowing terms had deteriorated significantly.  
44.  Some Memb ers were of the view that Ecuador's level of foreign exchange reserves had been 
historically low, but noted that, despite this, Ecuador had not constituted a buffer of monetary 
reserves in good times.  It was also noted that the reserves  accumulated in year s of high oil prices 
had been used to finance public expenditure, and as a result, current balance -of-payments 
pressures were a result of policy actions, since Ecuador had shifted from a fiscal surplus situation 
to a deficit. One Member noted that due to i ts dollarized economy, a balance -of-payments crisis in 
Ecuador immedia tely became a liquidity crisis.  
45.  One Member noted that Ecuador's current  account deficit was mainly caused by a services 
balance deficit. Another Member questioned whether the oil price a ssumptions to estimate the 
impact on Ecuador's balance of payments were not too low.  It was also stated that it was difficult 
to assess the existence of a balance -of-payments crisis in a dollarized economy . Also, the situation 
in 2015 differed from that in  2009, in that, while Ecuador faced  a potential balance -of-payments 
crisis, but there was no actual crisis.  
46.  Ecuador was queried with respect to the level of reserves it considered appropriate for its 
economy  and regarding the measures envisaged to  restor e equilibrium in its balance of payments 
on a sound and lasting basis , as spelled out in GATT Article XVIII.11. Ecuador was also queried 
with respect to the kind of possible scenario  it envisag ed in order to restore economic recovery  
and to the measures it w as taking to make its economy more resilient to the fluctuation of 
petroleum prices.  Explanation was sought with respect to  the difference between the situation  in 
March 2015 and that of  2009, when Ecuador had  also invoked GATT Article  XVIII. B and why 
Ecuador considered it had to resort to the use of BOP measures in the current situation  taking  into 
account  the assessment made in the  previous case.  Ecuador was also requested to provide an 
explanation of the relationship  between  the Andean Community  Secretar iat's Resolution No. 1784 
and the notification to the  WTO.  Information was also sought  with respect to the criteria, authority 
and procedures to carry out the quarterly review of the surcharge measure  as announced by WT/BOP/ R/114 
 
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  Ecuador in its notification. Ecuador wa s also queried with respect to measures taken to restore its 
balance o f payments  equilibrium, especially with r espect to the financial account, and to the state 
of its consultations with the IMF.   
47.  Some Members commended Ecuador for its transparent  implemen tation of the measure and 
among them some expressed their support for it as they found the measure justified under 
WTO rules, while others found it unjustified and called for its immediate removal.  Several  Members 
expressed concern with respect to the cons istency of the measure applied with GATT Article XVIII 
and in general with WTO rules. One Member requested the IMF representative to clarify some 
issues, including: a) the appropriate measure of reserve adequacy for Ecuador; and b) whether 
there had been a  substantial decline in reserves in Ecuador. One Member noted that, according to 
the Secretariat report, Ecuador 's international  reserve s cover ed only 1.5 month s of its import s as 
of March 2015 , and that t he coverage ratio ha d been consistently low since 2 009, never exceeding 
2 months . Considering that and the fact that international  reserve s, although lower than in 2014,  
had trended upward since March 2015, it was difficult to make an objective judgment  with respect 
to the threa t of a serious decline in it s monetary reserve s as stated in GATT Article XVIII.9 (a).  
48.  Regarding alternative methods to restore equilibrium Members were divided with respect to 
whether the import surcharge taken by Ecuador was justified. Several Members considered that 
the recourse t o balance -of-payments measures should be a last resort. On the other hand, other 
Members supported the introduction of the measure, seen as needed to offset the decline in oil 
prices and to safeguard the difficult economic situation and that it had been ap plied in accordance 
with WTO rules. Some  Member s stressed that WTO Members had the right to invoke 
balance -of-payments provisions and one Member stated that the measure was of short duration 
but would have a significant impact. Another Member noted that a similar measure adopted in 
2009 had facilitated the recovery of Ecuador's external position, while yet another was of the view 
that it had not done so in a lasting  manner, since Ecuador was having recourse to this type of 
measure again. One Member noted th at some economic measures taken by Ecuador pointed to a 
further expansion of public investment and a stimulus of the economy while at the same time the 
government had tried to reduce imports through restrictions to trade and foreign exchange 
transfers. Not ing that Ecuador had started borrowing from several sources, this Member asked if 
extended borrowing could replace the trade surcharge and if Ecuador had considered a policy that 
would remove the stimulus to househ old demand and promote a growth -friendly b udget 
consolidation. In this Member's view, this would economically be a more sensible step and would 
not affect Ecuador's position in world trade nor its relations with many of its trade partners.  
49.  Several Members were of the view that applying an import surcharge was not the best way to 
solve balance -of-payments problems ; to this end, some Members recommended the adoption of 
lasting policies, including establishing a fiscal rule. It was also noted that, although as a dollarized 
economy Ecuador had fewer e conomic policy options, dollarization had been a policy cho ice. 
A Member noted that in the past dollarization had served Ecuador well, as it had improved 
stability. Another Member noted that Ecuador's balance of payments crisis was a result of its 
policies , since revenues in boom years had been used to finance public expenditure. The use of 
targeted, asymmetric, trade measures would not help improve the balance of payments. Differing 
from these views, another Member stated that dollarization put Ecuador in a vulnerable position 
with respect to external shocks and noted that Ecuador had also applied domestic measure s to 
restore balance.  
50.  Regarding  reserve adequacy , the representative of the IMF replied that his institution had 
several metrics to assess it. Ec uador's reserves were at about half the metric . Referring  to 
Ecuador's serious decline in reserves, he noted that the issue was not so much the actual decline 
thus far, but the possible decline in the absence of further meas ures, like the tariff surcharge , 
considering the expected deterioration of the financial sector.  He stated that, in a forward -looking 
manner, the reserves level was lower than required. He also noted that Ecuador's fiscal 
adjustment plan was massive and substantial, and that, if fulfille d would address part of the 
problem. This would lead to a medium term adjustment mainly to reduce dependency on oil 
exports. There was also the beginning of a wage -adjustment process, and a reform to improve 
private sector competitiveness. The current surc harge acted as a cushion for medium -term 
adjustment. In response to a question about  whether there could be a serious decline in reserves 
in dollarized economies, he stated that there was an IMF publication that described reserve 
adequacy metrics, and that  these metrics had also been applied to dollarized economies. He 
reiterated  that Ecuador's reserves were about half of the average adequate level pointed out by WT/BOP/ R/114 
 
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  the metrics. As to whether the decline in reserves was significant, he considered that Ecuador' s 
need for foreign exchange was large. The measure applied for balance -of-payments purposes was 
forward -looking; it was not meant to deal with a past decline in reserves, but with the expected 
decline. The full impact of the measure had been taken into acc ount by the IMF when assessing 
Ecuador's foreign exchange needs. With respect to why the average price of oil considered for the 
projections was so low, he replied that the average price for Ecuador's oil was lower than the 
market average.  
1.3.2   System and metho ds of restrictions; effects of restrictions  
51.  Members noted that the measure adopted by Ecuador was not comprehensi ve, since it only 
applied to some 39% of tariff lines and 30% of imports. One Member noted that the targeted 
application of import restrictions  appeared  to be an element of industrial policy. Another Member 
asked how the "essential" nature of the products excluded from the measure had been determined  
and what the rationale had been to exclude 70% of imports from the measure. One Member 
expressed concern about  the consistency of the measure with GATT Article XVII:B. Another stated 
that the use of GATT Article  XVII:B should be judged on an updated and factually accurate  basis, 
and could be justified only in cases where a real and substantial necessi ty existed. Consistency 
with WTO agreements needed to be strictly examined; in particular, given the fact that it was the 
second time since 2009 that Ecuador had invoked GATT Article XVII:B  careful consultations were 
needed.  
52.  Several Members expressed conce rn with respect to Ecu ador's recurrent use of 
balance -of-payments measures. One Member noted that the current measure seem ed to be a 
continuation of the previous one and wondered how its use could be prevented in the future. The 
WTO's b alance -of-payments provisions were an exceptional mechanism to safeguard a country's 
financial situation ; trade measures were not efficient tools to address balance -of-payments 
problems. Several Members were of the view that i ntroducing balance -of-payments  measures 
should be a last resort, especially because measures of this type were likely to have a negative 
impact on foreign direct investment.  One Member noted that an increase in imports did not justify 
measures of this type; the measures adopted should not negatively affec t other Members and not 
be industrial poli cy instruments.  
53.  While several Members questioned the effectiveness of tr ade measures to address 
balance -of-payments disequilibria, other s were of the view that the measure adopted in 2009 had 
allowed Ecuador to reb alance its external accounts. One Member noted that this had led to an 
opening of the economy and to a substantial reduction of poverty rates, which had been triggered 
by an increase in aggregate demand. In a dollarized economy like Ecuador's , there was no  lender 
of last resort. In this case, a lack of liquidity had to be financed through external debt, which led to 
an increase in country risk . Ecuador' s exports had been affected by lower oil prices, resulting in a 
decline in exports of US$7 billion, which had been compounde d by the appreciation of the 
U.S. dollar and by a decline in remittances . The trade deficit f or 2015 was estimated in 
US$2.4  billion, with the correspondent impact on foreign exchange reserves, which as of 
March  2015, had fallen to an equ ivalent of 1.4 months of imports.  The same Member stressed that 
this level o f reserves reflected short -term borrowing by Ecuador, and that if Ecuador had not 
received US$5 billion in this respect, it would have negative reserves. However, a s a result of it s 
recourse to external financing, Ecuador's external debt/GDP ratio had increased from 18% to 30%. 
There were enough adverse causes to justify the measure, but there should be a quarterly review  
of it, especially of the higher rates, as well as an analysis  of the measure's impact. Ecuador should 
accompany the measure by a reduction of the fiscal deficit and the creation of a stabilization fund.  
54.  Several Members expressed concern with respect to the different surcharge rate levels and 
the absence of a time sc hedule to remove the m. They asked for the rationale for the import 
surcharge range of 5% to 45%. One Member asked if Ecuador could justify this difference in rates. 
Ecuador was urged to provide a calendar for the dismantlement of the measure, to lower the 
surcharges gradually and to eliminate the measure as soon as possible. Concern was also 
expressed with respect to the fact that most goods affected by the measure faced high surcharges, 
at rates of 45% or 25%. One Member also expressed concern about the fa ct that  for some tariff 
lines two different surcharge rates were used , as well as the application of  the highest surcharge 
rates on product s with a higher elasticity of demand.  WT/BOP/ R/114 
 
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  55.  Members expressed concern with respect to the exclusion of the Plurinational  State of Bolivia 
and Paraguay from the scope of the measure and  queried the criteria for the exclusions. Regarding 
the explanation provided by Ecuador for this exclusion, a Member expressed its systemic concern 
about Ecuador 's interpretation that LAIA, a regional agreement, overrode the WTO Agreement. 
Another Member noted that the LAIA Agreement had not been notified under GATT Article XXIV 
and that its application did not exclude Members from complying with GATT Article I. Another 
Member replied to this by stating that the exc lusion was based on the Treaty o f Montevideo, which 
had been notified to the GATT in 1982.  
56.  One Member stated that BOP measures should be origin -neutral and non -discriminatory and 
asked Ecuador about the WTO legal basis to exempt certain  countries from the measure.  The 
"selective approach" adopted by Ecuador regarding the scope of the measure, the application of 
different surcharge rates on different categories of products, a s well as the exclusion of countries 
on a discriminatory basis, were not in line with the WTO 's balance -of-payments  rules. Th e same  
Member noted that alternative and less -trade restrictive measures would be more con ducive to the 
recovery of the balance -of-payments and to putting the economy on a more sustainable path . 
Another Member, while recognizing  Members ' right  to take balance -of-payments measures  stated 
that Ecuador should have fully complied  with the MFN principle.  
57.  Some Member s recalled that , in accordance with  GATT Article XVIII.9  import restrictions 
should not exceed those necessary to forestall the loss of reserves, and that Article XVIII.10 stated 
that the measure adopted should avoid affecting another Member in an excessive way. The cost of 
Ecuador's social advances should not be borne by other countries.   
58.  With respect to the e ffects of the restrictions , some Members stated that th e divergence in 
rates resulted in a misallocation of resources and had a particularly damaging effect on their 
exports to Ecuador. One Member noted that its small and medium enterpri ses were most affected 
by the measure, since selling to the Ecuadorian market was impossible if faced with tariff 
surcharges of 45%, and that most of the products subject to the highest surcharge level were 
labour intensive.  Several other Members noted tha t the measure was having a negative impact on 
their exports; some pointed out that this was particularly so in the case of transport equipment, 
which had previously been affected by other measures. One Member stated that the measure 
affected some 90% of it s exports to Ecuador. Another Member noted that the surcharge had a 
prohibitive effect on around half its exports to Ecuador.  
59.  One Member stated that the import surcharge  would negatively impact the Ecuadorean 
economy through higher prices that would lower net income and increase production costs, leading 
to a short -term reduction in domestic demand. The same Member queried  Ecuador with respect to  
how the temporary import tariffs w ould rebalance the domestic economy and how the measures 
would contribute to Ecuador's  recovery effort. Information with respect to the impact of the trade 
measure in the past three months since its application was sought.  
60.  One Member noted that the surcharges were applied on lines that were already subject to 
higher -than-average tariff rates. While Ecuador's simple average tariff rate was 11% (8.2% in the 
case of the weighted average), after the application of the surcharge it had increased to 22%. 
However, the lines not subject to the surcharge faced an average appl ied tariff of jus t 6%, while 
those subject to the surcharge faced an average tariff of 18% before the surcharge was applied. 
He noted that his country had been particularly affected by this, and that its exports falling in the 
category subject to the 45% (26.4% of his coun try's tariff lines ) had fallen by 37% in the period 
March -June 2015 compared to the same period the previous year . 
1.4  REPLIES BY THE REPRESENTATIVE OF ECUADOR  
61.  The representative of Ecuador reminded Members that the measure applied was aimed at 
narrowing  its external imbalance . It was still early to assess its effectiveness since it had been in 
place for only a short period of time. The real sector had been affected by a decline in expenditure, 
and GDP growth forecasts for 2015 had been revised downwards, from an initial 4.1%, to 1.9%. 
Lower growth would imply a lower level of liquidity; declining oil prices had also resulted in falling 
liquidity. Net international reserves had fallen  until January, but had since then increased, to reach 
US$4.67 billion in May. The fall in n et international reserves  for 2015 was estimated at 
US$350  million. To finance ongoing investment programmes, two bo nd issues for a total of WT/BOP/ R/114 
 
- 12 - 
 
  US$1.5  billion had taken place; the issues had been fully subscribed , which  reflected market 
confidenc e in Ecuador.  Ecuador had also received US$800 million from the IADB.  
62.  The price of oil had declined by some 54% between 2014 and 2015, with the consequent 
effect on the inflow of foreign exchange. If prices had stayed at a level of US$83 a barrel, like the y 
were in September 2014, Ecuador's petroleum balance surplu s would have reached 
US$4,548  million; instead it had been US$2,305.4 million, a gap of US$2 ,242.6 million. After the 
adoption of the safeguard measure, exports had fallen by 25.1% in the perio d March-April 2015 
with respect to the same period the previous year; that represented about US$1 billion (petroleum 
exports had fallen by US$1,013 million). The price of Ecuador's  other main export products had 
also declined in the first four months of 2015;  such had been the case for shrimp and fish. Exports 
of flowers, coffee and tinned fish had fallen; only exports of bananas had increased. Between 
March and April 2015, imports of petroleum products had decl ined by 36%, while those of 
non-petroleum product s had done so by 1.7%. The value of imports of capital goods had shrunk 
by 10.3% in the twelve -month period between May 2014 and April 2015, while imports of 
consumption goods had fallen by 16.2%. Among the latter, imports of non -durable goods had 
declined  by 3.2%, while those of durable goods had fallen by 33.2%. Remittances from abroad 
had shown a declining trend since the third quarter of 2014; they had shrunk  by 15% during the 
first quarter of 2015, to  below pre -crisis levels.  
63.  The real effective exchan ge rate had experienced the largest appreciation of the last  
five years; its index had fallen to 85 compared to 100 in August 20 08. In summary, Ecuador faced 
a situation of shrinking liquidity, falling petroleum  prices , declining prices for other exports , as well 
as declining imports.  
64.  Answering some of the questions raised by Members, Ecuador stated that imports subject to 
the surcharge had declined by 2% in April (by US$82 million), after having increased by 9% in 
March. Analyzing by tariff surcharge level , imports of products subject to a 5% surcharge had 
declined by 8% in April ; those subject to a surcharge of 15% had declined by 22%, compared to a 
7% decline in March; those facing a 25% surcharge had shrunk by 28%, compared to an increase 
of 25% in March , and imports subject to a 45% surcharge had fallen by 18% in April, compared to 
a 1% decline in March.  However, the full effect of the surcharge applied could only be assessed in 
the following months.  
65.  Ecuador noted that the safeguard measure would be in p lace for up to 15 months, without 
prejudice of an evaluation taking place. In this respect, a second evaluation would be conducted in 
September, after which Ecuador committed to provide a dismantlement schedule. From a first 
analysis conducted in April , it had not been possible to detect any im provement in the balance of 
payments. If oil prices continued to increase, as recently observed, this would be reflected in the 
next evaluation. Ecuador was in the process of re -establishing its productive and energ y matrices, 
which would allow reaching equilibrium in the medium and long run.  
66.  In response to an observation that domestic demand had expanded faster than GDP, the 
representative of Ecuador replied that the authorities had cu t current expenditure by 
US$500  million, and investment by US$850 million. However, Ecuador could not halt investment 
projects that would lead to an eventual improvement of its external accounts. As to why the 
external deficit could not be financed by debt, as the fiscal deficit had been,  Ecuador replied that 
this had been partly done, but that the financing costs had increased substantially. Ecuador had 
promot ed structural change to reduce its dependency on petroleum. Since 2010, the State had 
been financing the construction of hydro -electric and eolic energy projects.  That had led to a 
reduction in electricity generation costs as well as of energy  imports. Ecuador had also been 
promoting industrial development and the generation of higher value added, as well as the further 
development of  production chains. The authorities expected that these structural changes would 
allow a reduction of Ecuador's vulnerability to external shocks.  
67.  Regarding alternative measures adopted to restore equilibrium, Ecuador had described them 
in the Basic Documen t provided for these consultations ; their impact was still in the process of 
being evaluated.  In this respect, Ecuador had adopted measures to improve fiscal collection and 
thus increase fiscal revenue. It had also resorted to issuing bonds. The Central Ba nk had signed 
agreements for the use of electronic money. Ecuador had taken the balance -of-payments 
safeguard as a measure of last resort , as part of a package of measures to restore equilibrium. 
The adoption of the price -based safeguard measure had been t he object of a careful legal study . WT/BOP/ R/114 
 
