WORLD  TRADE  
ORGANIZATION  RESTRICTED 
WT/TPR/S/254 
10 October 2011 
 (11-4810) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
ECUADOR 
 
  
 
This report, prepared for the second Trade Policy Review of Ecuador, has been 
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has, 
as required by the Agreement establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification fro m Ecuador on its trade policies and 
practices. 
 
Any technical questions arising from this report may be addressed to 
Mr. Sergios Stamnas (tel: 022/739 5382) or Mr. Carlos Pérez del Castillo 
(tel: 022/739 5336). 
 
Document WT/TPR/G/254 contains the policy statement submitted by Ecuador. 
 
 
 
Note: This report is subject to restricted circ ulation and press embargo until the end of the first 
session of the meeting of the Trade Policy Review Body on Ecuador. Ecuador WT/TPR/S/254 
 Page iii 
 
 
 CONTENTS 
    Page 
SUMMARY   vii 
 (1) E CONOMIC ENVIRONMENT  vii 
 (2) T RADE POLICY FRAMEWORK  vii 
 (3) T RADE POLICY DEVELOPMENTS  viii 
 (4) S ECTORAL POLICY DEVELOPMENTS  x 
 (5) O UTLOOK  xi 
I.  ECONOMIC ENVIRONMENT 1  
(1)  OVERVIEW  1  
(2)  RECENT ECONOMIC PERFORMANCE  3  
(3)  MAIN MACROECONOMIC POLICY DEVELOPMENTS  6  
(i)  Monetary and exchange rate policies 6  
(ii)  Fiscal policy 7  
(4)  STRUCTURAL POLICIES  7  
(i)  Tax reform 8  
(ii)  Labour market reform 9  
(5)  BALANCE OF PAYMENTS  9  
(6)  DEVELOPMENTS IN MERCHANDISE TRADE  11  
(7)  FOREIGN INVESTMENT  13  
II.  TRADE AND FOREIGN INVESTMENT REGIME 17  
(1)  OVERVIEW  17  
(2)  RECENT CONSTITUTIONAL AND INSTITUTIONAL DEVELOPMENTS  17  
(3)  INSTITUTIONALIZATION OF TRANSPARENCY  19  
(i)  Trade policy formulation and evaluation 19  
(ii)  Domestic transparency 20  
(iii)  Transparency in relation to the WTO 22  
(4)  TRADE LAWS AND REGULATIONS  22  
(5)  TRADE POLICY OBJECTIVES  23  
(6)  TRADE AGREEMENTS AND ARRANGEMENTS  24  
(i)  WTO 24  
(ii)  Preferential and regional trade agreements 26  
(7)  TRADE DISPUTES AND CONSULTATIONS  29  
(i)  WTO 29  
(ii)  Other 29  
(8)  FOREIGN INVESTMENT REGIME  30  
III.  TRADE POLICIES BY MEASURE 34  
(1)  OVERVIEW  34  WT/TPR/S/254 Trade Policy Review 
Page iv 
  
