RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/TPR/G/148 
11 May 2005 
 
 (05-1871) 
Trade Policy Review Body Original:  Spanish 
  
 
   
 
TRADE POLICY REVIEW 
 
Report by ECUADOR 
 
   
Pursuant to the Agreement Establishi ng the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), the policy statement by Ecuador is attached. 
 
 
Note: This report is subject to restricted circul ation and press embargo until the end of the meeting 
of the Trade Policy Review Body on Ecuador. Ecuador WT/TPR/G/148 
 Page 3 
 
 
CONTENTS 
 
Page 
Introduc tion ................................................................................................................... .......................................... 5 
1. MACROECONOMIC ENVIRONMENT................................................................................................. 6 
1.1 Economic  growth ............................................................................................................ ............ 6 
1.2 Infl ation.................................................................................................................. ..................... 7 
1.3 External  sector ............................................................................................................ ................ 7 
1.4 Fiscal  sector .............................................................................................................. .................. 7 
1.4.1 Non-financia l public sector.............................................................................................. ........... 7 
1.4.2 Extern al debt ............................................................................................................ ................... 8 
2. TRADE POLICY ................................................................................................................ ...................... 8 
2.1 Main elements of trade policy.............................................................................................. ....... 9 
2.1.1 Tariffs.................................................................................................................. ........................ 9 
2.1.2 Customs procedures ....................................................................................................... ............. 9 
2.1.3 Competit ion policy....................................................................................................... ............... 9 
2.2 Trade ne gotiations......................................................................................................... ............ 10 
2.2.1 Andean Community ......................................................................................................... ......... 10 
2.2.2 Latin American Integr ation Associa tion (LAIA) ...................................................................... 10 
2.2.3 Trade Agreem ent with  Chile............................................................................................... ...... 10 
2.2.4 Trade Agreements w ith Cuba an d Mexico................................................................................ 11 
2.2.5 Economic Complementarity Ag reement No. 59 with MERCOSUR ........................................ 11 
2.2.6 Europ ean Un ion ........................................................................................................... ............. 11 
2.2.7 Unite d Stat es ............................................................................................................ ................. 11 
2.3 Recent trends in  foreign trade ............................................................................................. ...... 11 
2.4 Foreign dir ect investment.................................................................................................. ........ 13 
3. STRUCTURAL  REFORMS .......................................................................................................... ......... 14 
3.1 The petrol eum sector....................................................................................................... .......... 14 
3.2 Energy..................................................................................................................... .................. 14 
3.3 Telecomm unications ......................................................................................................... ........ 15 
3.4 Labour market.............................................................................................................. ............. 15 
3.5 Social security............................................................................................................ ............... 15 
3.6 Organic law on the economic rationalization of  the State......................................................... 16 
ANNEXES ........................................................................................................................ .................................... 17 
 
 
 Ecuador WT/TPR/G/148 
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Introduction 
1. Ecuador's economy has evolved favourably over the past five years, with gross domestic 
product (GDP) growth rates exceeding population growth.  In 2004, per capita GDP1 stood at 
US$2,325, well above the figure for 20001 of US$1,296. 
2. This increase in GDP per capita coupled with th e decrease in inflation, which had fallen to 
1.9 per cent in 2004 from 64.9 per cent in 2000, en abled the Ecuadorian population to recover its 
purchasing power.  Indeed, thanks to  the decrease in the prices of trad able goods, the country was able 
to achieve a level of annual inflation among the lowest in the Latin American region. 
3. The external sector is another area which perfo rmed well.  The current account balance, 
which had been negative throughout the period 2001 -2003, showed a deficit of barely US$30,000,000 
for 2004, thanks to the increased value of o il exports which generated a trade surplus of 
US$241,000,000 in 2004. 
4. The global depreciation of the dollar coupled with low domestic inflation contributed to a 
depreciation in the real exchange rate, and this, in  its turn, had a favourable impact on the country's 
competitiveness, in particular with the European Union where the Euro  had appreciated.  At the same 
time, trade with the United States al so showed a surplus thanks to cr ude oil and to the adoption of the 
dollar as legal tender in Ecuador. 
5. The country strengthened its external asset position by increasing the balance of its freely 
disposable reserves and of the Stabilization, Soci al and Productive Investment, and Public Debt 
Reduction Fund (FEIREP).2  Freely disposable international reserves stood at US$1,437,000,000 at 
the end of 2004, US$277,000,000 higher than in Dece mber 2003.  The total external debt balance 
(public and private) showed a downward trend in GDP terms. 
6. With the dollarization of the economy, and th anks to disciplined management of public 
finances, it has been possible to achieve a prim ary surplus with which to honour the country's 
obligations towards national and inte rnational creditors.  The favourable situation in the oil sector, in 
terms of both international prices and the production volume of the private companies, contributed to 
a growth in fiscal revenue during 2003 and 2004, which was credited to the FEIREP. 
7. In 2004, the primary surplus amounted to 5.1 per cent for the non-financial public sector and 
3.4 per cent for the central government (including  FEIREP revenue), a considerable boost to the 
sustainability of the public sector debt. 
8. The strengthening of Ecuador's fiscal position le d to a reduction in the public debt/GDP ratio 
of more than five per cent as a result of the buyb ack of domestic debt securities, conducted using the 
resources of 70 per cent of FEIREP.  Fiscal performance and the use of FEIREP as an active debt management instrument to reschedule debts and/or restructure interest rates drew the attention of 
international markets. 
                                                     