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  68.  With respect to the references made to industrial policy , Article XVIII:B. 10 of the GATT 
allowed giving priority to products needed for economic development , while Paragraph 4 of the 
Balance -of-Payments' Understanding a llowed the exclusion of essential products and inputs . It was 
in this respect, that Ecuador had prioritized products for the application of the surcharge: products 
faced with surcharges of 5% or 15% were capital goods and inputs; goods subject to a 25% 
surcharge were wide -consumption final goods; while products subject to a 45% surcharge were 
limited -consumption final goods.  The methodology used to classify the products had not taken into 
account whether there was domestic production of the good or not. The  measure applied was not 
prohibitive; it just prioritized goods without preventing their importation. Even in the case of 
products subject to a 45% surcharge, imports had only declined by 18%. Ecuador had made 
legitimate use of the WTO's Balance -of-Payment s provisions.  
69.  In response to an observation that the surcharge 's effects varied across countries, Ecuador 
replied that it had been applied in a non -discriminatory manner . Ecuador would follow decisions 
made by the Andean Community. Ecuador also stated that  it would evaluate the current level of 
the surcharges. As to why it had resorted to GATT Article XVIII:B to notify the measure, Ecuador 
replied that this Article allowed further flexibilities for developi ng countries. In 2001 the 
WTO's  Ministerial Confere nce had reaffirmed developing countries' right to resort to 
GATT  Article  XVIII, and had stated that making use of this provision should be less onerous than 
resorting to GATT  Article XII. One of the findings of the India Panel had been that 
GATT  Article  XVIII:B allowed the use of balance -of-payments provisions for development 
purposes. The recourse to this Article permitted a developing country Member to deviate  
temporarily from other GATT rules.  
70.  Ecuador also noted that it had complied with providing Member s a list of products for which 
bound rates w ere exceeded by the surcharge, specifying in each case by how much.   
1.5  ADDITIONAL COMMENTS BY MEMBERS  
71.  Responding to Ecuador, o ne Member sought clarification with respect to the definition of 
essential products and whether a broader scope of the measure would harm the economy. Ecuador 
was questioned as to whether nearly 70% of the value of imports could be deemed to be  essential 
products, when essential products should be understood as those that met basic needs. It was 
noted that over half  of the products subject to the surcharge were clothing, agricultural and food 
items. The imposition of the surcharge on these items affected mostly the poor. With respect to 
effectiveness, t he use of an across -the-board measure wou ld have been more efficient, and caused 
less negative effects on a dollarized economy. Limiting the scope of the measure to 30% of 
imports had diminished its effectiveness . 
72.  One Member noted that there was a time lag in the figures provided by Ecuador, and that 
made an analysis of the measure's impact more difficult. Another Member stressed the need for 
the measure in the absence of a lender of last resort, while yet another stated that the need for 
the measure was justified and expressed its support for it.  
73.  One Member stated that it remained unconvinced by th e economic effectiveness of the 
measure, since the figures provided showed mixed results . The same Member was not convinced 
that the surcharge was the most efficient means of dealing with the problem, no r of the criteria 
used for its application, whereby some 70% of imports had been excluded. Also, country 
exemptions had to be in line with WTO rules. Another Member expressed its support for this view. 
Finally, another Member stressed the need for more up -to-date information and thanked Ecuador 
for its commitment to provide it.  
1.6  FINAL COMMENTS BY ECUADOR  
74.  The representative of Ecuador thanked Members for their participation and stated that, after 
the evaluation foreseen for September, it would be in a conditi on to present a dismantlement 
schedule.  WT/BOP/ R/114 
 
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  1.7  FINAL OBSERVATIONS BY THE CHAIRMAN  
75.  The Chairman noted that mixed views had been expressed during the consultations . On the 
macroeconomic  situation, a number of aspects had been touched, including the level of net for eign 
exchange reserves; dollarization; and the effect of trade measures. Other issues discussed 
included the application of the MFN principle; the coverage of the measure; the concept of 
essential goods; the application of Article XVIII:B; the impact of th e measure on trading partners; 
and the effectiveness of the measure. Some Members had called for an immediate removal of the 
measure; some had expressed agreement with the measure; while other s wished a continuation of 
the dialogue. He considered that ther e was scope for the continuation of the discussion. Ecuador 
would conduct a review of the measures in September. Considering this, he proposed suspending 
the Committee's work until after the review to allow Ecuador to present a dismantlement schedule.  
2  MEET ING OF  16 OCTOBER 2015  
2.1  STATEMENT BY ECUADOR3 
76.  The representative of Ecuador reminded  the Committee that Ecuador had adopted  for 
15 months as from 11 March 2015, in accordance with paragraph 9 of the Understanding on 
Balance of Payments Provisions of the GAT T 1994, a tariff surcharge in order to regulate the 
general level of imports, and thereby remedy its critical balance of payments problems.  Ecuador 
had submitted to the Committee a basic document which analyzed the macroeconomic factors that 
had forced its Government to adopt in March 2015, as a measure of last res ort, a 
balance -of-payments safeguard, in order to preserve the level of liquidity in the economy and 
avoid a drastic economic growth contraction.  The General Secretariat of the Andean Community 
had authorized the required inclusion of the Andean countries in the application of the multilateral 
measure.  During the Committee on Balance -of-Payments Restrict ions meeting, held on 29 and 
30 June 2015, consultations had been held with respect to the tempo rary surcharges. During that 
meeting, the IMF had presented a report confirming the existence of a balance -of-payments 
disequilibrium and had fully endorsed Ecuador's policy response to address that imbalance. 
Members had agreed to  suspend the  consultation s and resume them on 16 October 2015.   
77.  The representative of Ecuador then presented a dismantlement schedule. He noted that, in 
accordance with this schedule, the 5% tariff surcharge level would be removed in April 2016. The 
higher rates would be reduced b y one third on a monthly basis from April 2016, until they reach ed 
0% within the 15 months planned. As an example, in April 2016 the 45% level woul d be reduced 
to 30%.  He also noted that the top 45% rate would be lowered to 40% starting in January 2016.  
78.  As agreed in June, Ecuador provide d an update of its economic situation  reminding  Members 
that the measure adopted on 11 March 2015, aimed at mitigating  the effects of the adverse 
international environment affecting Ecuador since mid -2014, as a consequence o f the fall in 
international oil prices and the appreciation of the U.S. dollar. Ecuador's external imbalance had  
deepened in the second quarter of 2015. In Ecuador, as a dollarized economy, liquidity was largely 
related to the result of the balance of paym ents, so external shocks that produce d significant 
foreign exchange changes cause d imbalances in growth, employment and the general well -being 
of the population. This wa s the reason why, in the absence of monetary and exchange rate policy  
instruments, a safeguard measure had been adopted as a last resort to e nsure macroeconomic 
balances. E conomic forecasts for the whole of 2015 had been downgraded considering the difficult 
international environment. The latest estimates pointed to GDP growth of just 0.4%  for the 
Ecuadorean economy in 2015,  down from an initial forecast of 4.1% at the beginning of the year . 
During the first two quarters of 2015, Ecuador's economy had contracted. Despite economic 
growth well below forecasts, Ecuador had engaged in a process of  fiscal reform, having cut 
government spending by US$2.2 billion in the first nine months of 2015. Now Ecuador's already 
weak growth was menaced  by the effects of El Niño and by the risk of eruption of the Cotopaxi 
volcano.  According to a preliminary asses sment, the total cost of the damage caused by El Niño 
would amount to US$798.5 million and a possible eruption of the Cotopaxi volcano could cause 
estimated losses arising to US$1.4 billion.  
79.  Liquidity had been decreasing hand -in-hand with the slowdown in t he pace of growth of 
economic activity. As at 30 September 2015, Ecuador's international reserves had reached 
                                                
3 The complete statement can be found in Annex 1.  WT/BOP/ R/114 
 
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  US$3,512 million, an 11% decline with respect to December 2014 and a 47.5% contraction with 
respect to September 2014. The decline in reserves due  to a deterioration of the trade balance had 
been partly offset by foreign financing, mainly two bond issues of US$750 million each and a 
US$800 million loan granted by the Inter -American Development Bank.  Between April and 
June 2015, there had been a temp orary improvement in the evolution of international crude oil 
prices. However, this situation of higher prices had a  very short duration. In August 2015, the 
price of WTI had fallen  by 15.9% compared to the previous month, trading on average at 
US$42.8  per barrel, its lowest level since February 2009 . In the last few months, the international 
economic situation had deteriorated and expectations till en d-2015 and for 2016 pointed to prices 
below their previous levels.  
80.  As a result, in August 2015, a barrel o f Ecuadorian crude r eached the lowest price that year: 
US$36.4 per barrel. For the period January - August, 2015, the price of Ecuadorian oil reached an 
average of US$45.5 per barrel , 52% lower than in the same period of 2014 ( US$94.2 per  barrel). 
This sha rp decline had had a direct impact on export revenue, foreign exchange inflows and  
liquidity , and , coupled with the appreciation of the exchange rate and the fall ing prices of other 
commodities had contributed to a further deteriorat ion of  the external sec tor. From January to 
July 2015, total oil exports had reached a FOB value of US$4,463 million reflecting a 47% decline  
in sales abroad compa red to the same period of 2014. In the first half of 2015, the current account 
of the balance of payments posted a U S$1,196 million deficit , a US$1,992 million deterioration 
with respect to the results observed in th e same period in 2014, when a US $796 million surplus 
had been poste d. This deficit had  been fully compensated by a capital and financial account 
surplus which reached US$1,969 million , US$1,277 million higher than the balance of the first half 
of the previous year ( US$691 million ). 
81.  The current account deficit was largely explained by the result of the merchandise trade 
balance, which posted a US$945 million d eficit in the first six months of 2015, which contrasted 
with the US$ 993 million surplus observed in the first half of 2014. The drop in exports in the first 
half of 2015 (US$ 3,665 million less than in the  first half of 2014) was higher than  the reduction  in 
imports (US$1,727 million in relation to the same period of the previous year) . Between March and 
July 2015, total exports amounted to US$8, 181 million, a 28% decrease with respect to the same 
period the previous year. This result was explained by the negative evolution of oil exports which 
fell by 46.5% compared to the period March -July 2014, from US$6, 184 million to 
US$3, 310 million. This was due to the contraction in the average price of crude oil, since the 
volume of oil exports increased by 7.8 % during the perio d. The value of non -oil exports, on the 
other hand, drop ped by US$326 million. The main non -petroleum exports had shown a weak 
performance in the period under analysis mainly associated with lower prices in the international 
market. On the ot her hand, exports of mining products had shown a sustained and significant 
decrease both in value and in volume. Likewise, exports of flowers, tuna and fish, had also 
experienced a decline. Only exports of bananas had increase d. 
82.  Between March and July 2015 , a period during which the safeguard  for balance of payments 
purposes wa s in effect, total imports FOB amounted to US$ 8,891 million, and were 18% lower 
than the same period the previous year. I mports of fuels and lubricants dropped by 33% to 
US$839 millio n compared to the same period the previous year, while imports of non -oil products 
fell by 33% to US$1, 138 billion . Over the same period, there was also an 11.3% contraction in 
volume terms, entirely due to a reduction in non -petroleum imports. Imports of capital goods 
decreased by almost 14% between March and July 2015 (in value and volume), compared to the 
same period in 2014. Imports of raw materials registered a decrease of 12.5% compared to the 
same period in 2014. The value of imports of consumer good s decreased by almost 16% (22.7% 
in volume terms) between March and July 2015 over the same months of 2014. Imports  of 
non-durable consumer goods fell by 6.7% over the same period of the previous year, while the 
imported volume decreased by 23.1%. The valu e of imports of durable consumer goods declined 
by 26.4% compared to March -July 2014 (by 21% in volume terms).  
83.  The flow of remittances received by Ecuador during the first half of 2015 had totalled  
US$1,125. 8 million, 8.6% less than in the  first half of 20 14. In the second quarter of 2015, 
received remittances declined by 6%, compared to the same quarter of the previous year.  This fall 
could be also explained by the appreciation of the dollar and its effect on the currencies of the 
countries where the remit tances originated. During the first six months of 2015, remittances from 
the EU had reached US$ 396.8 million, 22% less compared to the first half of 2014. In the second 
quarter of 2015, remittances from the EU decreased by 16%, compared to the same period in WT/BOP/ R/114 
 
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  2014.  In August 2015, the real effective exchange rate index showed a 10.4% appreciation with 
respect to the same month of 2014, mainly explained by the depreciation of the currencies of 
Ecuador's major trading partners.  Likewise, the terms of trade ind ex showed a marked 
deterioration, implying a loss of purchasing power for Ecuador's exports in relation to import s. 
84.  With respect to the effect of the balance -of-payments safeguard, the representative of 
Ecuador stated that imports of tariff items that were  included in the balance -of-payments 
safeguard presented a downward trend as from March 2015, which demonstrated that the 
measure had had the expected effect.  Non-oil imports had fallen throughout the period in which 
the safeguard had been applied, in good  part due to the slowdown of economic activity. Imports of 
goods on which the measure had not been applied had fallen by US$451 million, or 8.9%, while 
imports affected by the measure had fallen by US$680 million, or 21.2%.  
85.  There had been a decline in impo rts of goods faced with the 5%, 15% and 45% surcharges. 
However, t here had been an unexpected 9% increase in imports of products facing a 25% 
surcharge, so Ecuador would monitor this group of products closely  in order to evaluate their 
behaviour  in the com ing months. Imports faced with a  45% surcharge had experienced a 30% 
decrease between March and July 2015 with respect to the same period the previous year, imports 
with a 15%  tariff surcharge of 15% had fallen by 24% and imports taxed with a tariff surcha rge of 
5% had decrease d by 13%. All these d ecreases had been within the estimations by the authorities.  
86.  In conclusion, global growth had slowed down, demand for commodities had slackened and 
hence their price had fallen. To this situation of lower demand, one had to add the depreciation o f 
the currencies  of several of E cuador's trading partners.  In Ecuador, economic growth showed no 
signs of recovery and unforeseen factors (natural disasters) posed an additional risk to growth. 
Lower oil prices and growth h ad led to a liquidity contraction.  There were downward expectations 
regarding oil prices until the end of 2015 and even in 2016. Ecuador was no longer receiving 
significant amounts of revenue from exports of crude oil, as a result of the reduction in the p rice of 
oil. Between January and August 2015, Ecuadorian oil price had been, on average, 52% lower than 
in the similar period of 2014.  The reduction in exports observed between March and July 2015 had 
been basically due to a decline in foreign sales of cru de oil and de rivatives (46.5%), although 
non-oil exports had been also affected by the economic situation, and had decreased by 6.3%.  
Between March and July 2015, there had also been a decline in the value of exports of products 
such as shrimp, mining prod ucts, coffee and canned fish.  Total imports had declined, in particular  
those subject to the balance of payments safeguard . Unlike what happened in 2009, the real 
exchange rate had appreciated.  In brief, on the basis of the macroeconomic variables analyzed , it 
was not possible to conclude that the economic situation had improved with respect to when the 
safeguard measure had been adopted. This assessment, together with the unfavourable economic 
growth and oil prices short term prospects, indicated that the imposed measure continued to be 
necessary to correct the balance of payments imbalance.  
2.2  STATEMENT BY THE IMF  
87.  The representative of the IMF  stated that conditions had worsened since June. Ecuador had 
held an Article IV Consultation in July. His assessment w ould be based on the results of these 
consultations. The macroeconomic situation was challenging. The large drop in oil prices in late 
2014 had complicated  the economic policy tasks of the Ecuadorean authorities . They had sharply 
reduced receipts . Moreover , the real exchange rate had appreciated about 20% from June 2014 to 
August 2015. Being dollarized, with limited buffers , Ecuador was on a difficult adjustment path, 
given the absence of monetary or exchange rate policy to cushion the impact. Growth was 
declining. Economic growth had decelerated to 1% year -on-year in the second quarter of 2015 
from 4.2 % year -on-year in the same period of last year. High -frequency indicators of economic 
activity and consumer confidence suggested that growth had continued to decelerate in recent 
months. Credit and deposit growth  had also declined further. The IMF October 2015 World 
Economic Outlook projected Ecuador's growth to be slightly negative ( -0.3%) in 2015, from 1.9 % 
in the April 2015 World Economic Outlook.  
88.  He noted t hat the balance of payments needs were sizeable. Ecuador's balance of payments 
was expected to worsen further. In the first half of 2015, the current account balance had 
deteriorated by about US$2 billion compared to the first half of 2014. This change was  mainly 
explained by the lower net oil balance of US$2.4 billion, as the non -oil trade balance had improved 
slightly by US$0.5 billion (non -oil imports had declined more, by US$700 million, than non -oil WT/BOP/ R/114 
 