     Page 
(2)  MEASURES AFFECTING IMPORTS  36  
(i)  Registration and documentation requirements 36  
(ii)  Customs valuation 38  
(iii)  Rules of origin 39  
(iv)  Tariffs 39  
(v)  Other charges affecting imports 46  
(vi)  Import prohibitions, restrictions, and licensing 47  
(vii) Contingency measures 50  
(viii) Standards and technical regulations 52  
(ix)  Government procurement 56  
(x)  Local content 60  
(3)  MEASURES AFFECTING EXPORTS  61  
(i)  Registration and documentation 61  
(ii)  Export levies and reference prices 61  
(iii)  Export prohibitions, licensing, and other restrictions 62  
(iv)  Tax concessions 63  
(v)  Export promotion and marketing support 65  
(vi)  Export finance, insurance, and guarantees 65  
(4)  OTHER MEASURES AFFECTING PRODUCTION AND TRADE  66  
(i)  Taxation 66  
(ii)  Other forms of production assistance 70  
(iii)  Competition, price, and consumer protection policy 73  
(iv)  State-owned entities 76  
(v)  Intellectual property rights 78  
IV.  TRADE POLICIES BY SECTOR 83  
(1)  INTRODUCTION  83  
(2)  AGRICULTURE , LIVESTOCK , AND FISHERIES  84  
(i)  Overview 84  
(ii)  Policy framework developments 84  
(iii)  Border measures 85  
(iv)  Domestic support 86  
(v)  Bananas 87  
(vi)  Fisheries 88  
(3)  MINING   89 
(4)  ENERGY   91 
(i)  Hydrocarbons 91  
(ii)  Electricity 94  
(5)  MANUFACTURING  96  
(i)  Car assembly industry 97  
(ii)  Agri-industry 98  
(6)  SERVICES  98  
(i)  Features and multilateral commitments 98  
(ii)  Policy objectives 99  
(iii)  Financial services 99  
(iv)  Telecommunications and postal services 103  
(v)  Transport 104  
(vi)  Tourism 106  Ecuador WT/TPR/S/254 
 Page v 
 
 
     Page 
REFERENCES   107 
APPENDIX TABLES  111  
CHARTS 
I. ECONOMIC ENVIRONMENT 
I.1 Merchandise trade, by product, 2005 and 2010 12 
I.2 Merchandise trade, by main origin and destination, 2005 and 2010 14 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
III.1 Frequency distribution of MFN tariff rates, 2005 and 2011 41 
III.2 Tariff escalation, by two-digit ISIC industry, 2005 and 2011 42 III.3 Average applied MFN and bound tariff rates, by HS section, 2005 and 2011 44 
III.4 Imports controls, 2011 49 
IV. TRADE POLICIES BY SECTOR IV.1 Interest rate spread, 2005-10 102 
TABLES 
I. ECONOMIC ENVIRONMENT 
I.1 Selected macroeconomi c indicators, 2005-10 1 
I.2 Basic economic indicators, 2005-10 5 
I.3 Balance of payments, 2005-10 10 
I.4 Foreign direct investment inflows, 2005-10 15 
III. TRADE POLICIES AND PRACTICES BY MEASURE III.1 Structure of the MFN tariff, 2005 and 2011 40 
III.2 Products for which applied MFN tariff  rates exceed their bou nd rates, 2011 45 
III.3 Government procurement, 2011 58 III.4 Margins of preference to domestic suppliers, 2011 60 
III.5 Structure of tax revenue, 2005-10 66 
III.6 ICE rates, by product, 2004 and 2011 68 
IV. TRADE POLICIES BY SECTOR 
IV.1 Banana production, exports, and prices 88 
IV.2 Oil production, refining, and trade 2005-10 92 IV.3 Fuel prices, 2005-10 94 
IV.4 Electricity, 2005-10 94 
IV.5 Electricity tariffs, 2011 95 IV.6 Telecommunications market, 2006-10 103 
IV.7 Price caps   104  WT/TPR/S/254 Trade Policy Review 
Page vi 
  
     P a g e  
APPENDIX TABLES 
I. ECONOMIC ENVIRONMENT 
AI.1 Merchandise exports, by group of products, 2005-10 113 
AI.2 Merchandise imports, by group of products, 2005-10 114 
AI.3 Merchandise exports, by trading partner, 2005-10 115 
AI.4 Merchandise imports, by trading partner, 2005-10 116 
II. TRADE AND INVESTMENT REGIMES 
AII.1 Most recent notifications under the WTO Agreements, 1 January 2005-30 June 2011 117 
III. TRADE POLICIES AND PRACTICES BY MEASURE AIII.1 Products subject to tariff quotas, in-quota, and out-of-quota duties, 2011 118 
AIII.2 Preferential tariff treatment, 2011 119 
AIII.3 Products subject to import controls, 2011 120 
 Ecuador WT/TPR/S/254 
 Page vii 
 