 
1 At current values. 
2 Stabilization, Social and Produ ctive Investment, and Public Debt Reduction Fund (FEIREP), 
established by the Organic Law on Fiscal Responsibility, Stabilization, and Transparency for the purpose of providing the country with an instrument for saving and promoting medium- and long-term fiscal sustainability.  
This fund is financed by oil resources in the form of private company royalties, resources which must be used to 
reduce the public debt and contribute to the stabilization of fiscal revenue and the financing of social sector 
investments. WT/TPR/G/148 Trade Policy Review 
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9. In October 2002, after following an upward tr end for most of the year, Ecuador's Global 
12 bonds reached a price that exceeded 100 per cen t of the nominal value, and have generally 
maintained that level ever since.  This has ha d a positive impact on Ecuador's country risk rating, 
which has fallen to a historical minimum (690 basis points over US Treasury bonds at 
December 2004). 
10. In other words, the country has become an  attractive investment alternative among the 
emerging markets:  indeed, international investors ha ve shown concrete signs of interest in providing 
the Government with fresh loans.  This new availability of potential sources of funding has 
encouraged the Government to work  toward reintegrating Ecuador in  the international sovereign bond 
market and restructuring existing securities, objec tives which have been included in the economic 
programme for 2005. 
11. Influenced by the international economic e nvironment, countries have adopted open trade 
policies as a new pillar of economic growth.  In th is context, Ecuador has been working towards 
active integration into the globalized economy.  It ha s opted for the creation and consolidation of trade 
links and for regional and subregiona l integration, for policies aimed at attracting foreign investment 
towards the development and adaptation of technol ogy, and for the strengthening of its institutions 
with a view to facilitating the development of  the trade component of its domestic production 
structure. 
12. Thus, its trade policy objective is to stimulate mu ltilateral, regional and bilateral integration.  
Trade agreements have been mainly regional, fo r example the Andean Community agreements, the 
Economic Complementarity Agreement with the Southern Common Market (MERCOSUR), and the 
Free Trade Area of the Americas (FTAA) hemisphe ric initiative, which has been suspended pending 
the outcome of negotiations between different count ries in the region - including Ecuador - and the 
United States. 
1. MACROECONOMIC ENVIRONMENT 
1.1 Economic growth 
13. In 2004, Ecuador's GDP grew by 6.6 per cent, the highest growth rate in 16 years.  Per capita 
GDP stood at US$2,325, while nominal GDP reached US$30,282 million.  Over the past decade, per 
capita GDP has grown at an average rate of 0.9 per cent in real terms, a trend which is reflected in the recovery of the population's purchasing power. 
14. Ecuador's economic growth in 2004 was driven chiefly by the increase in oil production and 
activities related to oil refining following the start-up of the new Oleoducto de Crudos Pesados  
(OCP)
3 pipeline, which enabled the private sector to increase its participation in the extraction and 
transportation of hydrocarbons. 
15. During 2004, the oil sector grew by about 35 per cent, contributing 4.5 per cent to the 
economy's total annual growth of 6.6 per cent.  Meanwhile, the growth rate for the non-oil sector 
reached 2.5 per cent, and its contribution to GDP, 2.1 per cent.  While the various non-oil branches of 
activity grew less significantly than the oil sector, they nevertheless recorded positive growth figures 
for 2004 (see Table 1). 
                                                      
3 The OCP began regular operation during the fourth quarter of 2003. Ecuador WT/TPR/G/148 
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16. The supply of goods and services , for its part, grew by 7.1 per cent in 2004.  This is 
explained by the increase in imports (8.4 per cent)4 as well as the overall economic growth (6.6 per 
cent). 
17. On the demand  side, taking account of the traditional sales destination of the country's oil 
production, exports were the most dynamic component.  Also worth noting is the real growth in final 
household consumption during 2004 (4.6 per cent), wh ich was higher than the growth in gross fixed 
capital formation (3.5 per cent) (see Table 2). 
1.2 Inflation 
18. Ever since dollarization was introduced in Ecua dor, inflation has been on a downward trend.  
Disciplined management of fiscal accounts which,  since the adoption of the new regime, have 
repeatedly recorded primary surplu ses, has also contributed to this result.  In December 2004, the 
annual inflation rate was about 1.9 per cent, substantially less th an in December 2003 (6.1 per cent).  
Ecuador has managed to achieve the lowest in flation rate of Latin America (see Chart 1). 
1.3 External sector 
19. Ecuador has been reducing its deficit in the curre nt account of the balance of payments, which 
went from US$1,358 million in 2002 to US$30 milli on, or 0.1 per cent of GDP, in 2004.  The 
evolution in the current account was linked to th e performance of external trade, which recorded 
higher resource revenue thanks  to the high oil prices during that year (see Table 3). 
20. In 2004, the Ecuadorian economy achieved a pos itive trade balance of US$262 million.  The 
oil trade balance reached $3,511 million, an impr ovement over the previous year.  Oil exports 
amounted to US$4,234 million, significantly higher than in 2003 (US$2,607 million) thanks to the 
positive evolution of both prices and export volume.  This positive performance of the oil sector is basically due to the increase in world demand for oil, which pushed international prices upwards. 
1.4 Fiscal sector 
1.4.1 Non-financial public sector 
21. The sustainability of the dollarization regi me basically requires the well-ordered and 
disciplined management of the fiscal accounts.  An  analysis of the public finances shows that, since 
the adoption of this monetary regime, fiscal ma nagement has concentrated on obtaining primary 
surpluses to provide resources for meeting obligations  to national and international creditors.  During 
2004, the Non-Financial Public Sector (NFPS) reco rded an overall surplus of US$745 million (2.5 per 
cent of GDP), twice the result for 2003 (1.2 per cent of GDP). 
22. In 2004, the tax administration registered an increase in tax revenue from crude oil exports 
and the sale of derivatives.  Although mainly attributab le to higher oil prices, this increase in revenue 
also reflects the growth in private company prod uction, which has had an impact on public sector 
income through the payment of royalties.  These re sources are being channelled into the Stabilization, 
Social and Productive Investment, and P ublic Debt Reduction Fund (FEIREP). 
                                                     
 
4 In spite of the devaluation of the Dollar against the Euro and other currencies during 2004 and the 
resulting rise in the price of purchases from abroad, imports of raw materials and capital goods by the productive sector were considerable. WT/TPR/G/148 Trade Policy Review 
Page 8 
 