- 17 - 
 
  exports, which had dropped by US$200 million). In 201 5, exports were projected to drop by some 
7% of GDP. The projected impact on the net oil balance would be about 4% of GDP due to 
offsetting savings on oil imports. The real exchange rate appreciation would weigh on non -oil 
exports. Despite this, the non -oil trade balance was expected to improve by about 2% of GDP due 
to a large contraction in imports associated with the downturn, a reduction of public spending , and 
the imposed tariffs. Overall, the current account deficit was expected to worsen from 0.6% of  GDP 
to about 2.5%.  
89.  International financial market conditions had become more difficult since the bond placement 
in June 2014. In March 2015, the Government had paid a spread o f 900 basis points for a 
US$750  million issuance of five -year maturity, which ha d been reopened in May for another 
US$750 million, when the spread had declined to 700 basis points. Since then, the spread had 
increased significantly and more recently had reached 1,300 basis points. The movements in 
spreads broadly reflected movements i n oil prices, but were larger than those experienced by 
other countries with similar oil dependence or similar spreads in the first half of 2014.  
90.  Taking into account the planned fiscal adjustment, public sector gross financing needs, 
including amortization  of advanced oil sales, were projected to reach about US$10.2 billion (about 
10.3% of GDP) in 2015. Up to end -August, disbursements had amounted to about US$5 billion. 
The authorities had indicated that the y remained confident they would secure the necessa ry 
additional financing.  
91.  Ecuador's net international reserves were relatively lo w. They had averaged about 
US$4  billion in the first eight months of 2015. As of July 2015, Ecuador's international  reserves (at 
US$4.8 billion) had been assessed to cover abou t 45% of the IMF reserve  metric. They had since 
declined to US$3.5 billion by end -September due to a drawdown of government and private 
deposits . However, for fully dollarized economies like Ecuador it was difficult to precisely calibrate 
the need for fore ign exchange buffers, as dollarized economies did not face the risk of exchange 
rate fluctuations and currency mismatches. A dollarized economy needed liquidity for two main 
reasons: to protect the financial system from a liquidity shock and as a fiscal bu ffer against 
potential government financing gaps. In addition, commodity intensive economies might have 
higher precautionary reserve needs due to volatile terms of trade and lower trade elasticities. 
Hence, even though Ecuador's balance of payments would a djust to an external shock via a 
reduction in liquidity and lower domestic demand, the adjustment could be painful and buffers 
would help smooth it.  
92.  The policy response had been significant. I n response to the shocks, the authorities had 
significantly tigh tened fiscal policy and introduced temporary import surcharges. IMF staff had 
projected the net impact of the decline in oil prices on the fis cal accounts to be about 
US$4.3  billion in 2015, implying a worsening of the underlying fiscal position by about 4 .5% of 
GDP compared with 2014 and the original 2015 budget. In response, the authorities had taken 
offsetting fiscal measures. In net terms, these should bring the deficit down to about 5% of GDP, 
or 0.3% of GDP below both the 2014 outturn  and the original  budget for 2015. The budget had 
been revised in January and again in August with a total budget cut of about 3.5% of GDP 
compared to the initial budget. The sizable expenditure cut, together with the import surcharges 
and plans to promote exports, were expected to facilitate the balance of payments adjustment, 
since part of government spending was imported.   
93.  The policy response was expected to bring significant fiscal and external adjustment. Staff 
projections for 2015 indicated that the fiscal deficit wou ld be about 5%; the non -oil fiscal primary 
balance would improve by about 2% of GDP. Despite the significant adjustment, and even if all 
financing needs were met, IMF staff projected a decline in interna tional reserves of about 
US$400  million in 2015.  
94.  The outlook for 2016 was challenging. Growth was expected to be a round zero. The 
2016 preliminary draft budget envisaged an overall deficit declining to 3.7% of GDP. The 
authorities were committed to maintain public debt within the 40% of GDP ceiling. They wer e 
confident that at current oil price projections they could achieve this target while removing the 
import surcharges, if necessary by delaying investment programmes, which would also alleviate 
the balance of payments needs. Thus, the authorities' policy p lans aimed at achieving a full 
adjustment to the fiscal impact of the external shocks, even after the removal of the tariff 
measure.  WT/BOP/ R/114 
 
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  95.  Following the external shock, a broader strategy was called for to bolster confidence and 
restore competitiveness. Given th e limited options in a dollarized economy, a fiscal contingency 
plan should be put in place to meet unanticipated  financing shortfalls. The retention of adequate 
liquidity  in the financial sector must be an over -arching objective, while financial sector re gulation 
and supervision should be upgraded. Regaining competitiveness and reviving growth would require 
not only raising productivity, but also further wage containment and improvements in the business 
environment, while policy buffers should be rebuilt a s insurance against downside risks.  
2.3  DISCUSSION IN THE COMMITTEE  
96.  Members took note of Ecuador's submiss ion of a dismantlement schedule, and invited it to 
formally notify it to the WTO.  Some Members commended Ecuador for showing a clear 
determination to abid e by the schedule set to remove the measure. Others called for a faster 
dismantlement, as the balance of payments situation improve d. One Member suggested an 
alternative dismantlement schedule, to start in December 2015.  Another Member expressed the 
hope t hat the measure could be remove d before that time. 
97.  Ecuador's announcement of the reduction of the top surcharge rate from 45% to 40% as of 
1 January 2016 was welcomed by Members.  
98.  With respect to the effects of the restrictions, several Members indicated th at their exports to 
Ecuador had been severely affected by the measure. They indicated that the effect of the 
safeguard was very c lear, since exports had fallen by more in the case of those products subject to 
the higher tariff surcharges. They exhorted Ecu ador to revise the composition of the tariff lines 
affected by the measure and to consider lowering the applied surcharges.  
99.  Some Members reiterated the fact that they did not consider the measure to be compatible 
with WTO rules  and urged Ecuador to abide b y its WTO commitments . The issue of selectivity was 
a point of concern. It was noted that the surcharge was not applied on an MFN basis, since two 
WTO Members had been excluded from its scope, and that it was not levied on "essentially all 
goods", as manda ted by WTO rules, since it only applied to  38% of imports. It was also noted that 
the range of the surcharge was wide. Some expressed concern about the systemic and trade 
effects of the application of the measure. It was stated t hat balance of payments mea sures  were 
not intended to be protectionist measures . These Members called for the removal of the measure  
as soon as possible and in any case no later than 15 months after its  introduction, that is, by 
June 2016. 
100.  The appropriateness  and effectiveness of the policy response as a result of the measure was 
questioned by some Members . One Member noted that six months after the application of the 
measure the balance of payments situation had actually worsened, GDP had contracted and the 
business climate had dete riorated. It was noted that there were alternatives to the measure as 
applied, including a lower general surcharge, and recourse to external funding . Ecuador was 
invited to reflect on the possibility of applying alternative measures that did not shift the burden of 
the adjustment on trading partners.  
101.  Some Members expressed support for Ecuador's measure , which they considered to be in 
accordance with WTO rules and responding to a difficult economic situation. Ecuador was also 
commended for having adopted pri ce-based measures . One Member expressed support for 
Ecuador's efforts to overcome the crisis, but exhorted it to comply with WTO rules and remove the 
measure as soon as possible.  
102.  Ecuador's use of other trade restrictive measures, apart from the tariff surc harges was 
pointed out by some Members. These measures included matters related to technical regulations 
and requirements with respect to conformity assessment procedures. In particular, Ecuador' s 
application of  import quotas on cars in December 2015 was b rought up by some Members, who 
questioned whether these measures were justified under WTO rules.  
103.  Some Members expressed concern with respect to the recu rrent use by Ecuador of 
balance -of-payments measures, a tool that WTO Members were entitled to make use of in 
exceptional circumstances.  One Member noted that recourse to GATT Art. XVIII:B should aim at 
restoring equilibrium on a sound and lasting basis. The measure applied by Ecuador did not seem WT/BOP/ R/114 
 
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  appropriate to restore equilibrium in the long run, as shown by the figures presented. Ecuador, a 
dollarized economy, had limited policy choices, but dollarization had been a decision, not a fatality. 
What Ecuador needed to restore balance on a lasting basis was a change in its export pattern, and 
the safeguard meas ure was of no use for this; it only made imported products more expensive for 
the domestic consumer.  
104.  The representative of the IMF stated that Article IV consultations would be accompanied by 
an IMF Staff Report. This report made recommendations to enhance  competitiveness, including 
strengthening the financial sector's regulation and supervision, and achieving a fiscal 
consolidation.  
105.  Most Members were of the view that a continuation of the consultations w as needed to 
continue monitoring closely Ecuador's ec onomic situation.  
2.4  REPLIES BY THE REPRESENTATIVE OF ECUADOR  
106.  The representative of Ecuador thanked Members for their interventions and stated that he 
had taken note of the concerns expressed by Members. He reiterated that the IMF had recognized 
Ecuador's dif ficult economic situation and the convenience of the measures adopted. He restated 
Ecuador's engagement to advance the reduction of the 45% surcharge to 40% and to formally 
notify the dismantlement schedule.  
2.5  FINAL OBSERVATIONS BY THE CHAIRMAN  
107.  The Chairman noted that considering that different had been expressed during this session 
of the consultations, it was not possible to reach a common conclusion. He considered that the 
best option was to continue the discussion at the beginning of 2016, after Ecuador h ad conducted 
a new review of the measures. Considering this, he proposed suspending the Committee's work 
until February.  
3  MEETING OF  17 FEBRUARY 2016  
3.1  STATEMENT BY ECUADOR  
108.  At the 17 February 2016 meeting, Ecuador provided an update of the economic situation up 
to 31 December 2015 justifying the need to continue applying the measure and giving  an 
evaluation of its impact. Ecuador stated that it would carry out its schedule of dismantlement of 
the measure despite the difficulty of its current economic situation . 
109.  The representative of Ecuador stated that Ecuador's case was unique and exceptional, as it 
was a dollarized developing economy that absorbed directly all external shocks. He restated that 
Ecuador considered the tariff surcharge as a measure of last resor t. He reiterated that he 
considered that Ecuador had complied with all the procedures set out in the multilateral rules for 
the adoption of a BOP measure and that it had acted with full transparency. Since the last 
consultations in October, the external en vironment had continued to worsen and oil prices had 
fallen further; additionally Ecuador was faced with high losses caused by natural phenomena. 
Ecuador had continued to implement parallel measures to redress its balance of payments, 
including a strong fi scal adjustment, and had sought to attract foreign investment. These efforts 
were starting to bear fruit and had helped contain a surge in th e external deficit. The 
balance -of-payments measure had contributed to this as it had been effective in reducing im ports.  
110.  Ecuador's recovery prospects had worsened in the last months of 2015; GDP growth was 
now estimated at 0.4%, and oil prices had fallen to US$27 a barrel. The average price per barrel in 
2015 had been US$42, that is, 50.1% less than in the previous y ear. The unemployment rate had 
increased to 4.77% in December 2015, a percentage point higher than a year earlier. It was 
forecast that the oil industry would not recover in 2016 and would not generate any revenue for 
the Government. On the other hand, the  currencies of Ecuador's neighbouring countries and the 
euro had continued to depreciate vis -à-vis the U .S. dollar, and this had had a negative effect on 
Ecuador's exports to those markets.  One must add to that the negative effect of El Niño, which 
would c ause damages of US$798.5  million , affecting some of Ecuador's main exports. 
Reconstruction efforts would require considerable resources.  WT/BOP/ R/114 
 
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  111.  Ecuador had been implementing in parallel measures to cut spending, and had lowered it by 
some 6.5% of GDP (US$6,482 m illion) for 2016. On the other hand, foreign investment contracts 
for US$4.9 billion had been subscribed in the oil sector, and multilateral and bilateral financing for 
investment projects totalling US$12.7 billion had been secured. Lower oil prices and sp ending cuts 
had resulted in a decline in liquidity and foreign exchange reserves had fallen to US$2.5 billion in 
December 2015, US$1.43 billion less than at end -2014. The Government's immediate policy goal 
was to minimize the impact on the real sector so a s to maintain liquidity levels, as well as output 
and employment, reducing the adjustment impact for the most vulnerable sectors of the 
population. Likewise, the Government was seeking to attain lasting balance of payments 
equilibrium. Efforts had been und ertaken to promote public -private associations to pool resources 
to finance investment projects, to foster the development of non -oil energy sources, to diversify 
the production pattern and improve infrastructure. Government estimates point ed to an export 
potential of US$4.2 billion for final and intermediate industries and of US$8.7 billion for 
agro-industries.  
112.  The current account of the balance of payments  had posted  a US$454.4 million deficit in 
2015, equivalent  to 0.5% of GDP. This was a deterioration of US$161 million with respect to the 
previous  quarter. The capital and financial accounts had shown a deficit of US$741.1 million, in 
contrast with a surplus of US$1.27 billion in the previous quarter. As a result, the balance of 
payments had posted a defi cit of US$1.24 billion (1.3% of GDP) in the third quarter of 2015. 
Between January and September 2015, the current account deficit had reached US$1,646 million, 
the largest in recent years, which contrasted with the US$751 million surplus posted in the sam e 
period the previous year. This deficit was mainly due to a merch andise trade deficit of 
US$2.32  billion, but also to a decline in current transfers to US$1.54 billion (form US$1.71 billion 
in the same period in 2014) caused by lower remittances.  
113.  Between March and December 2015, total exports had reached US$15.2 billion, 30% less 
than in the same period the previous year, mainly on account of a 50% decline in oil exports to 
US$5.54 billion, but also due to an 8.2% decline in non -oil exports.  Imports had de clined by 
25.8% to US$16.58 billion: non -oil imports had fallen by 21%, while oil imports had contracted by 
41%. With respect to the effect of the balance of payments measure, imports not subject to the 
measure had declined by 13.7%, or US$1.4 billion, whi le those affected by the measure had 
declined by 31.9% or US$2.18 billion with respect to the same period the previous year. The 
biggest contractions were in: construction materials (43.9%), durable consumer goods (39.7%) 
and capital goods for industrial u se (33.7%).  Imports subject to a 5% surcharge had fallen by 
22%, those with a 15% surcharge by 31%, those with 25% by 18% and those affected by a 45% 
surcharge had contracted by 42%.  
114.  There had been a relative improvement with respect to the scenario presen ted by Ecuador to 
the Committee in June. The merchandise trade deficit had been US$554 million smaller than 
estimated at the time, despite a US$777 million fall in exports.  This had been due to a 
US$1.51  billion decline in imports. The balance of payments measure together with some other 
measures and initiatives had played a role in reducing the imbalance.  
115.  Short term perspectives for the Ecuadorean economy were not good. Forecasts ruled out a 
short or medium run recovery of oil prices and an increase in dem and for commodities. The 
appreciation of the U .S. dollar was likely to continue, and the effect of natural disasters had to be 
taken into account. However, one could conclude that the balance of payments safeguard had 
allowed a reduction of the external im balance.  
116.  The representative of Ecuador noted that, the negative scenario notwithstanding, Ecuador 
had continued with its schedule of dismantlement of the tariff surcharge. As notified to the WTO, 
Resolution No. 001 -2016 had implemented the first phase of t his schedule, lowering the tariff 
surcharge of 45% to 40%. A gradual dismantlement of the surcharge would be implemented as of 
April 2016, and it would be completely removed after 15 months, by end June 2016.  
3.2  DISCUSSION IN THE COMMITTEE  
117.  Members welcome d Ecuador's announcement of the reduction of its top 45% surcharge rate 
to 40%.  They acknowledge d that it was a first step that showed Ecuador's willingness to comply 
with its commitments. Some Members expressed their wish that Ecuador continue d abiding by its  WT/BOP/ R/114 
 
- 21 - 
 
  dismantlement engagements. It was stressed that Ecuador was expected to remove all surcharges 
by June  2016. One Member was of the view tha t the phase -out schedule was to o concentrated 
towards the end .  
118.  Several Members voiced their understanding of Ecuador 's difficult economic situation. 
However, the view was also expressed that Ecuador had not provided the Committee with a 
detailed enough presentation of the effects of the measure. In this respect, s everal Members 
reiterated that their exports to Ecuador h ad been severely affected by the measure.  One Member 
noted that this had had a particular impact on exports of small and medium enterprises.  Some 
Members made reference to the quota system applied on motor vehicles and cell phone s and 
requested its removal . One Member requested information with respect to a recent resolution 
which had eliminated the surcharge on 129 tariff lines, but had not been notified to the WTO, 
noting that this seem ed to aggravate the discriminatory nature of the measure.  
119.  Views contin ued to be divided among Members with respect to the WTO compatibility of the 
measure. Some Members continued to believe that the measure was not consistent with 
WTO rules and was not the most appropriate way to deal with Ecuador's balance of payments 
problem on a lasting basis . It was suggested that consideration should be given to the application 
of substitute WTO -consistent and less trade -distorting measures. One Member noted that Ecuador 
was seeking a waiver from its WTO commitments in a manner that affe cted other countries. 
Concern was expressed with respect to the possibility of resorting to this type of measure in the 
future. One Member was of the view that Ecuador should adopt policies to avoid a repeat of the 
situation. Another Member stressed that E cuador's balance of payments pressures stemmed from 
policy decisions. Other  Members reiterated their view that the measure was compatible with 
WTO rules. They expressed their support for the measure  and invited other Members to reach a 
positive consensus w ith respect to it.  
120.  Some Members exhorted Ecuador not to take any alternative measure once the tariff 
surcharges expired.  One Member stated that any alternative measure would have to be reviewed 
to see what it should be brought to the Committee for consult ations.  Worries were expressed in 
particular with respect to the possible application of a "timbre cambiario" (foreign exchange tax), 
which one Member considered a mere replacement for the surcharge and deemed it should be a 
matter for consultations in the  Committee.  
121.  Most Members were of the view that th e consultations should continue in order to monitor 
the implementation of the dismantlement schedule . 
3.3  REPLIES BY THE REPRESENTATIVE OF ECUADOR  
122.  The representative of Ecuador stated that the exclusion of 129 tariff lines from the surcharge  
in December 2015 was in response  to the emergency situation created by El Niño. With respect to 
the application of quotas on imports of vehicles and cell phones, Ecuador considered them to be 
justified under Article XX of th e GATT 1994 and that their application was in compliance with GATT 
Article XIII. In the case of motor vehicles, a quota similar to the 2015 one, which had a fill ratio of 
94%, h ad been set for 2016 . The quotas were administered on a first -come -first-served  basis, and 
an import license was not required for their allocation. With respect to cell phones, the 2016 quota 
exceeded the 2015 one and was open to any importer.  
123.  Ecuador had not adopted any decision with respect to the application of a "timbre cambiario " 
measure. There had just been a technical exercise with respect to it. In case Ecuador decided to 
implement any alternative measure after the removal of the tariff surcharge, this measure would 
be consistent with multilateral rules.  
3.4  FINAL OBSERVATIONS BY THE CHAIRMAN  
124.  The Chairman noted that during the discussions, some Members had declared to be 
favourable to the application of the measures, while others had declared that they consider it 
incompatible with WTO rules. Some Members had urged an acceleration of the  dismantlement 
schedule, while others had exhorted Ecuador to stick to its timetable. Several Members had 
requested to continue the consultations. Considering this, he suggested that consultations resume 
in June.  WT/BOP/ R/114 
 