 
 SUMMARY 
(1) ECONOMIC ENVIRONMENT  
1. Ecuador is a small, fairly open, 
"dollarized" economy, very much dependent 
on oil revenue (for 14%-20% of GDP, more 
than half of export earnings and 20%-30% of government revenues).  Thus, the economy remains vulnerable to external shocks, including the recent global economic 
downturn that began in 2008 and resulted in a 
slowdown in growth due in large part to the sharp reduction in oil export prices and volumes, which was compounded by a sharp drop in expatriates' remittances, the second most important source of foreign currency.  
However, Ecuador weathered the crisis well, 
and growth rebounded to 3.6% in 2010;  it is predicted to be 5.1% in 2011, mainly due to higher prices for oil exports and a strong rebound in domestic demand, especially public 
investment in infrastructure projects.  As a 
result of "dollarization", inflation has remained relatively low.  During the period under review, urban unemployment fell from 9.3% to 6.1%.  Human development improved and there has been a slight fall in income 
inequality.  On the other hand, Ecuador's 
productivity is such that it is ranked among the world's least competitive economies. 
2. With Ecuador's "dollarized" monetary 
regime constraining macroeconomic policy 
options in responding to external shocks, the 
burden has fallen mainly on fiscal policy.  Accordingly, Ecuador's fiscal deficit rose sharply to 5.1% of GDP in 2009, largely due to the drop in revenues from oil exports, 
increased energy subsidies, and high public 
investment in strategic infrastructure projects, health, education, and social welfare, to correct long overdue investment in these areas and pave the way to sustainable growth.  As a result of the increased fiscal deficit, national 
saving was insufficient to finance gross 
domestic investment.  The consequent saving-investment gap was reflected in Ecuador's current account, which shifted from a surplus to a small deficit in 2009 and a larger deficit, of 3.3% GDP, in 2010.  The 
Government responded by restricting certain imports through safeguard measures from 22 January 2009 to 23 July 2010. 
3. The EU remains Ecuador's main 
non-oil export market, and the United States its main supplier.  From 2009, FDI inflows dropped considerably, mainly as a result of the increasingly uncertain investment climate 
owing to major policy and constitutional 
changes.  A wide-ranging Organic Code of Production, Trade and Investment, passed in 2010, streamlined the legal framework governing, inter alia , foreign direct 
investment, which now provides for national 
treatment to foreign investors under certain 
conditions and additional guarantees involving investment contracts.  The FDI regime remains, in principle non-discriminatory, except for investment in "strategic" sectors and 
certain other areas (e.g. fisheries, media, 
extractive activities, and maritime transport) representing about 50% of GDP, where the Government retains certain exclusive rights. 
(2) T
RADE POLICY FRAMEWORK  
4. Ecuador is in the process of 
thoroughly redesigning its economic and 
social development strategy, with a view to, inter alia , diversifying the economy and 
making it more inclusive.  During the period under review, it undertook major 
constitutional amendments and related 
institutional changes, with potentially far-reaching implications for the roles of trade and FDI in this strategy.  These constitutional amendments provide for, inter alia , greater 
state involvement in, and/or control of, 
"strategic" sectors of the economy and envisage an increasingly inward-looking trade regime, with greater emphasis, for example, on certain pre-defined priority sectors and some selective import substitution activities.  The 
2008 Constitution has frequently been the 
source of litigation, controversy and investor concern in numerous areas, both at home and abroad, possibly to the detriment of FDI.  Ways to enhance total factor productivity, and WT/TPR/S/254 Trade Policy Review 
Page viii 
  