 
23. Where revenue from tax sources is concerned, Ecuador is also recording improvements in the 
efficiency of tax collection thanks to the work of the Internal Revenue Service (IRS).  In 2004, more 
tax was collected, mainly VAT and income tax.  As a result of the larger volume of imports in that 
year there was also an increase in the amount of  duty collected (16.2 per cent) (see Table 4). 
24. The achievement of primary surpluses by the NFPS following dollarization has helped to 
reduce the leverage with sources of external and internal financing.  In December 2004, the NFPS 
achieved a surplus of 2.5 per cent of GDP. 
1.4.2 External debt 
25. Ecuador has also made efforts to reduce its inte rnational debt and improve  its debtor profile.  
In December 2004, the external public debt  showed a reduction of US$529 million as compared with 
the previous year, a result of the net redemptions ma de by the public sector.  When the internal public 
debt is included, it turns out that, at the same da te, the external debt balance was US$11,062 million, 
the equivalent of 36.5 per cent of GDP, a decrease of 5.4 percentage points relative to the balance 
recorded at the end of December 2003 (US$11,493 million). 
26. Private debt  amounted to US$5,948 million, an increase of 16.6 per cent on the amount 
recorded in December 2003 (US$5,101 million).  The private oil companies accounted for 
US$2,569 million of this total. 
27. FEIREP's debt buyback operations were designed to improve the maturity profile of central 
government debt rather than reduce the financ ial costs.  Thus, during 2004, US$382 million of 
internal debt, including US$297 million in short-te rm bonds, was bought back.  The build-up of funds 
by FEIREP in the course of the year sent a positive signal to the international market, which perceived 
the Ecuadorian Government as being highly solven t.  Thus, the prices of Global 12 and 30 Bonds 
tended to rise (see Chart 2). 
28. The existence of the FEIREP has generated greater credibility among economic operators 
with regard to the government's ability to pay which,  in addition to producing a rise in the prices of 
Global 12 and 30 Bonds, has led to a reduction in country risk, as shown by the evolution of the 
EMBI (Emerging Market Bond Index) calculated and published by JP Morgan (see Chart 3). 
29. The rise in bond prices and the reduction in country risk with respect to Ecuadorian securities 
have generated increased interest among internati onal investors in expanding their positions in 
Ecuadorian sovereign bonds.  The greater attractiveness of the country as an emerging investment 
market has found expression not only in the secondary market but also in disbursements of fresh 
central government funds.  Thus, Standard Bank a nd Citigroup purchased more than US$ 200 million 
worth of short-term securities in the final months of 2004. 
30. The trends on the world financial market and the interest of the Ecuadorian Government in 
obtaining credit on longer and more flexible term s than those available on the domestic market are 
opening up the possibility of the country re-entering the international capital ma rket in the course of 
2005. 
2. TRADE POLICY 
31. The current economic and political environmen t is making it increasingly important to open 
up the economy and engage in global trad e, the new engines of economic growth. Ecuador WT/TPR/G/148 
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32. Trade negotiations are the basis for the devel opment of the country's foreign trade which, 
since 1997, has been subject to the provisions of th e Foreign Trade and Investment Law (LEXI).  This 
established the Foreign Trade and Investment C ouncil (COMEXI) as Ecuador's supreme trade policy 
body. 
33. Ecuador's world market integration strategy is  aimed at creating and strengthening trade links 
and regional and subregional integr ation processes;  guaranteeing forei gn direct investment;  gaining 
access to development-related technologies;  and pr omoting institutional reforms aimed at facilitating 
trade and production. 
2.1 Main elements of trade policy 
2.1.1 Tariffs 34. Under the 1998 Constitution, exclusive authority to  amend the tariff resides with the President 
of the Republic.  This authority has been partia lly transferred to the Commission of the Andean 
Community.  In 1995, Ecuador undertook to apply a common external tariff and since then, although the authority remains with the executive power, these amendments have had to comply with the 
existing Andean regulations on the common extern al tariff, which is applied with exceptions. 
35. The commodity classification nomenclature used  by Ecuador is the common nomenclature of 
the countries of the Andean Community, known as NANDINA, which is based on the Harmonized 
System, including the third amendment. 
36. Seasonal tariffs are not applied.  The arithme tic mean of the MFN applied duty rates is 
11.4 per cent, with a coefficient of variation of 0. 6.  The average MFN applied duty rate increases to 
11.9 per cent when the contribution which the impor ters of any product, except for pharmaceutical 
inputs, must make to the Children's Development Fund is taken into account.  In 1990, the average 
applied duty rate was 32.9 per cent. 
2.1.2 Customs procedures 
37. The Ecuadorian Government has continued m odernizing customs procedures through the 
Ecuadorian Customs Corporation (CAE), an entity  established four years ago whose development 
involves considerable investment in computer sy stems, human resources and institutional reforms. 
38. As a result of the modernization process, information is being exchanged by electronic data 
transfer between foreign trade operators and the CA E, in order to speed up the clearance of imports 
and exports. 
39. All the clearance improvement processes are based  on supranational standards established by 
the Andean Community, the Latin American In tegration Association, the World Customs 
Organization, and the World Trade Organization. 
2.1.3 Competition policy 
40. The current Constitution requires the State to promote the development of competitive 
activities and markets by encouraging free competiti on, as well as to sancti on monopolistic and other 
practices that restrict or distort competition, in the interests of the common good. 
41. Subject to this constitutional mandate, the Ecua dorian Government, in its Work Agenda, has 
submitted to the Legislature a draft Organic Law on Free Economic Competition which takes up the WT/TPR/G/148 Trade Policy Review 
Page 10 
 