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  4  MEETING OF 23 JUNE 2 016 
4.1  STATEMENT BY ECUADOR  
125.  The representative of Ecuador noted that his country's economy presented certain features 
that made it unique and exceptional, and that this had to be taken into account to understand the 
reasons why a safeguard measure had had to be adopted. Ecuad or was a dollarized economy  
which, for that reason, lacked the monetary and exchange rate policy instruments needed to 
supply the economy with money. Ecuador had no national currency and hence was not able to 
print money or  alter the exchange rate through a depreciation or devaluation. The U.S. dollar was 
the only legal tender in circulation and hence liquidity in the economy was determined by the 
balance -of-payments result. External shocks  had a sudden and significant impact on liquidity  and 
were the sourc e of imbalances.  
126.  After a rigorous analysis, Ecuador had adopted a b alance -of-payments safeguard measure in 
11 March 2015 as a last recourse to guarantee  macroeconomic balances and deal with the adverse 
international economic environment it had faced since mid-2014 as a consequence of falling 
international oil prices and the appreciation of the U.S. dollar, among other factors. Since then a 
temporary import surcharge had been in place to safeguard the external balance and liquidity 
levels.  
127.  Document WT/BOP/G/ 23, issued in October 2015 , contained the timetable for the 
dismantling of the measure . COMEX Resolution No. 001-2016 of 21 January  2016 had lower ed the 
45% surcharge rate to 40% and mandated the eliminat ion of  the 5% surcharge rate in April and to 
lower b y a third the rest of tariff sub -headings affected by the measure.  However, the surcharge 
removal schedule had been affected by the earthquake that had hit Ecuador on 16 April  2016, 
which had touched  the coastal provinces of Manab í and Esmeraldas, and had caused considerable 
life loss and material damage. The reconstruction and reactivation of the affected areas would 
require  considerable resources  in the short and medium run. It was estimated that the damage 
was equivalent to 3.3% of GDP and w ould result  in a 0.7 percentage  point reduction of GDP in 
2016 with some 21,823 work posts lost. In the case of Manab í, unemployment was expected to 
increase by 3.45 percentage points and provincial GDP was estimated to contract by 9.8%.  A 
number of financing sources h ad been identified, but only about 30% of resources were expected 
to be received in 2016.  
128.  The earthquake had hit Ecuador at a moment of unpropitious economic circumstances and 
strong deterioration of the balance of payments, notwithstanding the safeguard m easure imposed 
and the additional measures adopted by the Government. International oil prices and a 
strengthening dollar continued to put pressure on Ecuador's external accounts. To this, the effect 
of the reconstruction needed to be added; this would imp ly further currency outflows impacting 
the balance of payments and liquidity levels. To counter this, Ecuador had already  adopted the 
appropriate economic measures and activated contingency loans to which it had access. Despite 
this, however, resources wer e not sufficient to address this new situation and further funds would 
be required.  
129.  Among the measures adopted for the reconstruction of t he country were the following: a ) an 
increas e of the VAT from 12% to 14%; b ) a one -time contribution of an additional 3% on profits 
posted in 2015; c ) a 0.9% contribution for natural persons wi th global wealth exceeding 
US$1  million; d ) a day's salary contribution for persons earning over US$1,000 a month; and 
e) a 0.9% contribution on real estate property and representat ive capital rights held in Ecuador by 
foreign -based companies; and double this percentage for those domiciled in tax havens. Moreover, 
the Government had adopted measures to curtail public spending and to promote foreign 
investment through the sale and ope ning to foreign capital of public enterprises and mining 
concessions, as well as ports and highways, in 2016 and 2017. Regulations had been issued to 
promote the use of e -money, and were expected to have a positive effect on the real economy.  
130.  Faced with th e emergency situation previously described , and considering the provisions of 
paragraph 1 of the Understanding on the Balance -of-Payments Provisions of the GATT 1994 , and 
the engagement assumed during the October 2015 meeting, contained in document 
WT/BOP/ G/23, Ecuador had been forced to slow down the pace of implementation of the timetable 
for the dismantling of the measure . However, with a view to dealing with the requests and WT/BOP/ R/114 
 
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  observations made in the Committee, Ecuador had, despite its difficult economic  situation, lowered 
the top surcharge rate from 45% to 40%  and reduced the number of rate s. COMEX Resolution 
No. 006-2016 in force since 30 April 2016 had partially implemented the timetable for dismantling 
the measure foreseen for April 2016 by eliminatin g the 5% surcharge rate, which was applied on  
some 700 of the 2,900 sub -heading affected by the surcharges , liberalizing in this way some 22% 
of imports subject to the safeguard measure.  Ecuador had decided  to prolong by a year, to 
April 2017, the implemen tation of the following phases of the timetable for the dismantling of the 
measure. As it now stood, the safeguard for balance -of-payment s purposes was applied on 
2,200  tariff sub -headings and had three surcharge rates.  
131.  Ecuador had notified the adopted mea sure to the Committee (WTO documents WT/BOP/G/24  
dated  4 May 2016 and WT/BOP/N/82  dated  10 May 2016 ) so Members were cognizant of the 
decisions adopted, which responded solely to the deterioration of macroeconomic conditions 
caused by the earthquake. This natural disaster had lowered exports and had triggered an increase 
in imports.  
132.  With respect to Ecuador's economic performance up to April 2016, t he representative of 
Ecuador explained that  the negative international economic environment was already affecti ng 
Ecuador's economy when the country was hit by the earthquak e. The IMF was predicting a 
GDP contraction of 4.5% for Ecuador in 2016 and a further 4.3% decline in 2017. On top of this, 
the earthquake had caused damage estimated at US$3.34 billion, or 3.3%  of GDP. The Central 
Bank had been obliged to revise its economic forecasts for 2016 and to postpone publication until 
the full impact of the earthquake was assessed. The economic slowdown had had an impact on the 
labour market, and the unemployment rate h ad jumped to 5.7%, some 1.9 percentage points 
above its March 2015 level. It had also had an impact on liquidity levels, with the growth rate of 
money aggregate M2 falling by 9.9 percentage points, to 2.6% in April 2016 , due partly to a steep 
decline in de posits. In May 2016, international reserves had reached their lowest level since 
January 2007, US$2.16 billion, or 2.1% of GDP. The decrease in inflows due to oil exports had not 
been compensated by other sources of income . In February 2016, the reference price for 
Ecuadorian oil (WTI) had fallen to US$30.3 per barrel, 71.3% below the high observed in 
June 2014. By April 2016, the WTI had recovered to US$40.8 per barrel, but was still 25.1% below 
April 2015 levels. The actual price of Ecuadorian -produced oi l had averaged US$26 per barrel in 
the first four months of 2016, and was 42.2% below the average for the first four months of 2015 
and 73% below the same period in 2014. Low oil prices, together with an appreciating dollar and 
weak prices for other commod ities had further weakened Ecuador's external position.  Oil prices 
were not expected to recover substantial ly in the rest of 2016 and in 2017.  
133.  Ecuador's balance of payments had registered a deficit of US$1,488 million in 2015, 
equivalent to 1.5% of GDP. Th is deficit had been US$1,064 mill ion higher than in 2014 
(US$424  million) and was mostly due to a deficit in the current account, which had reached 
US$2,201 million, or 2.2% of GDP, a US$1,627 worsening compared to the deficit registered in 
2014. This was the highest  deficit of the last decade in nominal terms . This negative result had 
been partly covered by a capital and financial account surplus of US$677 million, larger than the 
US$374 million surplus posted in 2014. The increase in the current account d eficit could be 
explained by the deterioration of the merchandise trade balance, which had posted a deficit of 
US$1,650 million in 2015, compared to a US$63 million deficit in 2014. This result had been 
triggered by the US$6,661 million decline in crude oi l exports. There had also been a 3.4% decline 
in remittances, from US$2,462 million in 2014 to US$2,378 million in 2015.  
134.  Exports had declined by 23.6% in the first four months of 2016 compared to the same 
period the previous year, reaching US$4,891 million , again mainly due to declining oil exports, 
although non -oil exports had also declined, by some 11.3% compared to the same period the 
previous year. This was the result of lower values for exports of bananas, flowers, cocoa, tuna and 
fish and shrimp. Impo rts had also contracted during the period , reaching US$4,842 million in the 
first four months of 2016, 36.5% less than in the same period of 2015. Non -oil imports had 
declined by 32.9%, while oil imports had fallen by 51.3%. It was important to highlight t hat, 
among non -oil imports, imports of capital goods, raw material s and consumer goods had all fallen, 
reflecting the economic slowdown and the reduction in government spending, which affected 
primarily investment projects.  
135.  With respect to the balance -of-payments safeguard, imports of goods classified under the 
tariff lines affected by it had continued to contract as they had done since the measure was WT/BOP/ R/114 
 
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  applied. Capital goods had experienced the largest contraction, 12.3%, followed by consumer 
durable goods (-7.1%) and transportation equipment ( -7%). These three categories accounted for 
65% of the total import reduction experienced by tariff lines subject to the safeguard measure.  
136.  With respect to what was to be expected for 2016, the Government had prepared a  forecast 
considering the impact of the earthquake as well as that of the safeguard measure and of the 
emergency measures adopted by the Government. According  to these calculations, it wa s 
expected  that non -oil exports would fall by 6.3% (US$1.31 billion) due to the appreciating dollar 
and lower demand for commodities. They would also be affected by the negative impact of the 
earthquake on important export products such as  tuna, shrimp and coffee. As a result of this and 
of the lack of recovery of oil expor ts, it had been forecast that exports would decline by 
US$3.5  billion. This weak export performance would be accompanied by a US$4,538 million 
decline in total imports with respect to 2015. Of this decline, US$3,328 corresponded to a 
reduction in non -oil imports, leading to a contraction in the merchandise trade deficit of 
US$1,004  million . 
137.  Moreover, although the reconstruction  process would imply an increase in the dem and for 
imports, this would take place not immediately but rather in 2017 and 2018. It sh ould also be 
remembered that the economic slowdown faced by the Ecuadorian economy would result in lower 
import values in 2016. The balance -of-payments safeguard, together with additional fiscal policy 
measures, had allowed a partial correction of the defi cit. However, this had not been enough; it 
was estimated that in 2016 the current account would register a US$1,053 million deficit, and that 
the merchandise trade deficit would reach US$605 million. There were no prospects of an 
improvement in 2017, as mo st of the reconstruction would be carried out in that year, implying an 
increase in imports. Ecuador would lose reserves (US$250 million) for a third consecutive year in 
2016. All this affected the economy's middle -run sustainability and had a negative imp act on 
liquidity, negatively impact ing growth and employment. The Government was attempting to 
prevent a further worsening of the economy and hence had decided to postpone the dismantling of 
the safeguard measure to preserve liquidity levels and prevent dr astic growth and employment 
contractions.  
138.  To conclude, considering the macroeconomic indicators analysed and due to the natural 
disaster experienced on 16 April, it was evident that the economic situation had become more 
complicated than when the balance -of-payments measure was adopted.  
139.  Short-term perspectives were not favourable. According to international forecasts, oil prices 
would not recover in the medium run. Due to low prices, Ecuador had stopped receiving 
considerable crude oil export revenue. A rec overy in demand for commodities was not foreseen, 
nor was a change in the appreciating trend of the dollar. No recovery in non -oil export prices was 
expected. Ecuador had activated contingency loans and adopted emergency measures, but these 
would be insuff icient to deal with the new situation. Resources would be needed for reconstruction, 
which would put pressure on the balance of payments and on liquidity. For these reasons, 
regrettably, the balance -of-payments measure continued to be necessary.  
140.  The repres entative of Ecuador noted that non -oil imports had fallen by 24% betw een 
March  2015 and March 2016: imports not subject to the safeguard measure had fallen by 16%, 
while imports affected by the measure had declined by 37%. This reduction was in line with w hat 
had been foreseen as needed to correct the projected balance -of-payments deficit. Considering 
only imports subject to the measure, those faced with a 5% surcharge had declined by 25%; those 
subject to a 15% surcharge by 33%; those faced with a 25% surc harge by 26%; and those 
subject to a 40% surcharge by 47%. Although these results were in line with expectations, they 
had also been influenced by the economy's slowdown.  
4.2  DISCUSSION IN THE COMMITTEE  
141.  Members expressed their regret with respect to the human and economic losses caused by 
the earthquake and acknowledged this had aggravated Ecuador's economic situation. Members 
expressed their solidarity with Ecuador in that difficult moment.  
142.  Members acknowledged the elimination of the 5% surcharge rate and too k note of the fact 
that this implied a reduction in the number of tariff lines affected by the measure. They also WT/BOP/ R/114 
 
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  acknowledged the reduction of t he top surcharge rate from 45% to 40% . While some Members 
expressed their understanding and support for delayin g the implementation of the timetable for 
the dismantling of the safeguard measure , others expressed regret that such a decision had been 
taken   
143.  While understanding the new difficulties Ecuador was experiencing, some Members 
expressed concerns with respect  to the systemic implications of extending the  safeguard . Some 
Members continued to be worried about the pertinence of the use of this type of measure to deal 
with an unfavourable economic situation . Some Members did not believe the continuation of the 
measure would bring in the needed revenues since imports were already falling as a result of the 
measure. Some considered that the measure  was not a solution for Ecuador's economic recovery 
One Member considered that restricting imports undermined Ecuador's c apacity to export, since 
imports subject to the measure were an important component of some exports.  Concern was also 
expressed concern with respect to the effect of the measure on other countries. One Member 
considered the dismantlement timetable too long  and urged its acceleration ; other Members called 
for an immediate dismantlement of the measure . 
144.  Several Members who supported the delay in the implementation timetable were of the view 
that Ecuador's current situation had been provoked by external shocks and unforeseen events, and 
hence Ecuador had been forced to review its dismantlement timetable.  
145.  As in previous consultation meetings, Members continued to be divided with respect to the 
effectiveness of the measure adopted by Ecuador to correct its balance  of payments deficit, as well 
as with respect to its consistency with WTO  provisions. Several Members expressed concern with 
respect to the selective manner in which the measure was applied , and the exclusion of some 
WTO Members from its scope. One Member questioned whether a surcharge rate as high as 40% 
needed to be kept, and whether a whole year extension was necessary for the dismantlement 
timetable. Another Member noted that, although the surcharge might have a similar effect to that 
of a devaluation , there were rules against the use of protectionist measures. Some Members 
exhorted Ecuador to review the measure before June 2017. A number of Members expressed 
concern about the adverse effect of the measure on their exports.  
146.  Several Members called for the  continuation of the consultations and requested an update of 
Ecuador's economic situation by the International Monetary Fund.  
4.3  REPLIES BY THE REPRESENTATIVE OF ECUADOR  
147.  The representative of Ecuador thanked Members for their interventions. He found the 
response by Members to be positive. He expressed Ecuador's commitment to continue with the 
consultations. Measures would always be adopted within the international rules' framework.  
4.4  FINAL OBSERVATIONS BY THE CHAIRMAN  
148.  The Chairman stated that there seemed to be  no consensus among Members with respect to 
the measures applied by Ecuador and their compatibility with WTO rules. Considering this, he 
proposed that the Committee resume the consultations later in the year to reassess Ecuador's 
situation.  
5  MEETING OF 29 N OVEMBER 2016  
5.1  STATEMENT BY ECUADOR  
149.  The representative of Ecuador  reminded the Committee that  Ecuador could not resort to 
devaluing  its currency to correct international shocks and balance its  external accounts. He noted 
that devaluations discourage d imports  and generate d artificial competitiveness for exports, putting 
pressure on the  economies and production of third countries.  To balanc e its external accounts, 
Ecuador had opted for the adoption of a balance -of-payments safeguard measure, predictable and 
limited in scope that  at that time affected  18% of the value of total imports. Ecuador's  
macroeconomic situation had shown signs of recovery, but the future was still complex. According 
to the Central Bank of Ecuador's  latest estimates , GDP would shrink by 1.7% in 2016 . The analysis 
carried out by different institutions, such as the IMF, the Economic Commission for Latin America WT/BOP/ R/114 
 