 thereby improve Ecuador's international 
competitiveness, as well as product and market diversification have also become important features of economic policy. 
5. Despite new constitutional provisions 
focused on regionalism, Ecuador, a beneficiary of WTO trade-related technical assistance, recognizes that multilateral trade rules provide a certain degree of security and predictability, 
and used WTO Dispute Settlement procedures 
to defend its trade interests during the period under review.  Its regional integration objectives have increasingly been based more on political or social criteria rather than conventional economic priorities.  Following a 
recent pragmatic policy shift, Ecuador 
envisages concluding its trade negotiations with the EU without further delay, and negotiating more comprehensive agreements for development covering several policy areas 
rather than just trade.  Such agreements are 
now being negotiated (for example with Turkey) or explored (for example, China, Korea (Rep. of), Gulf Cooperation Council countries, and EFTA). 
6. New legislation was passed in several 
trade and trade-related areas (e.g. production, 
trade, investment, government procurement, SPS, hydrocarbons, mining), but no comprehensive regulatory reform has been undertaken to streamline or simplify the 
existing legal framework consisting of 
different types of national legal instruments, and several Andean Community regulations (e.g. on customs valuation, reference prices, rules of origin, contingency measures, 
standards, SPS, competition policy, 
intellectual property rights).  As comprehensive legislation implementing constitutional and institutional changes is in the process of being passed or implemented, no evaluation of their impact is available at 
present.  Streamlining business creation, 
investment, and customs clearance procedures has been a priority. 
7. Action has been taken to improve and 
institutionalize transparency, and consequently fight corruption, a concern and a challenge in 
Ecuador.  Despite some improvement since its last TPR, Ecuador's WTO notification record has been characterized by irregular 
submissions or long periods without 
submission in several areas;  improved notifications are envisaged with the technical support of the WTO Secretariat. 
(3) T
RADE POLICY DEVELOPMENTS  
8. The tariff remains one of Ecuador's 
main trade policy instruments and an important source of ta x revenue (13.3% of 
total tax revenue).  As a result of customs tariff reforms (including the adoption of the HS 2007 tariff nomenclature) and changes in 
the type, level, and distribution of duty rates, 
the average applied MFN tariff rate dropped from 11.4% in 2005 to 9.3% in 2011.  Whereas the average applied MFN tariff for industrial imports dropped from 10.6% to 
7.6%, that for agricultural products rose from 
16.7% to 19.6%.  Some 53.5% of applied MFN tariff rates are currently in the range of zero to 5%, up from 38.7% in 2005.  Peak ad valorem  rates (affecting meat offal, rice, 
and milk and milk cream) remained 
unchanged.  The structure of tariff rates has 
become more complex and dispersed with the increase in the number of ad valorem  rates, 
and the adoption of compound duties;  the tariff now involves 17 ad valorem , and 
10 compound rates.  Some 95% of tariff rates 
are ad valorem , which contributes to the 
transparency of the tariff.  On the other hand, ad valorem  equivalents of non- ad valorem  
rates, which in general tend to conceal 
relatively high tariff rates, were not available.  
The fact that all tariff lines are bound imparts a high degree of predictability to the tariff.  However, the simple average of bound MFN rates (21%) is considerably higher than the average applied MFN rate (9.3%), providing 
the authorities with substantial scope for 
increasing applied MFN tariff rates within bindings, as was the case during the review period.  Furthermore, 19  ten-digit lines exceed 
the bound rates by 5 to 15 percentage points, a 
problem to be corrected upon completion of Ecuador WT/TPR/S/254 
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 the HS 2002 transposition of binding 
commitments, hopefully this year.  The use of compound rates on items bound on an ad 
valorem  basis, and the non-submission of their 
ad valorem  equivalents (AVEs) casts doubt on 
whether these rates are within their binding levels. 
9. Computerized customs clearance and 
other modernization efforts were undertaken to 
facilitate trade by, inter alia , reducing physical 
inspections, and instead focusing on import risk assessment;  the pre-shipment inspection regime was eliminated as of 2008.  Imports have been subject to a so-called "redeemable quota" (until end 2010), a contribution to the 
Children's Development Fund, and a tax on 
foreign exchange flight, all levied on ad valorem  basis. 
10. Import prohibitions and restrictions 
affect numerous items but slightly less than in 
2005;  they apply mainly for human, animal or 
plant life or health, the environment, safety, or security reasons.  In addition to institutional changes in the area of standards, new mandatory conformity assessment requirements, consisting of test reports and 
certificates of conformity for industrial 
products were introduced in 2007.  The share of national standards that are identical to international standards stands at 3.6%.  No new mutual recognition agreements (MRAs), a 
trade facilitation measure, were signed during 
the review period;  some of the few existing MRAs expired and were  not renewed.  New 
legislation was passed to ensure more flexible and user-friendly management of the entire 
Codex Alimentarius legislation, and to 
regulate biotechnology.   
11. A safeguard measure against imports 
of windshields other than those from developing countries except for Colombia (September 2010), and safeguard measures for 
balance-of-payments purposes were taken 
during the review period, in the form of quantitative restrictions and tariff surcharges. 12. Major legislative, procedural and 
institutional changes were implemented in 2008 with a view to improving the transparency and efficiency of Ecuador's 
public procurement regime;  as from 2009, all 
government-controlled companies have been subject to the new rules.  New online procurement procedures were introduced, but special procedures continue to be used most 
often;  open calls for tendering are the second 
most frequently used procurement method.  Emphasis was placed on using government procurement as an instrument of industrial policy, and a series of preferences for local suppliers, depending on local content and 
company size, were adopted. 
13. To ensure domestic supplies and 
encourage domestic processing, temporary export prohibitions (on rice) and quantitative restrictions (on exports of waste and scrap of 
certain ferrous and non-ferrous metals) are 
being used;  temporary export surveillance also affects leather and furs.  Exports of bananas and coffee remain subject to industry levies;  exports (and pr oduction) of banana and 
plantains, cocoa, coffee, shrimp, and fish 
products continue to be subject to minimum 
reference or support prices paid to producers by buyers.  Ecuador has maintained drawbacks, maquila (until 2010), free zones 
(until 2010), and a special economic 
development zone (as from 2010) that offer 
various tax concessions, including exemptions from income tax. 
14. To promote investment in domestic 
production activities for various purposes, in 
December 2010 three classes of tax incentives 
(general, sectoral, for depressed areas), including income tax holidays, were introduced for new investment in priority and selected import-substitution sectors, as well as for small and medium-sized enterprises;  
non-tax incentives, involving concessional 
loans and grants, are also available.  Domestically produced milk and canned tuna, scad, sardine, and trout remain subject to a zero rate of value-added tax (IVA), which is 
largely collected on imports;  corrective action WT/TPR/S/254 Trade Policy Review 
Page x 
  