 
challenge of contributing to Ecua dor's economic development, within  a social market economy, by 
promoting healthy competition among economic operato rs as a means of facilitating the transition to 
globalization and trade liberalization. 
2.2 Trade negotiations 
42. Ecuador's experience with trade negotiations h as developed on several fronts: multilateral, 
regional and bilateral.  However, historically and, in particular, since joining the Andean Pact, the 
strategy has been predominantly regional.  Nevert heless, the process of opening up to trade, which 
began at the end of the 1980s, has meant a reorient ation of Ecuadorian trade strategy with greater 
emphasis on bilateral strategies. 
43. An analysis of Ecuador's principal export ma rkets and their evolution since 1980 shows that 
the main export market is the United States and that that market is tending to grow.  Far behind come 
the European Union and the countries of the A ndean bloc, which represent the second and third 
markets in order of importance (see Chart 4). 
2.2.1 Andean Community 
44. Ecuador has formed part of the Andean Comm unity (CAN) since 26 May 1969 when a group 
of South American countries in the Andean area signed the Cartagena Agreement, also known as the 
Andean Pact, for the purpose of establishing a custom s union within a period of ten years.  Currently, 
the Andean Community is a subregional organiza tion with legal personality composed of Bolivia, 
Colombia, Ecuador, Peru and Venezuela. 
45. In the course of three decades,  the Andean integration pro cess has passed through several 
stages.  It has moved away from a basically self-contai ned concept of inward integration, based on the 
import substitution model, towards open regionalism,  while the progress made with integration and 
the new challenges stemming from the changes in the world economy have resulted in reforms of the 
Cartagena Agreement, both institutional and pr ogrammatic, introduced by the Trujillo and Sucre 
Protocols, respectively. 
46. The Commission of the Cartagena Agreement recently approved a Work Plan aimed at 
"developing Andean trade integration in order to ensure an attractive expanded market through the 
free internal movement of goods and services and uniform treatment of goods from third countries", 
while specifying that for the purposes of the Cust oms Union the extra-regional obligations assumed 
by Member countries will be taken into account. 
2.2.2 Latin American Integration Association (LAIA) 
47. Within the framework of the 1980 Treaty of Montevideo, Ecuador has signed partial scope 
agreements with Chile, Cuba and Mexico.  In D ecember 2003, it signed Economic Complementarity 
Agreement No. 59, which provides for the creat ion of a free trade area with the MERCOSUR 
Member countries:  Argentina, Brazil, Paraguay and Uruguay. 
2.2.3 Trade Agreement with Chile 
48. Economic Complementarity Agreement No. 32 w ith Chile, in force since 1995, establishes a 
tariff reduction programme which has resulted in the reci procal elimination of tariffs on all trade, with 
the exception of some 230 products, mostly agricultur al.  In March 2004, Chile raised with Ecuador Ecuador WT/TPR/G/148 
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the question of the need to "improve a nd develop" their partial scope agreement.5  This agreement 
incorporates the LAIA general origin regime. 
2.2.4 Trade Agreements with Cuba and Mexico 
49. Partial Scope Agreement No. 29 with Mexico  and Economic Complementarity Agreement 
No. 46 with Cuba established tariff preferences fo r a very limited number products.  The agreement 
with Cuba provides for duty-free treatment for so me 170 products originating in Cuba and some 
340 products originating in  Ecuador.  The agreement with Mexico provides for tariff preferences of 
up to 100 per cent for some 190 products originating in Mexico and some 230 products originating in 
Ecuador.  The agreement with Cuba incorporat es the LAIA general origin regime, whereas the 
agreement with Mexico has a special origin regime. 
2.2.5 Economic Complementarity Agreement No. 59 with MERCOSUR 
50. In December 2003, Ecuador, together with Colombia and Venezuela, signed Economic 
Complementarity Agreement No. 59 with the MERCOS UR countries.  This Agreement entered into 
force on 1 April 2005.  One of the objectives of the ag reement is to form a fr ee trade area.  To this 
end, the members have negotiated tariff reduction programmes with each other which terminate in 
2018. 
2.2.6 European Union 
51. Within the framework of the Generalized Syst em of Preferences, together with Bolivia, 
Colombia, Peru and Venezuela, Ecuador has conc luded negotiations with the European Union in 
order to obtain an extension of both the period of  validity and the coverage of the Andean Trade 
Preferences Act which, as a special support regime against drug production and trafficking, continues 
in force until 31 December 2005. 
52. Following the end of the period of evaluation of the use of the benefits of the Special Support 
Regime Against Drug Trafficking on the part of the Andean countries, Bolivia, Colombia, Ecuador, 
Peru and Venezuela have initiated negotiations with  the European Union on the conclusion of an 
Association Agreement as a preliminary step toward the formation of a free trade area with a view to 
consolidating the benefits of the Special Incentiv e Regime for Sustainable Development and Good 
Governance. 
2.2.7 United States 
53. The United States is the principal destination for Ecuador's exports.  In recent years, on 
average, between 38 and 40 percent of Ecuadorian expor ts have been shipped to this market, the main 
export product being oil.  The United States is also the main destination for non-oil exports. 
54. One of the objectives pursued by Ecuador in nego tiating, together with Colombia and Peru, a 
Free Trade Agreement (FTA) is that of permanently safeguarding the preferences of the Andean Trade Promotion and Drug Eradication Act (ATPDEA), which expire in 2006. 
2.3 Recent trends in foreign trade 
55. During the last decade, Ecuador's trade polic y performance has signalled a greater emphasis 
on the processes of trade integration and on opening up to world markets.  Since the 1980s, the degree 
                                                     