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  and the Caribbean ( ECLAC ) and the Latin American Reserve Fund ( FLAR) confirm ed the 
persistence of a balance -of-payments disequilibriu m and unfavourable short-term recovery 
prospects. However, there we re some signs of improvement with respect to  some financial 
indicator s, which were the result of sound economic policies and the implementation of the 
balance -of-payments safeguard. In the second quarter, GDP had increased by 0.6% with respect 
to the previous quarter , but was 2.2% lower than GDP in the same quarter of the p revious year.  
150.  Thanks to the measures adopted and primarily to the  balance -of-payments safeguard, in the 
period January t o September 2016, a trade balance surplus of US$976 million  had been recorded , 
in contrast to the US$1,713 million deficit posted in the same period of 2015. The  non-oil trade 
balance had gone  from a US$4,116 million deficit ( 4.1% of GDP ) in the period 
January-September  2015, to a deficit of US$ 1,112 million (1.1% of GDP ), in the same period in 
2016.  The lower deficit had been the result of a 30% decline in imports during the period (to 
US$11,184 million), while exports had fallen by 14.6% over the same per iod.  
151.  The improvement of the trade balance had allowed Ecuador to attenuate the 
balance -of-payments safeguard. COMEX Resolution N o. 001-2016 had reduced the surcharge from 
45% to 40%  in January 2016, while COMEX Resolution N o. 006-2016 had eliminated the  5% 
surcharge and delayed the timetable for dis mantlement to June 2017 as a consequence of the 
earthquake . Despite this, in October 2016, COMEX Resolution No. 021-2016 had lowered the  40% 
rate to 35% and the 25% rate to 15%. As a result, only two levels  remained: 35% and 15%, 
which affected  2,152 tariff subheadings, 811 products less than in April 2015 . 
152.  With respect to Ecuador's macroeconomic situation, in the last two years, GDP growth had 
been well below the average for the 2007 -2014 period, which had been 4.4%. As noted before, 
GDP was forecasted to decline by 1.7% in 2016. Inflation had been falling in the past few months, 
while unemployment had been increasing. Despite the weak performance of the real sector, there 
were indicators that the economy had sta rted to recover. Also, the price of crude oil used for 
reference for Ecuador (WTI) had increased by 44% between February and September 2016. 
However, the circumstances faced by the economy remained complex and the measures adopted 
to safeguard the balance of payments remained necessary. Although the level of foreign exchange 
reserves had increased by US$966 million between October 2015 to October 2016, to reach 
US$4,275 million , this reflected partly financing through two bond emissions of US$1 billion each  
and a US$364 million emergency credit by the IMF, since export earnings had continued to 
decline.  
153.  Ecuador reaffirm ed its confidence in th e Committee , where it had  seen an open and 
receptive attitude by Members  that had  allowed Ecuador , in the short term, to overcome its 
difficulties . Ecuador had adopted economic policy measures to improve  the balance of payments 
and boost economic growth , such as: a) budget cuts of around 2.2% of GDP ; b) a tax exemption 
for payments abroad done by domestic financial institutions  with regard to  direct loans, lines of 
credit or deposits ; c) strengthening of the electronic money mechanism ; d) a temporary increase 
in VAT from 12% to 14%; and, e ) approval of the law regulating public -private joint ventures. At 
the same time, the  Government had been promoting foreign investment and had signed an 
agreement with the European Union that grant ed preferential access to 100%  of Ecuador's 
industrial product export s and 99.7% of its agricultural product exports to that market.  
154.  To conclude , he confirm ed that Ecuador w ould implement the timetable for the gradual 
dismantlement of the measure as scheduled, up to June of 2017.  
5.2  STATEMENT  BY THE IMF4 
155.  The representative of the IMF stated that Ecuador's economy continued to suffer from the 
combined  fallout of a worsening in the terms of trade and a strengthening of the U.S. dollar. The 
large drop in world oil prices and the sizable real exchange rate appreciation (16 % since 
mid-2014) associated with the dollarization, had weakened the external posit ion. As a 
consequence, in March 2015 the authorities had imposed tariff surcharges that  were initially set to 
expire in June 2016.  
                                                
4 The complete statement can be found in Annex 4.  WT/BOP/ R/114 
 
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  156.  On 16 April 2016, Ecuador was hit by a 7.8 -magnitude earthquake. In June 2016, the 
authorities published a joint asse ssment with the ECLAC  estimating  reconstruction costs of 
US$3.3  billion. Damage to infrastructure, housing, agriculture, commerce, and tourism and the 
need to import some of the materials for reh abilitation and reconstruction we re estimated to add 
around 0.9 % of GDP to the current account deficit in 2016. In this context the authorities had 
extended the tariff  surcharges through June 2017. The government had also reacted with a 
package of revenue measures that temporarily increased the VAT rate by two percentage p oints 
and imposed a one -time solidarity surcharge tax on wages, corporate profits, and personal assets. 
On 8 July 2016 the Executive Board of  the IMF had a pproved a disbursement of 
SDR 261.63  million (about US$364 million) under the Rapid Financing Instrum ent (RFI).  
157.  Economic activity continued  to slow. The terms of trade shock and the ensuing fiscal 
adjustment had caused economic growth to decelerate to 0.2 % in 2015 (from 3.7 % in 2014). 
During the first half of 2016, economic growth had contracted by 3.1 % (year-on-year) and 
unemployment had ri sen to 5.3 % (4.8% in 2015). Inflation had ended 2015 at 3.4 %, mostly due 
to high food prices but had  been falling since then (to 1.4 % in August) due to the economic 
downturn and U.S. dollar appreciation.  
158.  The fiscal pos ition remained  precarious. Oil revenues had fallen by about 5 % of GDP in 2015, 
and had been offset by lower public investment (by 4 % of GDP), tax reforms (0.5%  of GDP), and 
import tariff surcharges (0.5%  of GDP ). Despite the government's adjustment efforts , the non -
financial public sector deficit had reached 5.2 % of GDP at end -2015. The fiscal deficit had been 
financed by accumulating arrears and drawing down deposits at the central bank. In the first half 
of 2016, the overall deficit had been 1.6% of GDP a s revenue had continued to decline (by 0.9 % 
of GDP) and capital expenditures had been cut, while non -financial public sector net deposits at 
the central bank had continued to decline (by US$521 million in the first 9 months of 2016).  
159.  The balance of payment  need remained . The external current account deficit had widened in 
2015 to 2.2 % of GDP (from 0.6 % of GDP in 2014) as the contraction in the oil trade balance had 
been partially compensated by a reduction in imp orts resulting from the balance -of-payment s 
safeguards (estimated at about 1.3 % of GDP) and the economic slowdown associated mainly with 
the fiscal adjustment. The persistently low oil prices, the real exchange rate appreciation, the 
limited external financing, and the need to cope with the aftermath  of the earthquake contribute d 
to the persistence of the balance of payment need. Th e 2016 current account deficit wa s being 
contained by the safeguards (estimated to affect imports by about 2 % of GDP) and the economic 
contraction. During the first eight m onths of 2016, the trade surplus had been 0.9% of GDP, 
largely owing to a reduct ion in non -oil imports, but it wa s expected to worsen as the 
reconstruction - and rehabilitation -related imports pick ed up. 
160.  International financing remain ed costly. After issuin g US$1.5 billion in sovereign bonds in the 
first half of 2015 at an average sovereign spread of about 800 b asis points , access to global 
markets had beco me increasingly expensive (spreads surged to about 1,600 basis points  in 
February 2016) and official fi nancing inflows had fallen below expectations. In June 2016 Ecuador 
had obtained a US$1.5 billion loan from China and in July‒September 2016 had issued US$2 billion 
in sovereign bonds maturing in 2022 at a cost of 10.75 %. In 2015, net international reserve s 
(NIR) had fallen  by about US$1.5 billion (to US$2.5 billion, or 2.5 % of GDP) but foreign inflows 
had allowed reserves to increase to US$4 billion by mid -October.  
161.  Net intern ational reserve coverage remained  highly inadequate. NIR were assessed at about 
20% of the standard IMF reserve adequacy metric as of the time of the extension of the 
safeguards (end -April 2016), and at about 33 % as of mid -October 2016. Other considerations also 
applied  for fully dollarized economies lik e Ecuador, as these economies did  not face the risk of 
exchange rate fluctuations and currency mismatches, but need ed reserves to protect the financial 
system from a liquidity shock and as a fiscal buffer against potential government financing gaps. 
In addition, commodity -intensive econom ies might have higher precautionary reserve needs due 
to volatile terms of trade. Overall, taking into account these additional considerations in the 
current circumstances d id not significantly alter the assessment resulting from the standard metric 
for Ec uador that Ecuador's NIR wa s substantially below the adequate level.  
162.  The econ omic outlook in the short term was difficult. Growth was expected at about 2.5%  for 
both 2016 and 2017, and to remain sub dued over the medium -term. The fiscal deficit wa s 
expected  to be  about 5 .25%  of GDP  in 2016; it was forecast to be  close to balance in 2017 , as WT/BOP/ R/114 
 
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  tight financing conditions we re expected to constrain expenditure, particularly on investment (and 
hence reduce growth). The curre nt account balance wa s expected to be ab out -1% and 0 % of GDP 
in 2016 and 2017, respectively.  
163.  A range of policies were  needed to addr ess Ecuador's vulnerabilities. Despite the authorities' 
significant fiscal adjustment as well as assistance from international financial institutions, closing 
the fiscal and external financing gap was likely to require further reductions in investment 
spending and measures to raise revenues and lower current spe nding —while protecting the poor - 
in order to build fiscal buffers over the medium -term that w ould smooth future external shocks. 
Measures should encompass a continued adjustment of the government wage bill, elimination of 
untargeted fuel subsidies, revenue enhancing measures (including by permanently raising VAT), 
and expenditure prioritization. The governmen t should also move quickly to implement measures 
to foster competitiveness by reducing labo ur costs, shifting from direct to indirect taxes, opening 
up to foreign trade, stimulating productivity, and enhancing labo ur market flex ibility. The tariff 
surcharg es we re distortionary and should be eliminated as soon as possible and within the 
announced time-frame.  
5.3  DISCUSSION IN THE COMMITTEE  
164.  Members expressed in general their understanding for Ecuador's external problems. 
However, and as in previous meetings, Memb ers were divi ded with respect to the measure 's 
appropriateness, economic justification and compliance with WTO provisions. Some Members 
supported the recour se to the measure ; others found it inconsistent with WTO provisi ons and 
called for its removal . Othe rs focused on the economic damage the measure had on their exports.  
Several Members commended Ecuador for lowering some surcharge rates. However, Members 
were preoccupied by  the extension  of the measure.  
165.  Among supporters of the measure, one Member argued t hat balance -of-payments measures  
allowed countries to protect their external positions. In the case of Ecuador, it w as clear it was 
making every effort to withdraw the measure in 2017. Others expressed their solidarity  with 
Ecuador and their understanding for the extension of the dismantlement period. Several of these 
Members were of the view that the consultations should continue.  
166.  Members opposed to the measure continued to be of view that its application had systemic 
consequences  and that it was an inappr opriate response to Ecuador's problem and should be 
removed as soon as possible.  Some considered the implementation of the measure as 
discriminatory  and unjustified; others did not agree on the selective exclusion of products.  One 
Member questioned that a measure in place for two years could be considered temporary and 
requested an explanation with respect to the consistency of the surcharge with WTO rules.  
167.  Those Members  affected by the measure  pointed  to the lack of proof that measures like the 
surcharge w ere appropriate  to restore the external balance ; reconsideration of the measure was 
requested . Some Members provided figures that showed how their exports to Ecuador had been 
affected by the measure; some showed the causality between the level of the surch arge and the 
decline in exports.  
5.4  REPLIES BY THE REPRESENTATIVE OF ECUADOR  
168.  The representative of Ecuador thanked Members for their interventions and their 
acknowledgment of the partial dismantlement of the measure.  
5.5  FINAL OBSERVATIONS BY THE CHAIRMAN  
169.  The Cha irman stated h aving heard all the different interventions it was  now clear that there 
was no consensus with respect to the measures applied by Ecuador and their compatibility with 
BOP provisions and no appetite to conclude the consultations at this time . Considering this, he  
propose d that the Committee resume d the consultations early in 2017 to reassess Ecuador's 
situation. He  would therefore like to propose that the Co mmittee suspend its discussion and 
reconvene in April  in order to cont inue consultations with Ecuador. It wa s so agreed . WT/BOP/ R/114 
 
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  6  MEETING OF 25 APRIL 2017  
6.1  INTRODUCTORY REMARKS BY THE CHAIRMAN  
170.  The Chairman recalled that Ecuador had notified the WTO on 7 April 2015 that it was 
adopting as of 11 March 2015 an ad valorem  tariff surcharge on 2,955 lines at the 10 -digit level, 
representing 38% of total tariff lines, and 31% of the value of imports recorded in 2014. The rates 
of the surcharge as then applied were of 5%, 15%, 25% and 45%, on the c.i.f. value of imports. 
In its notification, Ecuador had also sta ted that it would assess the application of the surcharge on 
a quarterly basis and that the measure would be relaxed as the balance of payments situation 
improved and be eliminated when it was no longer necessary.  
171.  Following this notification, the Committee  had held consultations with Ecuador on 29 June, 
30 June and 16 October 2015, and on 17 February, 23 June and 29 November 2016. Different 
views had been expressed during these consultations and the Committee had not been able to 
reach an agreement with res pect to the consistency of the measur e applied with the relevant 
WTO rules.  
172.  In the meeting of 16 October 2015, Ecuador had provided the Committee with a time 
schedule for the gradual dismantlement of the tariff surcharges.  The time schedule was that: 
a) the 5% tariff surcharge would be removed in April 2016; b) the other three levels would be 
gradually lowered by a third on a monthly basis starting April 2016 , until they reached 0% in 
June 2016. Ecuador also announced that it would lower the 45% rate to 40 % as from 
January  2016. On 26 January 2016, Ecuador had n otified Resolution No. 001 2016 , which gave 
effect to this reduction as of 31 January 2016.  
173.  In the 17 February 2016 meeting, Ecuador had stated that it would implement the 
dismantlement schedule desp ite the difficult economic situation. Views with respect to this were 
mixed. While some Members had urged an acceleration of the dismantlement schedule, others 
encouraged Ecuador to follow its timetable and eliminate all surcharges by June 2016. No 
consens us had been reached with respect to the compatibility of the measure with WTO rules, and 
the Committee had agreed to meet again in June 2016 to continue consultations.  
174.  On 9 May 2016, Ecuador had notified Resolution  No. 006 -2016, modifying the dismantlemen t 
timetable for April 2016 due to the effects of an earthquake which had hit Ecuador that month 
further worsening the already unfavourable macroeconomic conditions. As a result, Ecuador 
partially implemented the dismantlement timetable by removing the 5% s urcharge, and deferring 
for an additional year the implementation of the rest of the timetable discussed in the Committee. 
Under the new time schedule, the gradual reduction of the existing surcharges was scheduled to 
start in April 2017, and the measure w as expected to be completely eliminated in June 2017.  
175.  In the 23 June 2016 meeting, Ecuador had provided an update of the economic situation and 
of the effects of the April 2016 earthquake on Ecuador's economy and, in particular its balance of 
payments. Ec uador had justified the need to extend the measure and asked for Members' 
understanding given the extraordinary circumstances it faced. Members had expressed their 
sympathy and offered their condolences to Ecuador for the effects of the earthquake. However , as 
in previous meetings, they had been divided with respect to the measure's appropriateness, 
economic justification and compliance with WTO provisions. As there had been no consensus 
among Members, it was decided to continue the consultations later in 2 016.  
176.  In October 2016, Ecuador had notified COMEX Resolution No. 021 -2016 which lowered its 
top surcharge rate from 40% to 35% and the 25% rate to 15%.  
177.  The Committee had reconvened on 29 November 2016 when Ecuador explained that its 
trade balance had impro ved and that the tariff surcharge had been instrumental in obtaining this 
result. It noted that, despite the improvement, the level of international reserves remained low 
and the balance of payments remained fragile, so the tariff surcharge was still neede d. Ecuador 
noted that the surcharge would be dismantled as scheduled by June 2017. As requested by 
Members, a representative of the IMF had provided an update of Ecuador's balance -of-payments 
situation. Members  had expressed in general their understanding for Ecuador's external problems WT/BOP/ R/114 
 