 is envisaged when revising other tax-related 
matters. 
15. Several articles of the 2008 
Constitution restrict competition by favouring 
state control or intervention in strategic 
activities, thereby reversing past limited privatization efforts.  As a result, state involvement in the production and trade of certain goods and services remains significant 
and in certain areas (e.g. mining, 
pharmaceuticals) is being strengthened.  Public enterprises benefit from the same tax-free status available to public sector bodies, which includes income tax exemption and zero-rating for IVA (i.e. reimbursement of 
taxes levied on the purchase of local or 
imported inputs of goods and services).  As from 2007, Ecuador intensified price controls for several sensitive consumer items, fuels, and public utilities;  implementing this policy 
required the use of subsidies.  Action was also 
taken to improve consumer protection. 
16. Legislation on protection of 
intellectual property rights was reinforced under the 2008 Constitution, particularly relating to ancestral knowledge and 
biodiversity, and is undergoing substantial 
reform.  Registration procedures and enforcement action were also improved.  Despite intentions to issue compulsory licences for numerous pharmaceuticals and 
agrichemicals, only one such licence has been 
issued (April 2010) so far. 
(4) S
ECTORAL POLICY DEVELOPMENTS  
17. Despite its relatively modest 
contribution to GDP (6.6%), agriculture 
(including fisheries) accounts for about a third 
of employment, so that labour productivity in the sector is roughly one sixth of the level in the rest of the economy.  At the same time, compared to other sectors, agriculture is a major recipient of budgetary assistance in the 
form of preferential loans for training, 
technology transfer, crop diversification, and infrastructure projects.  The average applied MFN tariff rate for the sector has increased, while such protection in manufacturing has 
been reduced.  Certain agricultural products remain subject to peak tariff rates and variable import levies under the Andean Community's 
price band system applied to agricultural items 
originating in non-Andean Community countries.  Tariff-rate quotas tied to domestic absorption requirements for 17 agricultural items have not been used because of lower 
applied MFN rates and increases in the world 
prices of the items concerned.  No special safeguard measures were used during the period under review.  Ecuador remains the world's largest banana exporter and a leading producer; the signing of the Geneva 
Agreement on Trade in Bananas (May 2010) 
improved its export prospects to the EU market. 
18. New mining and hydrocarbons laws 
changed the nature of contracts with 
private-sector companies (from shareholders 
to services providers), thereby requiring the renegotiation or termination of these contracts.  Hydrocarbons, one of several "strategic" sectors, remains a key activity, accounting for more than half of merchandise exports despite 
the sharp decline of its contribution to GDP;  
two state firms remain the dominant players in all hydrocarbons operations.  Despite being an important oil exporte r, Ecuador's import 
dependency on refined products has increased, 
but action is being take n to expand its refining 
capacity.  Refined oil prices are subsidized at a considerable budgetary cost.  State control and involvement in mining, another "strategic" sector, was increased by, inter alia , creating a 
national mining company;  the required quota 
on the number of Ecuadorian  workers was 
reduced.  Reforms were undertaken to improve the efficiency of state firms' operations in the electricity market, which is dominated by a government-controlled enterprise and remains 
import-dependent in periods of drought.  
Electricity tariffs are cross-subsidized. 
19. The manufacturing sector plays a 
relatively modest role in the economy and in merchandise exports.  While the average MFN 
tariff rate applied to the sector has declined, Ecuador WT/TPR/S/254 
 Page xi 
 