 
5 Including Services, Investment Regime and Dispute Settlement. WT/TPR/G/148 Trade Policy Review 
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of openness of the economy6 has been tending to increase, from 40.4 per cent to 48 per cent between 
1980 and 2004 (see Chart 5). 
56. Since dollarization, adopted at the beginning of 2000, the trade balance , which historically 
had been characterized by surpluses7, has been recording deficits. 
57. As far as the composition of exports  is concerned, since dollarization in 2000 there has been 
a decline in the share of non-oil relative to oil exports.  This is mainly attributable to the recovery in 
oil exports observed since 2002, due largely to the increase in the price of crude8, although since 2003 
there has also been a significant in crease in the volume of oil export ed as a consequence of the entry 
into operation of the OCP Pipeline (HCP).9  Thus, oil exports rose from US$2,442 million in 2002 
US$4,234 million in 2004. 
58. For their part, non-oil exports , which up to 1997 accounted for 66.7 per cent of total exports10, 
have recovered more slowly from th e crisis of 1999;  despite this recovery, in 2004 export values 
were still no higher than those recorded in 1998 (see Chart 6). 
59. An analysis of the decline in non-oil exports  since 1998 shows that this can be ascribed to a 
sharp fall in traditional exports (see Chart 7). 
60. The decline in traditional exports, in its turn, can be attributed to the fall in the export values 
of bananas11 and shrimps12, in particular.  At the same time, during the period analysed (1993-2004) 
Non-Traditional Exports  gained in importance among total expor ts, as well as among non-oil exports 
(see Chart 5). 
61. Non-traditional exports, in their turn, consis t of primary and industrialized exports.  Non-
traditional exports  are mainly composed of exports of industrial goods. 
62. Prominent among the principal industrialized non-traditional exports  are exports of canned 
fish which, during the period analysed, regularly increased in relative importance.  In 2004 these 
exports accounted for 27.6 per cent of to tal industrialized non-traditional exports. 
63. Similarly, within the category of primary non-traditional exports , exports of natural flowers  
stand out as an item of major importance.  They are followed in order of importance by the group 
“Other primaries ”, which includes a large number of tari ff headings with low export values. 
64. In terms of the number of products exported, Ec uador has also recorded a substantial increase 
in the exportable supply.  Over the period fro m 1990 to 2003, the number of products exported 
increased at an annual average rate of 11 per cent.  Table 6  shows the number of products exported 
with export values of more than 50,000 and 100,000 dollars, respectively. 
                                                      
6 Defined as the sum of exports and imports divided by GDP, i.e. Degree of Openness = (X+M)/GDP. 
7 With the exception of 1998, when the price of crude fell to an historical minimum of $9.20 per barrel.  
Source:  Central Bank of Ecuador, Monthly Statistical Bulletin. 
8 The price of oil rose from $15.50 per barrel in 1999 to $21.80 per barrel in 2002 and to $25.66 per 
barrel in 2003.  In November 2004 crude was being quoted at $30.58 per barrel. 
9 Exports of crude oil rose from 84.2 million barrels in 2002 to 92.4 million in 2003 and 96.6 million 
between January and September 2004. 
10 In 1999, the value of non-oil exports amounted to US$2,971.4 million. 
11 There was a sharp decline in banana exports which between 1997 and 2000 fell from 1,327 million to 
a period minimum of 821. 
12 During the period 1997-2002, they fell from US$866 million to a minimum of 253 in 2002. Ecuador WT/TPR/G/148 
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65. At the same time, an analysis of the trend in imports  shows that imports of consumer goods 
correspond to three different periods reflecting struct ural changes in patterns of consumption.  The 
first stage covers the decade of the 1980s when consumer imports accounted for 10 per cent of the 
total.  The second period corresponds to the d ecade of the 1990s, when these imports increased to 
18.4 per cent.  Finally, during the dollarization period  there has been a further increase in the share of 
imports of consumer goods which reached a hi storical maximum of 29 per cent in 2003. 
66. A comparison of the trends in imports of diffe rent kinds of goods rela tive to Ecuador's GDP 
again reveals an increase in the importance of consumer goods, especially during the dollarization 
phase.  Imports of capital goods and raw materials,  on the other hand, continued to follow patterns 
similar to those observed since the 1980s, while also being characterized by a high degree of 
variability (see Chart 8). 
67. During the period from 1985 to 1999, there was a sustained deterioration in the terms of 
trade13, indicating that Ecuadorian expor ts had suffered a loss of purchasing power to pay for imports.  
However, since 2000 there has been a clear recovery , the rise in oil prices being one of the main 
reasons for the improved performance of the indicator14 (see Chart 9). 
2.4 Foreign direct investment 
68. Another factor affecting the process of inte gration of the economy into world markets is 
foreign direct investment (FDI) which plays an important part because of its impact on the economy and the positive externalities gene rated in the recipient country. 
69. In Ecuador, foreign direct investment is govern ed by the Law on Investment Promotion and 
Guarantees, promulgated in 1997, which declares investment in the productive and services sectors to 
be a national priority, recognizes the economic bene fits of foreign investment and establishes the 
National Investment Promotion System coordi nated by the Ministry of Foreign Trade, 
Industrialization, Fisheries and Competitiveness (MICIP). 
70. Responsibility for formulating national investme nt policies lies with the Foreign Trade and 
Investment Council (COMEXI), while the Exports and Investment Promotion Corporation (CORPEI) 
deals with investment promotion under the Foreign Trade and Investment Law (LEXI). 
71. Under this legislation, foreigners may invest in  all sectors of the economy, without the need to 
obtain the prior authorization of any government agency and subject only to registration with the Central Bank of Ecuador.  A legal and fiscal stab ility regime for investment is also envisaged.
15 
72. In the 1990s there were changes in the legal fra mework, at the sub-regional and national level, 
which made the arrival of foreign capital viable, as shown by Chart 10 .  During this period the flows 
of FDI into Ecuador amounted on average to US$45 9 million annually, that is to say, 5.4 times more 
than in the previous decade.  Si nce 1997, the year in which the new regulations were implemented, 
the annual flow of funds has exceeded US$500 milli on, despite the crisis in 1999 (see Chart 10). 
                                                      