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  but, as in previous meetings, remained divided with respect to the measure. The Committee 
agreed to continue the consultations in April 2017.  
6.2  STATEMENT BY ECUADOR  
178.  The representative of Ecuador stated that 2016 had been a difficult year, as the econom y 
had shrunk  by 1.5%, which  was, however, a better result than that forecast by some multilateral 
agencies. This was evidence that the economic measures taken by the Government, and among 
them, the extension of the safeguard measu re with its attenuation since last October, had made it 
possible to reduce the adverse effects of the negative international context and of natural disasters 
affecting Ecuador.  
179.  The price of Ecuadorian oil had fallen by 17% on average in 2016 . But, as a result of the 
economic measures taken in 2016 the balance of payments had improved: the current account 
had registered a surplus of around 1.4% of GDP and remittances had increased by 9% . The 
economy had also showed signs of recovery, and it was expected to g row by 1.4% in 2017. 
Ecuadorian foreign trade had  also recovered;  in 2016, there had been an improvement in the 
overall trade  balance. The oil trade balance surplus had reached 2.9% of GDP, while the non -oil 
trade balance deficit  had shrunk , reaching 1.7% of GDP . 
180.  Ecuadorian total exports had fallen by 8.4%; non -oil exports had fallen in value by 2.8%, 
despite registering a 3.6% growth in volume, which indicated that prices had  fallen and, therefore, 
the amount of foreign currency entering the econom y had de clined. With respect to the effect on 
the trade balance  of the safeguard measure, comparing the March 2015 to February 2017 period 
with the same immediate period before, the re had been a 20% reduction in overall non -oil 
imports , of which imports subject to  the safeguard had shown a 38% decline, while those not 
subject to the measure had fallen by  approximately 9% . Total imports had fallen by 24% in 2016 
due to the contraction of oil imports, but also due to a decline in consumption goods and raw 
material im ports.  
181.  Ecuador had managed to abide by its commitments to the Committee despite the negative 
effects of the natural disasters affecting it. During 2016, Ecuador had lowered the surcharg es 
applied on three occasions: a ) in January it had lowered the top sur charge rate from 45% to 40%;  
b) in April, des pite the earthquake suffered, it had eliminated the 5% rate; and, c) in September , 
it had reduced the 40%  rate to 35% and the 25% rate to 15%.  
182.  In 2017, as announced in November  2016 in the Committee, Ecuador had  complied with the 
tariff reductions scheduled according to the timetable for dismantling them. On  1 April 2017 the 
existing surcharges had been  reduced by one -third, and the 35% rate had been  lowered to 23.3%, 
while the  15% rate had been reduced  to 10%, i n accordance with COMEX 
Resolutio n No. 021-2016.  With this last reduction the safeguard measure currently had  two levels: 
23.3% and 10%, respectively. In terms of pr oducts, the measure now included  2,152 tar iff 
subheadings, 811 products less than when the measure was notified in April 2015 . In accordance 
with the timetable notified, tariff reductions of one -third w ould continue in May and would be 
concluded in June 2017 . 
183.  With respect to the economic situation, there were signs of recovery  which had been aid ed 
by the implementation of the balance -of-payments safeguard, together with other policy 
measures . In the fourth quarter of 2016, GDP had expanded by 1.7% with respect to the third 
quarter; this was the third quarter of positive growth. Unemployment had a lso fallen, from 5.7% in 
March 2016, to 4.4% in March 2017 . Monetary aggregates had also been showing a positive 
evolution, and there were indications that the economy was entering in an expansionary phase. 
With respect to oil prices, their descending tren d had stopped in March 2016, and medium term 
expectations were of a recovery. This had been confirmed by recent data, a s the price of WTI oil 
had reached US$ 52.50 a barrel in February 2017 , while Ecuadorian oil had been priced at 
US$44.90 on the same date.  The trade balance had also recovered posting a US$1.39 billion 
surplus in March -December 2016, compared with a US$1.42 billion deficit in the same period of 
2015. The improvement had been mainly due to a US$2.4 billion decline in the non -oil trade 
deficit ; the oil trade balance had also slightly improved. At the end of 2016, the balance of 
payments had shown a surplus, as the current account balance went from a US$2.4 billion deficit 
in 2015 to a US$1.42 billion surplus in 2016. Foreign exchange reserves had totalled WT/BOP/ R/114 
 
- 31 - 
 
  US$4.26  billion in December 2016, up US$1.72 billion from their level in December 2015.  Despite 
the recovery, the economy remained fragile to external shocks.  
184.  The representative of Ecuador expressed his concern about the  increasing use of compe titive 
devaluations by other WTO Members, in particular Ecuador's trading partners. This had had the 
effect of making imports cheaper for Ecuador but making exports less competitive, affecting 
earnings from trade and having an effect on liquidity, as Ecuad or's was a dollarized economy. He 
considered this issue should be taken up by the WTO.  
185.  Ecuador wa s immersed in a democratic transitio n process that guaranteed  to its trading 
partners the full observance of  its trade commitments including the issues of comp etence of this 
the Committee. He thanked Members o f the Committee for their positive and constructive 
participation in the  consultations. Ecuador would transmit to the Committee the respective 
notifications evidencing compliance with the implementation of the two remaining stages of the 
dismantlement timetable, in May and June of 2017. 
6.3  DISCUSSION IN THE COMMITTEE  
186.  Members welcomed the implementation of the first tariff surcharge reduction in April and the 
fact that Ecuador was complying with its commitment t o dismantle the measure as previously 
announced. However, and as in previous meetings, Members were divided with respect to the 
measure's appropriateness, economic justification and compliance with WTO provisions. Some 
Members supported the recourse to the  measure; others found it inconsistent with WTO provisions 
and called for its prompt removal ; while o thers focused on the economic damage the measure had 
had on their exports.  Several Members expressed their confidence in the continued 
implementation of th e dismantlement timetable, as scheduled.  One Member was of  the view that 
applying tariff surcharges was no solution for balance -of-payme nts problems, as it had an 
anti-exports bias as it increased the price of imports.  Another stressed the importance of en suring 
that the measure was temporary and gradually eliminated.  
187.  Among Members who supported the use of the measure, some invited the Committee to 
reach consensus in this regard. Others emphasized that the measure had helped Ecuador achieve 
economic recover y. Welcoming this recovery, some Members were of the view that it remained 
fragile and that it should be monitored.  
188.  Among Members who opposed the measure, some were of the view that the measure was 
discriminatory: Others pointed out that the mode of implem entation of the measure had not 
changed and hence they considered it to be incompatible with WTO rules. They urged the 
immediate or prompt elimination of the measure.  
189.  Among Members that focused on the  negative economic effect of the measure on Ecuador's 
trading partners , some  provided quantitative information of estimated export and production 
losses and effects on employment. One Member argued that the measure had also had a negative 
impact on Ecuador's economy, since it had made imports of machinery and e quipment more 
expensive.  
6.4  REPLIES BY THE REPRESENTATIVE OF ECUADOR  
190.  The representative of Ecuador  thanked Members for the ir interventions. He stressed that 
Ecuador had always been committed to honour its engagements and that it had never intended the 
measure  to be discriminatory. Ecuador reaffirmed its commitment to comply with its obligations in 
the Balance -of-Payments Committee and to continue dismantling the measure.  
6.5  FINAL OBSERVATIONS BY THE CHAIRMAN  
191.  The Chairman stated that, h aving heard the commitment f rom the delegation of Ecuador to 
remove the measure in Jun e 2017 and Members' reactions, he  would like to pro pose that once the 
Committee had  been notified of the removal of the measure in June , these consultations be 
brought to an end. He reminded the Com mittee that, u nder paragraph 13 of the Understanding on 
the Balance of Payments Provisions of the GATT 1994, the Committee shall report on its 
consultations to the General Council. The report should indicate the Committee's conclusions on WT/BOP/ R/114 
 
- 32 - 
 
  the different ele ments of the plan for consultations, as well as the f acts and reasons on which they 
were based. In the absence of consensus,  the Committee's conclusions should record the different 
views expressed in the Committee. Upon notification of the removal of the m easure, he would  ask 
the Secretariat to prepare a draft report for circulation to Members. Members w ould be given time 
to provide comments on this report which c ould then be adopted in the Committee in a short 
meeting. Should the measure not be removed in accordance with this schedule he would convene 
another meeting. The statements made by Ecuador and the representative of the IMF w ould be 
attached as annexes to t he Report on the Consultations.  
7  CONCLUSIONS  
192.  The Committee took note of Ecuador's full complian ce with the dismantling schedule that  
remove d all trade measures for balance of payments purposes effective as of 1 June 2017.5 
193.  In accordance with Article XV:2 of the GATT 1994, the IMF in its interventions made in June 
and October of 2015 and in November of 2016 in this Committee, has noted Ecuador's balance of 
payments difficulties as a result of external shocks, in addition to the vulnerabilities of a dollarized 
economy.  
194.  Several Members acknowledged Ecuador's balance -of-payments difficulties , which had 
resulted in a  low level of foreign exchange reserves due partly to lower oil prices. It was also noted 
that, as a dollarized economy, Ecuador had no independent monetary  policy and could not resort 
to devaluation . Other  Member s pointed out that Ecuador's le vel of reserves was historically low , 
but that despite this Ecuador had not created a buffer of monetary reserves in good times . 
Accumulated reserves in years of high oil prices had been used to finance public expenditure. As a 
result, balance of payments pressures were partly a consequence of policy choices.  
195.  Some Members supported the introduction of the measure that in their view would facilitate 
the recovery of Ecuador's external position, while others questioned its  economic rationale . They  
were of the opinion that the adoption of enduring  policies, including fiscal adjustment, would 
provide a longer -lasting solution.  Recourse to a balance of payments measure should be a last 
resort.  
196.  Members were divided with respect to the effectiveness of the measure a dopted by Ecuador 
to correct its balance of payments deficit, as well as with resp ect to its consistency with 
WTO provisions. Several Members expressed concern about Ecuador's recurrent use of balance of 
payments measures. In particular, they questioned  the manner in which the measure was applied, 
particularly regarding the different surcharge rate levels , its application to a limited number of 
tariff lines,  and the exclusion of some WTO  Members from its scope.  A number of Members 
expressed concern about th e adverse effect of the measure on their exports.  Other Members were 
supportive of the measure  that they considered had aided Ecuador's economic recovery arguing 
that it was  justified to deal with Ecuador's  balance -of-payments problems and had been applied  
consistent ly with WTO rules. All Members acknowledged that during the consultation, Ecuador 
acted with full transparency and complied with the calendar for the dismantlement of the measure 
as it was told at the committee meetings.  
197.  On the basis of the comm itments taken by Ecuador reflected above , and taking into account 
that there was no consensus with respect to the compatibi lity of these measures with 
WTO obligations , the Committee agreed to conclude the consultations  following confirmation that 
Ecuador r emoved the measure as planned on 1 June 2017 .6 
 
_______________  
                                                
5 The Schedule of application and removal of Ecuador's tariff surcharge c an be found in Annex 2.  
6 See WTO document WT/BOP/N/84 , 20 June 2017 .  WT/BOP/ R/114 
 
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  ANNEX 1  
COMMITTEE FOR BALANC E OF PAYMENTS  
Opening Statement from Ecuador  
29 June  2015 
Mr Chairman,  
 
Allow me to begin this presentation by expressing my delegation's gratitude both to yourse lf and 
to the distinguished WTO Members who have attended this meeting of the Committee on 
Balance -of-Payments Restrictions, in order to carry out consultations, as  provided for in 
paragraph  12 of Article XVIII: B of the GATT 1994 and paragraph 10 of the re spective 
Understanding, on the balance -of-payments safeguard measure adopted by Ecuador.  
 
I should also like to thank all the institutions that have analysed Ecuador's situation and have 
today submitted their results. We are sure that these inputs will con tribute significantly to the 
discussion to be held in this forum.  
 
Mr Chairman,  
 
Ecuador participates in these consultations with the certainty of having meticulously complied with 
all the procedures laid down in the multilateral regulations, as well as al l the technical and legal 
requirements established for the adoption of a measure of this kind.  
 
Ecuador is a developing economy with particular characteristics that make it a unique and 
exceptional case; account must be taken of those characteristics in or der to understand the 
reasons why the country was obliged to adopt this measure. Thus, my statement will first address 
the particularities of a dollarized economy like that of Ecuador; I shall secondly refer to the 
structural characteristics of Ecuador's e xternal sector, before going on to describe the impact of 
the international economic situation on the Ecuadorian economy; and I shall conclude with the 
economic policy measures adopted in response to the difficult situation facing the country. As will 
be seen, given the absence of the main tools of monetary and exchange rate management, the 
safeguard measure was adopted as a last resort to underpin the macroeconomic equilibria.  
 
The purpose of the foregoing is to establish the necessary basis for these cons ultations to address 
the balance -of-payments position and prospects and alternative measures to restore equilibrium, 
as well as the systems and methodology of the measures and their impact.  
 
Mr Chairman,  
 
If an economy cannot issue its own money, it loses its main monetary and exchange rate policy 
instrument and becomes much more vulnerable to fluctuations in its foreign economic relations. In 
a dollarized economy, the supply of foreign exchange is at the same time the supply of money and 
any adjustments  resulting  therefrom will have a direct impact on the real economy. With 
dollarization, the economy's liquidity will to a large extent depend on the balance -of-payments 
figures, so that external shocks that cause rapid and significant changes in the inflow of  foreign 
currency into the country will seriously disrupt growth, employment and the overall well -being of 
the population.  
 
Far from protecting the economy from a balance -of-payments crisis, dollarization makes it more 
vulnerable to external shocks. When a n economy issues its own money, although international 
monetary reserves may decline, the risks to the monetary system are not as great, since in order 
to satisfy domestic demand for local currency, countries can always turn to their monetary and 
exchange rate policy. However, in the case of the Ecuadorian economy, as these tools do not exist, 
there is always a risk that, beyond a certain point, negative external shocks can affect the liquidity 
levels and weaken the real sector.  
 WT/BOP/ R/114 
 
- 34 - 
 
  The fact that the internati onal reserves of a dollarized economy are not solely controlled by the 
Central Bank, but also by other agents, means that the balance of payments can be adjusted by 
two mechanisms: (a) a loss of Central Bank reserves to meet working capital requirements; 
or (b) a drastic liquidity squeeze. In either case, the result is ultimately a fall in the level of 
production and employment, or a sharp decline in reserves, making impossible the normal conduct 
of domestic and external business transactions.  
 
The constrai nts imposed by the dollarization regime force the economic authorities to use 
alternative mechanisms to preserve fundamental macroeconomic balances.  
 
Mr Chairman,  
 
The external sector of the Ecuadorian economy has, in addition, other structural characteris tics 
that need to be considered.  
 
Ecuador still depends on exports of primary commodities deriving from the exploitation of natural 
resources, the prices of which are volatile on international markets. This is the case for oil, but 
also for bananas and shr imps, which accounted for 72 % of total foreign sales in 2014.  
 
Although certain products such as shrimps and mining products began to emerge in 2014, the 
structure of Ecuador's exports remains concentrated on a limited number of traditional products. 
In 20 14, 80 % of total exports were concentrated on five products: oil (51 %), bananas (10 %), 
shrimps (10 %), canned fish (5 %) and gold (4 %). 
 
Moreover, Ecuador's structure of production makes it dependent on imports of both raw materials 
and capital goods. In 201 4 imports of raw materials accounted for some 30 % of total imports, 
compared with 25 % in the case of capital goods. In other words, more than half of Ecuadorian 
imports are vital to the normal development of national productive activity. The remaining 45 % is 
divided between imports of consumer goods (20 % of the total) and oil imports, including fuels 
(25% of the total).  
 
It is important to mention that Ecuadorian imports have shown steady growth over the last 
five years (14 % on average), with a marked incre ase in imports of consumer goods, both durable 
and non -durable, as a result of a change in the consumption patterns of the population, due to 
increased income and purchasing power.  
 
Another result of the increase in Ecuador's imports is the outflow of fore ign currency reflected in 
both payments for goods and freight and insurance payments by the importer for the transport of 
goods. When the outflow of foreign currency to pay for imports is not offset by an inflow in respect 
of exports, there will be an adve rse effect on the economy's liquidity, as I shall explain below. This 
effect is produced because the balance of payments in Ecuador is largely determined by the 
current account balance, which in turn is chiefly explained by the balance of goods.  
 
Mr Chairm an, 
 
The international economic environment in late 2014 negatively affected the performance of the 
economy's external sector and the balance -of-payments figures, owing to: (a)  lower earnings from 
oil because of the decline in the international price of cr ude oil; (b) decline in exports and increase 
in non -oil imports due to the appreciation of the dollar; and (c) increased sovereign risk, which 
raises the cost of credit lines.  
 
Changes in both the price and the volume of oil exports have important repercus sions on the 
generation of foreign exchange. For each dollar decrease in the price of crude oil, the net impact is 
a decrease in revenue of approximately US$77 million in the Ecuadorian economy.  
 
According to estimates for 2015, although the volume of oil exports should remain at about 
154 million barrels, the fall in the average price to US$40 per barrel (52.5 % of the average price 
for 2014) would mean a US$7,010  million decline in the value of oil exports compared with 2014 
(US$13,302  million), so that in  2015 foreign exchange earnings from oil exports would be reduced 
to less than half the value recorded in 2014.  
 WT/BOP/ R/114 
 
- 35 - 
 
  In addition, the slide in oil prices entails an adjustment in levels of investment in the oil sector. 
This means that, even when the internatio nal price recovers, its effect is not immediately reflected 
in increased production and exports of crude oil, as it will first be necessary to reverse the 
previous stall in investment in order to recover the output lost during the period of low prices.  
 
Furthermore, imports of derivatives will fall owing to the lower price of oil products on the 
international market. However, estimates suggest that the lower value of these imports for 2015 
will not offset the loss of resources from oil ex ports. In fact, in net terms, the oil trade balance for 
2015 is expected to decline by US$4,149  million compared to 2014.  
 
It is important to add that the performance of non -oil exports does not help mitigate the decline in 
oil exports. For 2015, the annual growth rate of th e former is expected to decline substantially to 
barely 3 % compared to 2014. This can be explained by the unfavourable international price trends 
for Ecuador's main export products, and the lack of any signs of recovery in the short term. All in 
all, total  exports are expected to decline by about 26 % in 2015 compared with 2014, on account 
of the fall in oil exports and the weak growth of non -oil exports.  
 
The effects of the decline in crude oil prices as from the second half of 2014 were not limited to 
trade in petroleum and derivatives but also affected Ecuador's sovereign risk status, as reflected in 
an increase in the EMBI+ (Emerging Markets Bond Index)1, which rose from 412 points at the end 
of October  2014 to peak at 1111 points on 16  December of the sa me year, a period that witnessed 
an accelerated slide in the international price of oil. One immediate consequence of the increased 
risk is a rise in the cost of credit lines on the international market, which even further hampers the 
task of external adju stment.  
 
The aggregate effects of this complicated international landscape, combined with the unique 
specificities of the Ecuadorian economy, create a difficult scenario for the year 2015. Forecasts for 
the external sector of the Ecuadorian economy for 201 5 show that the balance of payments would 
reflect a US$2,009  million reduction in international reserves and a trade deficit of 
US$2,404  million, figures which do not guarantee the country's external sustainability and which 
imply a decrease in the amount of dollars available in the economy to effect transactions and 
ordinary payments. For this reason, the Government has seen the need to safeguard the dollarized 
economy's liquidity and, at the same time, not to jeopardize the implementation of strategic 
projects that are in their final phase, in order to be able in the near term to boost economic 
growth, strengthen the external position of the economy and guarantee the medium - and 
long-term sustainability of the monetary regime.  
 