 
 the redistribution of rates has resulted in more 
pronounced tariff escalation.  Budgetary assistance for manufacturing remains low.  A programme under the Automotive Policy of 
the Andean Community remained in place 
during the period under review;  a support programme for replacing aging public transport vehicles was also implemented, and tariff protection for passenger motor vehicles 
was reinforced. 
20. The services sector is by far the largest 
contributor to GDP accounting for 56.5% in 2010.  Ecuador's limited GATS commitments remain unchanged.  So me access limitations 
on foreign investment and other restrictions 
apply to basic telecommunications, radio 
services, maritime transport, and airports.  The State maintains a dominant position in fixed-line telecoms, another "strategic" sector;  price caps for telecom services are in place.  
Cabotage and transportation of hydrocarbons 
are reserved to vessels flying the Ecuadorian flag, and transportation of hydrocarbons to a state-owned firm;  preferential kerosene prices 
are reserved for aircraft registered in Ecuador.  Tax incentives for new tourism projects were suspended in 2010. 
(5) O
UTLOOK  
21. Ecuador's economic growth is 
expected to remain relatively strong, albeit vulnerable to external economic shocks.  Nonetheless, its long-term prosperity depends 
on its success in improving the total factor 
productivity of its enterprises and thus their international competitiveness, and thereby diversify its economy.  It remains to be seen whether Ecuador's unorthodox policies, such as state intervention and selective import 
substitution, together with regional trade 
liberalization are the most effective means to accomplish its economic and social objectives.  A stable, predictable, and transparent trade and trade-related legal and institutional framework 
could be the key to success.