13 The ratio of the index of a country’s export prices  to the index of its import prices (Px/Pm).  The 
indicator is a weighted index of the principal countries of destination to which Ecuador exports and of the 
principal countries from which it imports. 
14 In fact, although between 1993 and 1999 the average price of oil was $14.40 per barrel, during the 
period 2000-2004 it climbed to $24.20 per barrel. 
15 An automatic process, free of charge, in the MICIP, applicable to investments of US$500,000 or 
more. WT/TPR/G/148 Trade Policy Review 
Page 14 
 
 
73. In 2000, the country entered a period of stability, a favourable environment for the influx of 
foreign capital.  In that year there was an in crease of 13 per cent and in 2001 an increase of 85 per 
cent.  It should be noted that this figure largely corresponds to flows intende d for oil-related activities 
and the construction of the OCP Pipeline (see Chart 7). 
74. The flow of external funds broken down by branch of activity shows that Ecuador is in the 
first phase of integration into the international econom y with respect to FDI.  In this phase foreign 
capital is directed toward export activities, the supply of the local market and services or infrastructure. 
75. A breakdown by country reveals the importance of the United States (43 per cent) which, 
together with Canada (16 per cent), has supplied more  than half the foreign capital in the last 12 years 
(59 per cent). 
76. In 2004, the flow of foreign direct investment amounted to US$1,290 million, 
US$265 million less than in the previous year.
16  In aggregate, this item continues to be a basic source 
of financing for the balance of payments. 
3. STRUCTURAL REFORMS 
3.1 The petroleum sector17 
77. The oil sector is the keystone of the Ecuador ian economy.  In 2003, the oil sector accounted 
for about 33 per cent of government revenue and mo re than 40 per cent of total exports.  The oil 
sector contributes 12 per cent of GDP. 
78. The oil policy of the present regime rests on four main pillars:  (a) the growth of crude 
reserves and production;  (b) the optimization of Stat e revenues from this natu ral resource;  (c) the 
ethical management of the hydrocarbon industry;  and (d) compliance with environmental and social 
standards. 
79. As a result of these reforms and the system of  incentives, in 2000 pr ivate companies were 
authorized to build the OCP Pipeline with a capaci ty of 400,000 barrels a day.  The pipeline was 
completed in August 2003. 
3.2 Energy 
80. Between 1993 and 2 002, this economic activity accounted, on average, for about 1 per cent of 
GDP, while sector growth was 5 per cent, the bigg est increase (23 per cent) being recorded in 1999. 
81. At the end of 1996, the electricity sector underwent institutional reform in a process involving 
the restructuring of the sector which has since been  the subject of further reforms.  This process of 
structural reform of the national electricity sector  began with the promulgation, in October 1996, of 
the Electricity Sector Regime Law (LRSE) which established the regulatory and institutional framework within which the sector's operators perf orm;  it was also aimed at promoting the active 
participation of the private sector, through vent ure capital, in the generation, transmission and 
                                                     
 
16 This reduction is attributable to a reduced funding requirement following completion of the 
construction of the OCP Pipeline. 
17 Reform and Investment in the Hydrocarbon Industry in Latin America, Humberto Campodonico, 
CEPAL, October 2004.  Comments on the report of the Venezuelan experts "Helping Ecuador to Maximize its Oil Potential", BCE, 2003. Ecuador WT/TPR/G/148 
 Page 15 
 
 
distribution of electricity, leaving the State w ith responsibility for regulation, supervision and 
inspection. 
3.3 Telecommunications 
82. This sector has also undergone major changes wh ich, like the reforms carried out in other 
sectors, are aimed at creating market conditions that expose it to a greater degree of openness and 
competition through the increased participation of private enterprise and international investment. 
83. With the publication of the Law on the Economic Transformation of Ecuador18 it was 
established that "all telecommunications services  shall be provided under conditions of free 
competition, so as to preclude monopolies, restrictive practices or abuse of dominant market position 
and unfair competition, ensure national security a nd promote the efficiency, universality, accessibility, 
continuity and quality of the service". 
84. This Law is opening up the telephony market in  Ecuador to free competition, which is leading 
to more services at reduced cost, greater participa tion in the telecommunications sector and, finally, 
an increase in the industry's productivity and development through access to information and 
communications technology, while making it possible to choose providers on the basis of quality and 
price. 
85. The Law provides for two options for privatization processes:  the first option is to sell up to 
51 per cent of the shares owned by the Solidarity Fund, while the second relates to the pre-emptive 
right to subscribe to sh ares in these enterprises. 
3.4 Labour market 
86. Through various labour reforms19 introduced into the Labour Code, Ecuador has promoted 
greater labour mobility, incentives to take on more wo rkers, the orientation of employment towards 
more productive activities and the ready adaptation of  enterprises to changes in demand, which is 
favouring production and higher employment. 
3.5 Social security 
87. Ecuador has a new Social Security Law which was approved by the National Congress on 
30 November 2001.  This reform is opening up the possibility of introducing the capitalization pillar 
through the establishment of individual accounts (savings management institutions or EDAPs). 
88. This corresponds to a multi-pillar  scheme system which basically involves going over from 
the present pay-as-you-go pensions system to a mixed regime.  The Act provides for three kinds of reforms:  parametric (changes in retirement ages, cont ribution rates, etc.);  structural (introduction of 
EDAPs);  and institutional. 
                                                     
 
18 March 2000. 
19 From 1998. WT/TPR/G/148 Trade Policy Review 
Page 16 
 
 
3.6 Organic law on the economic rationalization of the State 
89. Within its Economic Policy Action Plan, the nati onal government is putting forward several 
specific draft laws intended to encourage the economic  rationalization of the State.  These draft laws 
include reforms to the Law on Hydrocarbons, Social Security, the Electricity Sector and the employee 
profit-sharing scheme.  The purpose of these reforms is to promote investment in all areas of the 
economy, to improve competitiveness and to strengthen legal certainty. Ecuador WT/TPR/G/148 
 Page 17 
 
 
 