Mr Chairman,  
 
Although the a dverse economic effects of external shocks can be addressed by cyclical public 
policy measures, the definitive solution to this weakness will not be achieved solely through the 
implementation of such measures, but through medium - and long -term strategies a imed basically 
at transforming the economic structure of Ecuador in order to strengthen its external position 
against shocks that might occur on the international market.  
 
Accordingly, Ecuador's public policy interventions pursue a twofold objective: on th e one hand, 
they are directed to laying the groundwork for necessary structural changes in the production 
sector and society; and at the same time they seek to achieve fundamental macroeconomic 
balances so as to facilitate the normal development of economi c activity by enterprises and by 
citizens. This task, which in itself entails major challenges, is made even more complicated by 
having as its setting a dollarized economy in which unfavourable economic trends have to be faced 
without the benefit of all th e monetary tools needed to restore its external accounts balance.  
 
Given the sharp contraction in the balance -of-payments situation, the immediate public policy 
objective was to avoid an adjustment in the real sector of the economy and optimize the use of 
existing liquidity to maintain the country's levels of production and employment, and to minimize 
the costs of adjustment for the most vulnerable sectors. This was achieved through the 
implementation of measures that served principally: to recycle domestic  liquidity, while creating 
                                                
1 The EMBI is the spread between interest rates on dollar -denominated bonds issued by emerging 
countries and US Treasury bonds, which are considered "zero risk".  WT/BOP/ R/114 
 
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  incentives for productive activities to promote a positive net flow of foreign exchange; and to 
stimulate the use of alternative means of payment.  
 
The Government, together with the country's main private banks, established a pro gramme of 
incentives in April  2015 for the construction of social housing, with the aim of maintaining levels of 
production and employment and providing liquidity support to the economy, taking into account 
the strong linkages of this activity. As a supple mentary measure, by promoting the use of 
electronic money (November  2014), it was sought to enable the population to use alternative 
means of payment backed by the Central Bank of Ecuador. In addition, in March  2015, rules were 
established for money transf ers to foreign countries through entities of the national financial 
system, in order to ensure transparency in the registration of foreign currency movements and 
obtain reliable information for improved monitoring of foreign cu rrency outflows from Ecuador.  
I should like now to refer to a range of measures designed and implemented over the last year to 
address the liquidity crunch:  
 
As regards measures taken to deal with the sharp decline in income from oil exports, the 
Government revised its programme of pu blic expenditure to take account of the new earnings 
reality, seeking not to halt investments that are in their final phase and are essential to achieving 
the planned structural changes. In order to implement this adjustment, the annual investment 
plan was  reprioritized in January  2015 and capital expenditure was reduced by US$840  million, 
which is equivalent to 2.3 % of the preliminary budget for the year. In addition, in March  2015, the 
salaries of all senior public officials were reduced by between 5 % and 10%, depending on the 
salary scale, and in April the Inter -Institutional Committee for Prioritizing Public Investment was 
established in order to further improve the efficiency of resources earmarked for public 
investment.  
 
With regard to the unfavourable  scenario for access to external financing, which is directly affected 
by the heightened perception of sovereign risk as a result of the decline in oil prices, what was 
done was to diversify the sources of government financing, and measures were taken to f acilitate 
the collection of tax arrears. The Ecuadorian State made two bond placements on the international 
market, one in March and the other in May of this year, each amounting to US$750  million for a 
term of five years, at rates of 10.5 % in the first in stance and 8.5 % in the second, for the purpose 
of financing planned investment expenditure, thereby demonstrating that the effective and 
transparent management of economic policy boosts creditor confidence and enhances certainty for 
external as well as int ernal actors. Moreover, between December  2014 and January  2015, the 
Finance Minister negotiated major lines of credit with multilateral organizations and friendly 
governments, which have contributed to easing the pressure generated by international economi c 
trends on the country's public finance revenues. Lastly, in April of this year, the National Assembly 
approved the Organic Law on the Remission of Interest, Fines and Surcharges, tabled by the 
Executive, which provides for the elimination of interest and  fines for arrears in the payment of 
taxes and creates an incentive for Ecuadorians to meet their overdue tax obligations; and this, on 
the one hand, helps strengthen the liquidity of the Ecuadorian State and, on the other, eases the 
tax burden of delinque nt taxpayers, while providing them with greater short -term liquidity that can 
be used to promote productive activities.  
 
Finally, as part of the measures adopted to improve the trade balance, incentives fully consistent 
with international standards were es tablished to promote production. With the approval, in 
December  2014, of the Organic Law on Production Incentives and Prevention of Tax Fraud, 
additional benefits were provided for the development of productive activities and special 
advantages were introd uced to promote investment in strategic sectors of the Ecuadorian economy 
and endow them with long -term tax stability. In March, the foreign trade duty drawback system 
was consolidated in accordance with international standards. Additional controls were al so 
implemented to reduce smuggling, such as the creation of a unit specializing in police and military 
intelligence which, together with Customs personnel, carries out joint operations for the purpose of 
preventing additional and illegal outflows of foreig n currency, which might further adversely affect 
the Ecuadorian economy.  
 
Mr Chairman, faced with the lack of traditional monetary and exchange tools for the management 
of external balances, and given the unique and special characteristics of the country's  dollarized 
economy, the Government of Ecuador has used all the means at its disposal in an innovative and 
timely manner to cope with the prevailing economic circumstances. However, in view of the 
serious effects of the external situation, all these effort s proved insufficient to contain the slide in WT/BOP/ R/114 
 
- 37 - 
 
  the country's foreign exchange earnings. It was in these circumstances that Ecuador found itself 
obliged to implement a temporary balance -of-payments safeguard measure, as a last resort, as 
I shall explain belo w. 
 
Mr Chairman,  
 
The Government of the Republic of Ecuador is aware that the only way to reduce its economy's 
vulnerability to external shocks on the international market is to bring about a profound change in 
the economic structure of the country; to tha t end, Ecuador's public policy has been directed 
towards implementing actions aimed at securing a definitive solution to its structural problems, in 
the hope of achieving substantial results as from next year, when the most important 
infrastructure works a re completed.  
 
Allow me to mention one of the most important emblematic projects in this structural 
transformation, which will effect a sea change in the country's electricity sector. Ecuador is 
currently building eight hydroelectric power stations, which will come on stream next year. Thanks 
to these power stations, 90 % of all electricity generated in Ecuador will come from renewable 
sources, in this case water sources, in 2016, thereby reducing energy costs by 50 %: from 8 cents 
per kWh currently, to 4 cen ts per kWh, which will undoubtedly help increase Ecuador's 
competitiveness by reducing the operating costs of its industries.  
 
These power stations will also have a major impact on the external accounts of the economy by 
enabling some US$400  million to be saved annually through the reduction of fuel imports for 
thermo -electric generation, and an additional US$500  million through the reduction of liquefied 
petroleum gas (LPG) imports under the programme for substitution of gas cookers by electrical 
induction  cookers, which is currently being promoted by the Government. This will provide relief of 
some US$900  million per year on the country's external accounts, which will undoubtedly 
contribute to strengthening its external position.  
 
Furthermore, through impl ementation of the national strategy for changing the production matrix 
and the national strategy for equality and poverty eradication, the Government is seeking to 
achieve the structural changes necessary for the country by consolidating a diversified, dyn amic, 
sustainable and inclusive economy, whose supply of goods and services is based on knowledge 
and innovation, contributing at the same time to the eradication of poverty and the building of a 
fairer and more participative society. I should like to emph asize that the achievement of the 
medium -term objectives established in those strategies will only be possible if the Government, in 
the current economic climate, uses all the instruments at its disposal to make essential 
macroeconomic adjustments in the s hort term.  
 
Accordingly, in the matter of industrial policy, the Government is seeking to implement plans and 
policies aimed at realizing the maximum potential of basic industries, intermediate industries and 
agro-industry.  
 
As regards intermediate and fin al industries, it has been determined that by 2025 they could 
potentially generate income of US$5,800  million and create 12,000 jobs based on the 
establishment of 38 factories, and they could have an export capacity of US$4,190  million. 
Similarly, agro -industry could potentially generate US$8,727  million in income and create 
80,000  jobs in 84  factories, with an export capacity of US$2,280  million.  
 
Ecuador is working steadily to implement the above -mentioned plans and programmes, in an effort 
to restore equ ilibrium in its balance of payments on a sound and lasting basis.  
 
Mr Chairman,  
 
It is important to point out that the safeguard measure adopted forms part of a range of 
short-term policies underpinning the long -term measures designed to improve the struct ural 
situation of the non -petroleum trade balance, reduce the external sector's dependence on oil in the 
medium term, and improve the liquidity of the economy in order to restore Ecuador's 
balance -of-payments equilibrium on a sound and lasting basis.  
 
Despite the development -oriented slant of economic planning and despite all the Government's 
efforts, it has not been possible to prevent a sharp deterioration in the balance -of-payments WT/BOP/ R/114 
 
- 38 - 
 
  situation, caused by the above -mentioned economic climate combined with t he vulnerability of the 
dollarized economy.  
 
It is recognized under the applicable multilateral rules, in Article XVIII:B.8 of the GATT, that 
developing countries tend to experience balance -of-payments difficulties arising mainly from 
efforts to expand the ir internal markets as well as from the instability in their terms of trade, and 
those are precisely other variables that affect or describe the situation of Ecuador.  
 
Together with the foregoing, it is relevant to recall that the balance -of-payments safeg uard 
measure adopted by Ecuador follows the interpretative guidelines formulated by the Panel and 
confirmed by the Appellate Body in India – Quantitative Restrictions  (WT/DS90/AB/R). Among the 
relevant criteria, both bodies agree in their interpretation th at the provisions of Article XVIII of the 
GATT are based on recognition of the specific needs of developing countries in relation to 
measures taken for balance -of-payments purposes. Accordingly, and in the light of those 
interpretations, the provisions of Article XVIII of the GATT 1994 are reflected, with regard to 
balance -of-payments restrictions adopted by WTO developing country Members, in binding legal 
texts which recognize and endorse the principle of special and differential treatment contemplated 
for developing countries with regard to balance -of-payments measures. Consequently, the degree 
of rigour required under Article XVIII:B is clearly different in nature and purpose from the 
conditions and degree of rigour of Article XII:2(a) of the GATT 1994 wh ich, according to the 
reading and interpretation by the Panel and the Appellate Body in the above -mentioned case, 
applies solely and exclusively to the developed country Members of the WTO.  
 
Thus, pursuant to Article XVIII:B of the GATT 1994, developing co untries are entitled to apply the 
measure in question in order to forestall the threat of, or to stop, a serious decline in their 
monetary reserves; but the same article also provides that the measure may be taken in order to 
safeguard the external financi al position and ensure an adequate level of reserves for the 
implementation of the programme of economic development, which in the case of Ecuador, as a 
dollarized economy, means maintaining an adequate liquidity level.  
 
In this context, Mr  Chairman, and b eing aware that this measure must be applied as an 
exceptional tool of last resort, Ecuador has been obliged to adopt a safeguard in order to restrict 
the general level of imports and thus protect the country's balance -of-payments situation, under 
the prov isions of Article XVIII:B of the GATT 1994; this measure has been applied in accordance 
with the terms of Resolution No.  011-2015, published in the Supplement to Official Journal 
No. 456 of 11  March  2015, of the Foreign Trade Committee (COMEX) in its capac ity as the 
authority competent to approve Ecuador's public policies on trade, as provided in notification 
document WT/BOP/N/79.  
 
This entirely relevant and legitimate measure has been applied to avoid a major 
balance -of-payments problem for Ecuador in an i nternational situation which has undermined the 
country's main sources of foreign currency, seriously affecting its economy.  
 
The measure, as Members will have observed, consists in establishing, for a period of up to 
15 months, a temporary, non -discrimina tory, ad valorem  tariff surcharge of 5 %, 15%, 25% and 
45%, calculated on the basis of the c.i.f. value of imports, as set out by tariff line in the Annex to 
the above -mentioned COMEX Resolution No.  011-2015. It covers 2,955 ten -digit tariff subheadings 
equivalent to 38 % of a universe of 7,581 subheadings, which in c.i.f. value terms represents 31 % 
of total imports for 2014. This surcharge is applied in addition to the tariffs currently in force, in 
accordance with Ecuador's Tariff and the bilateral and regi onal trade agreements to which Ecuador 
is a party.  
 
In determining the tariff levels applied under the measure, priority was given to imports of goods 
that are essential in an economic situation such as the one facing Ecuador and in accordance with 
paragra ph 4 of the Understanding on the Balance -of-Payments Provisions of the General 
Agreement on Tariffs and Trade 1994. The measure excludes "essential products" on the one 
hand, which satisfy the basic consumption needs of the Ecuadorian population and, on th e other, 
capital goods and basic inputs indispensable to production, and likewise takes account of the 
exclusions laid down in Article 2 of COMEX Resolution No.  011-2015.  
 
On this point, allow me to add that the measure in question is not discriminatory, a nd it has 
therefore been extended to regional trade in the context of the integration agreements maintained WT/BOP/ R/114 
 
- 39 - 
 
  by Ecuador. Thus, the measure has been the subject of appropriate analysis in the Andean 
Community: the General Secretariat of the Community assesse d the urgency of its application and 
confirmed its relevance in the light of the existence of a disequilibrium in Ecuador's balance of 
payments, thus authorizing its application to trade within the subregion, as recognized in 
Resolution No.  1784 of 1  June 2015.  
 
Mr Chairman, Ecuador has undergone sustained economic growth in recent years and has achieved 
important milestones, which must not only be preserved but also taken further in order to 
successfully promote a plan of economic, social, participative an d sustainable development, to 
which all Ecuadorians have a legitimate right. Accordingly, despite the limitations imposed by its 
dollarized status, Ecuador has made significant advances, including the following in particular:  
 
 Between 2012 and 2014, Ecuado r achieved an average of 4.5% g rowth. During the 
period 2007 -14, Ecuador invested more than 2.5 times as much in public infrastructure 
(as a percentage of G DP) as during the period 2000 -06. Four times as many roads and 
five times as many airports were buil t, ten times the power generation capacity is still 
under construction and the fibre optic network is now 28  times more extensive than in 
2006. The creation of this infrastructure will serve to increase the competitiveness of 
domestic production and boost private investment.  
 The recovery of real wages, coupled with a slowdown in the growth of prices, made it 
possible for the first time in 32 years, as from 2014, for the monthly family income of 
Ecuadorians to cover 100% of the basic family basket.  
 Unemploym ent was brought down to the lowest level in the country's history. The 
national unemployment rate dropped from 5% in December  2007 to 3.8% in 
December  2014. The urban unemployment rate fell from 5% in 2007 to 4.5% in 2014.  
 Between 2007 and 2014, poverty me asured by income fell from 36.7% to 22.5%, while 
extreme poverty was reduced from 16.9% to 7.7%.  
 The reduction of inequality in Ecuador has been more rapid than the regional average, 
since growth has benefited the poorest persons; Ecuador reduced its Gini coefficient, 
measuring income inequality, by eight points between 2007 and 2014, compared with 
the Latin American figure of three points.  
 Ecuador has the region's highest level of investment in higher education as a share of 
GDP, with 10,482 higher educati on scholarships being awarded between 2007 and 2014 
at reputable and prestigious universities throughout the world.  
These achievements have been recognized at international level, and Ecuador does not wish to 
jeopardize them, but on the contrary to build u pon them.  
 
In conclusion, Mr  Chairman,  
 
Ecuador wishes the foll owing points to be considered: a) the application of the measure by 
Ecuador represents a special case, as it is a country with a small, open and dollarized economy, 
highly vulnerable to any ext ernal shocks which arise, mainly on account of the lack of the main 
tool of exchange rate and monetary policy for reacting to such shocks; and b) the application of a 
proportional and temporary measure, as a result of a rigorous technical and legal analysi s, 
constitutes a legitimate exercise under Article XVIII:B of the GATT 1994, since it is a strictly 
necessary measure available to developing Members in order to address a disequilibrium in their 
balance of payments.  
 
Finally, Mr  Chairman,  
 
Having demonstr ated the disequilibrium in Ecuador's balance of payments and the difficult 
economic situation faced by our country, not only by means of the arguments put forward by our 
delegation but also in the report submitted by the International Monetary Fund, which 
comprehensively  endorsed this situation and the measures adopted by Ecuador; further 
emphasizing that this disequilibrium was also recognized and accepted by the General Secretariat 
of the Andean Community – as confirmed in Resolution No.  1784; our delegat ion is therefore WT/BOP/ R/114 
 
- 40 - 
 
  confident that these consultations will have a positive outcome, since Ecuador adopted the 
measure in strict compliance with the rules and procedures established for that purpose both at 
the multilateral level and at the regional and subre gional level, seeking the satisfactory 
implementation of the development programmes and policies established by Ecuador, which aim to 
improve the quality of life of its population, this being a legitimate and desirable objective, in the 
context of the inte rnational community, for a dynamic developing country like Ecuador.  
 
We reiterate our thanks to you for your clear resolve to move forward constructively in these 
consultations and to adopt a consensual report as a corollary to these deliberations. We are certain 
that, with your leadership and with the understanding and good will of WTO Members, this work 
will be fruitful and will reach a successful conclusion in the coming days.  
 
Thank you, Mr  Chairman.  
 
_______________  
 
 WT/BOP/ R/114 
 
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  ANNEX 2 
COMMITTEE FOR BALANC E OF PAYMENTS  
Schedule of application and removal of Ecuador's tariff surcharge  
Date/rate  
March 2015  January 2016  April 2016  October 2016  April 2017  May 2017  June 2017  
5% 5% 0% 0% 0% 0% 0% 
15% 15% 15% 15% 10% 5% 0% 
25% 25% 25% 15% 10% 5% 0% 
45% 40% 40% 35% 23.3%  11.6%  0% 
Source: Ecuadori an authorities .  
 