ANNEXES 
Table 1 
GDP by Type of Economic Activity Change (at 2000 prices), percentage st ructure, and contribution to GDP  
 Change Percentage 
structure Contribution 
to GDP 
Industry 2002 2003 2004 2004 
Agriculture, livestock, hunting and forestry 7.5 0.9 0.3 8.4 0.02 
Fishing 5.7 5.4 3.0 1.4 0.04 
Mining and quarrying -3.5 6.5 25.0 23.6 5.04 
Manufacturing industries (excluding oil refining) 0.7 3.1 3.0 12.6 0.39 
Manufacture of oil refinery products 1.4 -1.5 8.2 -7.1 -0.58 
Electricity and water supply 2.4 -3.0 5.0 1.0 0.05 
Construction 14.7 0.5 1.2 7.2 0.09 
Wholesale and retail trade 4.0 1.7 3.2 15.0 0.49 
Hotels and restaurants -0.2 4.1 3.5 1.1 0.04 
Transport, storage and communication 1.3 1.3 3.5 9.8 0.35 
Financial intermediation 9.7 10.5 4.1 2.8 0.11 
Corporate real estate and ren ting activities 0.0 0.7 0.6 5.8 0.04 
Public administration and defence;  compulsory 
social security schemes 3.3 -0.1 0.5 4.6 0.02 
Education 0.5 0.0 2.2 2.9 0.07 
Social and health services -2.6 0.6 3.2 1.4 0.05 
Other community, social and personal services -0.2 -0.1 0.5 0.6 0.003 
Private households with employed persons 1.7 -0.1 1.0 0.2 0.002 
Financial intermediation services measured 
indirectly 0.4 2.1 5.8 -2.9 -0.17 
Other elements of GDP 11.1 0.1 4.6 11.6 0.55 
      
GDP 3.4 2.7 6.6 100 6.61 
GDP (millions of USD) 24,311 27,201 3,282   
 
Source:  Central Bank of Ecuador. 
Table 2 
Supply – Use Balance  
As a percentage of GDP and changes, at 2000 prices 
Components of  Change  per cent GDP 
Supply - Use Balance 2002 2003 2004 2004 
Gross Domestic Product (GDP) 3.4 2.7 6.6 100.0 
Imports of goods and services 17.2 0.8 8.4 39.1 
     
Total final supply 7.0 2.1 7.1  
     
Total final consumption expenditure 4.6 2.5 4.2 72.6 
 General government 3.2 1.1 2.0 8.8 
 Households 4.8 2.7 4.6 63.8 
Gross fixed capital formation 17.6 -1.6 3.5 23.1 
Changes in inventories 43.1 7.6 11.2 6.6 
Exports of goods and services 0.9 3.2 15.1 36.8 
     
Total final use 7.0 2.1 7.1  
 
Source:  Central Bank of Ecuador. 
 WT/TPR/G/148 Trade Policy Review 
Page 18 
 
 
Table 3 
Balance of Paymentsa 
(Millions of US dollars) 
 2003 2004 
1 CURRENT ACCOUNT -455.4 -30.1 
 Goods  -71.3 241.1 
 Trade balance (registered trade) -58.5 261.8 
 Exports 6,038.5 7,552.8 
 Imports -6,097.0 -7,292.5 
 Unregistered trade and other, net -12.8 -20.7 
 Services -691.3 -668.1 
 Income -1,464.4 -1,489.6 
 Current transfers 1,771.7 1,886.6 
 d/c Remittances 1,539.5 1,597.2 
2 CAPITAL AND FINANCIAL ACCOUNT 326.9 212.3 
 Capital account 25.1 29.8 
 Financial account 301.8 182.5 
 Direct investment 1,554.7 1,290.2 
 Portfolio investment (net) 8.1 0.3 
 Other investmentb -1,261.0 -1,108.0 
3 ERRORS and OMISSIONSc 264.9 106.5 
   GLOBAL  BALANCE OF PAYMENTSb,c,d 136.4 288.6 
   FINANCING -136.4 -288.6 
 Reserve assetsd -152.4 -276.9 
 Extraordinary financinge 16.0 -11.7 
 
a Presentation in accordance with the methodology  of the 5th Balance of Payments Manual. 
b This item takes into account the turnover of external debt, bot h public and private, not linked with the turnover of debt sec urities.  
c Includes short-term flows. d Corresponds to the change in free reserves; a minus sign represents an increase. 
e Includes remissions, arrears and payment of arrears from previous periods.  
 
Source:  Central Bank of Ecuador. 
 
Table 4 
Income from NFPS, 2003-04 
           US$ million         per cent GDP            Difference  per cent 
incr. 
 2003 2004 2003 2004 US$ mill.  per cent GDP Nominal 
Total income 6,908 8,158 25.4 26.9 1,250 1.5 18.1 
        
Oil income 1,664 2,114 6.1 7.0 450 0.9 27.1 
From exports 1,096 1,684 4.0 5.6 588 1.5 53.7 
From domestic fuel sales 568 430 2.1 1.4 -138 -0.7 -24.3 
        
Non-oil income 5,090 5,722 18.7 18.9 632 0.2 12.4 
Tax revenue 3,164 3,585 11.6 11.8 421 0.2 13.3 
Income tax 736 880 2.7 2.9 144 0.2 19.6 
VAT 1,737 1,887 6.4 6.2 150 -0.2 8.6 
Special consumption tax 243 270 0.9 0.9 27 -0.0 11.2 
Duties 396 460 1.5 1.5 64 0.1 16.2 
Other 52 88 0.2 0.3 36 0.1 69.4 
Social Security contributions 900 1,006 3.3 3.3 106 0.0 11.8 
Other 1,027 1,131 3.8 3.7 104 -0.0 10.2 
        
Operating surplus EPN 155 322 0.6 1.1 167 0.5 108.3 
 
Source:  BCE, MEF and SPNG entities. 
 Ecuador WT/TPR/G/148 
 Page 19 
 
 
Table 5 
Relative composition of non-oil exports 
 1993 1998 2004 
As a percentage of total exports    
 Traditional 42.2 51.8 21.6 
 Non-traditional 16.8 26.2 21.6 
As a percentage of non-oil exports    
 Traditional 71.5 66.4 50.0 
 Non-traditional 28.5 33.6 50.0 
 
Source:  Central Bank of Ecuador. 
 