_______________  
 
 
 WT/BOP/ R/114 
 
- 42 - 
 
  ANNEX 3  
COMMITTEE FOR BALANC E OF PAYMENTS  
ECUADOR —STATEMENT BY THE IMF  REPRESENTATIVE  
AT THE 2015  CONSULTATION  OF THE WTO  COMMITTEE  ON  
BALANCE OF PAYMENTS RESTRICTIONS  
JUNE 29 , 2015  
The macroeconomic situation is deteriorating  
 
1.  The sharp drop in oil prices in late 2014 has complicated the economic policy tasks of 
the Ecuadorean authorities. Ecuador is heavily dependent on oil production, which accounted 
for about 12½ percent of GDP an d 55 percent of all export revenues, on average over the last 5 
years. The decline in oil prices —from US$93 a barrel in the first nine months of 2014 to US$60 in 
the last quarter, and to US$42 in February 2015 —sharply undercuts their available resources. A s a 
fully dollarized economy with very limited buffers, E cuador must adjust rapidly to external shocks, 
given the absence of monetary or exchange rate policy to cushion the impact .  
2.  Prior to the oil price shock, macroeconomic conditions were relatively pos itive. High 
oil prices for the Ecuadorean mix, averaging US$94 in 2011 –14, generated windfall income that 
was used to boost public spending and growth (rather than building financial buffers), while 
limiting current account deficits. Growth averaged over 5  percent in the period 2010 –13, and 
slowed to 3.8 percent in 2014 on account of less buoyant domestic demand. Inflation increased to 
3.6 percent in 2014, in part owing to elevated domestic food prices. Private credit growth and 
bank profitability have mode rated from previous highs in 2011, but the banks remained healthy.  
3.  Fiscal policy has been expansionary, with an important investment program aimed at improving 
Ecuador 's medium -term energy balance. The overall fiscal position of the non -financial public 
sector (NFPS) changed from balance in 2011 to a deficit of 3½  percent of GDP in 2012 –14, despite 
continued improvements in tax collection and buoyant oil prices. The non -oil fiscal deficit averaged 
about 8 percent of GDP in 2012 –14. This deterioration mostly  reflects large increases in capital 
spending aimed at improving infrastructure, diversifying energy production, and reducing poverty 
and income inequality. Accordingly, NFPS debt rose from 18½  percent of GDP in 2011 to 30 
percent in 2014. Gross financing needs reached 8½ percent of GDP in 2014, covered mainly with 
external borrowing. The original 2015 budget (approved in the fall of 2014) projects a deficit of 
5.3 percent of GDP; staff estimates that this implies a non -oil deficit of 8½ percent of GDP.  
4.  External current account deficits remained small through 2014. Net oil exports 
(subtracting oil imports) dropped by nearly 2 percent of GDP in 2014, despite crude oil volume 
growth of 10 percent. However, this was offset by a strong performance of non -oil exp orts and a 
significant decline in non -oil imports, which contained the current account deficit to 0.6 percent of 
GDP. The non -oil current account deficit was about 7½  percent of GDP in 2014.  
5.  Growth is declining.  The high -frequency Index of Economic Activit y dropped sharply —by 14 
percent —from December 2014 to February 2015; credit growth went flat from end -2014; and 
consumer confidence declined. The IMF Spring World Economic Outlook projected Ecuador 's 
growth to halve in 2015, to a still -positive 1.9 percent . However, data for 2015 so far, coupled 
with the expected sharp fiscal adjustment (see  below), suggest that growth could be substantially 
lower.  
The balance of payments need is large  
 
6.  The sharp decline in oil prices, coupled with a sizable real appreciat ion, is significantly 
worsening Ecuador 's balance of payments. Exports are projected to drop by nearly 6 percent of 
GDP in 2015. Of this loss, 5½ percent of GDP comes from the decline in oil earnings. The projected 
impact on the net oil bill will be lower,  with offsetting savings on oil imports of about 2½ percent of 
GDP. The non -oil trade balance is expected to worsen by about 1 percent of GDP from the WT/BOP/ R/114 
 
- 43 - 
 
  appreciation of the real effective exchange rate by about 17  percent from June 2014 to March 
2015, as the  currencies of trading partners weakened against the U.S. dollar.  
7.  The worsening outlook is tightening access to international financing. In June  2014, Ecuador 's 
US$2 billion issuance of a 10 year global bond was oversubscribed, with a spread of 530 basis 
points over U.S. Treasuries. However, in March 2015, the government paid a spread of 900 bps for 
a US$750 million issuance of 5 year maturity, which was reopened in May for another US$750 
million. Taking into account the planned fiscal adjustment (see below ), public sector gross 
financing needs are projected to reach US$10  billion (about 10 percent of GDP) in 2015. Up to 
mid-May, disbursements amounted to US$3  billion. Identified committed financing from 
multilaterals and China for the rest of the year amoun ts to around US$4.5 billion. The  authorities 
also expect to receive additional financing in the order of US$2.5 billion (mainly from China and 
domestic sources).  
8.  Ecuador 's international reserves, already low, declined in late 2014 and early 2015. Prior to the 
oil price decline, Ecuador 's international reserves were at the lower bound of metrics usually 
employed for assessing reserve adequacy;1 this is somewhat characteristic of dollarized economies 
which do not have an exchange rate to defend, but use reser ves as a buffer for financial system 
liquidity and for government financing. However, since then, official net international reserves fell 
by almost 10 percent yoy to March 2015, to about US$3.7 billion (or about 3½ percent of GDP, 
equivalent to only 1.6 m onths of imports).  
The policy response has been significant  
 
9.  In response to the strong external and fiscal pressures, the authorities have significantly 
tightened fiscal policy and introduced temporary import surcharges.2 Staff projects the net impact 
of the decline in the oil price on the fiscal accounts to be about US$3.3 billion in 2015 (including 
revenue losses to state enterprises), implying a worsening of the underlying fiscal position by 
about 3.3 percent of GDP compared with 2014. In response, the authorities have taken offsetting 
(pro-cyclical) fiscal measures; in net terms these are intended to bring the deficit down to about 
0.3 percent of GDP below the 2014 outturn (and the original budget for 2015), despite the 
additional revenue losses from th e growth slowdown. The budget was revised in January and is 
being revised again with a conservative oil price assumption, which implies a buffer of about US$1 
billion with respect to staff projections.3 The budget revisions entail cuts in current and capit al 
expenditure by 3½  percent of GDP. On the revenue side, the authorities had already amended the 
tax regime in December 2014 and also announced a tax amnesty in April 2015, with an expected 
net impact of 1 percent of GDP in additional revenues this year. On March 6, 2015, the authorities 
imposed differentiated import surcharges ( sobretasas ) on about 30 percent of imports, as "balance 
of payments safeguards. "4 They announced an intention to remove these surcharges in 
15 months, and expect a negative effect on imports of about US$1.3 billion in 2015 and US$0.9 
billion in 2016. The sizable expenditure cut, together with the import surcharges and plans to 
promote exports, is expected to contribute significantly to the balance of payments adjustment, 
since part of government spending —especially investment —is imported.  
10.  The policy response is expected to bring significant fiscal and external adjustment. Preliminary 
staff projections for 2015 indicate that the fiscal deficit would return to below 5 percent of GDP ( in 
line with the authorities ' revised objectives and assuming that all financing plans are realized); the 
non-oil fiscal balance and the non -oil trade balance would improve by about 2  percent of GDP; 
while the current account would worsen by 1 percent of G DP. Hence, despite the significant 
                                                
1 Assessing Reserve Ade quacy—Further Considerations , IMF Policy Paper, 2013, 
https://www.imf.org/external/np/pp/eng/2013/111313d.pdf  
2 In January 2009, Ecuador also introduced import surcharges, which expire d in July 2010.  
3 Temporarily, in January, Ecuador placed special surcharges on imports from Colombia (with a rate of 
21 percent affecting a share of imports of about 8 percent) and Peru (with a rate of 7 percent affecting a share 
of imports of about 4 per cent) following depreciation of their currencies against the dollar. These surcharges 
were removed in February 2015.  
4 A 5 percent tariff on non -essential capital and primary capital goods imports, 15 percent on imports of 
"medium need ", 25 percent on cera mics, tires, motorbikes, and electronic appliances (TVs), and 45 percent on 
final consumer goods, while the following goods are exempt: raw material and capital goods, medicine and 
medical equipment, car parts, lubricants and fuels.  WT/BOP/ R/114 
 
- 44 - 
 
  adjustment, and even if all financing needs are met, staff projects a decline in international 
reserves, estimated to be in the order of US$350 million.   
11.  In 2016, the energy balance for Ecuador is expected to improve. For  2016, preliminary staff 
projections for growth have been revised downward by 2 percentage points with respect to the IMF 
Spring World Economic Outlook, to 1½ percent. The authorities have indicated that they are 
committed to maintaining the 2016 fiscal de ficit to the original target proposed in the Fall 2014 
budget (i.e.,  about 2½ percent of GDP), and the debt within the 40 percent of GDP ceiling. They 
are confident that at current oil price projections they can achieve this while removing the import 
surch arges —if necessary by further delays in investment programs, which would also alleviate the 
balance of payments need. A projected recovery of international oil prices and increase in the 
domestic production of energy —as the alternative energy development p roject is completed —
should improve the fiscal balance by over 1 percent of GDP and reduce oil dependence. Thus, the 
authorities ' policy plans aim at achieving a full adjustment to the fiscal impact of the external 
shocks, even after the removal of the tari ff measures. Taking into account the additional fiscal 
adjustment (of about 2½  percent of GDP), staff projects that both the current account deficit and 
reserves should improve slightly despite the removal of the import surcharges.  
 
_______________  
 
 WT/BOP/ R/114 
 
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  ANNE X 4 
COMMITTEE FOR BALANC E OF PAYMENTS  
ECUADOR —STATEMENT BY THE IMF  REPRESENTATIVE  
AT THE 2016 CONSULTA TION OF THE WTO COMM ITTEE ON  
BALANCE OF PAYMENTS RESTRICTIONS  
NOVEMBER 29, 2016  
1.  Ecuador's economy continues to suffer from the combined fallout of a wors ening in the terms of 
trade and a strengthening of the U.S. dollar. The large drop in world oil prices and the sizable real 
exchange rate appreciation (16 percent since mid -2014) associated with the dollarization, 
weakened the external position. As a conse quence, in March 2015 the authorities imposed tariff 
surcharges. These were initially set to expire in June 2016.1 
2.  On April 16, 2016, Ecuador was hit by a 7.8 -magnitude earthquake. The number of dead or 
missing reached 675, and more than 4,600 people were injured. Further, over 33,000 people 
needed temporary shelters. In June 2016, the authorities published a joint assessment with the 
United Nations (Economic Commission for Latin America and the Caribbean) estimating 
reconstruction costs of US$3.3 billion. Damage to infrastructure, housing, agriculture, commerce, 
and tourism and the need to import some of the materials for rehabilitation and reconstruction are 
estimated to add around 0.9 percent of GDP to the current account deficit in 2016. In this context 
the authorities extended the tariff surcharges through June 2017.2 The government also reacted 
with a package of revenue measures that temporarily increased the VAT rate by two percentage 
points and imposed a one -time solidarity surcharge tax on wages, cor porate profits, and personal 
assets. On July 8, 2016 the Executive Board of the IMF approved a disbursement of 
SDR 261.63  million (about US$364 million) under the Rapid Financing Instrument (RFI).3 
3.  Economic activity continues to slow. The terms of trade sh ock and the ensuing fiscal 
adjustment caused economic growth to decelerate to 0.2 percent in 2015 (from 3.7 percent in 
2014). During the first half of 2016, economic growth contracted by 3.1 percent (yoy) and 
unemployment rose to 5.3 percent (4.8 percent i n 2015). Inflation ended 2015 at 3.4 percent 
(yoy), mostly due to high food prices but has been falling since then (to 1.4 percent in August) 
due to the economic downturn and U.S. dollar appreciation.  
4.  The fiscal position remains precarious. Oil revenues fe ll by about 5 percent of GDP in 2015, and 
were offset by lower public investment (by 4 percent of GDP), tax reforms (½ percent of GDP), 
and import tariff surcharges (½ percent of GDP). Despite the government's adjustment efforts, the 
non-financial public s ector deficit reached 5.2 per cent of GDP at end -2015. The fiscal deficit was 
financed by accumulating arrears and drawing down deposits at the central bank. In the first half 
of 2016, the overall deficit was 1.6 per cent of GDP as revenue continued to dec line (by 0.9 
percent of GDP) and capital expenditures were cut, while non -financial public sector net deposits 
at the central banks continued to decline (by US$521 million in the first 9 months of 2016).  
5.  The balance of payment need remains. The external cu rrent account deficit widened in 2015 to 
2.2 percent of GDP (from 0.6 percent of GDP in 2014) as the contraction in the oil trade balance 
was partially compensated by a reduction in imports resulting from the balance of payment 
safeguards (estimated at abo ut 1.3 percent of GDP) and the economic slowdown associated mainly 
with the fiscal adjustment. The persistently low oil prices, the real exchange rate appreciation, the 
                                                
1 With Resolution 011 -2015 and 016 -2015, the authorities imposed a 5 percent tariff on non -essential 
capital and primary capital goods imports, 15 percent on imports of "medium need," 25 percent on ceramics, 
tires, motorbikes, and electronic appliances (TVs), and 45 percent on f inal consumer goods. The latter was 
later reduced to 40 percent with Resolution 001 -216. The following goods are exempt: raw material and capital 
goods, medicine and medical equipment, car parts, lubricants and fuels.  
2 With Resolution 006 -2016, the author ities eliminated the 5 percent tariff on non -essential capital and 
primary capital goods imports as originally planned, and extended the timeline for the elimination of the others 
with a gradual reduction in April, May, and June 2017.  
3 See http://www.imf. org/external/pubs/ft/scr/2016/cr16288.pdf.  WT/BOP/ R/114 
 
- 46 - 
 
  limited external financing, and the need to cope with the aftermath of the earthquake c ontribute to 
the persistence of the balance of payment need. The 2016 current account deficit is being 
contained by the safeguards (estimated to affect imports by about 2 percent of GDP) and the 
economic contraction. During the first eight months of 2016, the trade surplus was 0.9 percent of 
GDP, largely owing to a reduction in non -oil imports, but it is expected to worsen as the 
reconstruction - and rehabilitation -related imports pick up.  
6.  International financing remains costly. After issuing US$1.5 billion in sovereign bonds in the 
first half of 2015 at an average sovereign spread of about 800 bps, access to global markets 
became increasingly expensive (spreads surged to about 1,600 bps in February 2016) and official 
financing inflows falling below expectati ons.4 In June 2016 Ecuador obtained a loan from China of 
US$1.5 billion and in July‒September 2016 issued US$2 billion in sovereign bonds maturing in 
2022 at a cost of 10.75 percent. In 2015, net international reserves (NIR) fell by about 
US$1.5  billion (to US$2.5 billion, o r 2.5 percent of GDP) but foreign inflows have allowed reserves 
to increase to US$4 billion by mid -October.  
7.  Net international reserve coverage remains highly inadequate. NIR are assessed at about 20 
percent of the standard IMF reserve adequacy metric as of  the time of the extension of the 
safeguards (end -April 2016), and at about 33 percent as of mid -October 2016.5 Other 
considerations also apply for fully dollarized economies like Ecuador, as these economies do not 
face the risk of exchange rate fluctuatio ns and currency mismatches, but need reserves to protect 
the financial system from a liquidity shock and as a fiscal buffer against potential government 
financing gaps.6 In addition, commodity -intensive economies may have higher precautionary 
reserve needs  due to volatile terms of trade. Overall, taking into account of these additional 
considerations in the current circumstances does not significantly alter the assessment resulting 
from the standard metric for Ecuador that Ecuador's NIR is substantially bel ow the adequate level.  
8.  The economic outlook in the short term is difficult. Growth is expected at about -2½ percent for 
both 2016 and 2017, and to remain subdued over the medium -term.7 The fiscal deficit in 2016 is 
expected at about 5¼ percent of GDP, and close to balance in 2017 as tight financing conditions 
are expected to constrain expenditure, particularly on investment (and hence reduce growth). The 
current account balance is expected to be about -1 and 0 percent of GDP in 2016 and 2017, 
respectively.  
9.  A range of policies is needed to address Ecuador's vulnerabilities.8 Despite the authorities' 
significant fiscal adjustment as well as assistance from international financial institutions, closing 
the fiscal and external financing gap is likely to require further reductions in investment spending 
and measures to raise revenues and lower current spending —while protecting the poor —in order 
to build fiscal buffers over the medium -term that will allow to smooth future external shocks. 
Measures should encompass a continued adjustment of the government wage bill, elimination of 
untargeted fuel subsidies, revenue enhancing measures (including by permanently raising VAT), 
and expenditure prioritization. The government should also move quickly to implement measures 
to foster competitiveness by reducing labor costs, shifting from direct to indirect taxes, opening up 
to foreign trade, stimulating productivity, and enhancing labor market flexibility. The tariff 
surcharges are distortionary and should be eliminated as soo n as possible and within the 
announced timeframe.  
 
__________  
 
                                                
4 In August 2015, S&P lowered Ecuador's rating to 'B' citing concerns of high debt and external risk.  
5 Assessing Reserve Adequacy —Specific Proposals , IMF Policy Paper, April 2015.  
6 Guidance Note on the Assessmen t of Reserve Adequacy and Related Considerations , IMF Policy Paper, 
June 2016.  
7 The earthquake is projected to reduce economic growth in 2016 by about ½ a per centage point, while 
reconstruction activity is expected to have a positive impact in 2017 and 2018, ½ and ¼ percentage points, 
respectively.  
8 See the 2015 Article IV Consultation staff report 
http://www.imf.org/external/pubs/ft/scr/2015/cr15289.pdf . The 2016 Article IV Consultation was concluded on 
July 8, 2016.