Table 6 
Ecuador:  Number of consignments exported 
 X>50 mil X>100 mil 
1990 200 159 
2001 590 436 
2002 664 510 
2003 777 601 
 
Source:  Central Bank of Ecuador. 
 
Table 7 
Evolution of foreign direct investment 
Branch of economic activity/Year 2000a 2001a 2002a 2003a 2004a 
Agriculture, forestry, hunting, fishing 1.3 18.7 15.0 48.4 41.2 
Mining and quarrying 680.4 1,119.9 1,062.6 828.1 1,056.6 
Manufacturing industry 9.6 59.1 56.5 71.0 36.9 
Electricity, gas and water 0.0 - 1.7 0.3 6.0 
Construction 0.0 55.3 5.6 441.7 7.4 
Trade 13.0 54.0 45.4 50.4 49.7 
Transport, storage and communications 0.2 10.8 22.1 24.8 52.2 
Business services 15.3 11.7 63.0 89.2 39.7 
Community, social and personal services 0.2 0.2 3.4 0.9 0.5 
TOTAL 720.0 1,329.8 1,275.3 1,554.7 1,290.2 
      
SOURCE:  Company Superintendency, DNH, PETROECUADOR, oil companies, Banking Sup. and direct  research. 
PREPARATION:  Central Bank of Ecuador, Balance of Payments  
 
a Figures subject to revision. 
 
Source: Central Bank of Ecuador. 
 WT/TPR/G/148 Trade Policy Review 
Page 20 
 
 
Chart 1: Latin America: Annual Inflation 2004 
(percentage) 
  Source:  Central banks and statistical offices 
 
 
   
Chart 2: Global Bond Prices 
Source : JP Morgan  
 102.8
80.799.1
87.6
45.074.584.7
62.186.2
30405060708090100110
02/01/02
02/03/02
02/05/02
02/07/02
02/09/02
02/11/02
02/01/03
02/03/03
02/05/03
02/07/03
02/09/03
02/11/03
02/01/0402/03/04
02/05/04
02/07/04
02/09/04
02/11/04Precio Bonos Global 12
Precios Bonos Global 30Global 12 Bond prices 
Global 30 Bond prices 1.92.43.53.55.56.318.0
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0EcuadorChilePerúEEUUColombiaBrasilVenezuelaEcuador WT/TPR/G/148 
 Page 21 
 
 
Chart 3: Comparison EMBI+ vs EMBI Ecuador 
Source : JP Morgan 
 
   
Chart 4: Evolution of Principal Export Markets 
 
 
  Source and preparation : Central Bank of Ecuador. 
  020040060080010001200140016001800
2-Ene-03
2-Mar-03
2-May-03
2-Jul-03
2-Sep-03
2-Nov-03
2-Ene-04
2-Mar-04
2-May-04
2-Jul-04
2-Sep-04
2-Nov-04
2-Ene-05EMBI ECUADOR
EMBI +637
 14-Feb-05
 
4,9%10,7%12,6%29,9%
13,3%17,1%
5,0%44,0%
0%10%20%30%40%50%60%
CAN EUROPA A SIA USA
1980 1990 2000 2004EUROPE WT/TPR/G/148 Trade Policy Review 
Page 22 
 
 
Chart 5: Openness of the Ecuadorian Economy 
(as a percentage of GDP) 
 
 
  Source and preparation : Central Bank of Ecuador.  
 
   
Chart 6: Evolution of Oil and Non-Oil Exports 
 
Exportaciones Petroleras y No Petroleras
550.001,050.001,550.002,050.002,550.003,050.003,550.004,050.00
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Millones de dólares FOB
Exportaciones Petroleras Exportaciones No Petroleras
 
 
 40.4%48.0%
30.0%32.5%35.0%37.5%40.0%42.5%45.0%47.5%50.0%52.5%55.0%
1980
1982
1984 1986 1988
1990
19921994
1996 1998 2000
2002
2004Millions of dollars f.o.b. Oil and non-oil exports 
Oil exports Non-oil exports Ecuador WT/TPR/G/148 
 Page 23 
 
 
Chart 7: Evolution of Traditional and Non-Traditional Exports 
  Source and preparation : Central Bank of Ecuador. 
 
 
Chart 8: Composition of Imports 
(as a percentage of GDP) 
 Source and preparation : Central Bank of Ecuador. 
 dato 2004 es anualizado a partir del perìodo ene-nov.
5001,0001,5002,0002,500
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004millones de dólares FOB          Exportaciones
Tradicionales
           Exportaciones No TradicionalesMillions of dollars f.o.b.  Data for 2004 annualized on basis of the period Jan-Nov
Traditional exports  
Non-traditional Exports  
1%2%3%4%5%6%7%8%9%10%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Capital goods/GDP  Consumer goods/GDP Raw materials/ GDPWT/TPR/G/148 Trade Policy Review 
Page 24 
 
 
Chart 9: Evolution of Terms of Trade 
(average over the period ) 
 
  Source and preparation : Central Bank of Ecuador. 
 
  
Chart 10 
 
 Source and preparation : Central Bank of Ecuador 
 
__________ 
 75.0100.0125.0150.0175.0
70-74 75-79 80-84 85-89 90-94 95-99 2000-03 2004
ECUADOR: Inversión Extranjera Directa
02004006008001000120014001980198119821983198419851986198719881989199019911992199319941995199619971998199920002001millones de USD dólaresMillions of US dollars ECUADOR: Foreign Direct Investment